privat sector participation

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Private Sector Participation

Session 3

ADB – Viet Nam Sanitation Dialogue16-17 April 2009Thanh Hoa



Partnership Arrangements



Reasons for private sectorparticipation

The public sector has failed to deliver a good level

of service because of lack of expertise and funds.

Assumptions:

The private sector is more efficient, and will deliver

a more cost-effective and improved quality of

service, resulting in lower budgetary allocation by

the government.

Private sector management and administration ismore flexible, dynamic and responsive.

Private sector has better knowledge of or access to

technology.



Private Sector Participation –Objectives

The objective of a utility is to deliver a service

The objective of the private sector is to make

money

These two objectives are not compatible, but

can be made to work together through a wellstructured and fair contract and good contract

management practices



Private Sector Participation –Risk

Risk equal dollars

The more risks you place on the private sector the

more you will pay for the serviceRisks can derive from assigned accountabilities orunknowns

The poor definition or assignment of risks at theformation of a contract leads to the majority ofcontract disputes

There is no advantage in causing a contractor tolose money or go broke

Risks should be placed where they can best bemanaged



Private Sector Participation –Contracts

Menu of investment arrangements:

management contracts

service contracts

lease

concessionsBuild-Operate-Transfer (BOT), Design-Build-Operate (DBO), Rehabilitate-Operate-

Transfer (ROT), Build-Operate-Own (BOO) joint capital ventures

divestiture



Private Sector: Needs

It is well worth the time and cost to ensure theseneeds are met:

Certainty – risks beyond the contractors control areexcluded from the contract, but those that mayaffect the contractor are allowed for

Clarity – what is wanted, how delivery will bemeasured, how payments will be made

Duration – important in contracts involving thedelivery of services

Fairness – one-sided contracts come with a pricetag

Legal redress



Private Sector Arrangements

The main options for private sector participation

can be clearly distinguished by how they

allocate responsibility for such functions as:asset ownership

capital investment between public and

private sectors

service provider vs. enabler and regulator

risk mitigation/management




INVESTMENT Private SectorPublic Sector

GOVERNMENT’S

ROLE

Enabler and

RegulatorProvider

Service

Contract

Management

ContractLease

Concession,

BOT, DBO

BOO,

Divestiture

INVESTMENT Private Sector

GOVERNMENT ’S

ROLE

Enabler and

RegulatorProvider

Service

Contract

Management

ContractLease

Concession,

BOT, DBO

BOO,

Divestiture

Increasing private sector involvement

… Changing role of the government



Option Asset

Ownership

Operations

andMaintenance

Capital

Investment

Commercial

Risk

Duration

Servicecontract

Public Public andprivate

Public Public 1-2 years

ManagementContract

Public Private Public Public 3-5 years

Lease Public Private Public Shared 8-15

years

Concession Public Private Private Private 25-30years

BOT/BOO/DBO/ROT

Public andprivate

Private Private Private 20-30years

Divestiture Private orPublic and

private

Private Private Private Indefinite(may be

limited bylicense)





Select the type of contract most suitable to theneed

Keep it simple – don’t follow the latest fashionif this is not right for you

You must:know what you want (which includes how

this contract will contribute to the success of

your business),know how you will measure success, and

have sufficient capacity to manage



Examples

Site Project PartnershipArrangement

InvestmentFinancing

Cost Recovery

San Fernando

City, LaUnion, Phil.

Sanitary

landfill

Design-

Build-Operate

Loan from

World Bank

real property

and businesstaxes

Guangzhou,

PR China

Xingfeng

landfill

Design-

Management

City

government

user fees, sale

of electricpower

Xilangsewage

treatment

Build-Operate-

Transfer

Mixed source(local & foreign

companies)

user fees

Bali,Indonesia

Sewagetreatment

Design-Build-

Transfer

Loan fromJBIC; co-

financing fromcentral andlocal gov’ts

user fees (stillto be

determined)



Key Messages

Financing is not a constraint - there are avariety of sources

Operations funding is the real issue – canoperating costs be covered?

Utilities (public or private) providingsanitation services can be financially viable

Private Sector is prepared to get involved ifrisks are manageable



THANK YOU.

privat sector participation

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