Water use per capita declined nearly 10 percent.

Proper pricing of water is necessary, but not sufficient, to ensure efficient allocation and improved services. The failure to collect and recover costs is a constraint in pricing regimes almost everywhere, especially in the developing world. What is also required is an accompanying set of incentives that encourage accountability for cost recovery and improved services. Experience demonstrates that decentralized service delivery can break the vicious cycle whereby service declines with collections, making consumers less willing to pay. Countries have achieved better-quality service at lower cost by decentralizing the responsibility for delivering water service to local governments and transferring some functions to the private sector, financially autonomous entities, and community organizations such as water user associations. Decentralization, especially in retail distribution of water, makes it easier to ensure financial autonomy and to involve the private sector and water users in water management. Smaller, locally managed institutions, whether public or private, have more effective authority to charge and collect fees and more freedom to manage without political interference. The move toward greater reliance on financially autonomous entities, private firms, and water user associations to cover costs should open up new sources of financing for investment, especially where central government transfers are no longer possible. Because they are likely to achieve higher levels of cost recovery than government agencies, autonomous firms and user associations will be in a good position to borrow investment capital from local and international markets.

Decentralized water management is not possible without institutional reforms that are sensitive to traditional practices and local realities and are responsive to the new structures. The case of Mexico's water user associations is instructive. Millions of hectares of irrigated land have been transferred to farmer management through water user associations (box 8).

Farmers' contributions to operations and maintenance have changed dramatically since the transfer process was implemented, mainly due to user management and a sense of "ownership" of the system. This experience highlights the importance of the following key ingredients of the transfer program: strong government commitment and policy support, establishment of strong legal and institutional frameworks, adjustments to new roles by both farmers and the government irrigation agency, substantial increase in farmers' contributions to operations and maintenance, and on-farm capital improvements, training, and communications programs.

Legislation is needed to establish the legal basis for private firms and water user associations. The rights to water need to be clearly

A number of countrywide policy and legal changes have been made to support these reforms. A new National Water Law - Ley de Aguas Nacionales - has been promulgated. CNA and the WUOs have signed a concession agreement that specifies the mutual roles and responsibilities of the agency and the water users. A training and comunications program has facilitated the process of transfer. Internally, the WUOs have a system of charging for irrigation services and of mobilizing resources for operations and maintenance. To supplement the management transfer program, the government has launched an on-farm development initiative to enhance farm-level productivity and water conservation as well as a program to register and assign water rights to users. defined, with special emphasis placed on the interests of the poor. Establishing the framework for action by nongovernmental entities and individuals is especially important. Effective regulatory systems are prerequisites where social concerns, environmental externalities, and a tendency toward natural monopoly in water services are prevalent. Nevertheless, private sector involvement in various aspects of water supply and sanitation usually leads to significant gains in productivity and efficiency.

Until relatively recently, private sector participation in water supply was limited. However, in the past few years, interest in private sector participation has burgeoned, and various innovative forms have emerged The most common forms are lease contracts and concessions, usually secured through competitive bidding. In concession contracts, facilities are leased to the private operator, who contributes investment capital and who operates and maintains tile facilities for a period of twenty to thirty years. Such arrangements are common in Cd'Ivoire, France, Guinea, Macao, Portugal and Spain and were recently adopted in Argentina. Many countries in Eastern Europe and Latin America are contemplating similar approaches. Early in Chile's reform of water service delivery, tile public water company in Santiago began using private con tractors to read meters, maintain pipes, and handle billing. This raised staff productivity] to the highest level among water and sanitation companies in Latin America. For sewerage systems-even in countries, such as France, with a long history of private sector participation-concession contracts are relatively rare. The predominant from of private involvement in sewerage systems is public investment coupled with a lease contract, typically for ten years. In irrigation, private sector participation has notable successes in the sale, operation, and maintenance of tubewells, especially in Bangladesh, India, and Pakistan.

Participation of stakeholders is also necessary for a successful incentive system. Prescribing and encouraging the participation of individuals and institutions that would be affected by decisions about water resources management produces a number of benefits. Stakeholder participation in formulating and designing of water projects has helped to incorporate local know ledge and circumstances, leading to better design and lower costs, as demonstrated in the Orangi scheme in Karachi, Pakistan Box 9 In many countries, users are involved in the ongoing management of water systems, considerably reducing the financial and managerial burdens on government.

Participation has encourage greater cost sharing and better maintenance promoted equally built local capacity, and enhanced transparency, accountability, and institutional performance. Participation also generates a sense of ownership for projects, which helps to build the social and political cohesion that is necessary for long-term development planning. The participation of women has been found to be especially important (box 10). Women are the principal managers of domestic water, and in rural areas they can spend up to six hours a day collecting it. Equity, efficiency, and effectiveness all demand greater attention to gender issues in water policies, programs, and projects.