_Designing Pro-poor Water and Sewer Concessions_ _Kristin Komives_ Technical specifications can be designed to require concessionaires to provide high-quality service in low-income areas. They have the danger, however, of reducing companies' flexibility_ to make efficient operating and investment decisions. Less-efficient operators are in turn less likely to find it profitable to expand or improve service. As a general rule, therefore, technical specifications are best designed to tell concessionaires what to do, but not how to do it: output standards are preferable to input standards. The Aguas del Illimani contract is fairly consistent with this principle. Another danger of technical specifications is that they limit concessionaires' flexibility in service offerings. This can be problematic in low-income areas if demand is low for the only service concessionaires are authorized to provide.

_Output standards: type of service, service quality, service reliability, and customer service_ SAMAPA was not subject to national output standards until drinking water quality standards were established in 1985.20 The 1992 Regulations added an additional output specification: they restricted the type of service the utility could provide. These regulations made metered household water connections the only acceptable permanent water supply solution in urban areas; public standposts became provisional solutions that the water utilities could install only while in the process of extending water and sewer mains.<sup>2 1</sup> To emphasize the provisional nature of the public standposts, the regulations went as far as prohibiting the distribution of water by public standposts in streets that have piped water distribution networks.<sup>2 2</sup> Consistent with this requirement, SAMAPA steadily decreased the number of public standposts and unmetered private connections.

Aguas del Illimani's concession contract reiterates the service level standards in the 1992 Regulations: metered in-house water anLd sewer connections are the only acceptable type of service. The contract also sets more stringent water quality standards than those required by the Bolivian national standards and establislhes additional quality and reliability requirements, such as mandatory water pressure levels.

The contract's quality and reliability standards are designed to ensure that Aguas del Illimani does not reduce service quality to increase profit. The in-house connection requirement is meant to make sure the same service is available to all households in the metropolitan area (rich or poor). The standards, therefore, appear to be in the interest of low-income neighborhoods.

The potential problem with the output standards is that they limit Aguas del Illimani's flexibility to offer various products -- at different prices -- to meet differing demand for water and sanitation service. The Aguas del Illimani contract implicitly assumes that all households in the concession area will choose to pay for in-house wate,r and sewer connections at the prices set in the contract. This may well be true: network water and sewer service is often much less expensive than alternative services, and the convenience of in-house connections makes them very desirable. The following table presents some rough estimates of current monthly expenditures on water and sanitation for average El Alto households relying on different service options.<sup>23</sup> To put the

> 20 Norma Boliviana NB-512-85, July 17, 1985.

> 21 Article 64, 1992 Regulations.

> 22 Article 100, 1992 Regulations.

> 23 These estimates are compiled from a variety of studies and other sources. They are not meant to be exact, but only to illustrate the possible variation in expenditures and water consumption among households. The calculations

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