# **1. Introduction**

The United Nations’ Sustainable Development Goals (SDGs) for 2030 envision _all_ the world’s people as having equitable access to _safely managed_ water and sanitation services (WSS)<sup>2</sup> by the year 2030 _._ In 2016 the World Bank estimated that it would cost the world’s nations approximately $114 billion a year in the period 2015–30 to attain this (Hutton and Varughese 2016). However high this estimate might sound, it does not even include the maintenance, repair, and replacement of existing infrastructure stock, or investment in climate-resilient infrastructure. These capital demands, coupled with sobering statistics on global rates of access to WSS services, underline a key fact: Securing the basic human rights of access to clean drinking water and sanitation depends on the _effective_ and _efficient_ use of scarce financial resources.

WSS subsidies are pervasive across all countries, regardless of their income status, and tend to consume a substantial amount of a country’s scarce public resources (Andres et al. 2019). Subsidies occur when a user/customer pays less for a product or service than the service provider’s cost, leaving a third party (e.g., government, other users, future generations) responsible for covering the difference. Subsidies may take the form of explicit financial transfers between two entities (e.g., a utility and a customer) or implicit transfers—such as nonpayment for electricity or deferred maintenance—which occur when products, services, or inputs are underpriced.

Although most subsidies are intended to ensure that WSS services are affordable for the poor, they tend to be heavily biased toward networked provision. Yet since poor households often face challenges in accessing piped water and sewered sanitation services, these subsidies tend to disproportionately benefit relatively well-to-do households (Abramovsky et al. 2020). Meanwhile, the poorest of the poor, who generally lack access to networked services, are left without their basic human rights to clean drinking water and sanitation.<sup>3</sup> As an example, the 2017 Global Analysis and Assessment of Sanitation and Water (GLAAS) report found that, in 13 countries, urban WSS expenditure accounted for 76 percent of public WSS expenditure, and that globally, official development assistance of “large systems” (including large urban distribution networks and/or treatment facilities) accounted for three-quarters of all official development assistance to the WSS sector in 2015, which amounted to approximately $5.6 billion of the $7.4 billion flowing into the sector (WHO 2017).

Given the pronounced bias of funding toward networked WSS services, a trend that likely holds true for subsidies as well, and the paucity of data on subsidies for decentralized, nonnetworked water and onsite sanitation services, this paper estimates the magnitude of subsidies associated with networked water and sewered sanitation services.

This paper develops a methodology to estimate WSS subsidies that is adaptable to data scarce environments, while still accounting for differences among service providers, including population served (to account for economies of scale), differing respective coverage rates of water and sanitation services , and level of operational efficiency in terms of water losses and staffing. This methodology is based on

> 2 To meet the criteria for having a safely managed drinking water service, people must use an improved source of water that is (i) accessible on household premises, (ii) available when needed, and (iii) free from contamination. An improved sanitation facility is safely managed if it is not shared with other households and ensures that excreta is (i) treated and disposed in situ, (ii) stored temporarily and then emptied and transported to treatment off-site, or (iii) transported through a sewer with wastewater and then treated off-site.

> 3 Water and sanitation were recognized as human rights by the <mark>UN General Assembly and the Human Rights Council in Resolution 64/292 in 2010, and then again by the General Assembly in Resolution 70/169 in 2015.</mark>

2