Upload
bonnie-mclaughlin
View
219
Download
4
Embed Size (px)
Citation preview
Private Sector Participation Lessons in Water Supply and Sanitation
Tokyo June 28, 2007
Mohammed Benouahi, World Bank
Overview of Presentation
Sector objectives and strategiesOptions of private sector participationExperience from different PSP optionsBest practice lessons
Sector Objectives and Strategies
Sector objectives should be to:Provide universal coverage of water and sanitation services (because of water’s positive external environmental and health benefits)Provide efficient service (service at least cost)Achieve sustainable service (operating revenue plus public subsidies sufficient to pay for operations, maintenance and investments)
Sector Objectives and Strategies
Universal coverage is measured by:Share of population connected to piped waterShare of population connected to sewerageShare of population with 24-hour serviceShare of water samples bacteriologically safe
Sector Objectives and Strategies
Universal coverage best practice is:100 % of urban and agglomerated rural population connected to water and sewerage in Chile 100% of urban population population with 24-hour service in Chile 100% of water samples bacteriologically safe in Chile
Both public and private service providers can achieve best practice
Sector Objectives and Strategies
Efficient service is measured by:Percentage of non-revenue water (NRW), i.e. share of water produced that does not produce financial revenueStaff productivity as measured by number of employees per thousand water accounts (connections)
Sector Objectives and Strategies
Efficient service best practice is:NRW=4% in the case of the Singapore public water supply department and Japan water bureausStaff productivity below 2.0 employees per thousand water connections for Santiago de Chile and Lima, Perú Both public and private service providers have achieved best practice
Sector Objectives and Strategies
Sustainable service is measured by:Financial working ratio (cash operating costs/cash operating revenue)Share of collected wastewater treated and disposed of in an environmentally satisfactory fashion
Sector Objectives and Strategies
Sustainable service best practice is:Financial working ratio 30% (Antalya lease operator) and below 50% (Santiago de Chile private concessionaire) Share of collected wastewaters treated 73% for Chile urban sector Both public and private service providers must have appropriate financial incentives to respond to environmental directives
Options of PSP
Option Ownership Financing Operations
Service Contract Public Public Public andsome Private
Management Contract Public Public Private
Lease Contract Public Public Private
Concession Public Private Private
Operate-TransferBuild-Own- Private then
PublicPrivate Private
Reverse BOOT Public then Private Public Private
Joint Ownership Private and Public Private andPublic
Private andPublic
Divestiture Private Private Private
Period, Yrs
1 - 3
3 - 7
7 - 15
25 - 30
15 - 20
15 - 20
Indefinite
Indefinite
Options of Private Sector Presentation
Based on the risk analysis the following PSP options are the riskiest for private operators: Concessions because of demand, tariff, political, financing and construction risksLease contracts because of demand, tariff, and political risks
Options of Private Sector Presentation
The demand risk is particularly significant for concessions and lease contracts because:the concessionaire and lease contractor in essence buys the right to the revenue stream in return for paying for investments (concession) and guaranteeing the service quality (both) demand can easily decrease with better control of consumption and higher effective tariffs
Options of Private Sector Presentation
Affermage and lease contracts differ because:the remuneration under an affermage is a fixed fee (that not depends directly on the revenue)the remuneration under a lease contract is the difference between the collected revenue and the agreed lease fee paid to the owner of the systemin both cases the owner finances investments but the operator pays for operations and maintenance
Options of Private Sector Presentation
Based on the analysis the following PSP options are the least risky for private operators: Management contracts because payment is not linked to performance Service contracts because of short duration of contracts of a technical nature and few sanctions for lagging performance
Experience from different PSP options
Failed concessions and reasons for failure:Buenos Aires (Government devalued currency and did not compensate with tariff adjustment)La Paz (Political opposition following change to populist government)Jakarta (Political changes and opposition due to lagging service improvements)West Manila (Political opposition to tariff increases due to lagging service improvements)
Experience from different PSP options
Successful concessions and reasons for success:Casablanca (Economies of scale and cross subsidies due to combined power & water concession and limited financing risk)East Manila (Local concessionaire was able to manage political risk and benefit from links between improved service and real estate values)
Experience from different PSP options
Successful concessions and reasons for success:Many systems in France and in Spain such as Barcelona and in new EU members such as Bucharest, and SofiaHowever, the financing needs are less in such mature systems with high coverage as compared to developing countries’ financing needs
Experience from different PSP options
Concessions:Generally not possible because of risk averse private operators who have lost moneyPrivate operators not willing to accept demand risk (as under Build-Own-Operate-Transfer contracts)Private operators not willing to accept financing risks (and therefore try to delay investments)
Experience from different PSP options
Failed lease contracts and reasons for failure:Antalya (Private operator bid low and Government refused adjustment of contractually fixed tariff which caused operator liquidation)Conakry (Political opposition to contract renewal in spite of service improvements)
Experience from different PSP options
Successful leases and reasons for success:Gdansk (Improved performance and service quality to European standards helped by initially high service coverage)Senegal (Rapid service improvements helped by generous financing from World Bank group)
Experience from different PSP options
Failed management contracts and reasons for failure:Trinidad & Tobago (Political opposition following lack of service improvements)Zambia (Opposition to contract extension following government change, in spite of rapid improvements of service quality & performance )
Experience from different PSP options
Partly successful management contracts:Amman (Service improvements but even so government elected to replace management contract by government owned corporation, mostly for political reasons)Armenia (Widening participation of private sector based on improved performance and service quality)
Experience from different PSP options
Successful joint ownership contracts and reasons for success:Barranquilla (Rapid service improvements due to skilled operator and successful mitigation of political risks because of joint public/private ownership)Cartagena (Rapid improvements due to successful mitigation of political risk and decent national regulation of tariff and service quality)
Experience from different PSP options
Evaluation of selected management and leases:
Households with piped water (percent)Contract Before AfterAmman 90% 100%
Antalya 93% 95%
Barranquilla 60% 89%
Cartagena 74% 95%
Gaza 58% 56%
Senegal 59% 73%
Zambia 100% 100%
Experience from different PSP options
Evaluation of selected management and leases:
Constancy of supply (hours of service)Contract Before AfterAmman 4 9
Antalya 19 23
Barranquilla 19 23
Cartagena 17 24
Gaza NA 8
Senegal 16 22
Zambia 13 18
Tlipoli, Lebanon 3 24
Experience from different PSP options
Successful divestiture or privatization of assets:Chile (Steady service improvements over ten years before government-owned shares were sold to private operators at a huge financial windfall). The reasons for success includes a law that obliges operators to recover full costs of service, and a law that subsidizes up to 85% of the consumption of certified poor consumers.
Experience from different PSP options
Successful divestiture or privatization of assets:England and Wales (But the divestiture was not a net money-maker for the Government that had to write-off substantial loans to the public regional companies plus pay a “Green dowry” and agree to real tariff increases in return for selling the shares to private companies Regulation under OFWAT has proven to be best practice but not transferable everywhere
Best practice lessons
Lesson One: Best practice requires sustained political will and progress over many years (for Chile about ten years):Highest level political support of policies Creation of the instrumentation to reach political targets (laws, regulation, institutions)Consistent implementation of long-term plans to reach targets (15-year plans in Chile)
Best practice lessons
Lesson Two: Both public and private operators can achieve best practice if appropriate policies are applied consistently:Chile achieved best practice under government ownership with policies identical for public and private operators. Assets were privatized for fiscal reasons Singapore’s government ownership and management represents efficiency best practice
Best practice lessons
Lesson Three: Best practice pricing is to:Recover explicitly the full costs of service through user charges because otherwise all may be subsidizedAvoid cross-subsidies since they create financial disincentives against service to poorSubsidize on the basis of income to enable the poor to pay for the full costs of service
Best practice lessons
Lesson Four: Successful private sector participation requires that:The Government employer is as knowledgeable as the private operator Successfully tested regulation reduces the political risks of inconsistent policiesThe private sector is perceived as a partner and not an adversary as in Colombia