“Metrics, Performance & Ratings;A New Paradigm for an Important Business

Global Corporate Citizenship: Multi-sector Partnerships for Progress

World Environment Center April 25, 2003

New York, NY

Norman F. AndersonNorman@cg-la.com

The Context

A ratings agency focused on municipal water utilities in the developing world will put in place a fundamental infrastructure to meet the Millennium Development Goals of the United Nations and the Bush Administration

It is an absolute priority that market forces -- discipline, competition, transparency and entrepreneurial energy -- begin to influence a system that is actually a balkanized set of natural monopolies spread throughout vast territories in developing countries

A ratings system could easily replace privatization as the public policy paradigm for rapidly improving water services around the world, in a sustained way, benefiting from market forces while

leaving ownership and control in public hands.

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AREAS OF FOCUS

The Three Big Goals

The Problem

The Solution - Key Options

The Initial Steps

The Result

Water is the most complicated - and the most sensitive - infrastructureWater is the most complicated - and the most sensitive - infrastructure

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Goal #1

DEPLOY RESOURCES EFFECTIVELY!

0

5

10

15

20

25

30

35

40

45

UK - rep Baltic - rep Brazil - rep Mexico - rep0

2

4

6

8

10

12

14

16

Brazil Chile US Mexico UK Baltic

Unaccounted for water Employees per ‘000 connections

36.01

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$MMLost through inefficiency

$MMLost through inefficiency

ChileanAverage

Goal #2

MOBILIZE THE EXTRAORDINARY POWER OF SOFT INFRASTRUCTURE!

The MarketCompetitionEntrepreneurial energy

Goodwill - Government/Private SectorGoal of the UNGoal of the Bush Administration

Current ProgramsPromAgua in Mexico

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Goal #3

UNDERSTAND PRIORITY PROBLEMS AND USE BEST PRACTICES TO SOLVE THOSE PROBLEMS!

During the two decades since it was famously used by Xerox to transform its fortunes, benchmarking has achievedcredibility internationally, in the public and private sectors, asa way of facilitating the comparison of performance and theidentification and exchange of best practice.

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THE DESIGN SOLUTION

The “problem” is remarkably similar to that which S&P was created to solveThe “problem” is remarkably similar to that which S&P was created to solve

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MexicanMunicipal Water

Banobras/CNA

CCA WEC

Private Sector

CG/LABlack & Veatch Ratings Agency

C-Part FundingEfficiencyFinanceability

Ratings

Target Countries

Latin America Mexico Brazil Peru Venezuela Colombia El Salvador

Rest of the World India Nigeria China Kenya Hungary Romania

Harvard Wants to do a Series of Case Studies Supporting the InitiativeHarvard Wants to do a Series of Case Studies Supporting the Initiative

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THE SOLUTIONThe Mexico Case

Can you create an entity to Benchmark Mexico’s Municipal Water Utilities?

Yes

How would that entity be designed and staffed? Goals/Market Creation/Throughput

How would it be funded? Public and Private Sector Commitments Standard & Poors and Moodys model

Who would be in it? Board Efficient and Motivated Executives

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The “solution” is very straightforward and not particularly controversialThe “solution” is very straightforward and not particularly controversial

1. The Entity

MX RatingsMX Ratings

Model to be replicated in other countries

Technical Benchmarking

National Credibility

Assessment + Best Practices

Audit

MarketCreation

Action

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2. Design & Staffing

MX RatingsMX Ratings

Audit Goals

Market Creation

Best Practices

A ‘regulator’ is expensive, and does not work - this addresses the problemA ‘regulator’ is expensive, and does not work - this addresses the problem

Market-basedDiagnostics

Market-basedImplementation

100/year

10

Board (P/P)Board (P/P)

03

40

Public Information

Market-basedAudits & RegularUpdates

180/year

53 Full TimeEXECUTIVES

53 Full TimeEXECUTIVES

1111

3. Funding

Stage 1 - 6 Months Establish Metrics Design Entity

Stage 2 - Operation Audits Best Practices Information Sales

Grant - $150,000Mexico

USIADB

Grant - $150,000Mexico

USIADB

??

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3b. Funding - The Ratings Agency Model

Provide an Information ServiceFundamental to market creation --

publicFundamental to market operation -- private

ProductsAudits municipal/state/federal

Reports private sector

Best Practices municipal/state/federal

Information Critical for PUBLIC DECISIONSInformation Critical for PUBLIC DECISIONS

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4. Participants

Board Mexico Government Funding Agencies Private Executives

NOT ALCHEMY - Goal is to IMPROVE EFFICIENCYNOT ALCHEMY - Goal is to IMPROVE EFFICIENCY

Key ExecutivesMexican Ratings AgenciesMexican Engineering FirmsMexican Financial Institutions

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NEXT (Mexico) STEPS

Make a preliminary “Go” decision

Get Funding

Determine benchmarking metrics

“Sell” the idea to relevant stakeholders

Conduct 3-5 initial audits

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Four RESULTS

Catalyze improvement in efficiency of 30% over the next 3 years

Releasing $75 million into the market Matched with $75 million in additional funds

Create a market, so that municipalities self-generate solutions

Internally Through entrepreneurial energy

Create a resource, so that appropriate best practices can be implemented

Consulting SWAT team

Structure a process of budgeting priorities

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LEADERSHIP CHALLENGE

This is a BIG change

At one level it is a technical changeWhich is relatively easy, and ‘technical’

At another level it is an adaptive changeWhich is very difficult, because it tends to create winners and losers

Leadership will be required to manage this process

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Critical Actors

White HouseWhite House

World BankWorld Bank

USAID/MDOUSAID/MDO

UNUN

PriorityOrganization Issues

A Multi-Sector Partnership for Progress? WEC Picking Ripe FruitA Multi-Sector Partnership for Progress? WEC Picking Ripe Fruit

Setting up a new agencyAnd also encouraging AIDTop FP Goal - anxious

Setting up a new agencyAnd also encouraging AIDTop FP Goal - anxious

Stuck in the strategy ofPrivatization, and so will move very slowly, but have bench-marking capabilities

Stuck in the strategy ofPrivatization, and so will move very slowly, but have bench-marking capabilities

Have funding and mandate, And are seeking a workable Strategy - work well withPrivate Sector

Have funding and mandate, And are seeking a workable Strategy - work well withPrivate Sector

Prime mover behind MDG, Developed through consult With Harvard.

Prime mover behind MDG, Developed through consult With Harvard.

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Vision

“Where there is no vision the people perish”

Proverbs

VISIONARY ORG: Sees What Needs To Be Created, And Creates ItVISIONARY ORG: Sees What Needs To Be Created, And Creates It

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