Introduction Water supply and sanitation are essential public services that are vital to public health, economic development, protection of the environment, and the general welfare of the population. While water is essentially free from nature, making it accessible to households in a potable state can be very costly. Water supply and sanitation services are natural monopolies, characterized by huge initial investments for the construction of reservoirs, treatment plants, and distribution networks. Timor-Leste is committed to developing its water supply and sanitation services to improve the quality of life of its population. However, it is essential to ensure that such development is sustainable and well coordinated. This emphasizes the importance of suitable public policy to avoid undertaking huge investments with limited benefits to society. This policy brief was adapted from the Pacific Economic Monitor of the Asian Development Bank. International framework of water services Internationally, there are many policy initiatives to encourage governments to give greater attention to water services. One of the 17 Sustainable Development Goals (SDGs) adopted at the United Nations General Assembly in 2015 is dedicated to water supply and sanitation (SDG 6), specifying six operational targets, plus two related to water governance. One of the targets is to secure universal access to safe drinking water. This means access to water that is not contaminated and is available on a regular basis. Another target is to halve by 2030 the wastewater flows that are untreated. Over 80% of wastewater flows globally are currently untreated. Like most SDGs, SDG 6 targets are ambitious and, hence, public policies will have to be strengthened to accomplish them. Public Policy for Water Services Water services have essential characteristics, some of which differentiate them from other services. They tend to be regional or national, using assets designed for peak demand. They have an extended period for return on capital and low price elasticity of demand. Last, but most important, they are natural or legal monopolies. Water services also have numerous and diverse types of stakeholders, including consumers, service utilities, government regulators, other entities providing services, and civil society. In Timor-Leste, water services must comply with a set of obligations: universal access, adequacy of services in terms of both quantity and quality, continuity of services, structural and operational efficiency, adequacy of services pricing, fair prices for services, and adoption of codes of good practice. Further, users have rights, particularly regarding physical and economic access to services, the quality of drinking water, information about services, participation in decision-making, and channels for complaints about services. Public policy on access to drinking water and wastewater management should be developed through a holistic and integrated approach that covers several components (Figure 1). Implementation of one or only a subset of these components is generally not sufficient to ensure the achievement of results in a sustainable manner. For example, construction of infrastructure absent other components, such as a sound legislative and institutional framework, an effective tariff policy, and human resources capacity building, will likely result in very small odds of success, with investments not yielding the expected return. Moreover, it is necessary for public policy to promote inclusive access to basic-needs water services, particularly for Timor-Leste’s poorest users (ADB 2018). Figure 1: Public Policy Components Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Forthcoming. Increased access to water services will result in benefits not only at the individual or household level, but also for the broader economy (Figure 2). Figure 2: Benefits of Investing in Water Services SMEs = small and medium-sized enterprises. Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Forthcoming. Water services play an important role in supporting economic growth through improved health outcomes, with possible flow-through effects on school attendance and tourism and job-creation potentials (Table 1). Table 1: Socioeconomic Benefits from Water Supply and Sanitation Improvements Beneficiary Benefits Valuation of Economic Benefits Health sector Cost savings in health care due to reduction in treatments for waterborne diseases Unit cost of treatment, which includes the full health care costs (consultation, medication, and overhead) spent by the government multiplied by number of cases averted Patients Reduced health care expenditure for seeking treatment of waterborne diseases from private providers Unit cost of consultation and medication for private paying patients multiplied by the number of private patient cases averted Reduced non-health-related costs for visits to health facility, such as transport, etc. Unit costs of non-health-related costs for private paying patients multiplied by the number of private patient cases averted Avoided productive work days loss Assumed workdays off per episode multiplied by the number of averted cases and the minimum wage rate Education Avoided days of school absenteeism For school age children, time not spent in school (days absent) multiplied by the minimum wage For infant or under 5 years of age, where caregivers are needed, opportunity costs of caring for a sick baby or under 5 years old estimated by a percentage of the product of work days off and minimum wage Consumers and/or households Reduced and/or saved time for water collection (per household) Value of time savings are estimated by multiplying the total annual time saved (distinguished between work and leisure) per individual and multiplied by the minimum wage Cost savings due to switching from more expensive/alternative water sources Annual costs saved per household per year on alternative water sources multiplied by the number of new connected households Incremental benefits from additional consumption of water Additional water consumption per household due to availability of water service multiplied by the willingness to pay Tourism Increase in net expenditures of tourist arrivals Difference of the assumed tourist growth arrivals between with- and without-project growth scenario multiplied with the average spending for international tourists Employment and private sector development Additional employment generated; establishment of new small and medium-sized enterprises Increase in number of employment related to the sector and its ancillary services; growth in number of small and medium-sized enterprises in the project area Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Forthcoming. Improved water services benefits women. In Timor-Leste, 49.2 % of the 1.2 million population are women, who mostly have the responsibility for childcare, caring of family members who fall ill, and domestic tasks (United Nations Women 2015). Women must walk for hours to fetch water daily and some families even keep their daughters at home so that they can help collect water instead of going to school. Fetching water can be dangerous for women and girls due to potential conflicts at water sources. Similar dangers arise when they do not have access to private toilets or latrines. Increasing women’s access to water services would help free up hundreds of hours annually that could be devoted to more economically productive pursuits. Hence, greater access to water services can improve women’s health and safety, while creating more opportunities for income generation (Swedish International Development Cooperation Agency 2015). Timor-Leste’s Water Supply and Sanitation Sector The 2015 census indicated that 73% of the urban population and 68% of the rural population have access to water. However, only 34% of the urban population has access to the public water supply system at the household level. Although 81% of the country’s urban population has access to sanitation facilities, most of the people in rural areas (62%) still lack access to improved sanitation (Government of Timor-Leste 2015). Water is included in the government’s annual priority sectors for the last 4 years, yet the level of investment is still considerably low to meet defined targets. Moreover, the lack of an investment plan and the limited coordination between financing stakeholders have led to a disjointed multiyear public investment program. Institutional capacity challenges need to be addressed immediately to improve sector service performance. These include narrow administrative and financial autonomy, limited number of skilled management and technical staff, weak accountability and incentives for sustaining services, and inadequate planning and coordination. In addition, the current institutional setting is not appropriate for the sector to deliver services. There is no separation between regulatory authorities and service providers. The current legislative framework for regulation is insufficient, and new policies are needed to achieve the desired standard of service provision. The enforcement of existing legislation is also limited due to institutional capacity constraints. Under the Timor-Leste Strategic Development Plan 2011–2030 and SDG 6, the government has to provide water services to 100% of the population, both in urban and rural areas, by 2030 (Figure 3). Having one of the highest population growth rates in the Pacific at 2.4% per annum, and given current low levels of access to these services, the country needs immediate investment and institutional reform for the government to meet its commitments (Government of Timor-Leste 2011). Figure 3: Implementation of Institutional Reform in Line with Strategic Development Plan and Sustainable Development Goals Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Forthcoming. The water sector by nature is a priority for Timor-Leste. To achieve medium and long-term targets, the government has prepared urban master plans for several municipalities. The Investment Plan for Water Supply and Sanitation estimates total investment needs of $1.3 billion (inclusive of capital outlays and operating expenditures) for the period 2018–2030 (Figure 4). It acknowledges that policy and institutional reform in the context of sectoral development will be essential. Figure 4: Breakdown of Water Supply and Sanitation Investment Plan, 2018–2030 ($ million) Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Unpublished. Recommendations Public policies for water services and related water resources should be developed and implemented in an integrated, coherent, and holistic manner. The government should establish an appropriate institutional framework, with a clear mandate and responsibilities for each of the public entities involved. Considering Timor-Leste’s country context, institutional models for the short term (2018–2023) and the medium term (2024–2030) need to be adopted as part of a broader reform strategy (Figure 5). Figure 5: Proposed Model for Institutional Reform DNGRA = National Directorate for Water Resource Management, DNSA = National Directorate for Water Services, DNSB = National Directorate for Basic Sanitation. Source: ADB. 2018. Water Supply and Sanitation Services Investment Plan, Policies, and Institutional Reform 2018–2030. Forthcoming. The proposed model should be progressive, but implementable and achievable; transform sector authorities, increasing their capacities and splitting their responsibilities; allow for human resources to adapt and enhance their knowledge and training; separate regulatory authorities and service provisions roles and responsibilities; and untangle water services and water resources regulations. For the period 2018–2023 (phase 1), the following reforms are recommended: Detach the water supply and sanitation services provider component from the National Directorate for Water Services (DNSA) and the National Directorate for Basic Sanitation (DNSB), and create a Public Institute for Water Services (Bé Timor). This public institute will be partially responsible for infrastructure development and services provision. Reinforce the role of DNSA as the regulator for water supply services in its regulatory capacity. Reinforce the role of DNSB as the regulator for sanitation services in its regulatory capacity. Reinforce the role of the National Directorate for Water Resource Management (DNGRA) as the regulator for water resources in its regulatory capacity. For the period of 2024–2030 (phase 2), the following are recommended: Transform Bé Timor into a public company that will be responsible for the implementation of the infrastructure development (in coordination with relevant government entities), operation and maintenance, and commercial activities in Timor-Leste. Integrate DNSA and DNSB as an independent water services authority, with DNGRA becoming the Water Resources Authority. Summary and Conclusion Water services are essential for the well-being of the population. However, the current service level in Timor-Leste is still below expectations. To meet the Strategic Development Plan 2011–2030 and SDG 6 targets, both physical investments and institutional reforms will be required. More specifically, Timor-Leste authorities concerned should: Investment Ensure that the Investment Plan for Water Supply and Sanitation—with estimated needs of $1.3 billion over the period 2018–2030—is a long-term commitment integrated into the medium- to long-term planning and expenditure framework, and operationalized through a multiyear public investment program; Establish a multiyear pool of all available financial resources (from government and development partners) through which potential projects can be coordinated and implemented in an efficient, integrated, accountable, and transparent manner; Review investment plan scenarios and adopt the scenario(s) that is(are) in line with the government priority for private sector development and job creation for the period 2018–2023; Implement priority investments at the municipality level, where water supply and sanitation master plans are ready to be implemented; and Complete the preparation of master plans for the remaining municipalities and rural areas prior to the investment. Institutional reform Proceed with implementation of recommended reforms as detailed in the Water Supply and Sanitation Investment Plan, Policies and Institutional Reform 2018–2030 report. Adopt an institutional reform model, appropriate to the country context, to assist the sector to meet targets. Separate roles and responsibilities between the service provides and the regulatory authorities. Establish Bé Timor as a public institute in 2019 and transform it into a public company by 2024 as the primary service provider. Strengthen regulatory capacity of DNSA, DNSB, and DNGRA as part of their transition process to becoming the Water Services and Water Resource Authorities by 2024. Prioritize human resources development, both for technical and managerial skills, as well as promote research and innovation among stakeholders. Resources Asian Development Bank. 2018. Pacific Economic Monitor. July. Manila. Ask the Experts Tiago Ribeiro Senior Urban Development Specialist, Water and Urban Development Sector Office, Sectors Group, Asian Development Bank Tiago Ribeiro is an urban development specialist in the Pacific department of ADB. Prior to joining ADB, he worked for 12 years at a water utility. He also worked in several small island states developing water supply, sanitation, and solid waste management services. He has a master’s in Hydraulics and Water Resources from the University of Coimbra, Portugal and an MBA from Cranfield University, UK. Maria Rowena M. Cham Senior Economics Officer, Economic Research and Development Impact Department, Asian Development Bank Maria Rowena M. Cham is a senior economics officer at the Economic Research and Development Impact Department. She has worked at the National Economic and Development Authority and Power Sector Assets and Liabilities Management Corporation in the Philippines. She has co-authored chapters in the country diagnostic studies published by ADB and published journal articles on the Philippine economy. She has a master’s in Economics from the University of the Philippines. Leave your question or comment in the section below: View the discussion thread.