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close this bookBetter Water Services in Developing Countries - Safeguarding the Interests of the Poor (DFID, 2000, 22 p.)
View the document(introduction...)
View the documentWater is Essential for Life
View the documentThe Need
View the documentRequirements for Successful PPP
View the documentProblems and Opportunities
View the documentInvestment Needs
View the documentFinance and Risk Mitigation
View the documentThe Opportunity for PPP
View the documentBack Cover

Requirements for Successful PPP

Many Governments fully appreciate the need for change, but must recognise and manage potentially contentious and unpopular necessities such as legal restructuring and the reduction of government influence, redundancies and tariff increases. Implementing these changes requires a cautious and transparent approach, and sustained political commitment.

POLITICAL WILL UNDERPINS SUCCESS

BUENOS AIRES

The process of building consensus for PPP was reinforced, by & Central Government Decree.

MALAYSIA

Government policy supports private sector initiatives and the participation of the local capital market.

MANILA

Government provided legal authority and support by passing a "Water Crisis Act" in 1995. The labour force was downsized prior to PPP.

KARACHI

Tariffs are being increased and manpower reduced in preparation for PPP. A major publicity and information programme is in progress.

MOZAMBIQUE

Government has implemented significant pre-PPP tariff increases and is committed to further increases post-PPP.

Successful introduction of PPP in water and sewerage services needs the full support and political will of the sovereign government

Major promotional and educational campaigns are being undertaken by bilateral and multilateral development agencies. "Toolkits"1 have been developed to help governments to identify and implement the best possible private sector arrangement for their particular circumstances. These "toolkits" are intended to build on the experience of other countries and cities, and provide guidance on how solutions can be tailored to meet specific local needs and conditions.

1 Toolkits for Private Participation in Water and Sanitation - The World Bank with support from DFID

The barriers to PPP in the water sector are being progressively recognised. Political will is being reinforced. The design and marketing of PPP projects is increasingly recognising the concerns of all of the stakeholders.

Financial facilities and instruments are constantly being developed and refined to enable the sharing of financial commitments and to mitigate risks. Most importantly, governments are gaining confidence as mechanisms are being developed and attitudes changed through successful PPP in their own countries in less sensitive sectors, such as telecommunications and power. They are also able to see an increasing number of successes in differing circumstances in the water sector worldwide. Success is never absolute, but, with political will from government and demonstrable achievement by the private sector, dynamic and productive partnerships can be developed.


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In order to capitalise on experience, the form of PPP to be adopted is best modelled upon previous successful projects, but with adaptations to take full account of the particular circumstances of the new situation.

The initial model for PPP must recognise operator/investor perceptions of what is appropriate.

The generic options for PPP entail widely different degrees of responsibility, financial commitment and contractual periods. Government ambitions for immediate large scale PPP may need to be tempered to recognise operator and investor caution. Investor appetite will be strongly influenced by the political and economic risks associated with the country. Investors will also look at the government's track record of implementing PPP in other sectors. It is now the norm for the views of operators to be considered in the design of PPP arrangements.


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CORPORATISATION

Santiago, Chile - Public corporations were formed as autonomous commercial enterprises preparatory to more substantial PPP in the form of private purchase of shares in the corporations. Corporatisation is often a short-term option as an intermediate stage in the introduction of PPP, although the 'delegated public management' form common in the Netherlands for example, has been in place for many years.

COOPERATIVES

Santa Cruz, Bolivia - A large and effective cooperative was started in 1979. Other examples of community water systems can be found in Ethiopia, India, Tanzania and Argentina. A very significant urban sanitation cooperative has been set up in the Orangi township of Karachi.

SERVICES CONTRACTS

Mexico City - Contracts have been let to private operators for discrete operational functions such as meter reading. With services contracts revenues are derived from the sale of services to the utility. Contracts are normally for 2-3 years duration.

MANAGEMENT CONTRACT

Trinidad and Tobago - Government has entered into a three year management contract with performance targets with a private operator. There is potential for future renegotiation to a concession basis. Generally management contracts are likely to be for 3-5 years duration.

BOT AND VARIANTS

Build Operate and Transfer - There are numerous examples in many countries. BOTs are often used for constructing new capacity in water and wastewater treatment plants. Revenues are derived from bulk treatment sale to the services provider. BOT contracts generally need to be 15 to 25 years duration in order to provide acceptable returns on the initial investment.

LEASE CONTRACTS

Guinea - The Government entered into a contract with a private operator for the operation and maintenance of water services in the Capital and sixteen towns. With leases, the private operator collects revenues and normally pays a fee to the government for the rental of the assets. The operator is not responsible for funding capital investment. Generally leases are likely to be for 10 to 15 years' duration.

CONCESSIONS

Buenos Aires - Government entered into a long-term operating and investment contract with a private operator. With concessions, ownership of the existing assets is retained by the state. Generally they are likely to be for 20 to 30 years duration to enable acceptable returns on the investments.

PUBLIC-PRIVATE JOINT VENTURES

Subic Bay Metropolitan Authority (Philippines) - The Authority is a minority shareholder in the operating company which runs the Concession for water supply and sanitation in Subic Bay. The authority's shareholding was contributed in the form of the existing assets.

DIVESTITURE

England and Wales - The publicly-owned regional water and sewerage authorities were floated in 1989 by means of a public share offering. The new companies (known as Undertakers) own the assets and operate them under a license. The licenses run for a nominal period of 25 years.

Success depends upon recognising specific needs within a broad range of generic options

Operators rushing to pre-empt their competitors and governments anxious to find rapid solutions to the difficulties facing the sector have often given insufficient attention to the fundamentals required for the success of long-term relationships. PPP contracts are effective for defining service standards and prices in the short-term. In the longer term, customer expectations, information levels, demands, costs and prices will all change with time. Regulatory structures can be set up to enable the Sector to accommodate these changes. Regulation should be designed into the relationship with the private operator from the start. The purpose of regulation is to ensure the long-term viability of the sector, and to balance the interests of all stakeholders.

In many countries there is a growing recognition of the need for appropriate structuring of the various agencies concerned with the provision of water and sanitation services. Preparation for PPP can provide an opportunity for rationalisation to the benefit of all parties with an interest in water use and the environment.

Insufficient consideration of regulation of the sector has been perhaps the major cause of breakdown of a number of PPP projects.

REGULATORS' RESPONSIBILITIES

· To ensure that water companies' functions are properly carried out

· To ensure that water companies are able to finance their activities (particularly by securing reasonable returns on their capital)

· To protect the interests of customers as regards:

- the fixing and recovery of water and sanitation charges
- the setting and monitoring of standards of service
- the terms and conditions included in the customer subscription contracts
- the definition of good practice through published codes of conduct
- the sharing of benefits from land and property disposals
- the avoidance of undue preference or discrimination

· To promote the effectiveness and efficiency of the operator

· To recognise and take account of the requirements of other regulatory bodies concerned with commercial, socioeconomic and environmental issues.