Output-Based Aid in Water: Lessons in Implementation from a Pilot in Paraguay

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 Bank-funded initiative seeks to attract aguateros and construction firms active in the water sector to un-served 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.