_Designing Pro-poor Water and Sewer Concessions_ _Kristin Komives_ provisions and restrictions on alternatives to in-house connections may delay improvements or even eliminate existing service options in some neighborhoods. This is particularly problematic in neighborhoods that the utility will not reach for some time, but that alternative suppliers may be willing to serve now.

_Early lessons on contract design_ The precise effect of contract provisions and sector regulations on the poor will vary in different settings, depending on the specific physical, technical, and social characteristics of each case. Nonetheless, several important principles that emerged from the Aguas del Illimani case offer general guidance for the design of "pro-poor" concession contracts.

First, government officials can increase the probability that a concessionaire will improve service in low-income areas (1) by making objectives clear and easily measurable, (2) by eliminating policy barriers to achieving the goals, and (3) by making the contract's financial incentive structure consistent with overall objectives and mandates.

Second, low-income households, like all utility customers, are best served by a utility that can offer them service that they want. Demand for service improvements usually varies by household and neighborhood and will change over time. Thus, poor households would benefit from private operators that have the flexibility in operations and product offerings to meet varied demand.

Finally, government officials need to be extremely cautious about any provision that reduces the service and price options available to households or restricts the emergence of new service providers or service alternatives. Exclusivity provisions and strict technical specifications, for example, have the potential to harm some households by eliminating, postponing, or outlawing the availability of some types of water and sanitation services.

_Unanswered and untested questions_ Despite the early gains of the Aguas del Illimani concession, it is too early to tell whether the pace of service expansion in La Paz-El Alto will be sustainable. The concessionaire and the regulator have yet to pass through the first tariff renegotiation. This process will test resolve to maintain the pace of expansion into low-income neighborhoods if tariff studies show that expansion will require a tariff increase. Aguas del Illimani also still faces the challenge of working in the most difficult peri-urban areas - the poorest areas, the steep and often unstable slopes of the laderas, and neighborhoods that operate their own improved (albeit sub-standard) water and sanitation services. And, it is not yet clear whether the concessionaire's decision to offer subsidized interest rates and to finesse the property title and public standpost issues will prove financially and politically sustainable in the long-run.

The replicability of the Aguas del Illimani model also needs to be tested. La Paz and El Alto are very different in a number of important ways from other large urban areas in developing countries. To begin with, the starting water coverage levels - though lacking - are higher than in many other cities. Moreover, areas without water and sewer connections are generally laid out in a very orderly pattern of blocks, lots, and streets that does not at all resemble the cramped and unplanned neighborhoods in and around many cities. Low-income communities in La Paz and El Alto also benefit from the presence of many NGOs that offer services to complement Aguas del 30