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!

Veolia Wasser GmbH

Lindencorso

Unter den Linden 21

10117 Berlin

Tel. 030 20 629 56-0

Fax 030 20 629 56-31

Berlin@veoliawasser.de

Niederlassung Leipzig:

Sachsenpark

Walter-Köhn-Straße 1a

04356 Leipzig

Tel. 0341 24 176-0

Fax 0341 24 176-443

Leipzig@veoliawasser.de

Büro Neu-Isenburg:

Dornhofstraße 34

63263 Neu-Isenburg

Tel. 06102 29 99-15

Fax 06102 29 99-76

NeuIsenburg@veoliawasser.de

Kontakte:

www.veolia.com

www.veolia.de

www.veoliawater.com

www.veoliawasser.de

Büro Braunschweig:

Taubenstraße 7

38106 Braunschweig

Tel. 0531 383-3929

Fax 0531 383-3930

Braunschweig@veoliawasser.de