Cuba Water/Wastewater Infrastructure Assessment Committee Privatization or Self-Strengthening for The Water Sector in Cuba: Lessons Learned From The Water

Cuba Water/Wastewater Infrastructure Cuba Water/Wastewater Infrastructure Assessment Committee Assessment Committee

Privatization or Self-Strengthening for Privatization or Self-Strengthening for The Water Sector in Cuba: The Water Sector in Cuba:

Lessons Learned From The Water Sector in Puerto RicoLessons Learned From The Water Sector in Puerto Rico

To: Association for the Study of the Cuban Economy (A.S.C.E.) To: Association for the Study of the Cuban Economy (A.S.C.E.) Miami, Florida, August 1, 2009Miami, Florida, August 1, 2009By: Jorge Rodriguez Ruiz, P.E.By: Jorge Rodriguez Ruiz, P.E.

Former Executive President, PRASAFormer Executive President, PRASA

Purpose of PresentationPurpose of Presentation

• Analyze the successes and shortcomings of the Analyze the successes and shortcomings of the Puerto Rico Aqueduct and Sewer Authority (PRASA) Puerto Rico Aqueduct and Sewer Authority (PRASA) under both partial privatization and public control under both partial privatization and public control

• Discuss similarities between Puerto Rico and CubaDiscuss similarities between Puerto Rico and Cuba• Apply lessons learned from Puerto Rico to the future Apply lessons learned from Puerto Rico to the future

of Cuba’s infrastructureof Cuba’s infrastructure

Presentation OutlinePresentation Outline

Introduction to Cuban InfrastructureIntroduction to Cuban Infrastructure

• The water and wastewater sector is currently The water and wastewater sector is currently managed by the Instituto de Recursos Hidraulicosmanaged by the Instituto de Recursos Hidraulicos

• Facility operations are largely delegated to provincial Facility operations are largely delegated to provincial governmentsgovernments

• The City of Havana and Varadero served under The City of Havana and Varadero served under public/private joint ventures with Spanish private public/private joint ventures with Spanish private companiescompanies

Privatization TrendsPrivatization Trends

• International lending institutions have International lending institutions have favored privatization of favored privatization of water/wastewater for efficiencywater/wastewater for efficiency

• Mixed ResultsMixed Results– Notable successes at privatization Notable successes at privatization

in Chilein Chile– Efforts in other countries have failed for Efforts in other countries have failed for

several reasonsseveral reasons• Conclusion: The decision of whether Conclusion: The decision of whether

to privatize involves many country-to privatize involves many country-specific issues, as well as timing and specific issues, as well as timing and preparation considerationspreparation considerations

PRASA: The First 40 YearsPRASA: The First 40 Years

• 1945: PRASA was created as a public corporation1945: PRASA was created as a public corporation• During the first 30 years, a rapidly growing industrial During the first 30 years, a rapidly growing industrial

sector and increased infrastructure needs led to sector and increased infrastructure needs led to rapid water/wastewater development and many rapid water/wastewater development and many early successesearly successes

• Early labor leadership aligned themselves with Early labor leadership aligned themselves with corporation goalscorporation goals

• Early 1970s: PRASA recognized as the best managed Early 1970s: PRASA recognized as the best managed public corporation in Puerto Ricopublic corporation in Puerto Rico

PRASA: The First 40 Years (cont.)PRASA: The First 40 Years (cont.)

• Union leadership gained political powerUnion leadership gained political power• 1970s and 1980s: Several factors led to deterioration 1970s and 1980s: Several factors led to deterioration

of serviceof service– More stringent local and federal pollution lawsMore stringent local and federal pollution laws– Greater infrastructure needsGreater infrastructure needs– Costly labor agreements with the unionCostly labor agreements with the union– Insufficient tariffsInsufficient tariffs

• Late 1980s and early 1990s: PRASA operating at a deficitLate 1980s and early 1990s: PRASA operating at a deficit• 1992/1993: Extreme dry season interrupts water service1992/1993: Extreme dry season interrupts water service

– Extremely adverse economic impactExtremely adverse economic impact

PRASA: The 1990s and the PRASA: The 1990s and the Privatization PushPrivatization Push

• 1992: Two major decisions1992: Two major decisions– Develop a “superaqueduct” from the north of the island to the Develop a “superaqueduct” from the north of the island to the

metropolitan areametropolitan area– Find a private company to manage PRASAFind a private company to manage PRASA

• Mid-1990s: PRASA became Compania de AguasMid-1990s: PRASA became Compania de Aguas– Employees remained government employeesEmployees remained government employees– Union continued to represent employeesUnion continued to represent employees– Capital improvement funding managed by AFICapital improvement funding managed by AFI– Operator compensated by “cost plus profit” methodOperator compensated by “cost plus profit” method– Major organizational changes approved by boardMajor organizational changes approved by board

• 18 plants fined by U.S. EPA for noncompliance18 plants fined by U.S. EPA for noncompliance

PRASA: New Terms in the 21st CenturyPRASA: New Terms in the 21st Century

• 2000: Government issued an RFP to alter 2000: Government issued an RFP to alter privatization termsprivatization terms

• 2002: ONDEO contracted for a fixed price of 2002: ONDEO contracted for a fixed price of $96M/year to manage PRASA’s operations$96M/year to manage PRASA’s operations– PRASA created a small organization to audit and PRASA created a small organization to audit and

monitor ONDEOmonitor ONDEO• ONDEO offered monetary incentives to union ONDEO offered monetary incentives to union

members to perform current dutiesmembers to perform current duties• ONDEO requested a $100M change orderONDEO requested a $100M change order• 2003: Mutual agreement to terminate contract2003: Mutual agreement to terminate contract

PRASA: Government De-Privatizes PRASA: Government De-Privatizes Operations in 2004Operations in 2004

• PRASA given more control through changes to the PRASA given more control through changes to the PRASA Governing LawPRASA Governing Law– Key appointments given six-year termsKey appointments given six-year terms– Appointments placed outside of political turnoverAppointments placed outside of political turnover

• 2005: Consolidation2005: Consolidation– Strategy developmentStrategy development– Re-negotiation with unionRe-negotiation with union– Development of an environmental compliance planDevelopment of an environmental compliance plan

PRASA: Government De-Privatizes Operations PRASA: Government De-Privatizes Operations in 2004 (cont.)in 2004 (cont.)

• 2006: Results2006: Results– 33% improvement in water service to communities with 33% improvement in water service to communities with

deficient servicedeficient service– 62% improvement in water leaks62% improvement in water leaks– 68% improvement in overflows68% improvement in overflows– More than 100 capital projectsMore than 100 capital projects– Over $400M invested in infrastructure improvementsOver $400M invested in infrastructure improvements– 15-year compliance agreement with EPA15-year compliance agreement with EPA– Two-phase tariff adjustmentTwo-phase tariff adjustment– 27,000 hours of training27,000 hours of training– Completion of preventive maintenance planCompletion of preventive maintenance plan

• 2007: PRASA re-entered municipal bond market2007: PRASA re-entered municipal bond market

Projects of Greatest Impact by RegionProjects of Greatest Impact by Region

Reference: "Presentation to the Board of Directors," PRASA (2006)

Consent Agreement With U.S. EPA for WastewaterConsent Agreement With U.S. EPA for Wastewater


How did negotiations start and end?How did negotiations start and end?Asunto Cómo comenzó? Cómo culminó?

Vigencia del Acuerdo 5 años 15 años

Proyectos de Mejoras Capitales

300 PMC a implantarse en 5 años

65 PMC a implantarse en 15 años

Proyectos remediativos 450 proyectos a completarse en 6 meses

73 proyectos remediativos 25 a seis meses 48 a 12- 24 meses

Penalidad civil $4.5 millones $1 millón + $3 millones (SEP en cuatro pagos semestrales)

Penalidades estipuladas Estimadas en $39 millonesen cinco años

Estimadas en no más de $1 a $2 millones en cinco años

Plan de Limpieza y Respuesta a Desbordes

A implantarse de inmediato A implantarse en un periodo de tres años

The other portion agrees not to levy administrative or judicial actions for alleged violations covered in Agreement, so long as there is compliance with commitments therein.

Structure for Follow-Up and Compliance Structure for Follow-Up and Compliance with Objectiveswith Objectives

Asunto Responsable Frecuencia

17/Enero

/ 2006

Legal V. Candelas 1 vez al mes

Recursos Humanos- proyectos B. Nieves 1 vez al mes

Finanzas- Informe financiero mensual/ deudas por cobrar/ deudas por pagar

E. Acosta Mensual

Finanzas- Cobros/ ingresos vs presupuestado E. Acosta Semanal 1

Comunicaciones- operacional/ servicio M. Quintero Semanal 1

Comunicaciones- proyectos M. Quintero 1 vez al mes

Servicio al Cliente- operacional C. Vizcarrondo Semanal 1

Servicio al cliente- proyectos C. Vizcarrondo 1 vez al mes

Centro Telefónico C. Vizcarrondo 1 vez al mes

Sistemas H. Sanabria 1 vez al mes

Seguridad y Manejo de Emergencias J. Molina Cada tres semanas

Auditoria R. Matos 1 vez al mes

1

1

1

1 1 1 1 1

1 1 1 1 1

1

1 1 1 1 1

1

1

1

1

1

30/Mayo/2006

5/Junio/2006

12/Junio/2006

19/Junio/2006

26/Junio/2006


Commercial and Operational Metrics:Commercial and Operational Metrics:5 Regions and Support Functions 5 Regions and Support Functions

Working as a TeamWorking as a Team


Users Without Water - Without Deficient SectorsUsers Without Water - Without Deficient Sectors


Achievements in Public Communications, Achievements in Public Communications, Information Systems, and Human ResourcesInformation Systems, and Human Resources

• Communications: Water savings campaign, water Communications: Water savings campaign, water theft control, water Marathon, theft control, water Marathon, OasisOasis magazine, etc. magazine, etc.

• Information Systems: Cost reductions for equipment Information Systems: Cost reductions for equipment and licenses, new networks and equipmentand licenses, new networks and equipment

• Human Resources: Institute of Training and Human Resources: Institute of Training and Improvement (metrics, absenteeism control, etc.)Improvement (metrics, absenteeism control, etc.)


Collections: Actual vs. Target (’00)Collections: Actual vs. Target (’00)

Comentarios:• El presupuesto con-

templa el incremento de las cobranzas por el cambio de tarifa a partir de Dic-05. Sin embargo las cobran-zas por el incremento tarifario comenzaron a recibirse a fines de Oct-05.

Período:Acum Fiscal – 4/06Actualizado:5/8/2006

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Mil

es d

e $

Actual $23,368 $51,495 $76,400 $104,048 $150,291 $193,156 $232,697 $277,431 $325,366 $348,337

Presupuesto $28,989 $60,263 $88,923 $105,503 $144,146 $179,815 $215,484 $252,641 $291,284 $318,562

Diferencia $(5,621) $(8,768) $(12,523) $(1,454) $6,145 $13,341 $17,213 $24,790 $34,081 $29,776

Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06

Región Actual Presupuesto Diferencia %Metro 137,275$ 129,332$ 7,942$ 6%Norte 50,145$ 45,646$ 4,498$ 10%Este 63,825$ 54,298$ 9,527$ 18%Sur 49,042$ 47,341$ 1,701$ 4%

Oeste 48,051$ 41,944$ 6,108$ 15%Total YTD 348,337$ 318,562$ 29,776$ 9%

Reg. Reg. Gob. TLM 3,389$ 4,554$ 7,942$ N 6,181$ (1,683)$ 4,498$ E 11,851$ (2,324)$ 9,527$ S 1,574$ 127$ 1,701$

OE 5,379$ 729$ 6,108$ TL 28,374$ 1,402$ 29,776$

DIFERENCIA POR TIPO CLIENTE


Actual vs. Budget (Million $) Actual vs. Budget (Million $)

Concepto Actual

Acumulado Presupuesto Diferencia

Total Ingresos Operacionales 390.3 372.4 17.9

GastosNómina 228.7 241.7 13.0 Horas Extras 27.6 21.7 (5.9) Electricidad 89.4 80.0 (9.4) Servicios de terceros varios 14.5 16.0 1.5 Honorarios y servicios profesionales 14.9 23.5 8.6 Insumos químicos 20.6 17.9 (2.7) Seguros 9.9 9.2 (0.7) Fee SuperAcueducto 18.8 14.0 (4.8) Materiales y repuestos 8.3 9.9 1.6 Mantenimiento y repar. de activo fijo 14.5 10.5 (4.0) Alquileres 7.2 8.1 0.9 Otros 52.1 41.6 (10.5) Total Gastos Operacionales 506.5 494.1 (12.4)

Resultado Operacional (116.2) (121.7) 5.5

Julio 05 a Abril 06

*No incluye la capitalización proyectada de gastos operacionales a los proyectos de infraestructura


Net Savings Net Savings Proyección 2006 vs.

Presupuesto 2006

Concepto (Ahorros)/Incrementos

Nómina y costos relacionados (45,200)

Seguros y servicios (2,750)

Piezas y repuestos operacionales (4,200)

Servicios profesionales (2,700)

Varios (3,262)

Electricidad 24,000

Servicios bancarios 2,000

Contingencias 6,500

AHORROS NETOS (25,612)


Private Financing Private Financing

• 2005: Projections and analyses2005: Projections and analyses– Work with Government Development Bank (BGF) and local banksWork with Government Development Bank (BGF) and local banks– Agreement to cancel lines of credit Agreement to cancel lines of credit

with BGF and refinance $1.2 billionwith BGF and refinance $1.2 billion– Successful presentations to local and Successful presentations to local and

continental U.S .bankscontinental U.S .banks– Work on new conditions jointly with Work on new conditions jointly with

BGF, U.S. mainland, and local banksBGF, U.S. mainland, and local banks


Lessons Learned: PrivatizationLessons Learned: Privatization

• The management of an essential public utility must The management of an essential public utility must operate without political pressure.operate without political pressure.

• When implemented, privatization must be complete – When implemented, privatization must be complete – not partial. The private operator must have full power to not partial. The private operator must have full power to make decisions to meet customer needs and protect the make decisions to meet customer needs and protect the infrastructure.infrastructure.

• The government must have a solid fiscal and regulatory The government must have a solid fiscal and regulatory entity to enforce the privatization contract.entity to enforce the privatization contract.

• The privatization agreement must have clear metrics and The privatization agreement must have clear metrics and deliverables.deliverables.

Lessons Learned: Privatization (cont.)Lessons Learned: Privatization (cont.)

• Any incremental cost to the customer must be Any incremental cost to the customer must be approved by the government-appointed fiscal agentapproved by the government-appointed fiscal agent

• The role of the management team should be clearly The role of the management team should be clearly and strongly defined when a union is involvedand strongly defined when a union is involved

• A deep understanding of the culture and an active A deep understanding of the culture and an active participation in community activities is essential; participation in community activities is essential; a high percentage of the organization’s staff should a high percentage of the organization’s staff should be localsbe locals

Lessons Learned: Self-ManagementLessons Learned: Self-Management

• Management and technical resources must be Management and technical resources must be knowledgeable of the businessknowledgeable of the business

• The management plan must be clear and well-The management plan must be clear and well-understood, and include specific targets, goals, understood, and include specific targets, goals, and metricsand metrics

• Politics must not be part of the decision-Politics must not be part of the decision-making processmaking process

• Operation should be guided by clear public policyOperation should be guided by clear public policy

Applicability to CubaApplicability to Cuba

Similarities between Puerto Rico and Cuba lending Similarities between Puerto Rico and Cuba lending themselves to a collaboration between the two include:themselves to a collaboration between the two include:

ConclusionsConclusions

• If applied properly, either privatization or self-If applied properly, either privatization or self-management could prove successfulmanagement could prove successful

• Goals for early in political transition:Goals for early in political transition:– De-politicize the implementing agencyDe-politicize the implementing agency– Establish a strong regulatory agencyEstablish a strong regulatory agency– Establish clear metrics for performanceEstablish clear metrics for performance– Perform a thorough inventory of infrastructure conditions Perform a thorough inventory of infrastructure conditions

and consequential infrastructure needsand consequential infrastructure needs– Develop an exchange program with Develop an exchange program with

Puerto Rico’s utilitiesPuerto Rico’s utilities

Documents

Cuba Water/Wastewater Infrastructure Assessment Committee Privatization or Self-Strengthening for The Water Sector in Cuba: Lessons Learned From The Water