Case Studies Jordan 2000

PRIVATE SECTOR PARTICIPATION INWATER SUPPLY AND WASTEWATER:Case StudiesJamal SaghirSector ManagerInfrastructure Development GroupMiddle East and North Africa RegionThe World Bank: 

PRIVATE SECTOR PARTICIPATION IN WATER SUPPLY AND WASTEWATER: Case Studies Jamal Saghir Sector Manager Infrastructure Development Group Middle East and North Africa Region The World Bank Building Knowledge and Expertise in Infrastructure Finance 24 January- 4 February 2000 Amman. Jordan THE WORLD BANK

Forms of private participation: 

Forms of private participation commercialized public enterprise A continuous range of public-private partnerships, with varying degrees of private risk-taking Hybrid or intermediate forms Private O&M + financing Private O&M

MANAGEMENT CONTRACTWATER SECTOR IN GAZA STRIP : 

MANAGEMENT CONTRACT WATER SECTOR IN GAZA STRIP Daily per capita consumption is about 70 liters per capita well below levels in countries with similar incomes. In 1995, level of losses (Unaccounted for Water) was around 50%; and service coverage for sewerage was only about 25%. Water quality is poor: salinity and nitrates are exceeding up to five times drinking water norms.

GAZA PROJECT AND ITS HISTORY: 

GAZA PROJECT AND ITS HISTORY August 1995: Request from H.E. President Arafat to support a private sector Management Contract in Gaza. Stepwise approach to reform. At the end of the management contract all options would be considered. Private Sector Service Contract Operator (Lyonnaise des Eaux / Khatib and Alami) was procured in 8 months under International Competitive Bidding (ICB) procedures. 4 years starting in September 1996. Fees: fixed (US$6 Million) + incentive payment (up to US$3 Million over 4 years). Operating Investment Funds (US$12 Million) at the disposal of the Operator to make system improvements. Independent auditors to monitor Operator’s performance.

GAZA: RESULTS SO FAR: 

GAZA: RESULTS SO FAR Unaccounted For Water at 31 % down from 50% in 1995. Water consumption 50 percent greater than in 1995. Total revenue collected in 1997 was 30.7 million NIS, compared to 1.1 million NIS in 1995. 11,000 illegal connections identified, 2,000 leaks repaired, 10,000 connections replaced, 80 percent of the system mapped, 7,000 meters repaired and 8,000 replaced.

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BUENOS AIRES CONCESSION The World Bank

WHAT THE WORLD BANK GROUP DID IN BUENOS AIRES : 

WHAT THE WORLD BANK GROUP DID IN BUENOS AIRES IBRD Public Enterprise Reform Loan. helped with severance costs. financed advisory services, (Halcrow, Paribas) continued financing regulatory development. IFC Provided equity and syndicated loans to the concessionaire, Aquas Argentinas.

BUENOS AIRES CONCESSIONThe Main Elements: 

BUENOS AIRES CONCESSION The Main Elements Privatized water/sanitation service for metro Buenos Aires (pop. 12 million) in 1993 via 30-year concession. Awarded on basis of lowest tariff bid. Winning bid (Lyonnaise des Eaux) with 27.4% reduction from existing tariff. Concession contract includes mandatory service expansion and improvements. Concession regulated by tripartite agency (ETOSS) of national, provincial and municipal governments. IFC has invested in the privatized concessionaire.

BUENOS AIRES CONCESSIONResults to Date: 

BUENOS AIRES CONCESSION Results to Date Results to date following privatization: 38% increase in water production (to 5MM cu.m/day). 30% increase in water connections and 20% increase in sewerage connections. 3200 km of new water network constructed + 1100 km of existing water network rehabilitated. 1500km of new sewerage network constructed. $1.2 billion in new capital investment. Non-revenue water reduced from 43% to 36%.

BUENOS AIRES CONCESSION Results to Date: 

BUENOS AIRES CONCESSION Results to Date But there have been disputes with the Regulator, the Government and Ombudsman over many important issues: The charges for new connections - resulting in court cases and appeals. Whether some major investments are necessary. The process and methodology for periodic tariff rebasing. How the Concessionaire should be regulated.

BUENOS AIRES - ARGENTINA Results to Date: 

BUENOS AIRES - ARGENTINA Results to Date With the result that the parties renegotiated key provisions in 1998: The principles for periodic tariff rebasing. The periodic tariff increase (+5.3% increase). The network connection and environmental improvement charge. The conceding authority was transferred from Ministry of Economy and Public Works to Ministry of Natural Resources and Sustainable Development.

BUENOS AIRES PERFORMANCE IMPROVEMENTS: 

Before After 4 Years Water Supply Coverage 70% 88% Piped Wastewater Coverage 58% 63% Water Provided (days/week) Rationing 24/7 Non revenue water 43% 36% Collections Percentage n/a >94% No. of Connections 1.0 M 1.3M Average Tariff/m3 $0.51 $0.42 Annual Investment $20 M $220 M Non-guaranteed Debt $100 M $600 M BUENOS AIRES PERFORMANCE IMPROVEMENTS

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THE PRIVATIZATION OF THE METROPOLITAN MANILA WATER AND SEWERAGE SYSTEM (MWSS) The World Bank

WHAT THE WORLD BANK GROUP DID IN MANILA : 

WHAT THE WORLD BANK GROUP DID IN MANILA IBRD Upstream Policy Dialogue. helped with legislation in the mid 1990s. Regulatory Development. WBI training of regulators. finances a “public performance audit”. finances a slum sanitation program. IFC Advisory Was the lead advisor to the government for the MWSS transaction.

THE MWSS SERVICE AREA (1997): 

THE MWSS SERVICE AREA (1997) Serving 11 million people. Serving 8 cities and 29 municipalities. 850,000 water connections. 90,000 sewer connections. 3 million cubic meters daily production. 6 billion pesos (150 million US$) annual revenue.

BACKGROUND TO DECISION TO PRIVATIZE : 

BACKGROUND TO DECISION TO PRIVATIZE Poor management and under-investment. Power brown outs of early 1990s. GOP decided to privatize without new legislation. IFC's multilateral status/experience of water sector.

PRE-PRIVATIZATION MWSS: THE DECISION TO PRIVATIZE : 

PRE-PRIVATIZATION MWSS: THE DECISION TO PRIVATIZE Only 67% water supply coverage; 8% connected sewerage. High technical/commercial loss (65% lost) Average 16 hours per day water availability; 60% non-revenue-water. 8,000 employees. 9 employ. per 1000 connections Debt service US$100m p.a.

OBJECTIVES OF PRIVATIZATION: 

OBJECTIVES OF PRIVATIZATION Improve standards of service. Expand coverage of service. Increase water supply system efficiency (reduce non-revenue water). Eliminate fiscal burden on government.

INITIAL CONCERNS: 

INITIAL CONCERNS Abdication of government responsibility for a basic service. Perception of “selling the family silverware”. Foreign management and control of basic service. Profit orientation of private sector resulting in increased rates. No regulatory/monitoring structure in place. Large labor force with history of confrontation. The World Bank

OVERALL PRIVATIZATION TOOK TWENTY-ONE MONTHS: 

OVERALL PRIVATIZATION TOOK TWENTY-ONE MONTHS

PRINCIPAL ELEMENTS OF CONCESSION STRUCTURE: 

PRINCIPAL ELEMENTS OF CONCESSION STRUCTURE Twenty-five year concession for water and sewerage. Output driven service targets. Separation of service area into two zones. MWSS debt service paid for by concessionaire. Concessionaire responsible for augmentation of water supply. Conditions of employment protected. Regulatory office responsible for tariff review. Limited government guarantees. Bid award based on lowest submitted tariff.

OUTPUT DRIVEN SERVICE TARGETS: 

OUTPUT DRIVEN SERVICE TARGETS Elevate water pressure to 16 pounds per square inch. Uninterrupted 24-hour water services within five years. Compliance with Philippine national drinking water/water effluent standards. Provide universal water service coverage within 10 years/83% sewerage and sanitation coverage in life of the concession.

HOW WAS THE ISSUE OF MONOPOLY ADDRESSED:SEPARATION OF SERVICE AREA INTO TWO ZONES: 

HOW WAS THE ISSUE OF MONOPOLY ADDRESSED: SEPARATION OF SERVICE AREA INTO TWO ZONES Competitive bidding: Technical proposal and financial bid to select a private partner that can offer specified quality and quantity of the service at lowest cost. Provide independent benchmarking of performance. Balance negotiating power between concessionaires/ regulator. Promote competition in the bidding process.

HOW WAS THE ISSUE OF MONOPOLY ADDRESSED:SEPARATION OF SERVICE AREA INTO TWO ZONES: 

HOW WAS THE ISSUE OF MONOPOLY ADDRESSED: SEPARATION OF SERVICE AREA INTO TWO ZONES Creation of two zones Opportunity for benchmarking. Promote competition in the bidding process. Consortia required to bid for both zones. No consortium to be awarded two zone.

WHAT OTHER ISSUES NEEDED TO BE ADDRESSED?: 

WHAT OTHER ISSUES NEEDED TO BE ADDRESSED? Labor Issues: Include trade union to the PPP design process; Offer generous severance package before concession; Consumer Relations: Employed independent group to conduct consumer survey. Tariff Level: Raise tariff to cost covering level before concession. Regulatory Framework: Set up MWSS Regulatory Office at the time of the contract.

RISKS PERCEIVED BY CONCESSIONAIRES/BIDDERS: 

RISKS PERCEIVED BY CONCESSIONAIRES/BIDDERS Inadequate water supply from government dam or due to drought. Political will to adjust rates. Changes in laws and standards. Completion of existing projects. Differences with Regulator. Foreign exchange fluctuations.

MEASURES PROVIDED TO MITIGATE CONCESSIONNAIRE RISKS: 

MEASURES PROVIDED TO MITIGATE CONCESSIONNAIRE RISKS Grounds for tariff adjustments defined. Modification of performance targets. Early termination provisions. Government guarantees for non-performance of MWSS obligations. Force major designation. Arbitration.

RISK OF CONCESSIONAIRE NON-PERFORMANCE ALSO ADDRESSED: 

RISK OF CONCESSIONAIRE NON-PERFORMANCE ALSO ADDRESSED Penalties. Performance Bond. Early termination. Arbitration.

BID AWARD BASED ON LOWEST SUBMITTED TARIFF: 

BID AWARD BASED ON LOWEST SUBMITTED TARIFF Four bidders bid for each concession zone. Bid was awarded on the basis of the lowest combined tariff for both zones, subject to no one bidder winning both zones. Manila Water bid lowest tariff for each zone; Maynilad bid second lowest tariff for Zone West. Manila Water awarded Zone East; Maynilad Water awarded Zone West.

BID AWARD BASED ON LOWEST SUBMITTED TARIFF: 

BID AWARD BASED ON LOWEST SUBMITTED TARIFF

CONFIRMED BENEFITS: 

CONFIRMED BENEFITS Consumers paying about P7 million less per day. Non-revenue water decrease in both zones. Productivity of leak repair, connection and meter installation/repair crews increase significantly. Calls per month increase from 1,000 to 18,000. Significant headway made in apprehending and regularizing illegal connections. Number of personnel reduced.

PERFORMANCE AFTER 1 YEAR GOOD PROGRESS HAS BEEN MADE: 

PERFORMANCE AFTER 1 YEAR GOOD PROGRESS HAS BEEN MADE

THE FUTURE OF THE PHILIPPINEWATER SECTOR: 

THE FUTURE OF THE PHILIPPINE WATER SECTOR MWSS privatization is acting as a catalyst. Local Government Units and Water Districts are seriously looking at private sector participation of some form. Interest in other sectors generated (power, roads, ports, railways, hospitals, etc.).

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THE PRIVATIZATION OF REGIE DE CASABALANCA, MOROCCO

THE CASABLANCA CONCESSION: 

THE CASABLANCA CONCESSION Direct Negotiations (Sept. 1994 to April 1997). Concession Agreement signed on April 15, 1997 between the Casablanca Urban Commune and Lyonnaise des Eaux de Casablanca. Term: 30 years. Coverage: Water Supply, Sewerage and Electricity Distribution.

THE CASABLANCA CONCESSION (Cont’d): 

THE CASABLANCA CONCESSION (Cont’d) Investments over 30 years Water 500 million dollars Sewerage 1,600 million dollars & Treatment Electricity 900 million dollars 3,000 million dollars No tariff increase for first year. Tariff was in fact increased second year.

THE CASABLANCA CONCESSION (Cont’d): 

THE CASABLANCA CONCESSION (Cont’d) Lyonnaise des Eaux de Casablanca Capital: 800 million Dirhams (80 million dollars) 51% Lyonnaise and partners 49% Local partners Registration: Company listed on Casablanca Stock Exchange Employment: Took all local employees added about 50 expatriates

 Successful Private Sector Participation Needs : : 

Successful Private Sector Participation Needs : Strong and Sustained Political Support Financial Feasibility Competitive Contracting Incentives for Improvement Regulation by Results

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Thank you