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Domestic private sector participation for small town water supply

Domestic private sector participation for small town water supply. Presented by : Noupheuak Virabouth Director of the Water Supply Authority (WASA) Deputy Director of Department of Housing and Urban Planning (DHUP), Ministry of Public Works and Transport

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Domestic private sector participation for small town water supply

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  1. Domestic private sector participationfor small town water supply Presented by: Noupheuak Virabouth Director of the Water Supply Authority (WASA)Deputy Director of Department of Housing and Urban Planning (DHUP), Ministry of Public Works and Transport Frédéric Naulet Program ManagerGroup of Research and Technological Exchange (GRET) Some key lessons learned from MIREP National Consultation Workshop on PPP Delivery of Basic Services in Mongolia, Nov. 2008

  2. MIREP in Laos: pioneering water supply delivery through PPP approach Since 2004, water supply projects are implemented in 8 small towns (~500 families on average) through decentralized concession/BOT contracts • District authorities are the owner of the water utilities • Domestic private investors are granted as the concessionaires of the water supply services. MIREP has been implemented by DHUP and WASA with technical assistance from the NGO “GRET”. The Programme is funded by the French Ministry of Foreign Affairs, SEDIF and Municipality of Paris.

  3. MIREP main stakeholders Ministry of Public Works an Transport (MPWT) NationalLevel WASA and WSD of the Department of Housing and Urban Planning Provincial Government(Cabinet of the Governor) GRET ProvincialLevel DPWT District Authorities Private Investor LocalLevel Users

  4. The implementation process : 3 main phases Phase 1: Conducting the feasibility study: Step 1: identification of the site -> Step 2: socioeconomic survey -> Step 3: technical survey -> Step 4: financial analysis -> Step 5: PPP approval Phase 2: Selecting the investor/Establishing the contract Step 6: concessionaire selection -> Step 7: detailed designs -> Step 8: poor HHs selection -> Step 9: contracts negotiation-> Step 10: contracts signature Phase 3: Constructing the system/Managing the service Step 11: supervisor selection -> Step 12: construction works -> Step 13: community training -> Step 14: connection works-> Step 15: training and follow-up activities

  5. MIREP subsidy mechanism Investment subsidies are provided by MIREP through Investment Funds established at provincial level • Objective: The Provincial Investment Funds aim to mobilize financial resources to develop water supply services under PSP • Resources: the Funds receive resources from MIREP Program and from the yearly concession fees paid by the concessionaires • Management:Subsidy contracts are signed between DPWT and each investor granted for a water concession. The contracts mention about: 1) The amount of subsidies allocated: on average 30% of the total investment costs are subsidized the remaining is private equity 2) The conditions of subsidies disbursements: investment subsidies are disbursed through Output Based Aid mechanism

  6. MIREP credit mechanism MIREP set up a Guarantee fund in February 2008 in partnership with a commercial bank to release low-cost loans to the concessionaires • Objective: The Guarantee Fund aims to cover some of the losses of the bank (Lender) in case of default loan repayment by the concessionaires (borrowers): the Fund covers 50% of the the outstanding debt in case of default loan repayment • Management: The Guarantee Fund is managed by DHUP (the Guarantor): a guarantee agreement is signed between the Guarantor and the Lender to define the modalities of using the Guarantee Fund • In exchange to the right of using the Guarantee Fund the Lender must release loans to the concessionaires under certain conditions, including: 1) low interest rate (class A)2) medium-term loans (5 years maximum)3) lower collaterals

  7. MIREP DONORS GUARANTOR(DHUP Ministry of Pubic Works and Transport) TECHNICAL ASSISTANCE(GRET) Guarantee Agreement LENDER(Lao Development Bank) LoanContract LoanContract LoanContract Borrower #1 Borrower #2 Borrower #1

  8. Examples

  9. Lesson learned #1: a learning process approach • Innovative models such as PPPs are better implemented through learning process approach allowing trials, mistakes and adjustments • Analyze the institutional contextand the socio-economic situation before exploring the potential of domestic private sector for water supply service delivery and pilot experimentations • 2)Build political consensus at the earliest stage of the programme implementation through information sharing, debates and promotion of successful PPP experiences • 3)Adjust the model regularly during the experimentation by: • Assessing continuously the program outputs • Ensuring that the experiences are transformed into lessons learned

  10. Lesson learned #2: Target the right domestic entrepreneurs • Understand their motivations and interest: They seek safe business opportunities but are not only driven by profit making (contribute to developing the small-town) • 2) Evaluate their investment capacity and financial constraints: usually varies between 60,000 and 150,000 US$ but low cash flow; • 3) Identify their assets: They have previous experience of business management (in water business, civil engineering). They have good understanding of the public sector and are willing to partner with public authorities;

  11. Lesson learned #3: Set-up the appropriate PPP Various PPP schemes have been developed for water supply: but they must be reinvented with regard to the local conditions.

  12. Lesson learned #4: Adapted regulation • Achieving sound regulation implies building cooperation between various public and private actors: requires time, common rules and articulating different regulatory instruments • 1) At national level: • Water regulation agency (e.g. WASA in Laos) • Adapted specifications, monitoring and evaluation (benchmarking), set up tariff grid, professional licenses, … • 2) At provincial level: • contract used as regulation instrument • But mostly a learning tool for the local authorities and entrepreneur • 3) At local level: • Involve local authorities (chiefs of village, traditional leaders) • Monitoring committees channel information in both direction (top - down, bottom – up)

  13. Develop decentralized / tailored contracts to promote responsibilities at local level but most important is the process of contracting out (preliminary consultations, methodology to negotiate) and the legal document itself Local Entrepreneur(water provider) Local Authority Contract Clients / Users • A transparent but simple tendering process • The contract is made deliberately simple in local language (no juridical terms)

  14. Lesson learned #5: Combine different sources of financing The water supply investments can be financed through 3 main different ways: a. Private equity : from the entrepreneurs savings b. Public subsidies : from government agencies or external donors c. Commercial loans : from financial institutions Within MIREP Laos, the entrepreneurs finance most of the investment with private equity. However some subsidies are provided and medium-term commercial loans are released;

  15. Subsidies: Combine a mix of upfront and output based subsidies • Upfront subsidies help attract domestic entrepreneurs and reduce capital barriers • Output based subsidies provide incentive to increase service coverage rate and to target special communities • Credit: it comes as a complementary (10 to 30%) source of funding • Leave the credit to a commercial bank • When necessary put in place partial credit guarantee schemes • to secure the bank, • decrease collateral size, • increase duration (5 years – 10 years)

  16. Lesson learned #6: Build mutual confidence between public and private sectors • Obtaining good cooperation between public and private stakeholders requires confidence and mutual understanding • 1) Multiply meeting opportunities: • Regular contract review meetings • Regular public hearing and committee meeting • 2) Emphasize exchanges between local stakeholders: • experience sharing during study tours • between operators, officials or heads of village • 3) Facilitate relations, create links

  17. Lesson learned #7: Users, from awareness to marketing • Innovative communication approaches should be developed to optimize service connection rate and good use of piped water • 1) Social marketing approaches, • involving the local water entrepreneurs • With incentives to connect maximum numberof families • Festive marketing campaign • 2) Introduce quality concept to users and entrepreneurs • Train on rights and obligations of users • Water service and quality

  18. Thank you Mr. Noupheuak Virabouth Water Supply Authority (WASA)Deputy Director of the Department of Housing and Urban Planning, Ministry of Public Works and TransportLane Xang Avenue, Vientiane Capital, Lao PDR Mr. Frédéric Naulet Groupe de Recherche et d’Echanges Technologiques (GRET) Ban Phonxay, Xaysettha District PO 2483, Vientiane, Lao PDR www.gret.org fnaulet@gret.org

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