Consultative Workshop on management of water affairs at urban level

1. Consultative Workshop on management of water affairs at urban level

2. Objectives of the Workshop Presenting and discussing complex issues, confronting opinions and possibly acquire valuable ideas and insights to elaborate a Common Approach for the management of water affairs at urban level in the Puntland State of Somalia. “Common approach” = bottom-up elaboration of key-documents (i.e. Customers’ Charter of Rights, Water Use Policy, Water Tariff Structure) to provide guidelines for a comprehensive reform of the existing PPP contracts for water service delivery at urban level (consistently with the national policies and regulations in force)

3. Proposed drivers for the debate: • Day 1 • Customers’ rights and role • Tariffs • Day 2 • 3. Responsibilities of the PPP company and the public sector (“the parties”) • 4. Service levels • 5. Other (as suggested by the attendees)

4. "Ice-breaking": the basics on PPP • Public - Private Partnership A contractual relationship (i.e. rights and obligations) for the management of a public infrastructure which is essential for the delivery of a service of general interest A private-sector company A government agency

5. A PPP is an agreement that, ideally, should bring together, for mutual benefit, a Public body(either of central or of local level) and a Private counterpart(a company or a group of investors) in a long-term joint-venturefor the management of an infrastructure which is essential for the delivery of a quality public service.

6. In the case of PPP for urban water supply, the cost of using the service is ideally borne by the end users of the service itself (and not by the public sector by way of general taxation). Ideally, under a PPP for urban water supply a Tariff Structure is agreed upon by the Parties: - To ensure social equity (who consumes more pays more), - To reduce/avoid waste of the scarce water resources available (the more one consumes the more one pays), - To recover all costs born to extract and deliver water to customers, - To generate resources for the maintenance of the water supply system, and for investments for upgrading/expansion of the service, - To ensure a reasonable profit to the private company which manages the infrastructure.

7. Customers’ rights and role

8. Customers’ rights and role (1) The right to water (the UN definition) Entitlement of each individual to a system of water supply and management that provides equality of access opportunity for people, present and future generations. The rights has three main substantive dimensions: ① sufficient(i.e. min. 20 litres per capita per day within 1 km from the source) and regular availability of water for some basic personal and domestic uses (i.a. drinking, food preparation, body and cloths hygiene); ② qualityof the water supplied (i.e. safety for consumers’ health and acceptability of features such as colour, odour and taste); ③ physical, economic and social accessibility to water by everyone without discrimination (transparency of information concerning water issues is also enumerated as a form of accessibility) →See provided Focus Box No. 1

9. Customers’ rights and role (2) Topics to drive the debate: • a) Which aspects of the right to water should be included in a Customers’ Charter of Rights (in turn to be annexed/linked to the PPP contract)? • b) How to make the right to water effective in the scope of a PPP? • Should the PPP contract include a timed plan for the gradual connection of all urban zones to the water distribution system, at least by means of kiosks? • Should donors make their grants conditional to water distribution projects which are more inclusive from a territorial point of view?

10. Customers’ rights and role (3) Topics to drive the debate: • c) What role for customers (as individuals and organised groups) to implement the Charter and, more in general, to enhance water affairs management at urban level? • Should information on water management be made accessible to enable a bottom-up monitoring of the PPP company’s performance (based on pre-set indicators linked to the right to water)? Which information? How to make this information accessible? • Should customers be involved in the identification of priorities for investment projects (especially as regards distribution to new zones) as well as in initiatives (i.e. fund raising, land donation) aimed at extending the water supply network (complementarily to PPP company’s investments)?

11. Customers’ rights and role (4) Topics to drive the debate: • d) How could customers’ role be concretely formalised in a PPP contract? • Should the PPP contract attribute to individual customers’ (and organised groups) the function of on-the-spot antennas to monitor, in conjunction with the public sector, the performance of the PPP company and report (to whom? how?) on breaches of the Charter of Rights? • But what if the public sector itself is not compliant with the PPP contract or breaches the Charter? Maybe complaints concerning the public sector should be addressed to a credible third party? Which?

12. Tariffs

13. Tariffs (1) Topics to drive the debate: • a) Flat tariffs (i.e. the price of 1 cum of water does not vary based on the number of cums actually consumed) do not discourage waste of the scarce water available. • Should surcharges be established for the water consumed in excess of pre-determined baseline ceilings applicable to each category of customers other than kiosks? • b) Flat tariffs are not socially equitable. • Is it acceptable that non-piped customers fetching water at kiosks pay more than piped ones for the same quantity of product (i.a. households, companies)? • Should higher tariffs be introduced for piped customers in zones clearly recognizable as “rich/wealthy”?

14. Tariffs (2) Topics to drive the debate: • c) The tariff applied to kiosk operators may not reflect the price actually paid by non-piped final consumers. • Should a binding and credibly controlled “cap” be established, if not existing yet, on the sale price at kiosk to prevent at source the chain of incremental price distortion to the detriment of the poorest segments of the demand?

15. Tariffs (3) Topics to drive the debate: • d) Privileged piped customers (i.a. some schools, and hospitals which, on the basis of local “customs”, are not paying for water) may waste water. • Should solutions be explored to orient privileged customers towards more efficient consumption without ignoring their social role within the community? (e.g. discounted/minimal price for each cum? Or ceiling of consumption below which no price, or a discounted price, applies?) • Should, for the sake of transparency, water provided to privileged customers be metered, and invoiced for, even when the implicit tariff is zero?

16. Tariffs (4) Topics to drive the debate: • e) As the overall availability of water resources for a certain city drops, kiosks are usually the first which suffer supply restrictions; this happens also because the tariffs structure does not discourage, in situations of chronic scarcity, excessive consumption by piped customers. • Should kiosks be protected from unfair supply restrictions by tariffs mechanisms operating at the level of piped customers? For instance, how about scenario-specific tariff surcharges applicable to piped customers any time the water resources available fall below a critical level (to be fixed in advance)?

17. Tariffs (5) Topics to drive the debate: • f) The principle of full cost recovery, though affirmed in PPP contracts, is not accompanied by a binding and transparent breakdown of eligible costs, including ordinary and extraordinary maintenance and investments for expansion of the infrastructure (spread over a reasonable amortisation period). • Should the structure of eligible costs, including ordinary, extraordinary maintenance and investments, be fixed in advance in the PPP contract?

18. Tariffs (6) Topics to drive the debate: • g) PPP contracts lack precise provisions on who should decide in matter of tariff review and, most critically, based on what factual circumstance a tariff review could be proposed by one of the parties to the PPP contract. • Should the PPP company justify any proposed tariff reviews by making reference, with adequate evidence, to the relevant item in the structure of eligible costs? • Should the public sector be able to assess, from a quantitative perspective, the reasonableness of any proposed adjustments to plus of the tariff? • Should the public sector require the PPP company to reduce the tariff, to the benefit of the customers, any time a major cost reduction has occurred (based on available information)?

19. Tariffs (7) Topics to drive the debate: • h) Should water prices be differentiated based on the actual costs borne by each and every PPP company in its specific urban context? Otherwise how can it be said that the principle of “full cost recovery” is the basis for tariff calculation? • i) Donors’ support may not be available in the future; how to build an investment-friendly water tariff structure? • Should an increasing block tariff scheme be introduced to fund investment projects? • Should tariff-generated funds be channelled to a binding Financial Plan in the scope of a comprehensive Service-specific Local Master Plan (both annexed to the PPP contract)?

20. Responsibilities of the PPP parties

21. Responsibilities of the PPP parties (1) Topics to drive the debate: • a) PPP contracts fail to formally define “ordinary” and “extraordinary” maintenance, as well as to allocate responsibilities between the parties. • Should the PPP company be fully responsible for ordinary and extraordinary maintenance (based on the principle of full cost recovery)? • Should the tariff structure be designed to generate sufficient resources to actually enable the PPP company to do so?

22. Responsibilities of the PPP parties (2) Topics to drive the debate: • b) Long contract duration is not paralleled with a clear allocation of roles, responsibilities/risks as regards the level of investment needed to accompany demand growth throughout the time (unsustainability of the service). • Should the PPP contract require a verifiable periodic level of private investment for the expansion of the public infrastructure? • Should PPP contract integrate mechanisms for lowering the financial risk sufficiently enough to stimulate a desired level of private investment (coherently with the expected profitability)? E.g. binding amortization schedule to protect the private investment in case of early termination of the agreement; “non-politicizeable” tariff review modalities to protect the expectation of reasonable return on investment from the risk of cost escalation throughout the contract duration.

23. Responsibilities of the PPP parties (3) Topics to drive the debate: • c) Investment for infrastructure expansion is highly dependent on continuous injection of external grants. • Is it correct to consider the donors’ community as a “hidden” party to the PPP contract (as regards investment obligations)? • Or should the primary responsibility for investments be assigned by the contract to the PPP company (by linking this responsibility to tariff-generated resources)? • What role for other stakeholders? Earmarked funds from the municipal budget? “Purposed tax” from the potential customers of a targeted urban area?

24. Responsibilities of the PPP parties (4) Topics to drive the debate: • d) Responsibility for land acquisition for infrastructural projects aimed at improving/expanding the service is not defined in the existing PPP contracts. • Should it be a responsibility of the public sector to make land available for infrastructure expansion? • What role for other relevant stakeholders (e.g. potential customers in an urban area which may benefit from the concerned infrastructural project)?

25. Service Levels

26. Service Levels (1) How would you define “service levels” and “oversight” in the scope of a PPP contract for water supply at urban level? Within the notion of “oversight”, how would you define “monitoring”, “control” and “evaluation”?

27. Service Levels (2) Topics to drive the debate • a) Urban water supply at urban level has been outsourced via PPP contracts without developing an adequate oversight capacity by the public sector (including the concerned municipality) over the private partner. • How should the deficit of oversight be tackled? By redesigning PPP agreements (i.e. detailed and credibly enforceable provisions on service levels and oversight mechanisms by competent bodies)? By training specialized civil servants within the competent public administration? By making available own resources to hire external experts tasked to perform some of the most complex contract management functions (which even in developed countries are outsourced to experts)?

28. Service Levels (3) Topics to drive the debate • b) The existing PPP contracts do not include a technical annex on service levels. • Which service level topics should be integrated in the PPP contract? • How could they be made measurable? • →See provided Focus Box No. 2

29. Service Levels (4) Topics to drive the debate • c) The existing PPP contracts lack provisions on the oversight function. • Who should be tasked to monitor, control and periodically evaluate the PPP company’s compliance with the pre-set service levels? • What role can be envisaged for the municipality in terms of oversight function? • Should customers be actually involved (and how) with an active role in the oversight function? • To whom, within the local public administration, should customers report?

30. Service Levels (5) Topics to drive the debate • d) The existing PPP contracts lack enforceable provisions on corrective measures. • What types of actions, and redress mechanisms, should be taken by the public sector in case of persistent non-compliance with the fixed service levels? • What if the public sector is not complaint with its contractual obligations (i.e. how to protect the rights/position of the PPP company)?

31. A continuous Workshop Interactive debate on line This workshop will continue for the entire duration of the Project on the dedicated website: www.terresolidali-water.org Please invite people you know to participate and, if you wish, contribute with any further opinion by posting it in the relevant FORUM sections! (NB there is a forum for each of the 4 drivers for debate used during this Workshop)