1 st NATIONAL WATER & SANITATION FORUM Public-Private-Partnerships (PPPs) in Water Supply and Sanitation Sector Aji

1. 1st NATIONAL WATER & SANITATION FORUMPublic-Private-Partnerships (PPPs) in Water Supply and Sanitation SectorAjisegiri, B.AFMWR Sheraton Hotel & Towers, Abuja, August 29 – Sept., 1, 2006

2. Key topics of this Session • Concept of PPP • PPP Options & Pre-requisite • PPP Selection & Governance • Lessons from a decade of PPP in WSS in developing countries • Attributes of a sustainable PPP

3. What do we mean by PPP in Water? the public service delegation concept Asset owner Operator Delegation of Management The Government – as asset owner and entity responsible ultimately for the delivery of the public service to the population - contracts out to a private party the service provision & operation of assets through delegation of management. PPP in water is NOT privatization (no sale of assets)

4. Why was PPPs promoted in the 90s for WSS utilities ? • Poor performance of water utilities delivering poor service and without funding for coverage expansion • Improve service quality and access • Better governance framework: arms-length relationships between operator and owner • Access to private financing

5. Public-Private Participation (PPP) models PPP

6. PPP Pre-requisites OPTION POLITICAL COMMITTMENT COST-COVERING TARIFFS REGULATORY FRAMEWORK MARKET TRANSPARENCY Management Contracts High Low to Moderate Low to Moderate Low Lease / Affermage Contracts High Moderate to High Moderate Moderate Concession Contracts High High High Moderate Divestiture High High High High

7. Selecting a PSP option What you get • p.s. incentives for asset managt • financing • p.s.incentives for O&M • know-how Divestiture Concession BOT Mgt contracts, lease Service contracts What it takes • government commitment • macroeconomic, business climate • regulatory capacity

8. Important Notice! • It is not only the option chosen but the process by which the objectives of the reform process are achieved, that matters. • Ensuring that the benefits of reform accrue to the poor as well as the rich.

9. Important Notice! • The sustainability of reform and the long-term future of utilities will depend on the success in extending services to low-income communities. • The poor won’t benefit unless the system as a whole delivers a technically workable and financially viable service which is socially appropriate, environmentally sound and delivered by an organization which endures.

10. Stakeholders • State Executive Council • Ministries-Civil Servants • Infrastructure/Works • Finance/Economy • Environment • Local Government • Consumer Advocates • Stakeholders • Legislative Body • Regulatory Bodies • Civil Society • Judiciary Policy Framework Legal Framework Utility Service Provider Operational Framework Corporate Framework • Stakeholders • Management • Employees • Labor Unions • Shareholders • Investors • Financiers • Stakeholders • Bulk water suppliers • Distribution • Consumer Groups • Professional Assoc. ã World Bank 2005 Governance of a Utility PPP Multiple Stakeholders

11. Creating the enabling environment • Financial Sustainability • Increasing Efficiency • Controlling and Reducing Costs, by better management, sound O&M, least cost solutions, financial planning • Affordable Standards, Efficient Delivery • Increasing Revenues, by collecting bills, adequate and improved pricing, subsidy policies targeting the poor, , improving service • Good Governance, including • Establishing a Regulatory Framework • Defining public and private roles • Increasing Effectiveness (and Equity) • Increasing access, serving the poor

12. Lessons from a decade of PPPs in WSS (1) • PPP can bring significant benefits on service quality for customers • But it requires government to address the issue of tariff: • financial viability = full cost recovery: • PPPs are viable only if tariffs are high enough to support sustainable cost recovery • Political resistance to tariff increases …God gave us the water for free… but he forgot to give us the pipes…

13. Low Tariff – Poor Service: The Vicious circle Poor Services Low Tariff Assets Deterioration Low Revenue Neglect of Maintenance Weak Finances

14. Lessons from a decade of PPPs in WSS (2) • Ideological resistance to private sector participation in water is a reality • PPPs are complex agreements, which need strong supporting legal & institutional framework • Limited number of private actors, with little appetite for projects in developing countries

15. Lessons from a decade of PPPs in WSS (3) • Limited scope for private financing: • Financial capacity of operators • Foreign currency risk • Lack of long term loans in local currency • Moving to models of private management/operation with public financing (lease/management contract)

16. Attributes ofa sustainable PPP framework - 1 • Roles must be clearly Defined and Incentives must be internally consistent – When in conflict, the financial trade-offs must be explicit. • Risks should be allocated to the Party that is Most Capable of Managing such Risks. • Third-Party Agreements should be utilized to hold responsible parties Accountable and to convert implicit charges to explicit ones.

17. Attributes of a sustainable PPP framework - 2 • Agreements should be at Arms-Length and Enforceable. • There must be an Appropriate Balance of Power – No one party should have overwhelming authority.

18. A crow was sitting on a tree, doing nothing all day. A small rabbit saw the crow, and asked him, "Can I also sit like you and do nothing all day long?” The crow answered: "Sure, why not.” Jumped on the rabbit... and ate it. So, the rabbit sat on the ground below the crow, and rested. All of a sudden, a fox appeared, CORPORATE LESSON

19. CORPORATE LESSON Moral of the story is…. To be sitting and doing nothing you must be sitting very, very high up.

20. Some Issues for Consideration • What roles should the allocated to the private sector? • How can we make the water supply and sanitation sector attractive to the private sector? • How can we make private sector involvement pro-poor?

21. Thank you