Getting the assumptions right : private sector participation transaction design and the poor in southwest Sri Lanka

In the water and sanitation sector there is often significant pressure to complete reforms in a short period of time. Moves towards reforms are most of the time accelerated at a moment of political opportunity. The pressure of an ambitious timeframe often does not allow decision makers to plan the extensive preparatory work (research, consultation, participatory design) which could allow the needs of the poor to be adequately taken into account. It is often politically difficult to adjust tariff structures and contracts before the private sector transactions have been concluded, but it tends to be no easier to plan and introduce them after the transition to a private operator has been made.

Two proposed PSP transactions in Sri Lanka provide an opportunity to demonstrate how the upstream work of preparing pro-poor approaches could be undertaken in parallel with the main transaction design. This paper investigates how a basic set of assumptions on service coverage, service levels, tariffs and subsidies in the proposed transactions in Southwest Sri Lanka held up against consumer preferences. If the assumptions underlying the transaction design are not correct, the distribution of benefits between the different stakeholders will be affected and transactions can run into problems. In a case where the basic assumptions underlying the PSP transaction differ from actual preferences is demonstrated how the transaction design could have been adjusted in order to ensure that the poor benefit from a PSP transaction.