PPP Projects Review in Water Sector - Draft Report - 22122014 - V0 05_dk

DRAFT FOR DISCUSSION

1

1. Rationale for Public-Private Partnerships (PPP)

1.1 Introduction to PPPs

PPPs are one of several options for infrastructure development. In a PPP, the public sector focusses on acquiring services on the most cost-effective basis, rather than directly owning and operating physical infrastructure and assets.

PPPs enable the use of private sector capital to assist the development and delivery of the project.

The public sector does not have to pay anything during the construction stage of the project.

PPPs encourage the early delivery of projects, cost effective service outcomes, and compliance with

key performance indicators and service objectives.

1.2 Singapore’s PPP initiative

The Ministry of Finance (MoF) in Singapore launched its PPP initiative with the publication of the PPP Handbook (the “Handbook”) in October 2004. The Handbook recommends that government projects which require the development or redevelopment of capital assets with a cost in excess of S$50 million to look at PPP procurement as an effective and efficient method of delivery.

However, PPP may be considered for lower value projects if the nature of the project is suitable or if it can be bundled with similar projects. MoF is to act (through the PPP Advisory Council) as the central co-ordinating agency in relation to PPP in order to help educate the public and private sectors and to resolve cross-agency issues.

1.3 Rationale for PPPs

PPP delivery models are typically characterized by:

• Relatively long-term relationships, involving partnership based relationships between the

public sector and the private sector to develop and maintain the infrastructure and supply

services to the agreed standards.

• Funding structures that incorporate private sector financing to build the initial

infrastructure.

• The private sector partner playing an important role at each stage of the project through

design, construction, completion, implementation, maintenance and funding.

• The public sector focussing on the objectives (e.g. water quality and supply) to be attained

and the basis of performance measurement against those objectives.

• The allocation of risks between the public and private partners following the principle that

risks are allocated to the party who can best manage the risk (e.g. customer relationships

would remain with the public sector).

• Due to the risk transfer public sector’s exposure to cost over-runs on construction of

infrastructure is significantly reduced under the PPP model providing greater budget

certainty compared to traditional procurement.

For a government to be able to decide on whether a project has to be procured via a PPP or a

traditional procurement conducts a Value for Money assessment.


2

2. Value for Money (VFM)

VFM assessment is at the heart of any PPP procurement which aims to establish the most

economical way of procuring an infrastructure project. VFM depends on appropriate risk transfer

between the public and private sector, and involves the optimum combination of whole life cost and

quality to meet the user’s requirement.

The VFM assessment is conducted both on quantitative and qualitative basis.

2.1 Qualitative assessment

A Qualitative VFM assessment involves analysis of the project to be undertaken by assessing the

extent to which the following value drivers are achieved:

• Optimal risk allocation

• Whole of life costing efficiencies

• Innovation

• Measurable outputs

• Asset utilisation

• Better integration of design, construction and operational requirement;

• Competition

Table 1 – Assessment of VfM drivers

Value Driver Driver for efficiency saving explanation

Risk allocation Allocation of risks to the private sector offers the potential to

generate significant value for money outcomes vis-à-vis tradition

procurement.

VFM assessment involves a risk evaluation which includes transfer

to the private sector of those risks it is best able to manage,

including those associated with providing the specified services,

asset ownership and whole-of life asset management.

Whole-of-life costing PPP mechanisms incorporate the benefits of whole-of-life costing

which drive the VFM in proposed projects.

PPP bid evaluation process ensures that the contracts are not

awarded to parties who quote low construction costs and leaving

huge maintenance expenditure for a different contractor or public

sector to manage.

Instead PPP enable linking design and construction responsibility to

the same party who undertakes the long-term maintenance and

operation of the project. This ensures that whole-of-life cycle costs

have been taken into the account whilst selecting the final bidder.

Innovation PPP enables the private sector to determine the approach for

delivering the services and provide an incentive to provide the

services in the most cost-effective manner to meet the requirements

of the output specification.


3

Value Driver Driver for efficiency saving explanation

Under the payment for performance approach innovation in

maintenance planning may improve service consistency and quality

which drive the VFM.

Measurable outputs Public sector clearly specifies the nature of the services and the

outputs in a PPP contract. This in turn enables structuring a

performance-based contract.

Asset utilization PPP involves reducing costs to government through potential third-

party utilisation and through more efficient design to meet

performance (e.g. service delivery) specifications.

Better integration of design,

capital cost and operating

cost requirements

PPP mechanisms incorporate the benefits of better integration of

design, capex and opex requirements which are expected to drive

value for money.

Ongoing operational, maintenance and refurbishment requirements

become a single private party’s responsibility for the contract period

Competitive process A competitive market and the use of a competitive process helps to

encourage the private party to develop innovative means of service

delivery while meeting government cost objectives

To assist with assessing the achievement of the PPP value drivers, a relative scoring system is used

to distinguish the potential capacity of the private partner to achieve the drivers. The purpose of the

assessment is to subjectively test whether the objectives, service need and proposed structure of the

project are likely to provide the private sector with sufficient scope to access and exploit the PPP

value drivers. As a general rule of thumb there should be sufficient scope for the private sector to

exploit four or more of the seven value drivers for a PPP arrangement to be likely to deliver overall

Value for Money (VfM) when compared with the traditional public sector delivery option.

The following scoring mechanism is used for qualitative assessment of the Options against the value

drivers:

Χ Represents no scope for value generation

√ Represents some scope for value generation

√√ Represents reasonable scope for value generation

√√√ Represents excellent scope for value generation

To assess the achievement of the value drivers, a range of issues are taken into account including

(but not limited to) project experience, government policy, government role and capacity, market for

procurement, project size, risks and scope.

It is important to understand that the analysis of the project against the PPP value drivers does not

take into account all of the potential savings available from the PPP approach. Further savings may

be achieved from other areas such as private sector experience and expertise for example across

general areas of project management.


4

2.2 Quantitative assessment

The Quantitative VFM analysis compares the differential cost of competitively tendering the Project

under a PPP contract versus procuring the Project by conventional means. Governments generally

develop a financial model to understand the cost of a project if it was procured through conventional

means. This financial model is called Public Sector Comparator (PSC).

The PSC estimates the risk adjusted, whole of life cost to the Government of delivering the Project

under a traditional model. It is made up of raw or base costs, competitive neutrality and risk

adjustments, which are explained below:

Base costs: Base costs included in the PSC are assumed to represent the costs for the Government

to provide the project,

Competitive neutrality: Competitive Neutrality removes the net competitive advantages that accrue to a government business by virtue of its public sector ownership. This allows a like-with-like value for money assessment between a PSC and private bids, by removing the effects of public ownership

and including equivalent costs that would otherwise be incurred

Risk adjustments: Each risk in the project should be identified as either a Transferred or Retained Risk.

Transferred Risks are those that are likely to be transferred to the private sector under the PPP arrangement. The value of transferred risk in a PSC measures the cost government would expect to pay for that risk over the term of the Project. Retained Risks are those risks or parts of a risk that government proposes to bear itself under

a PPP arrangement. The value of retained risks in a PSC measures the cost government would

expect to bear for that risk over the term of the Project.

Figure 1: Public Sector Comparator

The results or the net present cost of the PSC is compared with the net present cost of a shadow bid

model or a private sector model. If the private sector model has a lower net present cost as compared

net present cost of a PSC, then the project is expected to demonstrate Quantitative VFM.

Figure2: Value For Money

Retained risk

Raw PSC (Base cost)

Competative Neutrality

Transferred risk


5

Results of both the Qualitative and Quantitative VFM are considered together to establish whether a

project demonstrates a VFM.

Diligence must be applied while using the results of a VFM analysis due to following reasons:

• Private sector bids at times provide a solution which deviates from RFP requirements but

still meets the government objective. Any departures from the RFP in bids must be taken

into account to ensure a like with like comparison with the PSC.

• The evaluating agency (government) needs to look through the apparent certainty of any

any figure, as it is an uncertain estimate, and that it only captures some of the important

elements in choosing how to deliver a project. For some projects, a sophisticated risk

valuation process is warranted.

• If the private sector bid incorporates additional innovations which will make it cheaper (or

more expensive) for government to deliver services, this needs to be taken into account

while comparing the private sector bids with the PSC.

Retained riskRetained risk

Raw PSC (Base cost)

Net Present costof Private Sector

Competative Neutrality

Transferred risk

PSC Private sector model

Value For Money


6

3. PPP in the global water sector

Since the early 1980s, PPP has emerged as a procurement method enhancing the value for money

for Government . The model has proven an efficient way of achieving several benefits otherwise hard

to capture. The global research on the costs and benefits of PPP is comprehensive, but the motivation

for PPP can generally be summarized as:

Transfer and utilization of private sector knowledge and innovation to the Government

Efficient transfer of risk to the private sector

Enhanced whole of life approach to the asset

Global use of the PPP model

While these advantages would also apply to PPP projects in the water sector, the use of PPP as a

procurement model for water projects is less common globally relative to other infrastructure assets

(e.g. schools, power plants, etc.).

In many European countries and the US the assets in the water sector has been considered as best

owned by the Government, thus limiting the private sector involvement to separate engineering,

planning and construction contracts and operation and management contracts without the financing

and ownership implications offered by the PPP model.

Additionally, the characteristics of the water sector in the individual countries may counter

implementation of the PPP model, as with the US, where the water sector comprises 35,000 [Source:

Stephen Smith] small, local water companies, and whether the scale required by PPP is more difficult

to achieve. Additionally, the water utilities companies in the US can access cheap public borrowing,

further reducing the appetite for the PPP model.

In the UK, most utilities companies fund new plants on the balance sheet, challenging the need for

private capital as well as the value for money proposition of the private sector.

In the previous decades attempts have been made to increase the efficiency of the water sector

through system concession agreements, where both treatment plants, pipelines and tariff setting is

transferred to the private sector. The model has predominantly been applied in Southeast Asia and

Latin America. However, the private sector had difficulties implementing the required increase in water

tariffs to finance the upfront investments in new assets and refurbishment of existing assets, leading

the abandonment of the model.

Consequently, the global pool of water PPP projects is limited with a high share of projects in

developing countries such as the Middle East.

Water treatment can be described as a four-stage process, where PPP projects historically have been

focused on the first three stages:

Primary stage: Removing biosolids from the waste water

Secondary stage: Screening of the wastewater and treatment

Tertiary stage: Improving the quality of the waste water to industrial standards

Quaternary stage: Reverse osmosis and UV screening, producing potable water of the

highest standards.


7

4. Research framework

We have identified [5] projects for review as representatives for successful PPPs in the water space

globally, out of the more than [xx] water PPPs having reached Financial Close since [2000]. Below is

a description of the method of selection we have employed to select the final [5] projects.

1. We have identified a gross list of more than [xx] water PPPs globally, which have reached

Financial Close

2. We have excluded brownfield projects and water projects with other assets than water

reclamation plants and NEWater plants, e.g. pipe projects and desalination plants

3. To ensure the highest value of the review, we have selected a subset of projects which match

the situation of Singapore:

• The country of the project must have a highly efficient water sector with low non-revenue

water

• The project should be located in an urbanized area of the country

• The project must currently be in operation

• The project must be less than 15 years old to reflect the age of the WRPs in Singapore

• Projects with a capacity of more than 55,000 m3 to reflect the capacity of the WRPs in

Singapore

The identified projects are:

• Mundaring Water Treatment Plant

• Delfluent Water Treatment Plant

• [6th October Water Treatment Plant]

• [XXX]

• [XXX]


8

5. Case studies

5.1 Mundaring Water Treatment Plant PPP

5.1.1 Country and sector overview

Western Australia is home to approximately 2.6 million people of which 77% live in the metropolitan

area of Perth, the state capital, making Perth a densely populated area. Over the last decade,

Western Australia has faced challenges to the water environment due to:

Declining average rainfall

Increasing demand for water, driven by increasing population and growth in the resource and

agricultural sectors

Increasing pressure on water for the environment due to the drying climate

Total consumptive water use in WA in 2008 was 2,286 gigaliters, of which 65% was self-supplied,

mostly through bores, on-farm dams and waterway extractions. The largest water users are are

irrigated agriculture and the mining industries.

The annual water consumption increased by 3% on average from 2000 to 2008, well ahead of the

population growth. Instead, the significant growth driver has been the increase in agriculture and

mining operations in the state.

Over the last decade, the water security in Perth has improved, largely due to the construction of

major new water supplies. [Define water security]. The improvement in the water security is

noteworthy as it has happed in a period of increased demand from the industry.

Over the past decade, WA has made major advances in developing the strategic water policy and

planning frameworks. These are based on the realisation that water resources are limited and the

previous approach of building new dams to meet the expanding demand is no longer suitable.

Similarly, the need for an integrated approach to development and management of the water

resources is recognized.

Table 1 Source: Infrastructure Report Card 2010, Water

Infrastructure Type

WA

2010

WA

2005

National

2005

National

2001

Potable water B- B- B- C

Based on these new framework and policies, the long-term outlook for the water security is good.

However, there are concerns over whether WA has access to sufficient funding to realize the long-

term benefits of the plan. PPP is one model to address these concerns.

5.1.2 Project overview

The Mundaring Water Treatment Plant PPP (MWTP) comprises the design, construction, operation,

maintenance and financing of a new 240,000 cubic meters a day raw water pump station and water

treatment plant for Western Australia. It is the first PPP in the water sector in Western Australia. The

plant provides a long-term, safe and secure supply of water into Western Australia’s wheat belt and

Goldfields regions.

The aim of the project was to provide treated water of a consistently high quality that is

microbiologically safe, aesthetically pleasing, non-corrosive to assets and achieves the required

disinfection performance, regardless of the water source used. Water for the plant is available from


9

three sources: the Mundaring Weir, the Lower Helena Dam and through augmentation from the

Integrated Water Supply Scheme

MWTP treats and pumps fresh water to Kalgoorlie, 600 km inland from Perth, replacing an existing

plant in Mundaring. The outdated technology of the existing plant reduced the quality of the water

delivered as chemicals, in particular chlorine, had to be added to the water before pumping it to

Kalgoorlie to counter contaminants in the water. While most of the chemicals were filtered out in

Kalgoorlie, the quality of the water reaching the end users suffered nonetheless.

The project cost amounted to AUD 300 million, with the contract spanning 35 years.

Water Corporation, the state-owned water utility company in Western Australia, awarded Helena

Water the PPP contract in 2011. The plant commissioning started in late 2013 and officially opened

21 March 2014.

The Helen Water consortium comprises ACCIONA Agua, United Utilities Australia, the Royal Bank of

Scotland and Brookfield Multiplex Engineering and Infrastructure. The design, construction

management and commissioning were the responsibility of Acciona and Trility. The two companies

also operate the plant under a 50-50 joint venture.

APP-Hyder joint venture was roped in to act as independent certifier and independent reviewer of the

WTP project.

Water Corporation was advised on the PPP by Corrs Chambers Westgarth, a law firm based in

Australia.

The project reached financial closure in July 2011. Approximately A$255m of the total funding

package of A$300m was provided by the Bank of Tokyo-Mitsubishi UFJ (BTMU), Banco Bilbao

Vizcaya Argentaria (BBVA), BNP Paribas and WestLB in the form of a seven-year syndicated loan.

The remaining amount was paid in the form of equity divided amongst Acciona Agua (25.05%), Trility

(25.05%) and Lloyds TSB's infrastructure fund Uberior Investments (49.9%). All equity and debt

providers were foreign.

5.1.3 Rationale for PPP

Water Corporation undertook in 2007 a study to identify the key drivers for the water industry in the

state. A key outcome was the need for stronger private sector participation, in particular enhancing

the service delivery through private asset ownership, with the aim to:

• Provide for a key focus on profit maximization and competition to drive innovation and reduce

costs

• Access private sector capital to facilitate cost efficient risk transfer away from the corporation

• Access the best of private and public sector know-how across all project elements

As a consequence of the study, MWTP was identified as a project with the potential to benefit from

private sector ownership and seen as an opportunity to test the PPP delivery model in the WA water

sector. The aim was to achieve:

• Improved water quality

• Meeting current Australian Drinking Water Guidelines

• Improved asset condition and capacity within the existing Goldfields and Agricultural Water

Supply (G&AWS) network

The rationale for PPP was underscored by Treasurer Troy Buswell confirmed the Mundaring PPP

would be a first for the Western Australian water industry:


10

"A public private partnership is the best model to deliver this vital infrastructure to the community. It

will drive value for money for water consumers by creating greater incentives for innovation and by

cost effective risk transfer to the private sector during the project life.“

5.1.4 Value for Money

The Government of Western Australia undertook a value for money (VfM) assessment of the project

prior to the decision of tendering the project as a PPP. The initial VfM assessment showed traditional

procurement (i.e. competitive alliance) of the project would yield a lower cost by approximately [4]%.

However, Water Corporation viewed that through the competitive bidding process, the slight

disadvantage of the PPP model could be overcome, yielding a positive VfM proposition.

During the bid phase, the VfM calculations were revisited, reducing the cost of the traditional

procurement thus, in theory, further reducing the VfM proposition of the PPP.

The winning bid confirmed Water Corporation’s view and offered a VfM of approximately 8% over the

reduced traditional procurement estimate, despite the winning bid was based on a design

5.1.5 Risk allocation

The risk allocation in the project is molded on the Commercial Principles for Social Infrastructure,

Infrastructure Australia’s National PPP Guidelines. A significant number of risk factors are allocated to

the consortium. These include:

• Site conditions

• Compliance with conditions

• Access and tenure thereafter

• Design – cost and fit for intended purpose, subject to limited Extension Events

• Construction – cost, timing and fit for intended purpose, subject to limited Extension Events

• Delay or not fit for intended purpose – no payment

• Liquidated damages not used

• Proponent required to provide security for performance during the D&C phase

• Performance to the required standards

• Cost of performance – predetermined indexation

• Exhaustive list of Relief Events and Compensable Relief Events

• Damages to or loss of assets

• Change in equity participation

• Refinancing risk (both up and downside) (Shared)

• Rights for Default, Step-in and Termination

• Handover requirements – asset components to have predefined residual life at the end of the

contract – assumes “forever asset”

These are risks, which can be considered to normally be transferred to the consortium in a PPP. The


11

Government has retained risks which either the Government best can manage or which may lead to

high costs if transferred to the private consortium. These include:

• Native title, artefacts, unexploded ordinance

• Initial environmental approvals [EPBCA and EPA]

• Appropriate zoning of land for sites

• Initial site access and tenure [timing]

• Limited inputs subject to price rebasing (e.g. power and insurance at years 12 and 3

respectively)

• Uninsurable risks

Ultimately, the MWTP showed generated value for money of 8.2% over the traditional procurement

option, of which the efficient allocation of risk is a major contributor. By allocating a given risk to the

party best able to evaluate, mitigate and price it, the overall project cost is reduced.

5.1.6 Payment mechanism

The payment to the consortium is regulated by the payment mechanism. The Government can decide

the water production, which can be varied throughout the day. The Consortium is required to deliver

the required water of a specified quality. Failure to do so leads to deductions in the payment.

The payment mechanism comprise three elements of the project:

• A fixed payment, meant to cover labour, power and debt service

• A variable payment, meant to cover labour, power and chemicals

• Payment related to upgrade of the pipeline

Abatements Incentivise Compliance - Project Scope & Technical Requirements

Abatements calibrated with consideration given to:

• Consequences for Corporation of Failure

• Proponent affordability including bankability

• Proponent incentive to comply

Types of Abatements:

• Fixed payment abatements - under production and recovery time (includes leakage)

• Quality abatements (variable payments abated) - failure of control point

• Ongoing abatements - ratchets

• Non Compliance Reporting failure - adds 50% to fixed and quality abatements

• Cap - Total Annual Service Charge

5.1.7 Technology

The plant is a 100% water recycling plant. The only water loss in the facility is via evaporation. To

meet the performance requirements above, the plant is based on the technology below:

• Sludge treatment and separation

• Chemical dosing and flocculation

• Dissolved air floatation and filtration (DAFF)


12

• Biological Activated Carbon (BAC) filtration

• Dissolved Organic Carbon (DOC) removal

• UV and chloramination disinfection

5.1.8 Lessons learned

The successful close of the MWTP highlighted several key insights to benefit future PPP projects:

• The prower consumption of a water treatment plant is significant. Therefore, the power

purchase arrangements can be a key differentiator between the bidding consortias

• The guarantees the bidding consortia are willing to provide depends on the nature of the

business and guarantees offered by the Government. For a water treatment plant, guaranteeing

plant efficiency can be difficult when the volume of feedstock is variable or not guaranteed

• A network asset such as a water treatment plant is heavily depending on the existing network in

place, through which the plant will receive feedstock and pump potable water. A team that

understands existing water systems is critical to achieving a successful bidding process for

each tenderer

• During the tender phase, the bidding consortia benefitted from clear design and performance

parameters from the Government, allowing them to focus on key commercial issues of the

project

• All parties benefited from a highly interactive RFP stage, where questions, clarifications and

suggestions could be exchanged between the private consortia and the Government

• Water Corp has the asset on its balance sheet, thus increasing the debt of the Government, at

a time where WA has faced downgrading of the credit rating

• From a pricing perspective, the contract does not allow Water Corp to charge extra for the

service. Therefore net profit is less under the arrangement for the Water Corp, leading to less

distributions back to WA


13

5.2 Delfluent

In the late 1990s the region of Den Haag in the Netherlands was facing multiple challenges in the

water treatment sector:

The demand for water treatment (i.e. amount of waste water produced daily) exceeded the capacity

installed to treat it; and as Den Haag was expected to grow by 40,000 households over the coming

years, the excess demand would only increase

The EU was looking to implement harsher environmental standards for waste water treatment in

2006, which the current infrastructure would not be able to live up to

As a consequence, the region was looking to procure a new water treatment facility. The process,

however, incurred multiple obstacles

Identifying the best place for the new facility was subject to public resistance through the NIMBY-

factor. Ultimately, determining the location took nearly five years

The initial proposal estimated the construction cost at around €765m. The cost of the project was

expected to nearly double the average annual household wastewater treatment bill, €135 in 2000 to

€248 in 2005

The financial impact of the project on the households was deemed not acceptable and although the

project was redesigned to reduce the cost, only little savings were achieved.

Looking to PPP as a method of achieving the necessary cost reduction, the General Association of

the Delfland Water Board defined early in the process the savings needed a to be least 10.5% in total

NPV cost over 30 years compared to the public sector comparator.

Additional criteria for private bidders were experience, the quality of technology, and maintenance

costs.

The tender process began in 2000; five companies prequalified, three were invited to tender, and two

invited to negotiate.

In October 2002 Veolia Water (then Vivendi Water) won the contract for the first public private

partnership in the water industry in the Netherlands

At an NPV of approximately €410m, the Delfluent bid was 13.4% cheaper than the public sector

comparator (PSC) (measured in NPV).

The project was two-fold: To upgrade the existing wastewater treatment plant at Houtrust and build a

new plant at Hamaschpolder.

The winning consortium would operate both plants and the domestic and industrial sewage systems

for 30 years, serving 1.7m people.

Delfland Water Board will continue to bear final managerial responsibility for safeguarding the public

service and will continue to be held liable for it.

A provisional agreement with the consortium was reached in September 2002 while financial close

was reached in November 2003. The DBFO contract was signed in December 2003, and the

consortium took over management of the existing WWTP in December 2003

Construction of Harnaschpolder WWTP began in November 2003, and was scheduled be completed

by July 2008

The project included expansion of the existing plant at Houtrust from Jan 2005 to Nov 2008. By 2008

the two plants together has a capacity of nearly 1.2m m3/day, of which the new Harnaschpolder plant

will provide around 860,000 m3/day

Total revenues from the contract are expected to be €1.5bn or €50m a year


14

The contract includes the existing WWTP and Hague region wastewater network.

The logic is that operations should be integrated, and managed by one organisation.

The contract runs for 30 years and covers foreseeable risks, as well as procedures for changing the

contract.

Treatment and maintenance standards are specified, as is the way the contractor must adapt to

stricter specifications, new standards and future investments. There are provisions for the case that

either party wishes to terminate the contract early. Details of the transfer of employees are also

covered.

Following the signing of the Delfluent PPP, the first in the Dutch water sector, in January 2004, the

European Investment Bank (EIB) drew up plans to lend €125m to the PPP venture. In May 2004

project financing of €362m was completed, including €132.5m from the EIB.

Delfluent consists of a project management and construction company, Delfluent BV, and

subcontractor operations and maintenance company, Delfluent Services BV. Delfluent is 40% owned

by Veolia and 40% by Evides; Delfluent Services is 50%-owned by Veolia Water, and 50% by Evides.

Evides was created in 2004 by the merger of Delta Water and Waterbedrijf Europoort, which

previously each held half the shares mentioned for Evides.

NPV includes inflation (and will be adjusted for the difference between estimated and actual); the real

interest rate is fixed. The fixed fee is the major part; there is also an adjustable fee for performance;

there could be penalties for quality problems, as defined in the contract.

The contract is between Delfland Water Board and the Veolia-led Delfluent consortium.

Challenges to Value for Money

The extended period of negotiation over location of the plant meant the EU 2006 deadline was close

at the time of tendering of the project

As a result, it was decided against pursuing newer technologies, which potentially could reduce the

cost, in favour of traditional technologies which could reliably be brought on stream in time to meet the

EU 2006 deadline

Cheaper bids with innovative technology were offered during the tendering process, but was deemed

to risky; if there were problems leading to delays in bringing the plant on stream, the EU deadline

might be missed

In addition, a switch to new technology at this stage would in itself have meant a further delay of 1.5

years as a new EIA (Environmental Impact Assessment) would be needed, taking the new technology

into account.

Following delays in finalising the PPP contract due to the need to write as comprehensive and well-

designed a contract as possible in this situation, Delfland has a licence from the Dutch government to

exceed EU guidelines on wastewater until 2008, when the new plant is expected to be complete.

EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and

advisory services. The insights and quality services we

deliver help build trust and confidence in the capital

markets and in economies the world over. We develop

outstanding leaders who team to deliver on our

promises to all of our stakeholders. In so doing, we play

a critical role in building a better working world for our

people, for our clients and for our communities.

EY refers to the global organization, and may refer to one

or more, of the member firms of Ernst & Young Global

Limited, each of which is a separate legal entity.

Ernst & Young Global Limited, a UK company limited

by guarantee, does not provide services to clients.

For more information about our organization,

please visit ey.com.

© 2013 Ernst & Young Solutions LLP.

All Rights Reserved.

[Optional file reference number]

Ernst & Young Solutions LLP (UEN T08LL0784H) is a limited liability

partnership registered in Singapore under the Limited Liability

Partnerships Act (Chapter 163A).

www.ey.com

PPP Projects Review in Water Sector - Draft Report - 22122014 - V0 05_dk

Documents

Transcript of PPP Projects Review in Water Sector - Draft Report - 22122014 - V0 05_dk