March 2012, Nathalie Leroy
Public Private Partnerships (PPP)
Slide 2
Overview
Slide
I. Why public-private partnerships?
II. What we mean by public-private partnerships
III.
IV.
III. The public-private partnership in Berlin
Slide 3
I.
Why public-private partnerships?
Overarching objectives for the municipality
To ensure excellent public utility services for citizens, businesses and industries
To maintain municipal control over pricing and fees, as well as investment policy
To preserve and create competitive jobs
To modernize by means of capital investments in municipal infrastructure
Slide 4
Reasons for public-private partnerships
Reduction in public debt and/or deficits by obtaining an advantageous purchase
price or by reducing municipal subsidies (e.g. in the area of public transport)
Sustained improvements in efficiency by drawing on the expertise of private
partners (purchasing, IT, technology, marketing, communications, legal, etc.)
Involvement of the private partner to help expand the business operations of the
municipality beyond municipal borders
Public engagement of the private partner in the municipality
Slide 5
Adapting the PPP model to meet specific requirements
Depending on the requirements of the municipality, public-private partnerships can
be adapted flexibly.
For example, at the time the partnership is created, decisions can be made about
how to distribute the gains in efficiency resulting from reorganization to the various
participants (the municipality, customers, employees, private partners):
to stabilize cash flows to municipal budgets despite ever more difficult market
conditions.
to preserve competitive rates in order to maintain the viability of the utility
business (long-term stability of prices and fees).
Slide 6
Slide 7
II. What we mean by public-private partnerships
Slide 8
Our basic ideas about
public-private partnerships (PPP)
150 years of experience with public-private partnerships speaks for itself
We have been active in Germany for over 20 years, and have some 22,000
employees engaged as service providers
We assume business risks in order to assure the efficient provisioning of services
Responsibility for public services remains in the hands of the municipalities
PPP model allows the systemic disadvantages of public organizational structures to be
overcome
By generating economies of scale
By bringing in operational and technical know-how
By leveraging market opportunities
Continuous efficiency improvement through incentive models
Incentive models reward the private partner for good service and penalize poor
service
Building a foundation for long-term, high-quality services at affordable prices
Veolia can be judged by the quality of its service
Veolia Environnement is a partner for municipalities
Slide 9
“Fair play” is the foundation for successful public-private
partnerships
The municipality has sole responsibility
for setting objectives and conditions
Control for the performance of contracted
services
Sovereignty over water rights and
investment policy
Control for setting prices and fees
“Public Sector”
Brings its extensive know-how to the
collaboration
Assumption of operational risks (thus
guaranteeing fixed fee proceeds)
Implementation of its labor management
system with measurable targets
“Private Partner”
Clear role assignments make for a trustful collaboration
Establishment of incentive mechanisms is part of the cooperative model
Slide 10
Public-private partnerships are a flexible instrument –
adapted to the needs of municipalities
Source: Water Guidelines, Document N°. 547, German Federal Ministry of Economics and Labor, Berlin 2005
Full transfer Full privatization
Concession contract
BOT Model
Operational management
Management
Service contracts
Consulting
Lease/operational
lease model
With financing/
transfer of
capital
Without financing/
transfer of
capital
Leve
l o
f o
pera
tive
re
sp
on
sib
ilit
y f
or
the
pri
va
te p
art
ne
r
2 5 10 20 30 Contract period
PPP models provided
by Veolia
Slide 11
Overview
Slide
III. The public-private partnership in Berlin
The partial privatization model for Berlin’s water utilities company (BWB)
was determined by the state of Berlin in 1999
Today’s partial privatization model was determined
by the parties in power at that time and the
responsible Senate administrations, and was
approved by a majority of the Berlin Parliament.
Veolia and RWE won the international bidding
process based on the partial privatization model
defined by the state of Berlin.
Partial privatization solved major renovation and
investment problems faced by the state of Berlin
The state of Berlin guaranteed the private partners
that it would uphold the legal conditions of
partnership over the long term.
Veolia und RWE submitted the winning bid in an open bidding process
Slide 12
*
* D
er
Spie
gel, 4
0/1
998
Slide 13
In the process of dismantling inefficient structures, it was in the best interests of all the Berlin utility firms to slim down
Sourc
es: C
om
pany A
nnual R
eport
s
In accordance with its labor agreements (the so-called “contract of confidence”), BWB
was barred from laying off workers for operational reasons
In Berlin, all guarantees related to services agreed upon in 1999
have been fulfilled or exceeded to date
Price moratorium: Cap on water rates through 2003
Employee commitment/ Contract of confidence: The private investors pledged to
preserve employee rights and to refrain from layoffs for operational reasons. While
this commitment was still binding, its term was extended to 2014
Center of Competence for Water: Founding of a non-profit research institution for
assuring the highest levels of water quality and to undertake research projects
VEOLIA-Stiftung (The VEOLIA Foundation): Establishment of a non-profit foundation
to support projects for preserving the environment, to create jobs, and promote social
integration
Creating new jobs: Veolia Wasser Germany and Vivendi Universal Germany
relocated their main headquarters to Berlin as a way of emphasizing the importance
of the site for Veolia
SVZ (Schwarze Pumpe secondary recycling center): The private partners suffered
significant debts during restructuring (as of December 31, 2009: €260 million)
Slide 14
Veolia has gone beyond the call of duty in providing contractually guaranteed
services and has taken on additional public and social responsibilities in Berlin
Slide 15
Veolia has made good on it’s commitment to support Berlin with sponsorships and
donations amounting to €17.8 million over the past 10 years
Veolia takes social responsibility
Research areas:
Groundwater: well management and near-natural processes for water purification
Water and wastewater technology: process optimization in biological wastewater
treatment
Combined wastewater and environmental effects: Monitoring, modeling, and
prediction of contaminant input in surface water
Research budget: approx. €3 - 4 million per year
Since January 2006: Sponsorship of an endowed
Professor of Urban Water Management at TU Berlin
Research – Networking – Communication
The Berlin Center of Competence for Water
Objective: Applied research about water in cooperation with regional partners
Veolia Wasser is the founder and majority shareholder of the Berlin Center of Competence for Water
(KWB), an international center for water research and knowledge transfer in Berlin. At the center,
scientists and experts work together with universities, research institutions, and corporations to identify
practical solutions for water management.
Since its inception in 2011, the KWB has over spent over €30 million on more than 50 projects.
www.kompetenz-wasser.de Slide 16
The KWB in Figures
Team
27 employees: from the fields of hydrogeology,
process engineering, environmental technology, civil
engineering, chemistry, and biology
Research volume:
Project expenditures in the order of € 31.2 million;
Financing by Veolia: € 1.8 million/year
Over 50 Projects
Research partners
50 national and international partner institutions
Training
150 doctoral candidates, graduate students, and
trainees
Page 17
Page 18
Berlin shareholding model
BWB = Berliner Wasserbetriebe AÖR
BWH = Berlinwasser Holding AG
RVB = RWE / Veolia Berlinwasser Beteiligungs GmbH
Legal participation
Economic participation
50%
49.9%
RVB
BWB
State of Berlin
RWE
BWH
Veolia
50%
Silent
Partnership I
State of Berlin 50.1 % Veolia and RWE 49.9 %
Competitive
business
100 %
Silent
Partnership II
50.1%
100%
49.9%
Partial Privatisation
Key Points
Division between „regulated“ and competitive business
Instant payment of purchase price EUR 1.7 bn
Fixed prices until 2003
(in total: 4.32 EUR/m³)
Contractually guaranteed investments (EUR 250 m per year)
No dismissals until 2014
Founding of a centre of competence for water
Founding of a youth foundation (Veolia Foundation)
19
Key Points
Slide 20
The state and the private partners have an equal
number of votes on the BWB Supervisory Board.
The State of Berlin appoints the Chairman of the
Board (currently, Senator von Obernitz)
The State of Berlin nominates two of the four
Management Board members. The remaining two
members are nominated by the private partners.
The Chairman of the Management Board is
selected by the board and casts a vote in the event
of a tie.
Increases in water prices can only be implemented
with the agreement of the state’s representatives on
BWB’s Supervisory Board. The rates must be
approved by the Senate Administration for Health,
the Environment, and Consumer Protection. The
State of Berlin is under no legal obligation to
compensate for water price increases that are not
approved.
Management and control opportunities for the state of Berlin
As majority owner, the state has substantial
opportunities to participate in the
management of BWB.
Supervisory Board
Management Board
Committees Economic Committee Mediation Committee Executive Committee
Consortium Committee Personnel Committee Directive Committee Committee Special Affairs
Guarantors
Meeting Investors Employees
Berlin Chair
Slide 21
Growth in tariffs for drinking water and wastewater has fallen
significantly below projections made by BWB prior to partial
privatization
The actual lower real increase in the tariffs was only made possible by efficiencies
initiated by the private partner
Rising tariffs are attributable to the negative growth in consumption and to major cost
factors
4.00
4.40
4.80
5.20
5.60
6.00
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Actual tariffs BWB vs. planned tariffs 1997 - 2010 € /m³
* Forward projection of the planning only by inflation since 2007
Planned tariffs by 1997*
Actual tariffs since partial privatization
Division of income between the state and the private partners
* S
ourc
e:
Annual R
eport
s B
WB
and V
eolia
data
Special utilization fee (Concession fee)
Groundwater abstraction fees and wastewater fees
Profit distribution to the State of Berlin
Total income for the State of Berlin
2009
23,955
65,004
132,675
221,633
2008
14,800
67,163
110,141
192,104
2007
14,800
63,334
148,849
226,983
Profit transfer to RWE and Veolia after taxes 169,115 118,484 122,259
Income in € / thousands
Slide 22
The State of Berlin is deriving substantial profits. Since partial privatization, it has gained
profits of €3.5 billion from the public-private partnership
2010
17,855
66,072
121,582
205,509
112,340
Slide 23
BWB has made a large contribution to relieving budgetary stress
* Source: Shareholding reports of the state of Berlin
** After payment of dividends to the private partners and without taxes,
concession fees, or water abstraction charges
- 800
- 600
- 400
- 200
0
200
400
600
2002 2003 2004 2005 2006 2007 2008 2009
Millions of €
Earning from all shareholdings held by the state of Berlin and shares in BWB*
Shareholding proceeds for
Berlin (all investments)
Berliner Wasserbetriebe **
(Berlin water utilities company)
Investments in the quality of water and wastewater treatment
In the 12 years since partial privatization, €3.56 billion has been invested in water
and wastewater treatment by BWB. All commitments for capital investments have
been exceeded.
BWB continues to make larger annual investments per m³ of water than other
German water companies
Slide 24
The investments become part of the fixed assets that remain usable over the long term
and can be depreciated over long time periods.
At least 25% of annual revenues must be reinvested.
Water Wastewater Self-investment and outside investments
0
100
200
300
400
500
600
700
800
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
In m
illio
ns o
f €
future slight increases in
the level of
self-financed investments
Investments in water and wastewater systems create jobs and promote employment in Berlin
Slide 25
Most of the annual capital investments of €280-290 million in water and wastewater
systems directly benefit contractors in the region
In 2009, under the management of the private partner, 85% of total goods and
services purchased by BWB (amounting to €324 million) were obtained from within
the region
BWB spending assures a steady income and employment for large numbers of
individuals in the region
Berlin benefits from a high level of water-supply reliability
since the partial privatization the rate of pipe bursts within BWB's grid has sank by
27%
within the same time frame the quota of water loss has been decreased to an
average of 5,2%
Pipe breakage rates at BWB
Ost Gesamt West
Sourc
e: W
IK s
tudy
Slide 26
Maintaining the security of supply is in Veolia’s interest, because if unpurified water
were to enter Berlin’s drinking water supply today, it would require expensive
reprocessing
Berlin’s drinking water and wastewater treatment are of the highest
quality
Berlin enjoys drinking water of outstanding
quality
BWB has invested over €900 million in the
last 10 years in modernizing the drinking
water infrastructure
Berlin’s wastewater treatment meets the
highest quality requirements and has
further improved since partial privatization
The purification processes used by BWB
result in quality levels that far exceed
European norms
Slide 27
Since partial privatization, BWB has grown into a leading utility company in matters of
water quality and excellence in wastewater treatment
Since partial privatization, BWB has become a trendsetter in the
training of young employees
Growth in the training rate and number of trainees
Quelle
: W
IK S
tudie
Trainees
Slide 28
The training rate at BWB has steadily increased under management by the private
partners
The training rate across all of Veolia Wasser’s firms in Germany is over 8%
Training rate in %
We have been able to mitigate price increases driven by falling
demand for water
Increased expenses arising after reunification – due to higher capital investments –
had to be covered through increased rates and fees. 80% of such costs were
unrelated to the quantity of water consumed.
To calculate water prices, capital expenses were applied to the quantities of water
consumed.
Since 1989, drinking water consumption has fallen by 45%. As a result, fixed costs
(which account for 80% of BWB’s operational costs) have to be distributed despite a
significantly smaller quantity of water, resulting in increased prices per liter or m3.
Slide 29
Waste water
Drinking water
The annual per capita expenditures* for water and wastewater in Berlin
has not risen since partial privatization.
*adjusted for inflation
Willingness to update the contractual agreements
For Veolia, the fact that contracts established for long periods might need to be adjusted in the face of new developments and the wishes of the partners is nothing unusual. Adjustments have already taken place on multiple occasions in Berlin.
When requests for modifications were expressed by the State of Berlin, the private partners offered to open negotiations with the State of Berlin in November 2009.
The BKartA (German Federal Anti-Trust Office) monitors the appropriateness of drinking water prices. Moreover, legal clarification is pending as to whether the Anti-Trust Office should be responsible in the first place for this kind of price monitoring at BWB.
New negotiations with the Land of Berlin are pending. The aim is to clarify the terms of cooperation following the withdrawal of RWE, the other contractual partner. Veolia is broadly prepared to engage in dialogue and negotiations about this matter. Negotiations are to address, among other things, future changes in rates as well as the ongoing qualitative development of BWB – for example, in relation to sustainability and environmental protection.
Slide 30
Thank you for your attention!
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