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PROCUREMENT OF MANAGEMENT CONTRACTS and LEASES for OPERATION of UTILITIES – ECA EXPERIENCE (*).
Preamble:This is a slightly more readable version of the “Power Point” slide presentation made by Salim Benouniche (**) at the Workshop on “ Management Contracts and PPPs” organized by Procurement Group in World Bank Fiduciary Forum 2008, National Conference Center, (Lansdowne Va).
(*) ECA:Europe and Central Asia Region
(**) Procurement specialist, Infrastructure & Energy , ECSPS
After a short description of the common scheme, world wide, the specific situation of utilities in ECA Region will be detailed, in terms of main difficulties, risks, issues, followed by mitigation measures in design and procurement:
I.2 A COMMON SCHEME, Bank-wide
To rehabilitate plants and networks, which are often in a poor initial condition, then operate and maintain them,
it is necessary:
to determine first as clearly as possible the BASELINE DATA.
I.3 Specific ECA SITUATION:
In Yerevan, at start only 7% of the domestic consumers paid user fees. In some cases, the Bank waived part of its rules to finance operating costs at start.
companies are important to improve collection and billing revenues first, and performance later.
Failure to pay
(see website: at the end of the “Consulting Services Manual”)
The Operator is in most cases a new locally incorporated company created after the award, its shareholders are usually the prequalified applicant Joint Venture Partners:
॥_______ _______॥_ _ _ _ _ + _ _ _ _
I I I
Parent 1 (Oper.) Parent 2 (Tech.) Parent 3 (Local or Bank)
I______________I _ _ _ _ __ _ _ _I
New Locally Incorporated Subsidiary = PARTY to the CONTRACT
To be pre-qualified, JOINT VENTURES often refer to financial capacity figures or technical expertise of the “Grand Parent(s).” T OPRC has ruled in 2002 on such a case that “Grand Parent Company (ies)” should, alternatively,
either ‘CO-SIGN” (i.e. be party to) the Contract (or put more Equity)
or provide aPARENT COMPANY GUARANTEE,
together with a letter of agreement stating the commitment to provide the Operator with Technical expertise and support.
RFP 4.5.5. If the individual company or any of the Consortium partners constituting the Successful Bidder have submitted data, credentials, or any other information in their Technical Proposal Part VII (Information Forms of Annex E to this RFP) that are those of a parent company, the Company Management Board may, in its sole discretion, also require the relevant parent company or companies to be party to the contract. by co-signing the contract, or if it is not willing to co-sign the Contract, to provide an additional guarantee of the same kind as that mentioned in RFP section 4.5.4., for an amount calculated on the basis of six month of Management Fixed Fee.
(The Guarantee mentioned in RFP 4.5.4 is the Performance Guarantee)
This guarantee is needed:
In case of Bankruptcy, or Termination of the Contract due to Operator’s Default, the Grantor often needs 6 months or more to award a New Operator Contract following a competitive procedure. During this period, the services to end-users must be ensured at an acceptable level of performance, and this is financed by the total amount of the two (cumulative) Guarantee and Security:
Parent Guarantee + Performance Security >= 6 months of Operating Expenses
(see conflict of interest/level playing field guidance note)
(= 6 months of operator’s cost) – [see Clause slide]
[Georgia + 2 recent examples: ALBANIA 4 and ARMENIA 2 (MWWPP “out of Yerevan”)]
Note: 70% may be a redundant use of quality criterion with the first stage pass/fail requirement of 75 points in technical quality score, and may lead to a very high price
(example: Breakdown on six years Armenia 2 RFP: 23%, 21%, 14%, 14%, 14%, 14%, and on 4 years: 32%, 29%, 20%, 19%)