CS44: Emerging Public-Private and Public-Private Partnerships in WSS by Jan Janssens

8/3/2019 CS44: Emerging Public-Private and Public-Private Partnerships in WSS by Jan Janssens

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Asian Development Bank

Manila, 15 January 2010

Emerging Public-Private and Public-Public

Partnerships in WSSartnerships in WSS

by

Jan G. Janssens

ADB Manila 15 January 2010



Part 1




Potential Objectives for a PPPotential Objectives for a PPP

to obtain sustainable improvement in the provision of, and access to,

water and sanitation services, articularl in un-served and low-

income areas to achieve significant progress in terms of productivity and sustained

mana er a au onomy resu n n er opera ona e c ency

to create enabling environment conducive to sector growth

investors to finance an increasing part of future investment needs

through new financial instruments




PPP not a Panacea,

S b tit t f R fno Substitute for Reform

Empowered operator/contractor: no matter the contract type, he can only succeed if given the control on the means to achieve targets

Operator/Contractor needs:

– Freedom from political interference and micro management

– autonomy in decision making and on personnel issues

–




Attributes of a sustainable framework - Public or Private

R l Roles mus e c ear y e ne an ncen ves mus e n erna y cons s en

– When in conflict, the Financial Trade-Offs must be explicit.

Risks should be allocated to the party that is most capable of managing

such risks.

Balance of Power – Balance of Powerhave overwhelming authority.




Rules for best risk allocation

• Principle : Risk should be allocated to those best able tomanage them

• Allocating PPP Risk Guidelines:

– Allocate to the party best able to influence the risk factor (e.g.,

constructions costs – completion risk).

– Allocate to the party that can best anticipate or respond to the risk

-– Allocate to the party best able to absorb the risk




Balancing external accountabilities

Owners

Polic makersFinanciers

RegulatorsCorporate

oversight board

Service provider

Civil societyCustomers




Key Conditions

E bli g G d Utilit P fnabling Good Utility Performance

Conditions

Orientation

Autonomyuman esources

Capacity

Performance Tariffs

Financial Viability

OversightAccountability

UtilityManagement

Sector GovernancePoliticsAttention




Possible reform path: transfer of assets

Governmentdepartment

Statutory bodyTo a public body that is more

overnmenowned PLC

Joint Stock To an entity partly owned by the Company pr vate sector part a vest ture

Non for Profit

PrivateCom an

o a pr va e y owne en y (a company or a non-for-profit trust)

full divestiture




Possible reform path: delegation of management

delegated

Asset owner Operator

management contract

The asset owner can contract out service provision & operation of

assets through a delegated management contract. Types

•Service contracts

•Management contracts

•Concessions


, ,



Asset OwnerDelegated Contract Options

Operator

100% public

Govt. (nat/reg/loc)Department

Govt. (nat/reg/loc)Department

none

Statutory Body

Asset Holding Entity

Autonomous Water Board Service Contract

overnmenowned PLC

overnmenowned PLC

Management

Contract

Partial Divestiture

Non for Profit

‘Empresa Mixta’

Non for Profit

Lease - Affermage

Private Entity

Private Company

Private EntityConcession


Full Divestiture

100% private



Choice of Contract

for a Balanced Risk Allocation

DivestitureAsset Sale

GVT’s Risk

Lease

Concession

Contracts

BOT, BTO,

Management

ContractsAffermage

Enhanced Affermage

BOO, DBO

Outsource

Assistance

Outsourcing

'




Choosing the ‘best’ model according to risk and tariff

conditionsCosts/Revenues

Tariffs don’t

cover O&Mcosts

Management Contract

Tariffs coverO&M costs Lease/Affermage Management Contract

on y

Politicaland

Regulatory

total costs Concession


spera or w ng osink capital

pera or w ng o a eoperating risk only

pera or won a eany risk

Source: Water Operators Round Table, Nov. 2004



Choosing enhanced models

Costs/Revenues

Tariffs don’t

cover O&Mcosts

OBA ManagementContract

Tariffs coverO&M costs

only

OBA Guarantees

+ contract Guarantees

+ InvestmentTrust

Tariffs coverLease/Affermage

aseregulation

Politicaland

LOW HIGHO erator willin to O erator willin to take O erator won’t take

Concession


Risk

sink capital operating risk only any risk

Source: Water Operators Round Table, Nov. 2004



One of the main lessons learned

the importance of sustainability of reform:

– the need to establish a climate of trust and cooperation among the

various key actors;

– the need to ensure reform sustainability by undertaking capacity building

activities, reinforcing the partners' common understanding of the new

institutional arrangement and creating a collaborative atmosphere andteam spirit.




Part 2






Assessing PPP is challenging :

-

- measuring progress under a PPP

The debate has often been more on ideology than objective data, partly due to methodological difficulties:

– Performance indicators are more complex than they appear at first

sight (coverage, water losses)

– u c wa er u es o en o no repor per ormance a a, or ey

do those are unreliable

(depending on cases/countries)

– Often lack of baseline data




The 1992-2000 period:

booming enthusiasm for water PPPs

Water utility PPPs in developing countries until 2000: Urban population

served by private water operators (in millions) and new PPP awards

MENA

80

100

25

30ECA

Latin America

Asia

40

60

15

20-

New PPP awards

0

20

0

5


1991 1992 1993 1994 1995 1996 1997 1998 1999 2000



The 1992-2000 period:

booming enthusiasm for water PPPsooming enthusiasm for water PPPs

Fast growth of population served by private operators: 92 million in 45

developing countries (2000)

Latin America was the main region

High visibility projects in megacities: Buenos Aires, Manila, Jakarta …

Dominance of the concession model:

– Access to private financing was major goal

– Large foreign operators raising limited recourse financing in foreign

currencies




Evolution since 2001:

Contract awards dropped in 2002, then concentrate on a fewcountries (Chile, Colombia, Russia, China)

But total o ulation served ke t rowin

Water utility PPPs in developing countries: Urban populationserved by private water operators (in millions) and new PPP awards

150

175

o n s

25

30

w a r d e d

MENA

ECA

Latin America

Asia

75

100

l a t i o n i n m

i l l i

15

20

f c o n t r a c t sSub-Saharan Africa

New PPP awards

0

25

50 P o p

0

5

N u m b e

r


1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007



Low tide? Rather, a new market

for urban water PPP

Population served went up from 92 million in 2000 to 160 million by

2007

. ,

2007

New countries since 2001 include China, Russia, Algeria, Armenia,Saudi Arabia, Ghana, Cameroun …

Surge of new players from developing countries




Most of market growth since 2001 came from developing

countries operatorsountries operatorsPrivate water operators in developing countries: Urban population

served (in millions) by country/region of origin

150

175 Developing countriesOther international

Spain

100

125UK

France

25

50

In 2007: 40% of the market about 30 national rivate o erators servin

01991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


each more than 400,000 people



Most water PPP projects

have passed the test of timeave passed the test of timeWater utility PPP: number of projects active, expired and

terminated (2007)

84%expired

7%

terminated

9%

84% of PPP projects awarded for water utilities since 1991 are still active, 9% were

terminated early (15% up to 1997)


Only two PPP contracts “in distress” by the end of 2008



Improving operational efficiency

Complex issue, but can be captured broadly by looking at threeindicators:

– NRW reduction (as proxy of variable costs savings when starting

from high NRW level)

– Billing collection ratio (revenues into cash)

– Labor productivity (main fixed cost)




Assessing performance for access expansion is a

comple iss eomplex issue

Access to financin is a ma or determinant of outcome:

– Impact of financial design of PPP: who finances investment?Maintenance of financial equilibrium?

– Public comparator is easily biased because of different conditions

for access to financing for public utilities

Many elements are beyond the scope of the operator (whether public

or private)

– Serving illegal settlements

– Connection fee levels and obligation to connect




Improving service continuity

with management contracts (MCs)ith management contracts (MCs) Significant improvement in 9 out the 12 MCs for which data was

Performance of 12 Management Contracts to improve water service continuity:

Evolution of average number of hours of service per day (years of MC)

Gain wi th private operator

Before s tart of MC

24

12

16

20

0

48

Kosovo Kam ala Lara Zambia Trinidad Mozamb. Mona as La Rio a Albania Yerevan Gaza Amm an


(4) (3) (3) (4) (4) (5) (4) (3) (4) (5) (6) (6)



Water PPP is a viable option

f th d l i g ld 1or the developing world - 1

1. Man cases of ositive contribution for ex andin

coverage: additional 24 million people gained

access to piped water

2. Evidence that private operators can carry out major

turnarounds, improving service quality and efficiency




Water PPP is a viable option

for the developing world 2or the developing world - 2

publicity than failures– Most PPP contracts are still active

Water PPP is expanding, not retreating

– ma e nroa s n severa arge coun r es n recen years

– Population served by private operators constantly growing




A new generation of Water PPPs - 1

not about tapping private money …

Many successful water PPP schemes were largely basedon public financing (leases or hybrid schemes), combined with efficient private operation

e es nanc a con r u on rom a pr va e opera or is not direct private investment, but lies in improving thefinancial viabilit of the WSS services




A new generation of Water PPPs 2new generation of Water PPPs - 2

The “lar e concession” model has worked in some lace

but seems unsuited to most developing countries, but:

Concessions that rely largely for investment on reinvested cash

flows for revenues (Cote d’Ivoire, Morocco, Gabon)

(Subsidized) concessions with public grants to spearhead

investment and reduce impact on tariff (Colombia, Guayaquil,

Salta in Ar entina




A new generation of Water PPPs - 3

many models available

Performance-based Management contracts(incorporating lessons)

Mixed-ownership companies (“empressa mixta ”)-

. .Senegal) (gradual move to financial sustainability)




Lessons learned (extract)




Part 3




Often a key problem :

The weak ca acit to desi n and im lement reforms

especially at the decision making level of the urban water

sector




A utility that has ..enter in delegated …or in a professional

, ..




Rules (conditions?) of Engagementg

t e Recipient water uti ity

– Demonstrated commitment to reform

– Willingness to implemented upstream (reform) measures inorganization and operations e.g. institutional, organizational,

technical, quality (water safety plan)

– The sustainability issue – predictability of funds – constraints toupscale acquired skills & knowhow (budget, admin restrictions,etc.

– Competing process to select submitted proposal ?




Rules (motivation?) of Engagementg

the ‘Mentoring’ water utility (N-S or S-S)

– ‘expert’ utility

• Applying WSP/ERM ?• cer e

• Other ?

–• Corporate Social Responsibility (CSR)

• Human Resources Management (HRM)




A Proposed 3-step Engagement

“ ”

1 Technical Assistance contract of means, input based

trigger: independent audit

2Performance-based

Contract (PBC)

“Structured” WOP results contract, output based

3ex s ep




A Proposed 3-step Engagement

“ ”

Technical Assistance1 contract of means, input based

trigger: independent audit

Performance-basedContract (PBC)2

“Structured” WOP results contract, output based

PPP

en er Contract Award ?

Autonomous

(public-public /public-private)3 (corporatized) Utility(eventually with some continuing form of

PBC TA, or outsourcing arrangements)

Scenario 2 Scenario 1




Selecting a Public-Private Partnershipelecting a Public Private Partnership

‘ ’

Implement a transparent competitive process

Consider structural options first

– assess overnmen s a e o ers w n ness o accep e ro es,

duties and risks of various PPP options

oose e op on w c es s e a ove




PPP : the « hidden » question : what’s after ?

Is it possible (in a realistic manner) to switch back to public

3 main obstacles3 main obstacles1) Information system not owned by Utility or Utility not able to manage it

2) Staff : skills can go away with private operator

Procedures Procedures private operator

ll d ig d t t an well designed contracts overw e m ese o s ac es Through fully addressing information system issues (ownership, etc) in contract

Through the capability of an early preparation of the transition (put in contract)


roug a permanent contro o t e pr vate operator



PPP Implementation Steps

PPP Facilitator

Political W illSteering CommitteeUtility CEO

Policy Dialogue & Strategy Development

Sector Re orm & Stakeholder part.

PPP Framework

Preparation Tariffs & SubsidiesCommunication

PPP Transaction Adviser




Fi i g “T t” St tinancing — “Trust” Structure

Local Government

Federal & State

Transfers, DonorFunds

Local Taxes Local Government

Federal & State

Transfers, DonorFunds

Local Taxes

n t s arrangement, a rust

is established which

becomes the recipient of

funds from local, state and

federal government as well

TrustTrustas user fees. This is the

same principle structure

used in Tlalnepantla and

Tamil Nadu as well as in the

Local WSS UtilityLocal WSS Utility

.

how the Trust sits betweenthe utility and local

government.

ADB Manila 15 January 2010Page 44



Financing Using the Trust Structureinancing — Using the Trust Structure

Local Government National Gov’tLocal Taxes Local Government National Gov’tLocal Taxes

Issue DebtIssue Debt

e rust acts as a secure

vehicle for financing needed

expansion or rehabilitation

of the utility. It pledges a

part of the funds it receives

Trust

Repay Debt

Investors /Lenders

Trust

Repay Debt

Investors /Lenders

from federal, state and local

sources as well as possibly

user fees. The loans

received or bonds raised are

rocee s

from DebtIssuance

RepaymentThru

User Fees

rocee s

from DebtIssuance

RepaymentThru

User Fees

guarantee.

ADB Manila 15 January 2010Page 45



The Pointhe Point

Many different options available

Difference is in the allocation of risks andsresponsibilities between the public and private partners

ere s some ng or every s ua on

p ons can u on eac o er




A Success Formula - R X 6 + R

Roles,

Responsibilities,

Rights,'

Recourse,

Risks

Risks

Rewards of parties

+ Respect


Source: J. Moss (AquaFed), 2008




C t t



Contact

Jan G. Janssens

anag ng artner, JJC Advisory Services

ret. Program Leader Water Program, World Bank Institute

P.O. Box 819, CH-3967 Vercorin, Switzerland

Tel.: +41 79 271 6967Skype: jangwj47- a : ang anssens gma .com


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CS44: Emerging Public-Private and Public-Private Partnerships in WSS by Jan Janssens

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