Marcel Massé

Executive Director

April 14, 2003

Ms. Robin Round
Halifax Initiative
153 Chapel Street, Suite 104
Ottawa, Ontario
Canada KIN lH5

Dear Robin,

It was a pleasure meeting you, Derek and Karen today. I very much enjoyed our chat on issues of mutual interest, notably water and the Heavily Indebted Poor Countries (HIPC) Debt Initiative. You have our sincerest thanks for taking a keen interest in Guyana and for devoting so much resources to our mutual goals of poverty reduction and social equity.

With respect to the Water Resources Sector Strategy Paper, you may be interested in my declaration to the Executive Directors, senior management and staff of the World Bank Group. The declaration offers our Canadian/Irish/Commonwealth Caribbean Constituency's perspective on this very critical issue. The real test of whether we do justice to this issue will be the advice the Bank Group provides and the design of the projects we invest in. For these implementation issues, your support will be critical.

When you have a spare moment, we would he interested to learn more about the issue of using World Bank Croup resources to influence the opinion of parliamentarians and civil society in Nigeria. Once we know more about the details, we will follow up with the Bank's external relations.

Again, many thanks for coming so far, from Whitehorse, to share your thoughts with us, I very much look forward to further opportunities to discuss development issues with you and your colleagues.

avec amitié,

Marcel Massé

CONFIDENTIAL EDS2002-O51O

December 2, 2002 5:16:42 PM

Statement by Marcel Massé

Date of Meeting: December 3, 2002

Water Resources Sector Strategy Paper

We appreciate the work that Bank staff has done following the January 2002 CODE discussion to elaborate the impact on poverty of Bank interventions in the water sector. We strongly agree with the overriding thrust of the draft strategy that the Bank Group's work in the area of water and sanitation must be to ensure that the poor gain access to safe and affordable water and sanitation services. We would, however, liked to have seen greater elaboration on the strategy of how the Bank Group intends to follow through with its 4th type interventions (poverty-targeted policies and investments that affect the development and management of water services.).

We agree with the draft strategy that, in urban areas, targeting poverty means targeting subsidies to the poorest. We also agree that the Bank has an important role to play in assisting developing countries develop the laws, regulations and institutions required for managing water resources in a productive, socially-acceptable and environmentally-sustainable manner.

Access to water is both a fundamental and a very sensitive development issue. It must continue to be regarded as a fundamental right. This is a widely held view, and one not limited to "activist NGOs". The draft strategy, while recognizing that there is no unanimity on the concept of water rights, seems to promote rights-based systems of water management. The strategy notes that the Bank has been accumulating experience in the legal and administrative machinery for setting up and managing rights-based systems for water management, including tradable water rights. The strategy also stresses that user fees are a fundamental requirement for any financially sustainable water supply systems. While this tradable-rights, price-based approach may be an appropriate in some countries, commodification. of water risks marginalizing the poor in others.

With its focus on the poverty reduction, the Bank docs support water user associations that operate and maintain their water systems. The strategy stresses that involvement of women, who play a major role in irrigation, is particularly important for the success of such user associations. The strategy, however, rarely mentions PRSPs and does not focus on how the Bank will be tailoring its water sector interventions to the water sector priorities of client countries.

Demand for water differs substantially in rural and urban areas, with irrigation for agriculture one of the largest uses of water. We agree with the strategy's emphasis on improving the efficiency of irrigation and reducing perverse subsidies for pumping ground water in areas where irrigation is not sustainable over the longer term (Bank staff estimate that 10% of world's food supply is based on unsustainable irrigation from groundwater pumping). However, with nearly half of the world's population living on less than US$2 a day, we need to address the affordability of water for the poorest. While we agree with the strategy's suggestion of subsidies for connecting the urban poor to municipal water systems, there is no assessment in the strategy of the longer-term affordability (post-connection) to the poor of water access.

One of the challenges of the strategy involves finding means by which the Bank can re-engage effectively in water resource development and management issues related to "high risk/high reward" water-related infrastructure projects. Taking into account the critical water resource management issues and outlook before us, we can agree that there is a sound case for a more pro-active engagement by the World Bank in such projects but always in its role as a "principled lender". The Bank must continue to strive to balance its approach in a way, which upholds its standards for addressing the complex issues raised by such projects while not being seen as having become overly risk-adverse.

We can also agree on the importance in its role as knowledge bank of continued involvement in a. broader range of countries beyond mainly the poorest, which may have few funding options and the weakest capacity. These are neither easy nor simple tasks, of course. It strikes us then as both timely and appropriate that the Bank adopt the business model proposed in this paper. The emphasis on earlier engagement with an initial judgment being focused on an assessment of development impact in the context of. a. country's national development priorities and poverty reduction efforts is sound. We can support the subsequent identification of "corporate projects" which will be the focus of additional attention and resources and hopefully mitigate the aversion to such risky projects among individual task managers. We wonder in fact if this model will be adopted more broadly by Bank management for what are perceived as "high reward/high risk" projects in other sectors or thematic areas? One important aspect of this business model will be an effective ongoing communications strategy to address the concerns of stakeholders, including the critics, head-on in an open manner. In addition to ensuring quality at the entry point of such projects, additional resources to improve the quality of supervision during project implementation should also be considered.

The draft strategy seems overly focused on middle-income countries. It repeats many of the arguments raised in the 2000 middle-income country strategy paper that borrowers see the Bank as an overly rigid financial partner. The strategy stresses the need for greater flexibility in financing for water, including greater use of public-private partnerships. Paragraph 147 of Part 1 of the Strategy suggests that "given the large role of corporate externalities in (water infrastructure) projects, there is a need to make adjustments to the normal (appropriate) decentralized arrangements within the World Bank for approving, supporting and financing such projects." Could staff clarify what this wording means-, dues it suggest that normal operating procedures will be not be followed? How are corporate externalities any more of a factor in water infrastructure operations than in other infrastructure operations?

While private-public partnerships may be a good model for water resource management in middle-income countries, public-private partnerships are far more difficult to establish and sustain in the cases of the poorest (e.g., IDA-only) countries, where there is little investor interest in infrastructure. The strategy is weak in elaborating how the Bank can support infrastructure development in countries were there is a dearth of private sector interest.

The draft strategy also seems weak in the area of governance. While the importance of sound institutional and regulatory structures is stressed, the strategy could benefit from more detail on how the Bank Group can promote stronger governance, particularly at the local and municipal levels. In many countries, responsibility for water is delegated to local and municipal authorities.

The strategy recommends that Bank Croup actively support the development of small and large hydropower projects, if they are the most appropriate option and that good environmental and social practices are followed, as a means of both better managing water resources and of developing hydropower potential. This would seem to be a departure from Bank practice of the last decade, when it substantially reduced its involvement in the dams. Can staff elaborate whether there will be a significant reversal and, if so, whether Bank operations will take full account of the report of the World Commission on Dams?

The draft strategy suggests that complementary sector strategies, including for water and sanitation, arid for irrigation and drainage, arc underway and should be ready for presentation to the Executive Board later in 2003 . Given the very close connection to the water resources sector strategy, why were these complementary strategies not prepared within the same timeframe? Such coordination of strategy preparation could be particularly useful to both clients and the Bank's development partners.

Finally, rather than wait for five years as proposed for a full OED evaluation of the 1993 policy and this strategy, we would suggest that the Bank return to the Board with an interim assessment of the effectiveness of this new business model after two to three years of experience to review lessons learned. In particular such a review should look at the Bank's approach and lessons learned from its methodology for the assessment of risk and its impact on the World Rank's final approach.

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