A review and outlook of Public Private Partnerships (PPP) in the water sector

1. A review and outlook of Public Private Partnerships (PPP) in the water sector Patrick. R. Cairo Executive Vice President United Water & Suez Environment

2. Outline of Presentation • Fundamental Principles of PPP’s --- value created and overall experience • Case Studies --- results from Argentina, Bolivia and Morocco • Successes and Failures --- why ? • Future of PPP’s --- Lessons Learned

3. The fundamental principles of the PPP 1.Goal is continuous service improvement  Requires some flexibility in the offering 2.Local anchoring 3.Transparency and dialoguefor all Stakeholders

4. Concession Affermage BOT DBO Operations & Maintenance Technical Assistance 3 5 10 Years 25 ∞ Public Private Partnerships --- Range of Alternatives Privatisation or Asset Transfer Private Ownership Shared Ownership Degree of Private Involvement Delegated Management Infrastructure Contract Public Private Partnerships Management Support

5. Conditions required for the PPP to succeed--- Private Sector Perspective • A clear definition of the roles of the partners • Keeping operational control to achieve the goals • Appropriate financial risk • Political continuity • An environment in which the law and legal certainty are ensured so that the contract is observed

6. Role of Government --- National, Regional & Local Ensure access to water and sanitation to all people • Ownership of the Water Resources • Develop and Implement Policies • Planning and Oversight • Tariffs and Subsidies Determine proper delivery of water and sanitation services (role for Local Government) OPTIONS : • Facilitate self-provision by the people themselves • Direct provision by municipal service • Engage private sector service company Monitoring/Control  separate  Delivery Functions

7. Governance USERS Expect Efficient Service Delivery Investment Management Creating a Sustainable Water and Sanitation Management Model • Public • Private • Multilateral Agencies • Local • Municipal • Public Private Partnership Participatory Approach is Utilizing to the Strength of Each Party

8. Value Created by PPP • Improve Infrastructures to provide water and wastewater services for all (financial investment ?) • Operate and maintain existing assets to extend their useful life and minimize the needs costly new investments • Insure the sustainable use of water resources (Integrated Water Resources Management – IWRM) • Provide affordable water costs for rich and poor In Developing countries: Provide sustainable water and sanitation services to those not presently served (i.e. the poor)

9. Water in Developing Countries:Public Utilities Performance (World Bank 2002)

10. Water and Sanitation for Developing Countries … Millennium Development Goals • 1.1 billion people without access to water • 2.4 billion people without access to sanitation • 2.2 million deaths each year from diarrhoea, mainly children under 5 • Millennium Development Goals (MDG’s) : • to halve the proportion of the population without sustainable access to safe water and sanitation by 2015 • Who will pay for the needed infrastructure? • Who will ensure sustainable operation and maintenance of these services?

11. Average Annual Investment Implications of MDG Targets ($USB) * Increase of ~$US 10 Billion (+70%) in annual investment 2001-2015 is needed Water, Sanitation & Poverty Millennium Development Goals --- Investments Needs Source: 1990-2000 - WHO Global Assessment 2000 2000-2015 – Global Water Partnership/WB Estimates *

12. The contribution of PPP’s to Meeting the Millennium Development Goals • 4.5 MILLION PEOPLE HAVE BEEN CONNECTED TO THE SANITATION SYSTEM • NEARLY 10 MILLION PEOPLE IN THE EMERGING COUNTRIES ARE NOW SUPPLIED WITH DRINKING WATER • 8 million with individual access • 1.8 million via a collective water supply 5 9 5 8 4 7 4 6 3 5 in million inhabitants 3 in million inhabitants 4 2 3 2 2 1 1 1 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Additional population connected during the 1993 - 2004 period with potable water Additional population connected during the 1993 - 2004 period to the sanitation system

13. SUEZ ENVIRONMENT RATE SUEZ ENVIRONMENT RATE RATE FOR URBAN AREAS IN THE COUNTRY RATE FOR URBAN AREAS IN THE COUNTRY LYDEC – Casablanca LYDEC – Casablanca 3.40% 3.40% 1.89% 0% PALYJA - Jakarta PALYJA - Jakarta 7.46% 1.60% AGUAS DEL ILLIMANI – La Paz/El Alto AGUAS DEL ILLIMANI – La Paz/El Alto 2.07% 5.11% 2.93% 1.75% AGUAS ARGENTINAS – Buenos Aires AGUAS ARGENTINAS – Buenos Aires 2.46% 3.24% 0% 0% GROWTH RATE OF SUEZ ENVIRONMENT COVERAGE HIGHER THAN THE AVERAGE RATES IN THE URBAN AREAS FOR THE COUNTRIES CONCERNED Potable water Sanitation Source: WHO/UNICEF Joint Monitoring Programme

14. THE RECORD AFTER 13 YEARS WITH AGUAS ARGENTINAS • 2 millioninhabitants were connected to the potable water supply • 1 million peoplewere connected to the sanitation system • A major effort was made to renew and expand the services • 6,000 km of new networks were laid • 2,000 km of networks were rehabilitated • Network leaks were reduced Leaks dropped from 44% in 1993 to 32% in 2003, or an improvement of 25% • $1.7 Billion Investments were made: on average, 200 Euro million a year, or 4 times more than OSN (Obras Sanitarias de la Nacion), and with lower rates. • 91%of the resources were reinvested in the community

15. Case Study(see accompanying presentation)AGUAS ARGENTINAS1993-2005

16. 100% 100% 92% 92% 82% 71% 63% 36% 20% 10% 0% THE RECORD AFTER 8 YEARS WITH AGUAS DEL ILLIMANI (La Paz / El Alto Bolivia) 100% 90% 80% 70% 60% 50% 40% 30% La Paz Water La Paz Sanitation El Alto Water El Alto Sanitation Start of Contract 2005

17. Infrastructures realised (1997-2005)

18. LYDEC (Casablanca, Morocco) • Each year 20 to 25 million m3 of water are saved, i.e. equivalent to the needs of a Moroccan city of 800,000 inhabitants. • The percentage of "Non-revenue Water" (commercial and physical losses) has dropped from 38% to 28%. • The number of subscribers has risen from 440,000 to 710,000 (1997- year-end 2005).

19. But --- Argentina and Bolivia PPPs have ended early… Are these failures ???

20. If you listen to the anti’s …

21. Conclusion--- Overall, Results of PPP’s has been Mixed Successes --- • Limeira, Brazil; Santiago, Chile; Casablanca; Jakarta; BOTT’s South Africa; China; Eastern Europe • Management contracts in Johannesburg; Amman; Algiers • (also --- over 1,200 in US including Seattle Tolt and Cedar Projects) Ended by Mutual Consent --- • Atlanta and Puerto Rico  Poorly structured contract; inability of private sector to achieve needed efficiencies and lack of government support for labor reforms Ended in Disputes  however, significant improvements in water and sanitation have been achieved • Buenos Aires; Bolivia; Manila  dramatic currency devaluation producing unsustainable financial operation

22. Water: an Economic or Social Good? This is Free … This has a cost ……… somebody must pay for it !

23. Water: an Economic or Social Good? Can she pay for water ??? She can pay for water ………

24. The Poor often pay 20-100 Times More for Water Jakarta 1 jerrycan (20 l.) = 0.06 - 0.12 € = 3 - 6 €/m3 Water tariff (low-income) = 0.04 €/m3

25. Who Pays for What? Common situation in developing countries • Poor --- usually not connected but pay high price • Non-poor --- connected to the water network and pay a price below the cost of the service • Municipal budget --- finances the operating deficit, or… • Water system --- progressively falls into disrepair and ultimately collapses

26. Future of PPP’sLessons Learned

27. Observations from the Private Sector • “Heavy” Concession is not well adapted for developing countries • Need political continuity • Require an environment where the right and security of legal commitments are provided • Large financial debt obligation by the operator does not function • Not adapted to the political rhythm which is often unstable in developing countries • Periodic economic crises will occur • Ideological reasons • Private sector moving toward a “Light” concession model • Operation and maintenance of existing infrastructures • No large new infrastructure construction requiring heavy investments • Financing in local currency • Shorter contract duration – 5 to 10 years This will insure sustainable water and wastewater utility

28. Actions Required by Local Governments and International Institutions (UN … WB … others) • Provide local / international Financing to insure the building of new infrastructures and the Renewal/Replacement of existing facilities that have met their useful life • Provide proper governance, high integrity and transparency of management • Engage all stakeholders in process (particularly the local users) • Implement affordable water tariffs For the Poor: • Provide financial assistance (subsidies) for new water and sanitary connections • Create affordable water services through cross subsidies in overall tariff structure

29. Concession Affermage BOT DBO Operations & Maintenance Technical Assistance 3 5 10 Years 25 ∞ Public Private Partnerships --- Range of Alternatives Privatisation or Asset Transfer Private Ownership Shared Ownership Degree of Private Involvement Delegated Management Infrastructure Contract Public Private Partnerships Management Support