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Toolkit: Approaches to Private Participation in Water Services

Explore the planning and implementation stages of private participation in water services with examples and strategies for success. Learn about policy development, stakeholder involvement, operator selection, and arrangement management.

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Toolkit: Approaches to Private Participation in Water Services

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  1. Toolkit: Approaches to Private Participation in Water Services Module 2 Planning the process of introducing Private Participation

  2. Introduction: Navigating through this E-Learning Module E-learning design: davidstiggers@comcast.net

  3. Elements of the Toolkit 1 ConsideringPrivate Participation 2 Planning the Process 9 Selecting an Operator TOOLKIT Appendix A Examples of PP Arrangements 8 Designing Legal Instruments 3 Involving Stakeholders Appendix B Policy Simulation Model 4 Setting Upstream Policy 7 Developing Institutions 5 Standards, Tariffs, Subsidy, Financials 6 Responsibilities & Risks Additional Material CD-ROM

  4. Module 2 General Outline of Toolkit 1 ConsideringPrivate Participation Module 2 Planning the process of introducing Private Participation 2 Planning the Process 9 Selecting an Operator TOOLKIT Appendix A Examples of PP Arrangements 8 Designing Legal Instruments 3 Involving Stakeholders Appendix B Policy Simulation Model 4 Setting Upstream Policy 7 Developing Institutions 5 Setting Service Standards, Tariffs, Subsidies & Financial Arrangements 6 Responsibilities & Risks Additional Material CD-ROM

  5. 4. Managing the Arrangements 3. Selecting the Operator 2. Designing the Arrangement 1. Developing the Policy What are the four stages of preparation and implementation of a Private Participation arrangement? Management Contract for What ANALYTIC and ADVISORY work is required to design and implement an Arrangement? Jordan Valley Authority, Irrigation Water Supply, may be the first of its kind. Choosing Strategy Implement Transaction Setting Standards & Tariffs Coordinating Advice Risk Analysis & Design Managing Module 2 - What will we learn? ‘We will look at the main issues related to planning a PP arrangement……..’

  6. 4. Managing the Arrangements 3. Selecting the Operator 2. Designing the Arrangement 1. Developing the Policy Plus! Some ideas on Stakeholder consultation What are the four stages of preparation and implementation of a Private Participation arrangement? Management Contract for What ANALYTIC and ADVISORY work is required to design and implement an Arrangement? Jordan Valley Authority, Irrigation Water Supply, may be Plus! Institutions to manage the process Plus! Transaction Advisers the first of its kind. Choosing Strategy Implement Transaction Setting Standards & Tariffs Coordinating Advice Risk Analysis & Design Managing Module 2 - What will we learn? ‘We will look at the main issues related to planning a PP arrangement……..’

  7. PROCESS TO PREPARE & IMPLEMENT A PP ARRANGEMENT 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement Preparing and Implementing an Arrangement • A successful arrangement?: • The quality of the Process will determine the success of the arrangement. • Generally the better the preparation, making best use of resources and using good advice, the greater the chance of success. • However, there is a tradeoff between the amount of improvements in the arrangement and the potential time and cost involved. • An in depth analysis suitable for a large city may be too expensive for a short term arrangement in a small town. • A good process can produce results without unnecessary costs and delays ‘Preparation and Implementation of an Arrangement usually involves 4 overlapping stages……..’ • Objectives: • The Objectives of introducing Private Participation are; • To develop the best arrangement for local needs and circumstances • To find a suitable firm for the arrangement and obtain the best possible offer from that firm • We investigate the process of achieving this through the four stages in these next sections...

  8. The 4 Step Process: Details and links to materials in other Toolkit Modules Preparing and Implementing an Arrangement ‘Preparation and Implementation of an Arrangement usually involves 4 overlapping stages……..’ PROCESS TO PREPARE & IMPLEMENT A PP ARRANGEMENT 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement

  9. 1. Developing Policy Objectives are set. A Reform Leader is identified, and ground rules for the development of the sector are identified [More details in Module 4] 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement

  10. Module 6 Developing Objectives “Having decided on private participation (Module 1) , what are the reforms intended to achieve? ” Some of the issues: • How important is it to expand to new customers rather than improve existing service, or keep low tariff? • Are we looking for private sector financing or will it remain with public sector? • Are the reforms water sector specific or part of large picture (such as decentralization)? Examples: La Paz – El Alto concession: Desire to extend coverage to unserved poor households Manila Concession: Largest reduction in tariffs Examples: Manila & La Paz concession: Brought significant finance Trinidad Management Contract: Initial emphasis was on bringing management efficiencies, while Government provided finance. Examples: Senegal Affermage Contract: Contract continued centralized supply situation Sofia Concession: Municipal contract, based on national decentralization of water services. “Clearly setting out and agreeing reform objectives allows a solid basis for the Arrangement design process ”

  11. Module 6 Reform Leader “Early on, Government will need to choose who will champion and coordinate the overall process – a Reform Leader ” A Reform Leader is the Government entity chosen to champion and coordinate the overall process of designing and implementing the Arrangement: • Do they have the appropriate skills, capacity and responsibilities to be successful? • Which level of Government should it be ? • What do we do if the entities lack some of the needed requirements?

  12. Work on: • Service standards & Tariffs • Risks • Stakeholder views • Defining tasks, liabilities and relationships & how to manage them. • Establishing laws, contracts and implementing bodies 2. Designing the Arrangement 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement

  13. 2. Designing the Arrangement “Once Objectives, vision and structure have been set, the details necessary to make it work need to be designed ” The various Toolkit modules cover the design elements in more detail: • Stakeholder Consultation and Communication are important – knowing what they want, and contribution to the reform to make it sustainable [Module 3] • The heart of the arrangement is the Level of Service to be provided and the Tariffs and any Subsidy that will have to be paid. This involves technical and financial work, and a large degree of consultation [Modules 3 and 5] • The choice of who will bear Risks and Costs of the chosen Arrangement has to be made (both private and public sector) and these decisions may influence the type of contract chosen. [Modules 3 and 5] • Institutions need to be developed to manage the development, and management of the Arrangement, as well as supervision and adjustment of Service Standards and Tariffs [Module 7] • Legal frameworks and contracts have to be drafted to ensure an effective legal arrangement to reflect all the design points and ensure stability of the long term Arrangement [Module 9]

  14. Stakeholder Consultation & Analysis Stakeholders Stakeholder Consultation & Analysis 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement ‘The success of any private participation process depends on the extent of support from stakeholders’

  15. Work on attracting potential operators. • Selecting the operator with the best combination of: • Skills • Costs • All to meet local needs and circumstances 3. Selecting the Operator 1. Developingthe Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement

  16. 3. Selecting the Operator ‘Selecting the Operator involves ensuring both that the opportunity is attractive to operators, and using the best process to choose which operator will be the best partner’ Operator consultation and selection are looked at in more detail in Module 9, including key issues: • Operator Consultation is important at the design stage – it increases the chance that Operators will want to be involved in the Arrangement. However care has to be taken to do this in a structured fashion and that no-one is given an unfair advantage. • Choosing a Private Partner – methods include: • Competitive tendering • Competitive negotiation • Direct negotiation • Other solutions may be needed if there is limited bidder interest.

  17. The Rules and Institutions created at the design stage should keep the arrangement on track There is a need for special efforts to get the Management of the arrangement off to a good start There are likely to be tariff reviews and adjustments during the arrangement period, and at the end of the contract a need to decide on the next steps [More details in Modules 7 & 8] 4. Managing the Arrangements 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement “No matter how well the Arrangement is designed, we need to note that it will take time and experience for all parties to understand each other and work together most effectively ”

  18. Institutions to manage the process Institutions to Manage the Process Setting up Institutions to Manage the Process 1. Developing the Policy 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement • ‘To manage the Process, the Government needs to: • Establish the level of Government responsible for managing the Process • Set up a streamlined and analytical management & reporting structure, with teeth!’

  19. ANALYTIC & ADVISORY WORK REQUIRED Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Coordinating Advice & packaging Advisory Contracts Risk Analysis & Design of Arrangements Managing the Arrangement Analytic & AdvisoryWork Required ‘In this second main section we look at the various Analytic and Advisory work elements required to design and implement a Private Participation Arrangement……..’ • Designing and implementing the PP Arrangement requires economic, financial technical and legal expertize, and coordination of that expertize • Detailed work is needed to refine the option and legal measures to support it, and preparation of complex documents, such as laws, bid & contract documents • Governments lack the full range of expertize and will need Specialist Advisers • The combination and effort of Advisers will vary for each case. The cost of advice needs to be balanced against the benefits

  20. Advice on sector strategy involves judgment on issues such as; • Tradeoffs of decentralization/scale • Responsibilities and relationships between institutions • Advisors are typically led by Economists or others with Institutional Analysis or Water sector expertize. • Lead advisors usually need input from: • Social researchers (local conditions) • Specialists on technical, financial and legal possibilities and constraints ANALYTIC & ADVISORY WORK REQUIRED Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required ‘1. CHOOSING A SECTOR STRATEGY

  21. ANALYTIC & ADVISORY WORK REQUIRED Social researchers: Will determine level of services being received, services wanted and people’s willingness to pay. Economists typically will develop demand forecasts & Technical engineering consultantswill determine methods and costs of providing the service, as well as asset condition and investment costs. Effective performance targets will be set, and demand forecasts and technical results will be used by the Financial Consultantsto establish a financial model. The results will be used to establish a viable tariff and the potentialneed for subsidy. Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required ‘2. SETTING SERVICE STANDARDS & TARIFFS’

  22. ANALYTIC & ADVISORY WORK REQUIRED • Risk Analysis: • Ideally, involve all disciplines in the risk analysis. This may be led by the Financial specialists or the Transaction Adviser • Design of Arrangements: • Arrangements are designed in outline based on results of risk analysis. Legal specialists turn the outlines into a complete legally binding regime, with the aim of : • Making the risk allocation legally effective • Reducing future disputes Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required 3. RISK ANALYSIS &DESIGN OF THE ARRANGEMENTS

  23. ANALYTIC & ADVISORY WORK REQUIRED MARKETING THE TRANSACTION: begins after the arrangement is designed. Requires a Transaction Manager with good knowledge of potential private Operators [More details in Module 9] REQUEST FOR PROPOSALS: are put together by Technical, Financial and Economic specialists, who also prepare an Information Memorandum. Lawyers will ensure legal procedures are correct. Communications with Customers and workers is vital, and can involve Communications and HR specialists. [More details on Module 9] PREQUALIFICATION, BID ASSESSMENT & CONTRACT NEGOTIATION: generally require assessment and evaluation of contractors and their proposals by technical and financial specialists, with legal specialists to ensure all documentation makes the Arrangement legally effective and binding [More details in Module 9] Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required ‘4.IMPLEMENTING THE TRANSACTION’

  24. ANALYTIC & ADVISORY WORK REQUIRED Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required ‘5. MANAGING THE ARRANGEMENT’ • Once the Operator starts work, the Arrangement has to be managed, with three main tasks, and Institutions with the capacity to manage have to be set up: • 1. Performance needs to be monitored to ensure standards met • e.g. Regulator or Contract Monitoring Unit • 2. Tariffs & standards may need to be adjusted • e.g. Regulator • 3. Disputes need to be resolved • e.g. Arbitration Panel or Courts • ADDITIONAL ADVISORY SUPPORT • Additional advisory support may be needed to help manage the Arrangement, particularly early on when the institutions are being established: • Technical specialists – monitoring serviceperformance and assessing operating efficiency • Financial specialists and economists – for Tariff Resets • Lawyers - for enforcement and dispute resolution

  25. ANALYTIC & ADVISORY WORK REQUIRED • Coordinating the Advisory Work is a difficult task, and needs effective integration of all disciplines. This depends on best selection of: • Transaction Manager’s skills and experience, able to view overall the advisory and analytic work to establish the arrangement: • Contract method used to select and hire the Transaction Advisor Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Analytic & AdvisoryWork Required ‘6. COORDINATING ADVICE AND PACKAGING ADVISORY CONTRACTS’ • Transaction Manager’s skills and experience • May be a strong and experienced Government member • Or a Transaction Adviser hired for his skills and experience to manage all elements of design and implementation • Contract method used • Hire a single consortium with the requisite economic, technical, consultative, financial and legal skills, to be led by the Transaction Manager • Or procure all the skills under separate contracts (but this requires Government personnel able to manage this)

  26. ANALYTIC & ADVISORY WORK REQUIRED Choosing Sector Strategy Implementing the Transaction Setting Standards Tariffs & Subsidies Managing the Arrangement Risk Analysis & Design of Arrangements Coordinating Advice & packaging Advisory Contracts Transaction Advisers: Attributes & Issues Transaction Advisers Analytic & AdvisoryWork Required ‘6. COORDINATING ADVICE AND PACKAGING ADVISORY CONTRACTS’ - More about choosing Transaction Advisers

  27. Institutions to manage the process ANALYTIC & ADVISORY WORK REQUIRED Transaction Advisers Stakeholder consultation PROCESS TO PREPARE & IMPLEMENT A PP ARRANGEMENT Choosing Sector Strategy Implementing the Transaction 1. Developing the Policy Setting Standards Tariffs & Subsidies Coordinating Advice & packaging Advisory Contracts 2. Designing the Arrangement 3. Selecting the Operator 4. Managing the Arrangement Risk Analysis & Design of Arrangements Managing the Arrangement Reviewing Module 2 “……………. and some of the Advisory & Analytic Advisory Work required.” ‘The Module has looked at some options for planning the process of introducing Private Participation…….”

  28. Checklist: Module 2 ‘……..and some of the key issues are detailed in this Checklist” More information The process of introducing private participation The process generally: World Bank 1997b. Hiring advisors for private participation in infrastructure projects: PPIAF and World Bank 2001. Ensuring the process takes account of the interests of the poor: PPIAF and WSP 2002d.

  29. Supporting Material • The Toolkit Financial Model • Toolkit Case Study material • Toolkit Website: http://rru.worldbank.org/Toolkits/WaterSanitation/ • For comments or further details contact Cledan Mandri Perrott at cmandriperrott@worldbank.org

  30. Toolkit: Module 2 End of Module

  31. Toolkit: Module 2 Return to Start

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