> 14 In addition, recent decentralization reforms have transferred legal responsibilities for service provision from national to local governments. This, however, has left many countries with unclear, and often contradictory, legal frameworks for defining ownership, rights, and responsibilities between communities and local governments.

15 A construction contract between SENASA and the contractor-operator covers design, construction, and conditions for disbursement of the subsidy. A contract with SENASA commits each community to participate in the pilot and manage a service contract. A service contract between each community and the contractor-operator (a) defines the service area and water service quality standards, (b) establishes fees and tariffs and a standard formula for their adjustment, and (c) establishes terms of compensation in case of early contract termination.

16 In order to accelerate roll-out, the contractor-operator offered low-income households that helped construct the system water vouchers (that could be used towards connection charges and monthly water bills) and free water consumption during the initial trial period.

17 Reluctance to subsidize rural transport services in developing countries reflects (a) market orientation of economic reforms, (b) preference for lasting investments in infrastructure, (c) difficulty allocating responsibility and budgets for subsidy programs among levels of government, (d) the perception that rural transport is relatively unimportant for work and that informal alternatives may be available, (e) high cost of tendering, monitoring, and enforcing rural concessions relative to total project cost, and (f) limited institutional capacity at lower government levels (e.g. municipalities) to carry out these tasks.

18 Intermediate means of transport fall somewhere between walking and using conventional motor vehicles for personal, small business, and agricultural transport. They include pack and draft animals, animal-drawn carts, wheelbarrows and handcarts, bicycles, cycle trailers and tricycles, motorcycles, and tractors.

19 Additional information can be found at the World Bank’s website on rural transport services at <u>www.worldbank.org/transport/rural_tr/rts_imt.htm</u> 20 Although the idea has been discussed in some developing countries, the authors are not aware of any results so far. Indirectly, though, privatization of state-owned transportation enterprises through competitive tenders in some countries may have provided subsidies to new rural operators, for example through below-cost sale of assets or initial tax exemptions. Also, where the construction or maintenance of infrastructure is undertaken by the private sector, the work is usually contracted through a tendering process which encourages competition for the price to be paid, including any element of subsidy. Such competition is being extended to various forms of BOOT (build, own, operate, and transfer) contracts (e.g.. South Africa).

21 For example, several rural routes could be licensed together and groups of operators encouraged to form companies to bid for these licenses, which would be awarded to the company that requires the lowest subsidy. Route frequencies, fares, and subsidy amounts would be made explicit in the bidding process. See Starkey et al. 2002.

22 Whether this proves to be a concern (or a business opportunity) will depend on the economic homogeneity of the target population. In small rural settlements it is typical for most inhabitants to be living close to or under the poverty line so this may be unimportant.

23 About 2-3 percent of community income is often used for initial analysis of rural telecommunications programs. Surveys of rural communities in countries as different as Argentina, India, Nicaragua, and the Philippines show that households spend about five percent of monetary income in energy, fairly consistently across countries and with even higher proportions for the lower income households. The World Health Organization’s target is that water supply should not cost more than five percent of household income.

24 An initial analysis of population incomes and system costs suggested that in the mid-1990s a payphone could be commercially viable in a community of at least 220 rural inhabitants in Indonesia, 480 in Bolivia, 690 in Kenya, and 920 in Nepal. See Kayani et al. 1997.

25 Electricity supply to power four 10-watt light bulbs and a television set for a few hours every day is a target that can be met in many rural homes in Africa, while national grid standards could not be sustained without permanent subsidies. Installing payphones within easy reach of most rural people in less than 10 years is a feasible objective in the Philippines as much as it was in Chile, whereas providing phones in most individual rural households, farms, or small businesses is not.

26 For example, $5 per month of water assuming the WHO target of five percent of household income and five persons per household implies an annual per capita income of $240. Five dollars of pre-paid mobile 26