OBApproaches is a forum for discussing and disseminating recent experiences and innovations for supporting the delivery of basic services to the poor. The series will focus on the provision of water, energy, telecommunications, transport, health and education in developing countries, in particular through output, or performance-based approaches.

The case studies have been chosen and presented by the authors in agreement with the GPOBA management team, and are not to be attributed to GPOBA's donors, the World Bank or any other affiliated organizations. Nor do any of the conclusions represent official policy of the GPOBA, World Bank, or the countries they represent.

A landlocked country which is covered largely by hills and mountains, Nepal is one of the poorest countries in the world, where many people are isolated and without formal means of communication. Despite recent telecommunication sector reforms, rural areas have not been served. Recognizing this, the Government of Nepal, with the assistance of the World Bank, has developed an initiative whereby the private sector would provide telecommunications services to certain rural districts. To make the project commercially viable, a one-time subsidy financed by an IDA credit was granted with the 10-year renewable license. The subsidy would be paid based on outputs delivered - i.e., network roll-out. The result has been one the first OBA projects for telecommunications in which the World Bank has funded the subsidy. Furthermore, the project has made progress toward simulating market conditions despite a very risky political and regulatory environment. This has demonstrated that OBA projects can be developed in difficult conditions, and that output-based assistance may be one solution for delivering basic services to the poor in the poorest countries.

Increasing access to basic infrastructure and social services is critical to reducing poverty and achieving the Millennium Development Goals (MDGs). However, increasing access is a challenge because of the gap between what it costs to deliver a desired level of service and what can be funded through user charges. Subsidies have often played a role in funding this gap, for a variety of socio-economic reasons: There may be limited ability to afford a particular infrastructure service, especially among specific disadvantaged groups. The service may have “public good” characteristics making it difficult to collect user charges. And there may be important positive economic externalities where the benefits of one individual’s consumption are felt much more widely in society, for example in the case of health and sanitation.

Despite Chad's recent debut as an oil exporter, its people rank among the world's poorest. Large parts of the country are left in extreme isolation by the lack of a backbone road network that is passable year-round. To tackle the poor internal integration, the government formulated the National Transport Program in 1999. And to address the need for sustainable road maintenance, it started a pilot project that moves from traditional input-based planning and contracting of maintenance to the more output-based approach known as performance-based maintenance and management of roads (PMMR). The International Development Association has provided funding for the project as part of its efforts to support an efficient and sustainable transport infrastructure -- essential for promoting economic growth and development and for achieving the Millennium Development Goals. A private operator has been contracted to provide road services. Results so far are encouraging, and the government plans to expand the share of the road network covered by PMMR contracts. The PMMR arrangement is being replicated elsewhere in Sub-Saharan Africa, including Burkina Faso, Cape Verde, Madagascar, and Tanzania.

Paraguay's aguateros—small private water companies— form an important part of the water sector, serving about 9 percent of the total population (or about 17 percent of those with piped water supply). But until recently they operated only in urban areas, where water resources are abundant and they could choose customers based on their ability to pay the full costs of providing service. A new World Bank–funded initiative seeks to attract aguateros and construction firms active in the water sector to unserved rural areas and small towns by providing an output-based aid subsidy, awarded through competitive bidding. The initiative is the first attempt anywhere to apply this approach to rural and small-town water sector investment. This Note reviews the early lessons. Also available in French.

Output-based payments are an important tool of government policy. Sometimes governments offer “output-based aid” to subsidize services sold to households. Guatemala and Mozambique, for example, subsidize new electricity connections, while Paraguay is piloting a program to subsidize new water connections. At other times governments are the sole source of revenue for a private infrastructure firm. Many governments enter into “public-private partnerships” in which they pay a private firm for making available such facilities as roads, schools, prisons, or hospitals. Dozens of developing countries buy wholesale electricity from independent power providers under similar arrangements. A few countries, such as Portugal and the United Kingdom, pay “shadow tolls” to privately financed roads. In all cases the government pays only when the firm delivers a service (such as when a connection is made, a car uses a road, or power is made available).

The Philippines has introduced an output-based aid (OBA) subsidy scheme to improve electricity supply on remote islands as a way to enhance living standards in the poor communities there. The subsidy, to come from a national fund financed by a surcharge on all electricity users, will be paid to private generators selected through competitive bidding, and disbursed on the basis of the energy they supply.

Carbon finance is an output-based approach to mitigating climate change. Under the Kyoto Protocol’s project-based mechanisms—the Clean Development Mechanism and Joint Implementation— projects in developing and transition economies that reduce greenhouse gas emissions can receive “carbon credits." Carbon revenues can help project sponsors close the financing gap between climate-friendly projects and conventional projects, and can help industrial countries reduce their cost of compliance with the Kyoto Protocol.

Bolivia is implementing an innovative public-private approach to increase rural electricity access to extremely remote areas via Solar Home Systems (SHS). Novel Medium-term Service Contracts (MSCs) balance the Government’s wish for sustainable service and maximum control with providers’ aim for minimal risk exposure. In 2005, 14 MSCs were successfully bid out to private service providers to minimize the subsidies paid against an ambitious set of provider obligations. The tender resulted in a 25-percent gain in number of new users. Although private participation in Bolivian infrastructure declined sharply in 2006, the SHS service model enjoys continued support by government and private providers alike.

To fight infant mortality in the poorest provinces of Argentina, local authorities and the World Bank set up the Maternal-Child Health Insurance Program in 2004. The program is administered by provincial governments, which receive funding on the basis of the numbers of mothers and children enrolled and the performance on r results-based “tracers”—sets of indicators measuring service delivery and quality. The services are provided by existing health care facilities, which receive a standard payment per patient and per service provided. The health care facilities compete on the basis of quality.

Nationwide, only 30 percent of households in Senegal have access to electricity. Rural electrifi cation is even lower at 12.5 percent of households, and limited to areas around large population centers and some tertiary centers. Once connected, most rural households would likely be willing and able to pay for their electricity use: most already spend $2–24 per month on kerosene and dry cell batteries to meet their lighting and small power needs. But the up-front investment and connection costs are out of reach for the typical household. The government has made rural electrifi cation a priority, recognizing its importance in reducing poverty and redressing development imbalances. Early efforts achieved limited results. A new program that combines output-based aid (OBA) subsidies with technologyneutral competitive bidding is seen as more promising. This program has the potential to align private incentives with public sector objectives of maximizing the number of rural households served under a sustainable commercial scheme. Also available in French.

n 1999, Uganda had achieved a national teledensity (fi xed and mobile) of about one telephone per 100 inhabitants, slightly above the average for Sub- Saharan Africa (excluding South Africa). But with most phone lines concentrated in the Kampala area, rural teledensity was far lower. Indeed, only 380 of the 920 subcounties in Uganda were expected to have any kind of telephone service by 2001. Internet services, still in their infancy, also were limited to Kampala. In the planning stages at around that time, a new World Bank project was designed in part to address this situation. The Energy for Rural Transformation Project was aimed at creating an environment conducive to commercially oriented, sustainable delivery of both renewable energy and information and communication technology (ICT) services in rural areas.

Corruption in infrastructure leads to big losses. Estimates of the share of construction spending lost to bribe payments around the world range from 5 percent to more than 20 percent. It is important to reduce the financial cost of corruption by limiting bribe payments. But even more important is to ensure that corruption does not reduce the quantity and quality of infrastructure provision. Output-based aid (OBA) is a tool that can help achieve these goals.

Natural gas connections could bring substantial benefits to poor households in Colombia. Compared with other fuels typically used for cooking, natural gas is safer, less expensive, and less environmentally damaging. But even though gas is more affordable, connection fees can put the cost of switching to this fuel out of reach for poor families. To help low-income families realize the benefits of natural gas, GPOBA is collaborating with Fundación Promigas, a charitable foundation established by the Colombian gas transmission and distribution company, Promigas. Together, they aim to bring 35,000 new natural gas connections to poor households in Colombia’s Caribbean coastal and south west regions. Through one-time connection subsidies, the project is providing long-term economic and welfare benefits to poor families.

Access to telecommunications services has been extremely limited in the remote and sparsely populated areas of Mongolia. Several factors have conspired against achieving universal access on a purely commercial basis—the country’s vast and challenging geography, the nomadic lifestyle of the rural population, government ownership and incumbent control of the long-distance transmission network. As first steps in rolling out a universal access program, two pilot projects are bringing phone service to remote herder communities and both mobile phone and Internet services to rural villages. To support the delivery of these services, onetime subsidies were competitively awarded to licensed telecommunications operators in Mongolia. These are output-based subsidies: the winning bidders take on the investment risks of expanding their networks, receiving subsidy payments largely only after meeting service targets. The operators are obligated to continue offering the services for the duration of their 5-year service agreements without further subsidy.

Performance-based contracting in health is an example of an output-based approach to improving health service delivery. In 2003 and 2004, GPOBA supported the design of three output-based aid (OBA) schemes using performance-based contracting in Uganda, the Democratic Republic of Congo, and Rwanda. GPOBA’s technical assistance has led to three innovative projects funded by the World Bank and the Canadian International Development Agency. This note reviews early lessons from these schemes.