|Better Water Services in Developing Countries - Safeguarding the Interests of the Poor (DFID, 2000, 22 p.)|
In the case of service, management and lease contracts, relatively little capital expenditure is expected from the private sector. For BOT and its variants capital expenditure is a major commitment early in the PPP process, normally with well defined objectives and scale. The concession type of PPP for operation, investment and revenue collection, presents the biggest range of challenges to the private sector.
Capital investment must be focused and profiled to maximise the improvements in service provision commensurate with financial sustainability.
The finances of concession based PPP are particularly difficult in the early phases. Governments have previously tended to expect rapid capital solutions, but now increasingly understand the relationships between costs, tariffs and revenues. Improvements in customers satisfaction and revenue collection, reductions in leakage and unit operating costs can be facilitated by controlled levels of capital expenditure. These measures should:
· allow a reasonable cash flow to be established
· form a platform for a growing investment programme
· allow the capital base to be maintained
· improve water and effluent quality
· allow expansion of the service
The expectations of PPP in the sector are becoming more reasonable; improved modelling of the relationships between levels of service, operations, investment and revenues is leading to a clearer appreciation of the challenges of financing PPP. More facilities are being made available to share the responsibility for financing, to provide long-term debt capital and to mitigate project and political risks.
Involvement in water and sewerage services requires long-term commitment. Experienced international water operators, frequently in consortia with local financial groups, understand the potential financial rewards from such commitments and continue to demonstrate an appetite for involvement in new opportunities.
Typical Profiles of Planned Concession Expenditure, Finance and Returns