Are successful programs for peri-urban areas appropriate for rural areas?

[Response by Sophie Trémolet and Diane Binder, June 2009]

The definition of programs to reach difficult to serve areas (such as peri-urban or rural areas) is strictly speaking more of a policy question than a regulatory question. However, the regulator also needs to assess whether its regulatory approach should differ between peri-urban and rural areas.

Peri-urban and rural areas share common features. For instance, inhabitants often lack freehold title, which can be an issue to get access to infrastructure services. In many slums and rural communities, billing and collection of payment can also be an issue as liability for bills may be uncertain: registered households may also provide services for extended family and neighbours. However, there are critical differences between peri-urban and rural areas, which means that all actors in the sector, including regulators, need to understand the specific needs of these areas.

  • Access to services in rural areas is complicated by “remoteness”: whereas it may be cost-effective for an existing service provider to expand into peri-urban areas through extending existing networks, reaching out to rural areas will require entirely new infrastructure (for example, isolated power generation plants rather than plants on the interconnected network). Given that population density is often low in rural areas and that consumption levels are likely to be minimal, revenues per connection are unlikely to cover the costs per connection. In order to avoid “cherry-picking” from operators, which may seek to serve only the most profitable areas, regulators may need to use a “stick-and-carrots” approach to make it the best interest of the operator to expand service in rural areas and make sure that social objectives are met. This may include providing subsidies to cover the differentials between the cost of service and potential revenues in those areas1.
  • Rural areas may be more cohesive from a social standpoint, which means that community-managed schemes would have a higher chance of success. Regulation must adapt to this reality. Service provision may be performed by village committees or their private sector subcontractor, or by clustered villages and towns. Clustering is a way to alleviate the weaknesses of the community management model, such as the lack of capacity of community-based organizations (i.e. water committees), the lack of equipment and difficulties in fundraising. In such a case, the scope for aggregation2 will depend on government policy and regulations.
  • Poor people in rural areas often operate outside the traditional cash economy. This means that contributions in-kind rather than in cash may relieve the affordability constraint. Informal providers are usually more likely to design payment mechanisms that can accommodate non-cash transactions. However,competition and regulation can push even the dominant operator to authorize alternative types of payment that will allow the best recovery performance. This requires developing an understanding of the local economy. Even though the service provider should be primarily responsible for its charging policies, it is the responsibility of the regulator to provide an enabling environment which gives service providers the leeway to experiment with alternative tariff-setting and billing mechanisms.
  • In rural areas where people are particularly attached to traditional systems of service provision, technologies must be chosen with due consideration of the community’s ability to operate, maintain and repair the system, as well as its willingness to pay for a certain service. For instance, Argentina has pioneered a new approach to provide electricity to rural areas. Under this approach, concessions are granted to private bidders who require the lowest subsidies, with the objective of creating incentives to identify cost-effective technological and commercial solutions for supplying low-income consumers. This model is slightly different than the one implemented in Chile3. Whereas in Chile, subsidies are granted on the basis of past performance and a cost-benefit analysis, including the amount of investments covered by the companies and social impacts, the mechanism in place in Argentina force the companies to be creative in order to reduce their costs requirements.

Successful programs in peri-urban would be all the more effective in rural areas that they also take into account the specificities mentioned above. This would widen the range of possibilities in terms of technologies, institutional and financing arrangements, to provide sustainable and affordable services to the poor in those areas.

Programs for peri-urban and rural areas have been dictated by market reforms: whilst in telecommunications, liberalization and privatization have facilitated access in rural areas, incomplete restructuring in the electricity and water sector has not allowed similar success, leading to a growing divergence between peri-urban and rural areas4.



Impact of Market Structure on Service Options for the Poor
Presented at Infrastructure for Development: Private Solutions and the Poor, 31 May – 2 June 2000, London, UK.
Ehrhardt, David

Sustainability of Water Service Delivery in Rural Environment: Past Approaches and the Way Forward
Review of Literature, Emerging Markets Group, February 2008.
Binder, Diane

Models of Aggregation for Water and Sanitation Provision
World Bank Water Supply and Sanitation Working Note No. 1, February 2005.
ERM, Stephen Myers & Hydroconseil

Does Reform of Energy Sector Networks Improve Access for the Poor?
Note no. 209 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 1997, May 2000.
Powell, S., and M. Starks

A case study on exclusive concessions for rural off-grid service in Argentina
in Energy Services for the World’s Poor, Washington, D.C.: The World Bank, 2000, pp. 84-90.
Covarrubias, Alvaro J. and Kilian Reiche

Uganda Telecommunications: A Case Study in the Private Provision of Rural Infrastructure
July 30, 2002.
Econ One Research, Inc. and ESG International

Northern Electricity Distribution Service in Northern Namibia: A Case Study in the Private Provision of Rural Infrastructure
July 31, 2002.
Econ One Research, Inc. and EMCON Consulting Group

Promoting Private Investment in Rural Electrification—The Case of Chile
Note n° 214 in Public Policy for the Private Sector. Washington, D.C.: World Bank Group, 2000.
Jadresic, Alejandro

Capitalization, Regulation and the Poor: Access to Basic Services in Bolivia
Discussion Paper No. 2001/34, World Institute for Development Economics Research, United Nations University, Helsinki, July 2001.
Barja, Gover and Miguel Urquiola


  1. See What are the advantages and disadvantages of creating dedicated agencies or « funds » to support the development of infrastructure services in rural areas? How should the regulator relate to such funds? on universal service funds.
  2. “Aggregation is defined as the grouping of several municipalities into a single administrative structure for the provision of a particular service. Such aggregated structures can vary widely along with three dimensions: the scale, the scope and the process. The scale of aggregation is the number of villages or towns included in this partnership. The scope is the range of services aggregated, from administrative management to full operation and merging of assets and staff. The process is either temporary and answers a specific challenge or permanent and addresses long-term sustainability of operation” (See Binder (2008) and ERM, Stephen Myers and Hydroconseil (2005)).
  3. This example is developed in What are the advantages and disadvantages of creating dedicated agencies or « funds » to support the development of infrastructure services in rural areas? How should the regulator relate to such funds?.
  4. Readers should refer to General Concepts of the BoKIR.