Utility Service Reform in Mauritania s Mining Corridor A

Utility Service Reform in Mauritania's Mining Corridor A Poverty and Social Impact Analysis PSIA and Political Economy of Reforms April 2, 2009 Social Development Department The World Bank

Social Development Department Source: Political Economy of Policy Reform - Issues and Implications for Policy Dialogue and Development Operations (World Bank, 2008).

Social Development Department Key message of this PSIA n Analyzing distributional impacts of a reform is crucial information for propoor policy design. However, it is often not sufficient in identifying bottlenecks and risks to reform. n In this country case study, previous analytical inputs did not help to move the reform process forward because stakeholder’s interests, their potential to influence the reform and the power relations among stakeholders were not adequately understood and addressed, as a consequence the reform process got stalled n Using the process of conducting analytical research as an entry point for stakeholder consultations around PE issues can help overcome obstacles to reform and move the implementation process forward.

Social Development Department Country context Recent political context n On 3 August 2005, a military coup led by Colonel Ely Ould Mohamed Vall ended Maaouya Ould Sid'Ahmed Taya's twenty-one years of rule. n Applauded by the Mauritanian people, but cautiously watched by the international community, the coup was generally accepted, n the military junta organized elections within the promised two year timeline. In a referendum on 26 June 2006, Mauritanians overwhelmingly (97%) approved a new constitution which limited the duration of a president's stay in office. n August 8, 2008 Second coup d’etat organized by General Mohamed Ould Abdel Aziz, former chief of staff of the Mauritanian army and head of the Presidential Guard n Lead to the suspension of the WB operations in Mauritania Role of the Mining Sector in Mauritania n Ire Ore accounts for 50% of Mauritania’s total export and 12% of its GDP n Structural reforms since 1997, focusing on more private sector investment, competition for state owned mining company SNIM n Provision of social services to the population in the Nouadhibou – Zouerate corridor was seen as a severe constraint for SNIM’s competitiveness

Social Development Department Reform Proposal n Proposed transfer of water and electricity services, provided by the national mining company SNIM in the Nouadhibou-Zouerat mining corridor, to another provider.

Social Development Department Reform Context (1) n Situation Analysis n n Economic Rational: Provision of utility services is a drain on the fiscal resources of the company and detracts from the reinvestment in modernizing the mining equipment necessary for increased production. Feels the burden in a more competitive mining environment Legal Concerns: The provision of utility services places the company at odds with national policies that mandates specific institutions to supply water and electricity services to rural and urban areas. Social Concerns: All settlements in the Nouadhibou-Zouerat corridor are entirely dependent on SNIM for the provision of water and electricity services SNIM, being a mining company, does not have the expertise necessary to reliably serve utility services to a growing population in the corridor that is not affiliated with the company n The lack of reform has had serious implications for the welfare situation and economic opportunities of the population living in the corridor.

Social Development Department Reform Context (2) n Inequalities in access to, and quality of, service provision between stakeholder groups and between settlements: n n n SNIM employees get water and electricity for free or at highly subsidized prices Highly unequal access to services and substantial differences in prices paid between people who live within and outside the Cité as well as between the city of Zouerat and the smaller settlements Consequence: widespread consumer dissatisfaction n Purpose of proposed policy reform: n n n Increase equality in access to, and quality of, utility service provision for all stakeholder groups in all settlements Make utility service provision in the mining corridor economically viable Secure and strengthen SNIM’s economic competitiveness and financial viability

Social Development Department Reform Context (3) n Proposed policy reform: n n n Transfer utility service provision from the mining company SNIM to a professional utility service provider (private, public or mixed) Expand access to services to households that are currently not connected and improve service quality for existing customers outside the Cité Adjust tariff structure for water and electricity services to ensure economic viability of utility operations (SNIM currently incurs annual costs for domestic water supply of about USD 544, 000 in the city of Zouerat alone, without any cost recovery) n However, the results of the PSIA showed that n n no single provider seems capable of operating utility services both in Zouerat and all other settlements in the corridor due to technical and/or financial capacity constraints – institutional constraints the expected tariff increases for water and electricity necessary to achieve improvements in service provision would exceed most poor households’ ability to pay

Social Development Department Reform Arena (1) – Stakeholders & Institutions n Resistance by SNIM against the proposed transfer of utility services from the mining company to a professional utility operator: n n n SNIM welcomes the opportunity to reduce its non-mining costs by reducing utility service activities but has major reservations about the reform proposals because nationally-mandated service providers (such as SOMELEC and SNDE) are not believed to have the capacity to manage the production and distribution of water or electricity with the degree of reliability necessary for competitive mining production SNIM provides free water & electricity to its employees as part of their benefits package (most SNIM employees live in a privileged quarter of Zouerat, the SNIM Cité). Because the company mistrusts other service providers, it wants to stay in charge of service provision in the SNIM Cité to ensure employee satisfaction SNIM would like to cease all utility operation outside the SNIM Cité to save costs

Social Development Department Reform Arena (2) – Stakeholders & Institutions n Reluctance of implementing agencies to take over service operation from SNIM under SNIM’s conditions n Potential utility providers largely favor the reform proposals but, following economic rationale, are not willing to take over service operations in Zouerat without also being responsible for the utility service provision in the SNIM Cité (all upper-income households with the greatest ability to pay live in the Cité; service provision is unlikely to be economically viable without serving this clientele) n Resistance from the Municipality of Zouerat: n n The re-sale of water (provided for free by SNIM to the Municipality) is the single most important source of revenue for the Municipality The proposed reform would put the Municipality at risk of being excluded from the future distribution system, resulting in substantial revenue losses

Social Development Department Reform Arena (3) – Stakeholders & Institutions n Position of the Government and Regulatory Agencies: n n n Key Government ministries are clearly in favor of reform implementation but are reluctant to put pressure on SNIM to transfer service provision to a new operator The Government acknowledges SNIM’s concerns about the potential new providers’ capacity constraints Undermining SNIM’s efficiency and mining productivity would have direct implications on government revenues The Multisectoral Regulatory Authority (MRA) would be well placed to promote the transfer of services through licensing and other legal instruments In reality, the MRA has done little to promote the reforms as it has neither asked SNIM to become a licensed operator nor taken decisive steps to protect consumers in the mining corridor

Social Development Department Reform Arena (4) – Stakeholders & Institutions n Opposition from consumers & the poor against necessary tariff increases: n n n SNIM employees currently not paying for water & electricity services would strongly oppose reform implementation if SNIM decided to pass increasing costs on to the consumers and make its employees pay for service provision Opposition could also come from 25% of consumers who would not be able to pay more for electricity services than they currently do. The poor are likely to oppose new tariff structures unless stepped tariffs were introduced n Consequence: logjam in the reform process, n n Due to these diverse and partially competing interests and due to the unequal bargaining power of the parties involved

Social Development Department Reform Process (1) – Dialogue & Decision-Making n Solution to the logjam situation: consultative decision making process n n A cascade of consultations was initiated, starting with individual discussions with each stakeholder. Positions were inquired and issues, options and possible solutions discussed. Stakeholder groups representing a similar position were clustered and invited for discussions. Stakeholders then presented their opposing positions, and a common way forward was identified through negotiations. After a period of 18 months, stakeholders agreed to meet in a workshop to discuss how a transfer could be facilitated. n Outcome of the stakeholder workshop: functional solutions for reform implementation

Social Development Department Reform Process (2) – Dialogue & Decision-Making n Restructuring utility service provision: n n n Stakeholders agreed that the best solution for Zouerat would be single operator in charge of the distribution of water and electricity for the whole community, but excluding industrial mining facilities The operator would be supplied with water and electricity from bulk producers which should be selected by public tender under the supervision of the Multisectoral Regulatory Authority (MRA) SNIM, SOMELEC and SNDE are invited to form a consortium to take part in the tendering process This solution would allow SNIM to retain control over the quality of services provided by the new operator during the first phase, while preparing its own financial pullout from the enterprise Recommendations were made how to improve access to, and quality of, services in all other settlements in the mining corridor

Social Development Department Reform Process (3) – Dialogue & Decision-Making n Potential poverty and social impacts: Policy options to mitigate the risks of reform for vulnerable groups n n n Introduce stepped tariffs for water and electricity to offer pricing structures according to what households can afford to pay Devise mechanisms that allow for connection costs to be spread over time so that households can make payments for their connection to the grid according to their present ability to pay. Incorporate protective measures for the poorest households, e. g. a life-line tariff structure Make general access to water easier and cheaper for the wider population through community managed standpipes Market gardeners (relying on waste-water for irrigation purposes) should be granted safe access to pre-treated wastewater The Municipality should be assigned a new role in the future service delivery system so that they can continue to generate revenue

Social Development Department Reform Process (4) – The Way Forward n Subsequently to the workshop a committee was formed and led by the Ministry of Development Cooperation which developed a roadmap for reform implementation n The two main entities that will have to initiate and facilitate the reform process (SNIM and the Ministry of Hydraulic and Energy) are confident that they have gained sufficient public and political support to move ahead n The Bank’s PRISM project responded to the PSIA exercise by including a social component in the second phase of the project, which provides the conceptual and financial space necessary to support the transfer of services once the political situation stabilizes n Progress in implementing the PSIA recommendations has been challenged by the difficult political situation in Mauritania (two coup d’états) n Stakeholders have voiced an interest in resuming implementation once the political turbulences in the country have eased

Social Development Department Methods used for the PSIA research n Stakeholder Analysis on Interests and Influence n Institutional Analysis of capacity, interests and incentives n Focus Group discussions on welfare situation and utility use in 7 settlements in the corridor n Ability and Willingness to Pay survey in all settlements of the corridor n Economic viability assessment of different transfer options n Stakeholder and Force Field Analysis on support and opposition to reform

Social Development Department Thank you!