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Public Private Partnerships in US and Mexico

Public Private Partnerships in US and Mexico. Mark Kropilak Alberto Usobiaga November 20, 2008. Suez Environnement and selected subsidiaries. Suez Environnement Paris, FR. Suez Environnement North America. United Water. Bal-ONDEO. SUEZ ENVIRONNEMENT Worldwide.

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Public Private Partnerships in US and Mexico

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

  2. Suez Environnement and selected subsidiaries Suez EnvironnementParis, FR Suez Environnement North America United Water Bal-ONDEO UNITED WATER OVERVIEW

  3. 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 UNITED WATER OVERVIEW

  4. Suez Environnement: Water, Wastewater and Solid Waste UNITED WATER OVERVIEW

  5. United Water - Three Lines of Business Water and Wastewater Regulated Business Contract Services Business Water Tank Asset Management

  6. 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 OVERVIEW

  7. United Water Municipal Water Services UNITED WATER OVERVIEW

  8. Utility Service Company Presence UNITED WATER OVERVIEW

  9. 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 UNITED WATER OVERVIEW

  10. 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. UNITED WATER OVERVIEW

  11. Tank Owner USG Asset Management Business Model NEW - USG Business Model CLASSIC - Fragmented Business Model Coatings Manufacturer Tank Owner Engineer Contractor Inspection Firm 11

  12. 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

  13. BD@UnitedWater.com

  14. 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 UNITED WATER OVERVIEW

  15. 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 UNITED WATER OVERVIEW

  16. 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 UNITED WATER OVERVIEW

  17. 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 1,100 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

  18. Mexican Water Market Analysis • 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 1 835 m3/hab/yr (Morocco, South Africa) 13 290 m3/hab/yr (Ireland, Hungary)

  19. Mexican Water Market Share • 11% of population receives services from private operator • 2 million through concessions • 8.8 million in Mexico City’s contracts. Saltillo (pop 670 000) Agbar Mexico DF 3 (pop 1,8 M) Bal-Ondeo Mexico DF 4 (pop 2,8 M) Bal-Ondeo Aguascalientes (pop 720 000) Procativa (Veolia+FCC) Concession Cancun (pop 700,000) Bal-Ondeo + GMD Mexico DF 1 (pop 2.2 M) Proactiva (Veolia+FCC) Mixed company Service contract Mexico DF 2 (pop 2 M) Gutsa (Mex BTP)

  20. AZCAPO TZALCO GUSTAVO A. MADERO CUAUH TEMOC MIGUEL HIDALGO V. CARRANZA IZTACALCO BENITO JUAREZ ALVARO OBREGON IZTAPALAPA COYOACAN CUAJIMALPA TLAHUAC MAGDALENA CONTRERAS XOCHIMILCO TLALPAN MILPA ALTA Mexico City Contracts TECSA-IACMEX 440,558 1’233,922 Four contract zones ZonePopulation “A” - SAPSA2,189,612 “B” - IACMEX1,871,161 “C” - TECSA 2,539,698 “D” - AMSA1,990,838 TOTAL 8,591,309 515,132 462,089 351,846 410,717 359,021 151,127 685,327 1’771,673 639,021 302,483 221,762 368,798 580,776 96,744

  21. TECSA-IACMEXAchievements: 1993-2004 Contract Customer base and metered consumption increase Billing increase

  22. TECSA-IACMEXAchievements: 2004-2009 Contract Collection Efficiency: per Company Infrastructure

  23. BD@UnitedWater.com

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

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