Neighborhood material flow analysis diagram

Decentralized utility provision management

Decentralized utility provision management: models for community-led infrastructure services

Research into decentralized utility management models for community-led infrastructure such as electricity, heat, seasonal heat storage, wastewater treatment, water provision, car sharing, recycling facility, educational facility, shared workshop, or community garden.


The primary problem of decentralized utility provision is not the availability of technology, but the lack of socio-economic models to deploy, regulate, and maintain the most sustainable solution in a given context. The drivers for decentralization of utility provision and the need for a community-based approach are gaining recognition, but management models for community-led infrastructure services are a bottleneck for widespread adoption. This study examines how management models address practical issues of financing, ownership, regulation, tariffs, maintenance, and social participation of decentralized utilities. The study identifies management models from two case studies: a Local Integrated Infrastructure Service Company in Germany and Community Development Unions in rural Nigeria. The management models are analyzed for their rate of success in achieving economic, social, and environmental sustainability. The findings have implications for understanding the socio-economic dynamics of decentralized utility provision in developed and developing countries.

Socio-economic organization for operating a decentralized utility provision prevents widespread application of infrastructure on the community level. The complexity of investment, maintenance, and regulation of utility management is a risk factor for community groups greater than the risk of technology failure. In the cases analyzed, decentralized management has provided much-needed income and job creation on the community scale through the application of small-scale technologies.

The paper presents cases of community-led infrastructure provision from two different geographic and economic contexts. Conditions considered for each case are financing, ownership, regulation, tariffs, maintenance, return on investment, employment, social participation, and environmental impact. Utility provisions considered are electricity, heat, seasonal heat storage, wastewater treatment, water provision, car sharing, recycling facility, educational facility, shared workshop, community garden, community center, child care, and security. The result is a review of management models’ performance and a pragmatic approach to community-led infrastructure provision service.


Decentralized infrastructure is a social and technical utility service that operates on the scale of a neighborhood or a city district, in contrast to conventional centralized infrastructure that operates on the scale of a town, city, or region. The choice for decentralized infrastructure is driven by scale-optimization leading to social, economic, environmental and ecological benefits. In the process of changing from grey to green infrastructure, the slow turn-over rate of large-scale utilities is addressed by decentralized infrastructure in communities. The resultant “islands” are small-scale networks of innovation, small enough to take advantage of local opportunities and large enough to benefit from economy of scale.

An obstacle still facing community-based infrastructure is the ownership, management, and regulation of decentralized infrastructure services. Who will finance the development's decentralized infrastructure? Who will own it? Who will construct it? Who will operate it? Who will regulate it? Who will maintain it? Connecting to conventional, centralized infrastructure avoids these questions, but at a cost (the presence of infrastructure is not a question, the question is whom will profit from it). Resolution of insecurities such as financing, maintenance responsibility, and risk ownership would increase the feasibility of investing in decentralized infrastructure systems on a collective basis. The lack of a socio-technological planning and design methodology needed for implementing an integrated solution across so many disciplines is stated by Guest and Skerlos (2009):

“The primary problem we face is not the availability of technology for resource recovery, but the lack of a socio-technological planning and design methodology to identify and deploy the most sustainable solution in a given geographic and cultural context.”

Decentralized utilities types are numerous, including the familiar solar PV, solar thermal, wind energy, combined-heat-power, heat distribution grid, seasonal heat storage, and electricity micro-grid.

Decentralized water utilities include drinking water provision, rainwater collection, irrigation schemes, and wastewater treatment (greywater treatment, blackwater waste-to-energy). Decentralized spatial utilities include parking facility, workshop, community center, food production, education facilities, childcare, and security facilities.

Management Models

New Public Management and Decentralized Infrastructure

The two most common models for infrastructure management are bureaucracy and New Public Management (NPM). Both systems have their advantages and disadvantages, which are reviewed in this section for their implications regarding decentralized utilities.

In many counties, the government, and as such the public, has responsibility for infrastructure (Kessides 1993), using the most ubiquitous form of organization in governmental institutions, the bureaucratic system. According to Weber (1968), bureaucracy is the way to express a “rationally regulated association within a structure of domination”. The ideal bureaucratic is organized by a set of principles in which the focus is put on formal structure and how the group achieves a common goal. To guide this process, rules are established to theoretically increase effectiveness and efficiency. These rules include a strong hierarchical set up, management by standard operating procedures, and specialized departments (Weber 1968). The negative association with bureaucracy originates from the conflict with real life limitations in which bureaucracies function slowly. In Swartz (2008), three major criticisms on bureaucracy are given. First, Downs’s (1967) law of increasing conservatism states that in a bureaucratic organization, officials will abandon their original goals for that which ensures their survival. Second, Niskanen’s (1997) theory of budget-maximization states that the problem of performance monitoring and lack of incentive to improve efficiency causes department and officials to pursue objectives other than their formal tasks, often related to increases in budget and reputation. Third, Tullock (2005) addresses the difficulty of passing information within a large, multi-layered organization. Tullock states a “bureaucratic free enterprise” in practice becomes more complex over time due to the theoretical structure. Making decisions and implementing innovation becomes increasingly difficult to carry out in an effective time period.

As a reaction to the disadvantages of bureaucracy, the NPM model gained popularity in the management of infrastructure. NPM in infrastructure aims to prevent the debilitating processes found in a bureaucracy. It emphasizes market orientation and output based performance. NPM has, according to Schwartz (2008), the following characteristics: autonomy of the utility, decentralization of authority, separating regulatory tasks from service provision, creation of quasi-competition, tariffs set for cost recovery, customer- orientation, and accountability for the results produced by the utility. The principles of NPM lead to a situation in which an individual or party is responsible for managing the infrastructure in such a way that customers are satisfied, the organization achieves self-sufficiency, and communication lines are flexible allowing for innovation.

The advantages of NPM’s public private partnerships named in Seidenstat (2003) are for a large part thanks to competition. Competition by outsourcing or the threat of outsourcing comes into being by involving non-bureaucratic companies that can be interchanged based upon performance, guarantying that decentralized managers will be judged by their performance instead of any other trait, thus stimulating professionalism and innovation in a system.

Financing and Ownership

The relatively small investment cost for decentralized utilities has been determinant for increased private investment into infrastructure by the civil sector. Combined with entrepreneurial skills, efficiency in management, and the ability to asses and capitalize on opportunities has prompted the private and civil sectors to participate in financing, implementing, and managing infrastructure services (Seragelding 2000).

Decentralized utilities have demonstrated economic benefits over centralized production. Smaller, more modular capacity not only ties up less idle capital, but also does so for a shorter time (because the demand can "grow into" the added capacity sooner), thus reducing the cost of capital per unit of revenue. The frequent correlation between distributed resources' shorter lead time and smaller unit size can create a multiplicative, not merely additive, risk reduction. Furthermore, smaller plants' lower environmental impacts may qualify them for regulatory exemptions or streamlined approvals processes, further reducing construction time and hence financing costs. Finally, distributed resources' construction tends to be far simpler, not requiring an expensively scarce level of construction management capacity (Lovins 2002).

In practice, the origins of capital for costs incurred by the financing of decentralized utilities can be taken up by one or more of several options, including: bundling with other buy-in expenses (e.g. house price), bank (microfinance) loans, voluntary donations, and subsidies from any level of government or non- governmental institutions. Cost recuperation is expected through tariffs from users, bundled with rent, or flat tax across the community. The ownership of a decentralized utility has, in practice, been taken by various parties, including a conventional infrastructure provider, a community association, a private company, and government authorities.

The variety of ownership models is attributed to the different origins of decentralized utility projects, for example in the city of Malmö, Sweden, the impetus for decentralized infrastructure in the Bo01 neighborhood was top-down from a consortium of government institutions and international corporations, and as such the investment and ownership remained with the conventional providers. In other cases, such as the Flintenbreite case described in section 3.1, the project was a private initiative, financed, owned, and operated by a private company.

Operation and Maintenance: Types of Contracts

In the operation and maintenance of a decentralized utility, various parties can be involved, such as a conventional utility provider, a community association, or a contracted private company. In negotiating management of decentralized infrastructure, five types of operation contracts are used. Contracts can be beneficial for owners, as skills required to operate and maintain a utility are specific to various areas of expertise. Each type of contract has four distinguishing characteristics:

Performance and compliance: A party responsible for providing a service, which can be private or public. A private company is owned by a limited amount of people, in a public company, rights are shared with several people. Not only rights are shared, also responsibility and profits.

Risk: When providing a service, there is always a risk of malfunction or sudden unexpected interruptions. A contract specifies who is responsible is what kind of situation. An advantage of more parties signing a contract is that possible risks are shared. The contract sets a responsible party for investment risk, and who will take which share of accrued benefits.

Asset ownership: Responsibility for providing services and taking risks are aspects which can be shared. Asset ownership can be public or shared.

Contract duration: The duration of a contract depends on the period a service will be provided by a certain company or the duration of a situation. The length of a contract can have great influence on the performance of a company. Short term contracts can stimulate competition. When a short-term contract is renewed, comparable companies can bid and compete in order to get signed for a new period. This system stimulates a contracted company to perform at its best, otherwise another, perhaps better performing or cheaper, company will try to get the new contract. So when a short term contract is given, competition between comparable companies can be stimulated. Long term contracts give a company more time to become accustomed to a task performed such that efficiency could be increased, however the longer turnover rate could also be a liability if a company is not performing well. Depending on the type of service that needs to be provided, the length of a contract needs to be set carefully.

Each of the five types of contract has different interpretations on the just mentioned aspects. Characteristics of the five types of contracts distinguished by the World Bank are (Kessides 1993):

  1. Service contract: A service contract is for 1-2 years. Specific operations and activities like maintenance are typically “contracted-out” using a service contract, which means that a second party will be paid an agreed fee providing a certain service. The performance and compliance can be private or public, as well as the risks. The asset is public owned and sets standards for performance, process evaluation, monitoring performance of contracted party. A contracted party had agreed on these criteria and is responsible for providing a service and is paid an agreed fee for provided services.
  2. Management contract: A management contract is for 3-5 years. Involved parties can be private or public and take care of a broad scope of operations and maintenance activities. A management contract is comparable with a service contract, a main difference is that a party with a management contract has broader responsibilities, right to make management decisions and shares some commercial risk.
  3. Lease contract: A lease contract is for 8-15 years. A private contractor will pay a public owner and obtains exclusive rights to operate the facility. A private party with a lease contract will be responsible for performance and compliances and take commercial and revenue risks. The facility will be owned by a public owner who will also be responsible for major investments. A contracted private party will bear full commercial risks and take all revenues but pays an agreed fee to the owner of the facility. If a contracted private party gets financial benefits due to efficiency improvements, benefits will be retained by the contractor. Contracts contain clear arrangements on the standard of the providing service during the duration of the lease contract.
  4. Concession contract: A concession contract is for 25-30 years. A concession contract covers all characteristics of a lease contract, but in this type of contract, a contractor has additional responsibilities from the financial point of view. Specified extensions or replacements to fixed assets are justified by the contractor. Concession contracts contain agreements on tariffs that cover all allowances for expenses. If a concession contract includes the construction of the utility, it is also known as Build-Operate-Transfer (BOT).
  5. Divestiture: A divestiture is indefinite. All responsibilities, risks, ownership, performance and compliances are transferred to a private party. A divestiture is the only situation in which everything will be managed by one solitary private party.

A summary of all contracts just mentioned and accompanying characteristics can be seen in table 1. In every community or city the several utilities have different purposes and may or may not be essential or core to the survival of the inhabitants.

Case Studies


The Flintenbreite neighborhood is a market-driven project emphasizing innovative infrastructure services for energy efficiency. In 1999, dwellings for 111 inhabitants and a technical building with a community center were constructed. The site is on a greenfield on the periphery of Lübeck with good public transportation access and a local primary school. Decentralized utility elements in Flintenbreite are separation of blackwater, greywater, and stormwater, vacuum sewer and anaerobic digestion of organic refuse, and a local integrated infrastructure provider company. The local infrastructure company provides electricity, heat, water and wastewater service from one technical building and on one monthly bill to the residents. The technical building is the hub of infrastructure provision and community center, consisting of a large room, an alcove with a kitchenette, an outdoor patio, and bathrooms. The inhabitants have adapted the center for their needs over time.

Energy: Households are supplied with warmth from natural gas CHP housed in the technical building through a local heat network. The heat network makes a ring through the neighborhood. At each block, the local heat network passes through a heat exchanger to warm drinking water for household use and space warming. The technical building is also an intermediary between the national electricity and gas grid and the households.

Wastewater: Greywater is collected in the households and brought to a constructed wetland by free-flow pipes. The constructed wetlands are vertical-flow type built at 2 m2 per person. The effluent is cleaner than that of the municipal waste water treatment plant. Blackwater is collected by the vacuum sewer into the technical building.

Solid refuse: Organic refuse is collected within the neighborhood in a separate container and is manually added to the anaerobic digestion process to produce additional energy.

The infrastructure is supplied to the dwellings in a multi-purpose concrete conduit of 1.5 meters by 0.3 meters, including the pipes for hot water, hot water return, vacuum sewer (63 mm pipe diameter), drinking water, electricity, and telecommunications. The system has improved the transparency and accessibility of the infrastructure supply to the neighborhood.

Utility management

Investment for the neighborhood infrastructure and the technical building with a community space was made by the integrated infrastructure provider, an independent company Infranova GmbH & Co KG. The building construction was completed by a developer and the vacuum system was built by Roediger Vacuum GmbH, who also supplied the vacuum toilets. The neighborhood was built without any government subsidies, expect for a planning subsidy given to the project proponent, OtterWasser GmbH, for designing the separated water system. The homes are available at market price.

Infranova GmbH employs one full-time groundskeeper with previous experience as a hotel caretaker and familiarity with HVAC systems. The owner of Infranova is a private individual. The inhabitants can be stakeholders in Infranova for a one-time fee of €350.00. Maintenance of the utilities, including catastrophic failures, is the responsibility of Infranova, which benefits from the expertise of OtterWasser, its sister company that planned the infrastructure system, in monitoring and regulation of the utilities.


The use of a single company as an integrated infrastructure provider has in this case been successful in terms of ownership and cost recovery. Infranova GmbH has been able to set tariffs to provide utility services for twenty-percent less than conventional suppliers while covering the investment and operation costs. The success is attributed to the integration of the infrastructure provision that has reduced overhead and created synergy between utilities. Regarding technical operation and environmental impact, minor problems have occurred with the vacuum sewer. In the first two months there was an adjustment period for inhabitants’ behavior. After this period, errors continued to be caused by clogging of the vacuum valve by inappropriate refuse in the toilet. Long-term build up from the precipitation of struvite and carbonate in the pipes has also needed to be solved by treatment with hydrochloric acid once in five years. The toilets installed are still functioning well, but are considered too noisy. The constructed wetlands for greywater purification are performing exceedingly well, even after so many years and even in the winter. Due to the warmth of the greywater, there has been no freezing in the settling tank or in the wetland itself. The other decentralized infrastructure, including the gas combined-heat-power, hot water network, storm water infiltration, and community center have performed without difficulties.

Socially, there has been a positive response to the development, including pride over the infrastructure and adaptive use of the community center. As stakeholders in the company, the residents have a vote on community issues, including the reinvestment of Infranova’s capital gains into the improvement of the neighborhood. The residents profit from the more intimate relationship with their infrastructure provider, and are reported to call the Infranova office two-to-three times a week about the neighborhood regarding issues not always related to infrastructure, but instead general advice.

Infranova GmbH further shows the management of decentralized utilities can be cost-competitive with conventional suppliers and improve the relationship between the infrastructure supplier and the customers. The economic success as well as the ecological success of the project is a positive case study.

Community Development Unions, Nigeria

Infrastructure scheme

Community Development Unions (CDUs) in Nigerian rural areas address gaps in infrastructure provision left by the ineffectiveness of local governments to ensure basic utilities in rural communities. Throughout Nigeria, the formation of CDUs propagated in rural semi-autonomous communities as a self-help response to governmental inaction. The concept of CDUs in Nigeria goes back to 1943 with the organization of Ogwafia-Owa people to collectively construct roads for transport and trade in the absence of government action (Mama 1994).

CDUs provide a decentralized approach to the problems of stagnation, poverty, illiteracy, and lack of physical infrastructure among rural communities. The scope of CDU developed projects falls within these categories: agriculture, civic centers, education, health, markets, water, and roads. In agriculture, CDUs improved rural revenue generating programs, including communal food farms and cottage industries. In civic centers, CDUs constructed market stalls and car parks. In education, CDUs enhanced secular education, built primary and secondary schools, and paid teachers. In roads, they conducted self-help road construction in all communities. The limitations to the scope of CDU operations are projects requiring the use of sophisticated tools, such as pipe-borne water, road tarring, and hospitals (Mama 1994, Asaju 2003, Akpomuvie 2010).

Utility management

The financing, ownership, maintenance, and regulation of the decentralized utilities are conducted by the CDU. The only outside support is occasional technical assistance provided no cost from regional government institutions.

Project financing is raised by CDUs with differing combinations of mechanisms from community to community, including annual/monthly fees, levies, fund raising at project launching, and fines. Traditional sanctions and public criticism of individuals are used to leverage citizens for the payment of tariffs and dues, as CDUs do not have the power to forcefully coerce funds. In one case, the distribution of contributions of individual citizens towards an infrastructure project was 78% financial and 22% service- labor (Akpomuvie 2010). At any time, citizens have the right to check the accounting of the budget (Mama 1994).

Proposals for new projects are made by the executive (usually the paramount traditional leader) of the CDU and presented to the general assembly for approval. CDUs frequently congregate to discuss, debate, and take decisions affecting their communities. Ideally, all members of the community participate in decision making and implementation. Through these discussions, citizens become aware and educated about community issues and become more conscious of their rights (Asaju 2003). Research found that projects identified, planned, executed and managed by the community themselves have outlived those imposed by outside benefactors (Akpomuvie 2010).

The main responsibilities of CDUs in decentralized infrastructure project management are: (i) mobilizing and sensitizing people towards participatory development in terms of counterpart contribution ownership and sustainability of development projects, (ii) participating in needs identification and assessment, and selection of projects to be embarked upon subject to available resources, (iii) participating actively in the planning, supervision, monitoring and evaluation of projects, (iv) ensuring security for, and proper maintenance of equipment, materials and common properties and resources and (v) ensuring accountability and transparency in project implementation (Asaju 2003).


CDUs are self-organizing, non-governmental, collective actions by communities that establish infrastructure services. The rise of CDU’s in rural Nigeria hinges upon cultural propensity for self-reliance, and utilizes traditional village power hierarchies for mobilization.

According to Akpomuvie, respondents in the analysis of CDU cases proffered three categories of issues that contributed to the success of their self-help infrastructure projects. First, the choice of projects was an expression of the people’s preference that was carefully considered, as community members are required to invest private energy and capital. Thus, the decisions were influenced by a prevailing local environment and a community’s pressing needs. Secondly, citizens derive personal satisfaction from projects that they plan and execute through communal labor. Citizens actively contribute to the development of the community, and are have a feeling of ownership and responsibility for the outcomes of their collective endeavor, which may not be the case for projects developed by international aid organizations or the government. Thirdly, the high rate of embezzlement of public funds characterizing the failure of government infrastructure projects in Nigeria is avoided in self-help activities because the publicity given to the projects and the collective nature of the contributions reduce the chances of misappropriation.


The aim of the research was to identify management models for decentralized infrastructure provision, addressing the challenges of financing, ownership, regulation, tariffs, maintenance, employment, and participative decision-making while assessing the social, economic, and environmental outcomes. Two cases of community development projects were taken from two different contexts, an urban developed- country neighborhood and rural developing-country communities. Both cases use management models in which an infrastructure-provision body, distinct from the end-users, is responsible for ownership, operation, and maintenance of the utilities. Furthermore, in both cases, the end users were involved in the provision of utilities as decision-makers and financial supporters through tariff payment. In the light of increasing initiatives for localized resource management in urban areas, the successful and coincidentally similar management models applied in these two case studies provides one conclusion as to what type of organization could be used by decentralized utility providers.

A decentralized utility provider, as derived from the results of the two cases, is modeled after service- provision in the vein of New Public Management. The utility providers work within the community to provide infrastructure services, using their decentralized vantage-point to include end-users in decision- making, and have cost recovery through tariffs on the end-users.

The issue of contracting services in the reviewed cases was inconsequential, as in both cases the utility provision was initiated, owned, and operated by the management organization. The simplicity and directness of the arrangement coincides with the drivers for decentralization, namely avoiding bureaucratic administrations while adaptively fitting the consumers’ needs. Investment into locally owned infrastructure, with end-users as decision-making shareholders, retains the value of a community’s inelastic expenditure on infrastructure services, which accumulates as leverageable assets rather than evaporating through continuous rent payments on infrastructure services to an outside company.

Socially, both cases outperformed centralized infrastructure providers through incorporation of the user in decision-making. Economically, as evidenced by the cases’ financial sustainability, the models are successful. In Flintenbreite, the inhabitants also benefit from a reduced utility bill. Environmentally, the Flintenbreite case is clearly beneficial due to the closed nutrient and energy loops. The Nigerian case, however, does not exhibit a strong environmental switch away from the services that would have been provided by a centralized infrastructure provider.


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