The story of two recent water projects…….. June 2005

1. The story of two recent water projects…….. June 2005

2. Two Projects ……… • Morocco Irrigation project: Ground water depleting. Irrigation system badly maintained. PPP to bring tariffs to a reasonable level. BoT…two local companies • Greater Bangalore Water: Piped water and sanitation for suburbs of Bangalore… 12% per annum growth endangered by infrastructure bottlenecks

3. Guerdane Project Introduction of Private Sector Participation in Irrigation

4. A Conservation Project • Covers 10,000 hectares in Souss-Massa region (near city of Agadir) • Cultivated with citrus groves (including export products) • Over 100,000 people estimated to be earning a living (directly or indirectly) from citrus farming in the region • Land owned by 670 farmers, noted for high-level productivity and innovative commercialization • Private wells are currently the only source of irrigation water • Due to over-exploitation, the groundwater table level is diminishing by 2.5 meters per year on average • Several farms are abandoned every year as wells dry up or water pumping costs become unaffordable

5. The Project - Concept • Delegation of public service to private sector • 30-year concession • Build-Transfer-Operate (BTO) scheme: • Private sector will be responsible for construction (including its financing) • Upon completion, infrastructure is transferred to the state • Operation of infrastructure is delegated to private sector • Surface water allocation of about 45 million m3 • Cost of infrastructure estimated at USD85 million (conveyance pipe + network) with working capital… US$100 million

6. Public Sector Contribution Tariffs No incentives for economical use of water Actual Cost Pumping Ground Water Too high for farmers Public Sector Contribution • Commercial tariffs based on the true economic cost of service may be too high relative to affordability/willingness to pay of farmers • Public sector contribution (subsidies) could reduce the tariffs required for the private investor to realize its return on investment • Balance is key between the public sector contribution and the incentives for economical use of water

7. Agence de Bassin Water Supply ORMVA Delegating Authority Private Sector Concessionaire –us$42 million Water Distribution Users US$ 8 million Hassan II Funds $ 50 million Public Contribution Tariff Payment Transaction Structure

8. Results • Bids received from 2 consortia, both led by local financial investors • Both bidders met the criteria for technical and financial capabilities, and submitted responsive bids in accordance with the bidding procedures • Results were outstanding, especially given the base price of 1.8-1.9 Dh/m3 estimated for the Project: • The losing bidder’s financial offer was 1.88 Dh/m3 • The winning bidder’s financial offer was 1.48 Dh/m3 • ONA, CDG, InfraMan, BRL • Farmers are thus set to enjoy a substantially favorable tariff, on top of the high quality of service expected from private sector operation • The winning bidder, led by the Moroccan conglomerate Omnium Nord-Africain (ONA), will be Morocco’s first ever domestic private infrastructure operator in irrigation projects

9. Greater Bangalore Water • Chequered success of urban water privatizations • The “software” rather than “technical” issues • Tariff strucure/tariff level/tariff adjustment/service improvement/PPP/out-put based aid • Level of Local industry involvement (vested interest), base line unrealistic • Pro-poor program and public mobilizaiton (tariffs,NGOs,pilot projects,ward committees,monitoring report card) • Transparency and Public relations • Paced introduction of PSP

10. Decision Criteria • Technical Management “Low Input Consumption & Operating Cost , Minimized Capital Cost” • Consumer Satisfaction “Excellent service to consumers at reasonable Tariff, to achieve efficiency of 24/7” • Financial and Economic Sustainability “ NO Demand for funds from GOK, to maintain self funding system” • Risk Level Allocation “Shifting of Risk to Private Sector” • Environmental/Social impact “Efficient use of water resources. Reduction in losses. Effluent Treatment, Water safety standards significantly above WHO” • Political Sustainability “Pro-Poor, Transparency & Legitimacy, Communication, Partnership, Public Feedback”

11. Key Developments • Greater Bangalore Water Supply and Sanitation Project • Loss Reduction in Bangalore city • Cauvery IV – Phase II • Others • Addition of STPs • Expansion of distribution system (W&S) in Bangalore City • Expansion / Replacement of WTP

12. GB Contractor BWSSB Public Third Party Private Third Party Current Status – Bangalore Metropolitan Area Bulk Water Supply (Cauvery Stages and WTP) 8 ULBs – nominal or No coverage Water and Sewerage Services in Bangalore City Sewerage (STPs)

13. GB Contractor BWSSB Public Third Party Private Third Party ….After Greater Bangalore Water Supply and Sanitation Project Bulk Water Supply (Cauvery Stages and WTP) Contract for Bulk Water Water and Sewerage Services in 8 ULBs Water and Sewerage Services in Bangalore City PSP in GBW&S Contract for Sewerage Treatment Sewerage (STPs) 4 addnl STPs (BTO)

14. GB Contractor BWSSB Public Third Party Private Third Party ….After City of Bangalore Loss Reduction Program (2006-2010) Spin-off Bulk Water to a new Public Sector Company Bulk Water Supply (Cauvery Stages and WTP) Contract for Bulk Water Contract for Bulk Water Water and Sewerage Services in 8 ULBs Water and Sewerage Services in Bangalore City 5 year program to improve Losses and improve sewerage Contract for Sewerage Treatment Sewerage (STPs)

15. GB Contractor BWSSB Public Third Party Private Third Party ….After Implementation of Cauvery IV Phase II Expansion of WTP or new WTP (BTO) or divestment of Old WTP Additional Raw Water Requirement Cauvery Stages WTP Contract for Bulk - Raw Water Contract for Bulk - Treated Water W&S Bangalore - North W&S Bangalore - Central W&S Bangalore - South Three integrated W&S utilities (Concession) Contract for Sewerage Treatment Sewerage (STPs) STPs - BTO

16. Characteristics of a Hybrid PSP • Term: 7 years water distribution and sewage collection….. New STPs will be BTO’s • Services • Provide UWSS • Detailed engineering and quality control on sewerage component • EPC on ongoing capital investments • Performance Based LOS • Quality of H2O and availability • Technical parameters • Customer Satisfaction • Major constraint… government not ready to give up control of tariffs… • Financial Considerations • Provides initial and ongoing incremental working capital • Revenues are escrowed to cover with output based aid • O&M, Bulk Water, STP, MF, Ongoing Capex and Debt Service

17. Hybrid Structure Legislative Amendment Required Amendment Not Required Rules or Regulations required assuming that there is a detailed amendment enabling PSP

18. Combined Impact on Bangalore Metropolitan Area

19. …..Thank You