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close this bookWater for Urban Areas (UNU, 2000, 243 p.)
close this folder7. The role of the private sector in the provision of water and wastewater services in urban areas
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Open this folder and view contentsIntroduction
Open this folder and view contentsOptions for private participation in municipal water and wastewater
Open this folder and view contentsCompetition and regulation
Open this folder and view contentsPreparing for a private sector venture
Open this folder and view contentsManaging the process
Open this folder and view contentsManaging the contract
View the documentConclusions
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Conclusions

One of the great challenges for the twenty-first century is to provide present and future populations with adequate and safe water and sanitation. In addition, the protection of the world's water resources from unsustainable exploitation and the safeguarding of the aquatic environment require prime attention. The financial resources required to provide facilities for the many who do not have access to these services today and for future generations to come are enormous. Financial resources alone are not sufficient. Fundamental improvements in human capacity to manage and operate these services better are also needed. To this effect, past and present restrictive sector development policies based on the public sector have proven to be ineffective. The greatest need for reform is in middle- and low-income countries where both financial resources and capacity are more limited than elsewhere.

The private sector as provider of services and materials, and also as operator and financier of water and wastewater infrastructure, will have to play an important role in the future development of the sector. Involvement of the private sector is not new. In some countries it has been working for more than a hundred years. Recently, countries and cities throughout the world, including those in low- and middle-income countries, have increasingly looked to the private sector for expertise and financial resources. Yet many decision-makers are reluctant to seek the assistance of the private sector. In great measure this reluctance has its cause in misunderstandings and insufficient understanding of how the private and public sectors can work together for mutual benefit. The following conclusions summarize the salient points to consider in making decisions regarding the involvement of the private sector in municipal water and wastewater.

· Many examples exist throughout the world that demonstrate clearly that private sector participation can make significant contributions to improving the efficiency of utility management and operations and providing capital for investments; among many examples, the Buenos Aires concession stands out.

· The private sector can participate in many different ways, ranging from simple service contracts to leases and concessions to full divestiture; in these arrangements the division of responsibility and risk between the public and the private sector varies widely. Need and financial and legal conditions determine which of the many options are feasible and sustainable in a particular setting; careful analysis is needed to choose an appropriate option.

· Because of the natural monopoly features inherent in the provision of water and wastewater services, the private and public sectors must form partnerships. Enabling contractual and regulatory structures and relationships are essential to ensure that: (a) the private sector discharges its responsibilities efficiently and receives a fair return on its investment; and (b) the public sector monitors the performance of the private sector to ensure that the private partner discharges its responsibilities as agreed. Appropriate regulatory/contractual arrangements are of key importance in structuring the relationship between the public and private sector.

· The choice between the various private participation options depends on the problems to be resolved, but also on the financial capacity, stakeholder opinion, and the legal/regulatory environment in a country. The presence of a political champion is essential.

· The greater the involvement of the private sector in terms of taking on performance responsibilities and commercial risk, the higher the need for an enabling environment that provides comfort to the private sector.

· The best way to acquire a "good deal" is through competition among prospective qualified private providers of services; competition is the best way to ensure the lowest-cost deal and to dispel any notion of impropriety associated with a sole source negotiated deal.

· Introducing the private sector and choosing the most advantageous option are complex tasks, particularly in countries where no previous experience exists. Careful analysis is need to determine feasible objectives, deal with technical, financial, and regulatory issues, and prepare for and implement the bidding and contracting process. Competent and independent advice from consultants is essential to ensure a successful outcome, i.e. a lasting relationship beneficial to all parties.