Public Private Partnerships in US and Mexico Mark Kropilak Alberto Usobiaga November 20, 2008.

Public Private Partnerships in US and Mexico

Mark Kropilak

Alberto Usobiaga

November 20, 2008

Suez Environnement and selected subsidiaries

2008 I UNITED WATER OVERVIEW 2

Suez EnvironnementParis, FR

Suez EnvironnementNorth America

United Water Bal-ONDEO

SUEZ ENVIRONNEMENT Worldwide

• 112 million population served with drinking water and wastewater treatment

• 62,000 employees

• 12,000 municipal and 4,000 industrial treatment plants built

• 3,000 municipal contracts

• $90 million budget for water researchat six research and development centers

• Revenues of $18.4 billion Euros


Suez Environnement: Water, Wastewater and Solid Waste


United Water - Three Lines of Business

Water Tank Asset Management

Regulated Business

Contract Services Business

Water and Wastewater


United Water Facts and Figures

•Population served 27 million in 48 states

•Water treatment capacity 945 million gallons per day

•Wastewater treatment capacity 815 million gallons per day

•Employees 2,600

•Total assets $2.5 billion

•Revenue $800 million


United Water Municipal Water Services

Utility Service Company Presence

82008 I UNITED WATER OVERVIEW

Four Types of Public Private Partnership

1. Operation Model Municipal owns; private company operates

> Who pays for capital projects

2. Acquisition Model In many ways a partnership; experience with > dozen municipal acquisitions

> Employee transition> Rate Gradualism Plan> Committed Capital Projects

3. Building Model DBO or some variation

> A guaranty from DB firm; Short Term> Separate guaranty from O firm; Long Term

4. Asset Management Model Life cycle approach to certain assets; upfront rehab and ongoing maintenance

> Levelize payments to match budgeting process


Acquisition PPP

•Focus on core government functions Improve the livability of the community

> Police, streets, parks, recreation > Housing, urban renewal, tax reductions

Water ? Wastewater ???

•Monetize assets – redeploy funds Improve main street, new borough hall; recreational Rainy day fund: save principal, use interest; reduce taxes Underground pipes versus above ground tanks

•Financial gain with no loss of regulatory control Buyer can provide service as well, or better. Rates and service are regulated by state agencies.


Asset Management Business Model

11

CLASSIC - Fragmented Business Model NEW - USG Business Model

Tank Owner

USGTank Owner

Coatings Manufacture

r

ContractorEngineer

Inspection Firm

Municipal Benefits

•Shifts Risk to USCI•Guaranteed Protection of water tank•Extended Tank life•Predictable and reasonable costs•Attractive tank appearances•Emergency repair services•Dependable water storage•Health and safety regulatory compliance•Professional firm working as a partner

[email protected]

Operations PPP

•Under a PPP, the City retains:

Ownership of the utility

Control of the management of the utility

Establishment of the user rates

Approval and control over capital spending and investments

Establishment of overall utility policies


Public Private Partnerships Benefit All Stakeholders

•Enhanced revenue collection Lien collection services

•Lower cost of operation for the City

•Lower rates and improved service for citizens

•Environmental stewardship

•Enhanced career opportunity for employees


Basic Contract Provisions

•Term - 5 to 20 years•Scope of work

Daily operations, maintenance and management of facilities

Meter reading and customer service Billing and collections Capital planning assistance

•Performance criteria•Employee transition and retention•Shared and balanced risk allocation

•Termination and dispute resolution provisions


Bal-ONDEO Facts and Figures

Key Highlights:

● 50/50 partnership with Peñoles (BAL Group, one of the major groups in Mexico, main business: mining & insurance)

● Number one player with half of the private market

● Still relatively small market for private operators: 10% of population

● 2 major activities: Concession and Contract Services

● Managed turnover of $77M and 1,000 employees

Presence in Mexico:

● 1993: Service Contract award for ¼ of Mexico City (Tecsa)● 2002: Acquisition of Azurix Mexican assets, $96 million 100%

financed in MXP (no equity)● 2004: Mexico City contracts renewal until 2009

1,100 employees

Mexican Water Market Analysis

13 290 m3/hab/yr

(Ireland, Hungary)

1 835 m3/hab/yr(Morocco, South Africa)

● Water stress on the north: 32% of water availability but 77% of population & 85% of GDP, stimulating higher tariffs and efficiency & reuse efforts

● Public Operators managed by municipalities (65%) or states (35%) without any regulation, weak control and transparency (no regulatory framework and conflict of interests)

● Relative good national urban network coverage (95% water & 90% sewage) but with low sewage treatment capacity (30%)

● General low efficiency: 60% NRW and 80% collection rate

● Tariffs barely cover Opex: national average tariff $ 0.30/m3. Most replacement and development Capex made with government subsidies

Mexican Water Market Share

Concession

Mixed company

Service contract

Aguascalientes (pop 720 000)Procativa (Veolia+FCC)

Mexico DF 1 (pop 2.2 M) Proactiva (Veolia+FCC)

Mexico DF 2 (pop 2 M) Gutsa (Mex BTP)

Saltillo (pop 670 000) Agbar

Mexico DF 3 (pop 1,8 M)Bal-Ondeo

Mexico DF 4 (pop 2,8 M)Bal-Ondeo

Cancun (pop 700,000)Bal-Ondeo + GMD

Mexico City Contracts TECSA-IACMEX

IZTAPALAPA

TLAHUAC

XOCHIMILCO

MILPA ALTA

MIG

UEL

HIDALG

O

ALVARO

OBREGON

TLALPAN

MAG

DAL

ENA

CO

NTR

ERAS

CUAJIMALP

A

AZCAPOTZALCO

GUSTAVOA. MADERO

CU

AU

HTE

MO

C

COYOACAN

IZTACALCOBENITOJUAREZ

V.CARRANZA

96,744

580,776

368,798

302,483

1’771,673

639,021

410,717

351,

846

359,021

685,327

151,127

221,

762

515,

132

462,089

1’233,922440,558

Four contract zones

Zone Population

“A” - SAPSA 2,189,612

“B” - IACMEX 1,871,161

“C” - TECSA 2,539,698

“D” - AMSA 1,990,838

TOTAL 8,591,309

TECSA-IACMEXAchievements: 1993-2004 Contract

Customer base and metered consumption increase Billing increase

TECSA-IACMEXAchievements: 2004-2009 Contract

2004 2005 2006 2007

Hydraulic districts (#) 11 13 53 53

Pipes replacement (km) 20 55 67 325

Rehabilitation (km) 4 17 8 9

* Aqueduct 500 lps 2 tanks, 1000 m3 each

2 pumping stations, 500 lps each

Pipe 30 inches 6 km.

Infrastructure

Aguamex Sapsa Iacmex Tecsa Total

Invoice (MXN)

1386 1368 922 574 4250

C. Efficiency 79.2% 75.1% 86.8% 83.8% 80%

Collection Efficiency: per Company

[email protected]

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Public Private Partnerships in US and Mexico

Mark Kropilak

Alberto Usobiaga

November 20, 2008

Public Private Partnerships in US and Mexico Mark Kropilak Alberto Usobiaga November 20, 2008.

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