A review and outlook of Public Private Partnerships (PPP)

in the water sector

Patrick. R. CairoExecutive Vice President

United Water & Suez Environment

9/20/2006 A review and outlook of Water PPPs I 2

Outline of Presentation

1.Fundamental Principles of PPP’s --- value created and overall experience

2.Case Studies --- results from Argentina, Bolivia and Morocco

3.Successes and Failures --- why ?

4.Future of PPP’s --- Lessons Learned

9/20/2006 A review and outlook of Water PPPs I 3

The fundamental principles of the PPP

1.    Goal is continuous service improvement Requires some flexibility in the offering

2.    Local anchoring

3.    Transparency and dialogue for all Stakeholders

9/20/2006 A review and outlook of Water PPPs I 4

Public Private Partnerships --- Range of Alternatives

Years3 ∞5 2510

Degreeof PrivateInvolvement

Affermage

Concession

DBO

BOT

Operations & Maintenance

Technical Assistance

Management

Support

Infrastructure

Contract

Delegated

Management

Private Ownership

Shared Ownership

Privatisation or

Asset Transfer

Public PrivatePartnerships

9/20/2006 A review and outlook of Water PPPs I 5

Conditions required for the PPP to succeed--- Private Sector Perspective

• A clear definition of the roles of the partners  

• Keeping operational control to achieve the goals

• Appropriate financial risk

• Political continuity

• An environment in which the law and legal certainty are ensured so that the contract is observed

9/20/2006 A review and outlook of Water PPPs I 6

Role of Government --- National, Regional & Local

Ensure access to water and sanitation to all people Ownership of the Water Resources Develop and Implement Policies Planning and Oversight Tariffs and Subsidies

Determine proper delivery of water and sanitation services (role for Local Government)

OPTIONS :

1. Facilitate self-provision by the people themselves

2. Direct provision by municipal service

3. Engage private sector service company

Monitoring/Control separate Delivery Functions

9/20/2006 A review and outlook of Water PPPs I 7

Creating a Sustainable Water and Sanitation Management Model

USERS

Expect Efficient Service Delivery

Governance

Investment

Public Private Multilateral Agencies

Management

Local Municipal Public Private

Partnership

Participatory Approach is Utilizing to the Strength of Each Party

9/20/2006 A review and outlook of Water PPPs I 8

Value Created by PPP

1. Improve Infrastructures to provide water and wastewater services for all (financial investment ?)

2. Operate and maintain existing assets to extend their useful life and minimize the needs costly new investments

3. Insure the sustainable use of water resources (Integrated Water Resources Management – IWRM)

4. Provide affordable water costs for rich and poor

In Developing countries:

Provide sustainable water and sanitation services to those not presently served (i.e. the poor)

9/20/2006 A review and outlook of Water PPPs I 9

Water in Developing Countries:Public Utilities Performance (World Bank 2002)

Unaccounted-for Water

UFW < 60%67%

UFW > 60%33%

Unaccounted-for Water

UFW < 60%67%

UFW > 60%33%

Staff per 1000 Connections

20

2

0 5 10 15 20 25

Dev. Countries

Industr. Countries

Staff per 1000 Connections

20

2

0 5 10 15 20 25

Dev. Countries

Industr. Countries

Population Coverage

Coverage > 50%67%

Coverage < 50%33%

Population Coverage

Coverage > 50%67%

Coverage < 50%33%

Service Delivery

Service < 12h/ day

42%Service > 12h/ day

58%

Service Delivery

Service < 12h/ day

42%Service > 12h/ day

58%

9/20/2006 A review and outlook of Water PPPs I 10

Water and Sanitation for Developing Countries … Millennium Development Goals

Millennium Development Goals (MDG’s) : to halve the proportion of the population without

sustainable access to safe water and sanitation by 2015 Who will pay for the needed infrastructure? Who will ensure sustainable operation and maintenance of these

services?

1.1 billion people without access to water2.4 billion people without access to sanitation

2.2 million deaths each year from diarrhoea, mainly children under 5

Access to Safe Water

4.9

4.9

3.9

1.5 0.6

1.1

1.1

0 2 4 6 8

2015

2000

1990

Population served To be served unserved

Billion

Access to Safe Water

4.9

4.9

3.9

1.5 0.6

1.1

1.1

0 2 4 6 8

2015

2000

1990

Population served To be served unserved

Billion

Access to Sanitation

3.6

3.6

2.6

2 1.4

2.4

2.4

0 2 4 6 8

2015

2000

1990

Population served To be served unserved

Billion

Access to Sanitation

3.6

3.6

2.6

2 1.4

2.4

2.4

0 2 4 6 8

2015

2000

1990

Population served To be served unserved

Billion

9/20/2006 A review and outlook of Water PPPs I 11

26.7

15.7

0

5

10

15

20

25

30

Investments (1990-2000) Investment Needed (2000-2015)

US$ (

Billio

ns)

Source: 1990-2000 - WHO Global Assessment 2000 2000-2015 – Global Water Partnership/WB Estimates

Millennium Development Goals --- Investments Needs

Average Annual Investment Implications of MDG Targets ($USB)

* Increase of ~$US 10 Billion

(+70%) in annual investment 2001-2015 is needed

Water, Sanitation & Poverty

*

9/20/2006 A review and outlook of Water PPPs I 12

The contribution of PPP’s to Meeting the Millennium Development Goals

0

1

2

3

4

5

6

7

8

9

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

in m

illio

n in

hab

itan

ts

Additional population connected during the 1993 - 2004 period with potable water

0

1

1

2

2

3

3

4

4

5

5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

in m

illi

on

in

hab

itan

ts

Additional population connected during the 1993 - 2004 period to the sanitation system

4.5 MILLION PEOPLE HAVE BEEN CONNECTED TO THE SANITATION SYSTEM

 NEARLY 10 MILLION PEOPLE IN THE EMERGING COUNTRIES ARE NOW SUPPLIED WITH DRINKING WATER

8 million with individual access 1.8 million via a collective

water supply  

 

9/20/2006 A review and outlook of Water PPPs I 13

GROWTH RATE OF SUEZ ENVIRONMENT COVERAGE HIGHER THAN THE AVERAGE RATES IN THE URBAN AREAS FOR THE COUNTRIES CONCERNED

Source: WHO/UNICEF Joint Monitoring Programme

  SUEZ ENVIRONMENT RATE RATE FOR URBAN AREAS IN THE COUNTRY

LYDEC – Casablanca 3.40% 1.89%

PALYJA - Jakarta 7.46% 1.60%

AGUAS DEL ILLIMANI – La Paz/El Alto

2.07% 1.75%

AGUAS ARGENTINAS – Buenos Aires

3.24% 0%

  SUEZ ENVIRONMENT RATE RATE FOR URBAN AREAS IN THE COUNTRY

LYDEC – Casablanca 3.40% 0%

PALYJA - Jakarta

AGUAS DEL ILLIMANI – La Paz/El Alto

5.11% 2.93%

AGUAS ARGENTINAS – Buenos Aires

2.46% 0%

Potable water

Sanitation

9/20/2006 A review and outlook of Water PPPs I 14

THE RECORD AFTER 13 YEARS WITH AGUAS ARGENTINAS

2 million inhabitants were connected to the potable water supply

1 million people were connected to the sanitation system

A major effort was made to renew and expand the services • 6,000 km of new networks were laid• 2,000 km of networks were rehabilitated

Network leaks were reduced Leaks dropped from 44% in 1993 to 32% in 2003, or an improvement of 25%

$1.7 Billion Investments were made: on average, 200 Euro million a year, or 4 times more than OSN (Obras Sanitarias de la Nacion), and with

lower rates.

91% of the resources were reinvested in the community

Case Study (see accompanying presentation)

AGUAS ARGENTINAS1993-2005

9/20/2006 A review and outlook of Water PPPs I 16

THE RECORD AFTER 8 YEARS WITH AGUAS DEL ILLIMANI (La Paz / El Alto Bolivia)

92%

100%

71%

92%

82%

100%

36%

63%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

La Paz Water La Paz Sanitation El Alto Water El Alto Sanitation

Start of Contract 2005

9/20/2006 A review and outlook of Water PPPs I 17

Infrastructures realised (1997-2005)

Connections La Paz El Alto Total

Potable water 32 338 64 703 97 031

Sanitation 24 768 51 173 75 941

Networks installed La Paz El Alto Total

Potable water 289 km 683 km 972 km

Sanitation 322 km 263 km 585 km

People connected (1997-2004)La Paz El Alto Total

Potable water 310,000 298,000 608,000

Sanitation 238,000 235,000 473,000

9/20/2006 A review and outlook of Water PPPs I 18

LYDEC (Casablanca, Morocco)

 Each year 20 to 25 million m3 of water are saved, i.e. equivalent to the needs of a Moroccan city of 800,000 inhabitants.

The percentage of "Non-revenue Water" (commercial and physical losses) has dropped from 38% to 28%.

The number of subscribers has risen from 440,000 to 710,000 (1997- year-end 2005).

9/20/2006 A review and outlook of Water PPPs I 19

But --- Argentina and Bolivia PPPs have ended early… Are these failures ???

9/20/2006 A review and outlook of Water PPPs I 20

If you listen to the anti’s …

9/20/2006 A review and outlook of Water PPPs I 21

Conclusion--- Overall, Results of PPP’s has been MixedSuccesses ---

Limeira, Brazil; Santiago, Chile; Casablanca; Jakarta; BOTT’s South Africa; China; Eastern Europe Management contracts in Johannesburg; Amman; Algiers (also --- over 1,200 in US including Seattle Tolt and Cedar Projects)

Ended by Mutual Consent --- Atlanta and Puerto Rico Poorly structured contract; inability of private sector to achieve needed efficiencies and lack of government support for labor reforms

Ended in Disputes however, significant improvements in water and sanitation have been achieved

Buenos Aires; Bolivia; Manila dramatic currency devaluation producing unsustainable financial operation

9/20/2006 A review and outlook of Water PPPs I 22

Water: an Economic or Social Good?

This is This is Free …Free …

This has a cost ………This has a cost ………somebody must pay for it !somebody must pay for it !

9/20/2006 A review and outlook of Water PPPs I 23

Water: an Economic or Social Good?

She can pay for water ………She can pay for water ………Can she pay for water ???Can she pay for water ???

9/20/2006 A review and outlook of Water PPPs I 24

Water tariff(low-income) = 0.04 €/m3

Jakarta1 jerrycan (20 l.) = 0.06 - 0.12 € = 3 - 6 €/m3

The Poor often pay 20-100 Times More for Water

9/20/2006 A review and outlook of Water PPPs I 25

Who Pays for What?

Common situation in developing countries

•Poor --- usually not connected but pay high price•Non-poor --- connected to the water network and pay a price below the cost of the service

•Municipal budget --- finances the operating deficit,

or…•Water system --- progressively falls into disrepair and ultimately collapses

Future of PPP’s

Lessons Learned

9/20/2006 A review and outlook of Water PPPs I 27

Observations from the Private Sector

1. “Heavy” Concession is not well adapted for developing countries Need political continuity Require an environment where the right and security of legal commitments are

provided

2. Large financial debt obligation by the operator does not function Not adapted to the political rhythm which is often unstable in developing countries Periodic economic crises will occur Ideological reasons

3. Private sector moving toward a “Light” concession model Operation and maintenance of existing infrastructures No large new infrastructure construction requiring heavy investments Financing in local currency Shorter contract duration – 5 to 10 years

This will insure sustainable water and wastewater utility

9/20/2006 A review and outlook of Water PPPs I 28

Actions Required by Local Governments and International Institutions (UN … WB … others)

1. Provide local / international Financing to insure the building of new infrastructures and the Renewal/Replacement of existing facilities that have met their useful life

2. Provide proper governance, high integrity and transparency of management

3. Engage all stakeholders in process (particularly the local users)

4. Implement affordable water tariffs

For the Poor:

1. Provide financial assistance (subsidies) for new water and sanitary connections

2. Create affordable water services through cross subsidies in overall tariff structure

9/20/2006 A review and outlook of Water PPPs I 29

Public Private Partnerships --- Range of Alternatives

Years3 ∞5 2510

Degreeof PrivateInvolvement

Affermage

Concession

DBO

BOT

Operations & Maintenance

Technical Assistance

Management

Support

Infrastructure

Contract

Delegated

Management

Private Ownership

Shared Ownership

Privatisation or

Asset Transfer

Public PrivatePartnerships