5 th World Water Forum Istanbul, March 18, 2009 Paul Reiter

On the Pathway toEffective and Efficient Utilities:

Global Experience in Private Sector Participation (PSP)

5th World Water Forum Istanbul, March 18, 2009 Paul Reiter Exec Director, IWA

a global network for water professionals

The Well-Functioning Utility: Contract Terms

Provide quality services to customers at agreed standards Expand system to serve new customers within service area Continuously protect, maintain and rehabilitate system Manage to achieve economic performance at par with the

quasi-market tariffs in line with community values Develop means for servicing poor and elderly customers Conduct interactions with customers, employees, suppliers,

shareholders and the community to ensure quality relations Develop planning capabilities to accomplish all elements Transparency & accountability framework to ensure outcomes


How Does One Achieve All of This?

Privatize immediately!

Never privatize!


Getting the Logic Right

First … Degree and form of private sector participation is an

important issue but is one element of a larger picture

The issue of private sector participation (PSP) needs to be considered in the context of the larger debate about the right framework for utility management

In particular, PSP strategies needs to be considered in the context of local/national circumstances & capabilities


Reassessment of Options for Private Sector Participation

Licensing Mechanism for Renewing Franchise

Comprehensive Regulatory Framework

Benchmarking and Reporting

National Stimulus for Innovation

Rigorous Planning Process

Effective, Efficient &

Sustainable Utilities

New Institutional and Governance Forms

Consolidation Reassessment of Options for Private Sector Participation

Institutional Restructuring & PSP


Getting the Logic Right

Second …

The provision of community water services may be accomplished in many ways– Through either fully public sector or fully private resources– Or more typically, through a mix of public and private

resources Most water services providers find solutions that are in the

“grey zone” between the poles Understanding this continuum and it organizational and

regulatory dimensions is key to good policy and good decision making leading to efficient and effective utilities


Between Black and White:Operating in the Grey Zone

Full- scaleFull- scalecontract for contract for operations operations and CIPand CIP

Public ownership of assets and control of policyPublic ownership of assets and control of policy

Strategic outsourcing:Strategic outsourcing:-- CIP-- CIP-- Treatment-- Treatment-- Separable specialties-- Separable specialties

Purely Purely municipal municipal operations operations and CIPand CIP

PrivatePrivate

Private Private operations operations and CIPand CIP

Construction

Major Design

Other Activities

Degree of PSPHigh

Low


Why Public ?, Why Private ?

Why Public ?– Public control over critical municipal services– Ready access to low cost public finance – Services are delivered within an acceptable

level of efficiency and service standards Why Private ?

– Technical and managerial capabilities– Access to private finance– Clarity and focus via contracting – Break the cycle of wide-spread corruption


Between Black and White:Operating in the Grey Zone

Full- scaleFull- scalecontract for contract for operations operations and CIPand CIP

Public ownership of assets and control of policyPublic ownership of assets and control of policy

Strategic outsourcing:Strategic outsourcing:-- CIP-- CIP-- Treatment-- Treatment-- Separable specialties-- Separable specialties

Purely Purely municipal municipal operations operations and CIPand CIP

PrivatePrivate

Private Private operations operations and CIPand CIP

Construction

Major Design

Other Activities

Degree of PSPHigh

Low

Delegated Services Contracts

Types of Private Sector Involvement

Private Company

AFFERMAGE(Lease Contract)

Fully Privately Owned

CONCESSION

Technical Assistance

Build, Own, Operate, Transfer (BOOT)

Time in Years3 Forever5 10 3020

MunicipalityDegreeof PrivateInvolvement

Joint VenturePublic/Private

Design, Build Operate (DBO)


Municipal Public:

Part of City government traditional charter

Assets publicly owned

Key Variants:- Role of national governments- Degree of fiscal Isolation - Level of private participation

Corporatized Public:

Separate agency with commercial charter


Key Variants:- Legal structure of the entity- Access to private finance- Composition of board

Delegated to Private Sector:

Typically turnkey private provider to public authority


Key Variants:- Nature and sophistication of contracting authority- Financial arrangement

Fully Private:

Private corporation with publicly traded share

Assets privately held

Key Variants:- Evolutionary context for full privatization- Regulatory environment

Continuum of Institutional Models

Public -----------------------------------------------------| ---- Private ----| Public ------------------------------| Private ------------------------------|

Asset Owner->Svc Provider->

None -------------------------------More --------------------------- CompleteSeparation from Gov’t -


Governance & Regulatory InterfaceCorporate Regulation

Informal Economic andService Regulation –through CommunityGovernance Formal Economic

andService Regulation –through Regulatoror Contract

Municipal Delegated Fully Private

CorporatizedPublic

Public -----------------------------------------| Private

Public -----------------------| Private ------------------|

Asset Owner->Svc Provider->

None ----------------------More ------------------- CompleteSeparation from Gov’t -

Health & Environmental Regulation


Observed Evolution Between Structures

Municipal Public

Corporatized Public

Equity Private

Delegation

Public -----------------------------------------------------| Private

Public ---------------------------------| Private ------------------------|

AssetOwner->

Service Provider


International Trends in Utility Ownership, Management and Governance

United Kingdom– 1974 consolidation– 1989 national privatization

Australia – 1994, 2004 national COAG reforms– Various corporatized public models launched within states

Europe– Mixed experience -> Increasingly divided– Netherlands, Scandinavia – Public– France, Spain – Mixed concession/affirmage + municipal public – German trend -> Public + private co-ownership of municipal systems

United States– Muncipal and district models prevalent; ~20% Equity Privates– Large-scale O&M contracts in a few key cities


International Trends in Utility Ownership, Management and Governance

Japan – Municipal and regional public model almost universal– O&M contracting beginning

China– Corporatization of all water and wastewater utilities– Experimenting with alternative public-private models

South East Asia – Various public models prevalent – state, municipal– Concessions in some big cities

Africa– Mixed experience ->– South Africa,Swaziland, Zambia– Ivory Coast, Gabon, Morocco– Uganda

Latin America– Large city concessions – Chilean experience

Which Model is Best? Depends what your needs, constraints, and goals are Both require certain prerequisites A corporatized public works best when …

– Strong community belief in public sector delivery of water– Institutional framework supports disciplined approach – Public finance is readily available

A concession model works best when …– Community acceptance of delegated private sector delivery – Technical and managerial capabilities cannot de readily enhanced – Private finance is required– Institutional framework permits effective contracting– Nepotism and corruption are endemic in the status quo

Each model can produce equivalent results under the right circumstances


Benefits of Well-DesignedOverall Approach -- Australia

Operating Revenue

-24%

Operating Cost -27%

Interest -77%

Tax Revs & Dividend

275%

Improvement: 1988 -- 2001 (Real $)


Thank You!

5 th World Water Forum Istanbul, March 18, 2009 Paul Reiter

Documents

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