# **Executive Summary**

From 1994 onwards, Bolivia undertook a major reform of its infrastructure sectors. This paper examines the impact of the reforms from the perspective of poor households in the adjacent cities of La Paz and El Alto. The reform process affected each of the three main utilities serving these cities in very different ways. In the case of water, operating responsibilities were transferred from the public to the private sector. In the case of telephony, local service continued to be provided by a cooperative, but with increasing competition from cellular providers. In the case of electricity, service provision remained in the hands of a private company. However, the common feature of the reforms across all of these sectors was the signature of a concession contract between the utility and the regulatory agency, which made all three service providers increasingly accountable for their actions.

Whereas the electricity and telephone companies were required to meet a generic Universal Service Obligation, the water utility was placed under much more stringent obligations to meet specific connection targets in low income neighborhoods. These differences of contractual design show-up in the rate of new connections after the reform. Following a temporary increase to deal with accumulated requests, the rate of new connections to the electricity and fixed line telephone services fell back to pre-reform levels. By contrast, the number of new water (and sewerage) connections each year increased substantially from 10,000 (and 6,000) per year in the pre-reform period (1993/6) to 17,000 (and 10,000) per year in the post-reform period (1997/9).

Furthermore, the connections policy of the water utility was relatively favorable to low income customers, with the possibilities of (a) spreading the payment of the US$100 to US$180 connection charges over a two year period, and (b) opting for a lower cost alternative (known as a ‘condominial’ connection) which allows households to reduce connection charges by 20%-40% if they are prepared to contribute their own labor to the network extension process. Although water tariffs increased by an average of 20% at the time of the reform, simultaneous reforms in the tariff structure have meant that those consuming less 7.0 cubic meters per month are better off; average water consumption in El Alto is only 5.9 cubic meters per month.

In contrast, the telephone cooperative charges a US$1,500 membership fee in order to obtain a fixed telephone line; a sum that is well beyond the reach of all but the richest households. At the request of the government, the cooperative introduced a lower US$120 connection fee for non-members payable in installments over two and a half years. However, given that non-members are required to pay a rental fee of $23 per month (versus US$1 per month for cooperative members), this policy has done little to improve the accessibility of fixed line services to the poor.

Interestingly, it is the introduction of competition in the cellular telephone market (which was not subject to any social policy requirements) that has done most to broaden social access to telecommunications. As a result of competition: (a) the costs of obtaining a cellular telephone and line fell from several hundred dollars to around US$60; (b) calling party payment charges were abolished reducing the effective cost of using a cellular telephone by 68%; and (c) prepayment cards were introduced making it possible to keep running costs down to minimal levels. As a result, there were 66,000 new cellular subscribers each year between 1996/99 which represents a tenfold increase in cellular penetration, with the vast majority of these new subscribers using prepayment cards. There are now 40% more cellular lines than fixed lines in La Paz and El Alto; an outcome that is likely to be technologically inefficient in a high density urban area, but which reflects the distortions caused by the pricing policy for fixed line services.

There is a variety of evidence to show that these improvements in access to services did not bypass the poor. Official survey data shows that households in the first income quintile saw barely any improvement in access to utility services in the period leading up to the reforms 1989/94. Between 1994/99, however, the coverage rates for these households rose by more than 20 percentage points for water and sewerage, and more than 10 3