PlanningandpreparationofPPPsforwatersupplyservices.Indonesia

JoseCordovilla,IRSDP

WaterO&MAsia.Jakarta,21January2013

INTRODUCTION

• Aboutthespeaker– CEngMICE,MCiccp– CEO@– 15years’experienceinwaterinfrastructure&PPPS

– TeamLeader@IRSDP

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SUBJECT

• SUBJECTOFTHISPRESENTATION– DeliveryofwatersupplyservicesusingPPPs.Aspectsofprojectplanningandpreparation.

–Watersupplydeficit– IRSDPandwater–WhywaterPPPsaremovingslow– Thefundamentalissueinwatersupply

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BOTTOMLINEMESSAGES

• Waterinfrastructurehasuniquecharacteristics

• PPPsplayanimportant,yetspecificandconditionalroleinthesolution

• Capacityofthepublicsectormustbebuiltinanycase

• There’snoeasywayout• PPPshavepositiveeffectsbeyondtheproject

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GAPINURBANWATERSUPPLY

• 394PDAMs• 6,622,733customers≈36millionpeople• 24%nationalservicecoverage– 45%inurbanareas(actuallydecliningsince2007)– 11%inrural

• Non-PDAMandnon-pipedarepredominant• 161,000l/sproductioncapacity• AveragelevelofNRW=35%• Good*52%;notsogood31%;poor17%

Source:PERPAMSI(2012)

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GAPINURBANWATERSUPPLY

• WATERSUPPLYDEVELOPMENTPROGRAM– TomeetMDGsby2015– Additional60,000l/scapacity• 78%expansionofexistingsystems• 22%newsystems

– BudgetrequirementUSD5,91bn• 54%NationalBudget• 19%LocalBudget• 27%PPP

Source:WaterSupplyDirectorate(2012)

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OBSTACLES

• Growingpollutionofwaterbodies• Uncontrolledabstractionofgroundwater• Rapidurbanization• PooroperationalandfinancialperformanceofPDAMs

• Weakgovernance• Lackofcapableworkforce• Insufficientparticipationoftheprivatesector

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IRSDP

• InfrastructureReformSectorDevelopmentProgram– ADBLoanNo.2264-INO(started2006),originallyincludedgrantfromGov.oftheNetherlands

– BAPPENASistheexecutingagency– Projectdevelopment+capacitybuilding– 14Projects,3forwatersupply:Lamongan,WestSemarangandSouthernBali

– Otherprojectsfellduetofundamentalfeasibilityissues

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IRSDP– Lamongan PPPPROBLEM- NorthLamongan.Population≈230,000.- PDAMservicecoverage:3%- MostwatersupplybyHIPPAMs&vendors- Increasingpopulation,industrial&

commercialdevelopmentSCOPE- Fullconcessioncontract(20years)with

KabupatenLamongan- Intake,rawwatertransmission,WTP200l/s,

treatedwatertransmission,reservoirs,distributionnetwork,18,000houseconnections,billing&customerservice

- Targetservicecoverage65%in2034- Tariff(Rp/m3):3,200domesticand8,000

industrialin2015.20%rebasingbi-yearlySTATUS- PQlaunched

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IRSDP– WestSemarangPPPPROBLEM- SemarangBaratarea.Population≈300,000- PDAMservicecoverage:40%- Continuity:aprox 12h/day- Groundwaterabstraction,settlement- Increasingpopulation,industrial&commercial

developmentSCOPE- BOT+BTcontractwithKotaSemarang- BOT(25yearsafterCOD):intake,rawwatermains,

WTP1,000l/s,treatedwatermains,5reservoirs- BT:primaryandsecondarydistributionnetwork- VGFandguaranteeonbulkwaterpurchase- PDAMresponsiblefortertiarynetworkandHCs- Targetservicecoverage75%in2025,24h/day- Tariff(Rp/m3):4,500domesticand7,400non

domesticin2016STATUS- PQinpreparation

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Semarang City

IRSDP– SouthernBaliPPPPROBLEM- SouthernBaliarea:Denpasar,Badung,

Gianyar andKlungkung ≈ 2mpeople- Groundwaterabstractionbyhotels- Householdconnectionsonwaitinglist- Tourismdevelopmentconstrainedbylackof

waterresourcesSCOPE- BOT+OTwithBLUD(PEMPROVBali)25years- BOT(25yearsafterCOD)forUNDAsystem:

intake,rawwatertransmission,WTP1,000l/s,treatedwatertransmissionandreservoir

- OTforPETANU&PENETsystems(600l/s).- PDAMswillpurchasebulkwaterfromBLUDSTATUS- UnsolicitedproposalbyK-Water.PQunder

preparation- Singlebulkwatertariffstarts@4,500Rp/m3

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PPPWaterProjects

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PROJECT TYPE l/s IDRbn

PREPARATION

BekasiMunicipality Concession 300 210SemarangRegency BOT 100 103JatigedeRegionalScheme BOT 3.500 3.800Karyan-SerpongConveyance BOT 10.000 6.900WestSemarang BOT 1.000 750SouthernBali BOT 1.600 150Banjar+Banjarbaru2 Concession 500 60

TRANSACTION

BandarLampung Concession 500 929Umbulan BOT 4.000 2.068TangerangRegency Concession 900 503Lamongan Concession 200 15NorthBekasiRegency Concession 300 160

CONTRACT/CONSTRUCTION

Sampit BOT 280 55TangerangMunicipality BOT 1.920 1.063GresikRegencyLegundy BOT 200 47GresikRegencyDriyorejo BOT 400 86IndramayuRegency BOT 100 15Banjar+Banjarbaru1 BOT 500 71

B2B VARIOUSPROJECTS B2B 8.700 1.874

TOTAL: 35.000 18.859

Ø MostprojectsareBOT,especiallyforlarge-capacityonesØ Two-thirdsofthiscapacitywillnotbeavailablebefore2016

WHYISPROGRESSSOSLOW?

CROSS-SECTORPPPCHALLENGES• CapacityofGCAs• AbilityofGCAstocommittolong-termpaymentobligations

• LackofregulatoryharmonisationWATERPPPCHALLENGES• Waterisparticularlycapitalintensive• Waterisgeographicallyintensive• Hasahighcostrecoverygap

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CROSS-SECTORPPPCHALLENGES

CAPACITYOFGCAs(GOVERNANCE)• Toidentifyandmeasuretheneeds• Toprioritizeinfrastructure• ToidentifysolidPPPcandidateprojects• Toidentifyrisksandrequisites• Topreparecredibleproposalsforfunding• Tomanage/monitortheproject• Totakereal‘ownership’

ØBAPPENASispreparingacapacitybuildingprogramforGCAs,toincludeVfM analysis

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CROSS-SECTORPPPCHALLENGES

ABILITYOFGCAsonlong-termpayments• Availability-basedcontractsrequireGCAtoenteramulti-yearpaymentobligation

• Budgetsareplannedandapprovedyearly• GuidelinesforbudgetingissuedbyMoHA donotaccountforPPPmulti-yeardisbursements

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CROSS-SECTORPPPCHALLENGES

LACKOFREGULATORYHARMONISATION• PresidentialRegulation67/2005onPPPs,amendedbyPresidentialRegulations13/2010,56/2011and66/2013

• Regulation6/2006onmanagementofstate/regional-ownedassets

• GovernmentRegulation50/2007onImplementationProcedureofRegionalCooperation(includingPPPs)

• Sectorlawsandregulations

Ø BAPPENASisdoingathoroughreviewoftheregulationstowardharmonisation

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WATER-SPECIFICCHALLENGES

CAPITALINTENSITYOFWATER• Waterinfrastructurerequiresmorecapitalinvestmentperunitofrevenue:– Twiceasmuchaselectricity– Threetimesasmuchasgas– Fourtimesasmuchastelecommunications

• Unitinvestmentrequiredgrowsexponentiallyasthesizeofthesystemdecreases

ØLimitedparticipationofprivatefinanceSource:AWWAandBeecher,MannandStanford.

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WATER-SPECIFICCHALLENGES

GEOGRAPHICALINTENSITYOFWATER• Waterisincompressible:storageandtransmissionisexpensive

• Resourceoftencrossespoliticalboundaries,asdoespollution

• Manyoftheassetsareunderground:uncertaintyonconditionoftheassets

• Landacquisition/accessandcrossingswithotherservices/assets

Ø Increasedpolitical,cost&schedulerisks

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WATER-SPECIFICCHALLENGES

THEHIGHCOSTRECOVERYGAPOFWATER• Waterisgenerallyperceivedasnecessarybutthatshouldbeprovidedatlowcost

• Willingnesstopay(WTP)ismuchlowerthancostrecoverylevelandabilitytopay(ATP)

ØThisgeneratesafundamentaleconomicandfinancialprobleminthedevelopmentofwatersupplyschemes

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THEFUNDAMENTALPROBLEM

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FULLCOSTRECOVERYLEVEL

WILLINGESSTOPAY/TARIFF

Poorservice

LowWTP

LowRevenue

Insufficientinvestment

Deterioratingcapacity

THEFUNDAMENTALPROBLEM

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EXISTINGSITUATION

TARGETSITUATIONFULLCOSTRECOVERYLEVEL

1. WHOPAYSFORTHISDEFICIT?

2. HOWDOWESHORTENTHISTIME?

DEFICIT

BOTHISSUESAREINTERRELATED

ADDRESSINGTHEPROBLEM

• Government:buildingtheassetsdoesnotdirectlytranslateintogoodservice.– Maycombinewithleases/performance-basedmanagementcontractstoimproveefficiency

• PDAM:manyarenotfinanciallycapabletofundlargeinvestments(creditworthiness)– Managementcontractsand/orcapacitybuilding

• Privatesector– Expectedreturnsandguaranteesaredirectlyrelatedtoriskperceived

• Hybridfinancingsolutions2216/12/16

KEYRISKS

• Resourceavailable• Demand– Publicimage– Lawenforcement,particularlygroundwaterextraction

• Construction– Costoverruns– Scheduleoverruns

• Availability– Meetingtheoutputspecifications– LoweringO&Mcosts

• Political– Tariffsetting

• Financial2316/12/16

ADDRESSINGTHEPROBLEM

• Privateoperatorscanusuallymanage– Availabilityrisk– Constructionrisk(toanextent)– Demandinspecificcases– Financial(toanextent)

• Therisktakenwilldependon– Qualityofinformation– Expertise– Guarantees

ØTheplaceoftheprivatesectorisinbringingexpertiseandefficiency,notonlycapital

ØPublicpartnermustperforminanycase2416/12/16

FORMSOFPPPENGAGEMENT

• Concessions:construction,demand&avail.risks– GoodRDSandassetbaselinerequired– Sensitivetopoliticalriskontariffrebasing– WillprobablyrequireVGF

• BOT:construction&availabilityrisks– Paymentguarantee(financial&legalcapacity)– MayrequireVGF

• Lease(avail+demand)/affermage (availabilityonly)– Complexityindefiningremuneration/incentivelevel

• Performance-basedmanagementcontracts– NRW,commercialmanagement– Complexityindefiningremuneration/incentivelevel– Investmentremainswiththegovernment

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REQUISITESFORPUBLICSECTOR

• Sufficient&reliabledata– Demand,WTP– Conditionoftheassets– Performanceindicators– Legalframework

• Understandtheprocessfromthestart– Risksandrewards:therightcompensation,penalisationandcontingencymechanisms

– Complexitiesoftheprocess• Buildandmaintaincapacity– Commitstaff– Sourcetherightadvisors

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‘SIDEEFFECTS’OFPPPs

• PPPshaveeffectsbeyondsingleprojects• Shiftofpublicinstitutionstodemand-basedattitudes,customer-focused

• Efficiencyprinciples• Duediligenceprocessesfostertransparency

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CONCLUSIONS

• Waterinfrastructurehasuniquecharacteristicsthatexplainthestatusquo

• TheroleofPPPsisspecificandconditional• GreatercapacityinthepublicsectorisneededtoknowwhentogoPPPandhow

• Qualityofinformationisessential• PPParrangementsareverycase-specific• PPPshaveeffectsbeyondtheproject

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Terima Kasih

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