Public Private Partnerships in water – models for low and middle income countries?

1. Public Private Partnerships in water – models for low and middle income countries? Geoffrey Hamilton Chief, Cooperation and Partnerships Section UNECE Geneva, May 5, 2011

2. Private sector can bring considerable benefits to the management of water Benefits depend on improving the capability of governments to undertake PPPs( more the case because at municipal levels the capacity is even weaker) Not all types of PPPs are applicable for low income countries ( better start with the easier PPP models UNECE initiative in PPP: UNECE International PPP Centre of Excellence / Saudi Arabia Water Centre of Excellence Overview

3. PPPs are: Partnerships between the public and private sector aimed at financing, designing, operating public sector facilities and services ( energy, transport, water and waste and health and education and IT ) consisting of two core elements: project finance ; long term contracts. By ‘water’ we refer to water supply and waste water Definition of terms

4. The case against PPP in water (taken from the Documentary Flow) “At present , several multinationals – Nestle, Thames, Vivendi, Suez, Coca Cola and Pepsi – own and control most of the earth’s fresh water. ” The companies charge higher prices for water which are ‘out of the reach’ for poor people who are forced to look for (less safe) alternatives, e.g. rivers Water (that should be ‘free’) is turned into a commodity http://www.documentary-film.net/search/watch.php?&ref=212

5. But the case against water PPP is a flawed one… Water is not owned by water multinationals, as they do not own and control water;they only ‘own’ to the extent that the governments allow it; Perception is that the private operators are mainly large European multinationals but, in fact, there is increasing participation of operators from developing countries; Private sector advantages: efficiency, management and finance can improve quality and distribution of water, even for the poor.

6. Successful water PPPs are numerous… Bucharest: Water and Sanitation Overview: Veolia of France won the bid to operate and maintain the water and sanitation system for 25 years. Outcome: appr. €70 million investment into modernizing water and sanitation services between 2002 and 2006; built a new water treatment plant; reduced water losses (the loss was reduced by 44.4%); introduced a new metering system and reduced leakages, leading to a drop in total water demand from 497.8 cubic millimeters in 2002 to 304.1 cubic millimeters in 2006; 

7. Successful Water PPPs are numerous… (cont.) Manila Water Overview: Manila Water, a profitable listed company with 45% of its shares in public hands, has received numerous global awards for operating efficiently and bringing water to the urban poor. Outcome: non-revenue water was reduced from 63% in 1997 to just 12.5% at present; without taxpayer money being spent for new water sources, the amount of delivered water to customers grew threefold from 440 million liters per day to 1,140 million; served customs from 3 million to 6 million, who get 24-hour service, from just 30% before privatization; the cost of piped water from P 150-200 per cubic meter to P75 per month.

8. PPP does not mean higher prices for water. (PPIAF/World Bank study of 2009 of 1,200 facilites in 71 countries Bucarest had some of the worst quality water , now uninterrupted high quality ,exceeding EU water quality standards : rising customer satisfaction ‘Water for the poor’ campaign in Manila allowed poor people to pay less for water Not a scintilla of truth in FLOW ! In summary

9. But could these improvements have been achieved without the private operator ? To some extent yes but evidence also shows that private sector operators out-perform public sector counterparts In summary contd…

10. Challenge is to develop the capability of governments to get it right Lack the skills of making viable projects and of designing contracts Private sector ‘takes over’ and the problems begin. ( many governments actually renege on contracts) Answer is to create a strong capacity building programme to ensure that the public, municipal authorities protect their interests.

11. 5-15 years 3-5 years 3-7 years 20-30 years Indefinite Private Public Private Public + Some investment Mgt. + O&M + Investment Everything Private Public O&M costs + rental fee Tariffs based on full cost recovery Mgt. fee O&M costs Private Public Select the ‘right’ PPP Model Management Contract O&M Contract Lease Contract BOT/BOO/ BOOT Concession Privatisation Duration Ownership of assets Source of capital investment Private sector responsibility Operation Risk Revenue Infrastructure development 11

12. Probably better to start with ‘management contracts’ than expensive concession/BOTs. (getting water from its source into the network/pipes requires large investments); Private sector needs to recover the costs and investments through charges to users, this may not be sustainable for low income countries; Management contracts introduces modern management practices, increases commercial efficiency and introduces business approach; Excellent initial stage in PPPs. Management Contracts vs. BOTs

13. UNECE PPP Initiative PPP Specialist centers to come: Current development of the UNECE PPP Initiative  • UNECE PPP Centre of Excellence (final stage): • PPP Specialist Centre for Water : Kingdom of Saudi Arabia • PPP Specialist Centre for Health : The Philippines • PPP Specialist Centre * : Russian Federation • PPP Specialist Centre for Sustainability : Malaysia • UNECE PPP Centre of Excellence (expression of interest): • PPP specialist centre education : Germany • PPP Specialist Centre for Food security : Qatar • PPP Specialist Centre Water Management : The Kingdom of the Netherlands • PPP Specialist Centre for Roads : India • PPP Specialist Centre for Power : South Korea • PPP Specialist Centre for Prisons : Romania • PPP Specialist Centre for Seaports : Greece • PPP Specialist Centre for Airports : Turkey 

14. The world needs to find ways of getting water and managing existing water supplies and using it efficiently. Presently, there is an international shortage of water. This is a major issue. But there is no reliable data on water projects, and many water projects must be undertaken. What is needed: An international intergrated response in creating a Centre that will advise countries about water projects. The world needs a reliable resource and access it easily. Unbiased advice, that can be accessed easily and is user friendly. The need for the Specialist PPP Centre in Water

15. Water PPP Specialist Center Assist foreign countries in PPP • Support the UNECE PPP capability development in other countries • Define best practice Specific advice on sector. The center will have experts who can be invited in to help them on water projects. Countries will have access to best practicein water on a world wide basis. Guides provide: 1. Strategic advice 2. Detailed operational guidance on projects.

16. Innovation The Specialist Centres continually research and update best practice • Countries • Universities • Institutions • Private sector • Identify innovative PPP strategies and methodologies and diffuse them • Develop innovative PPP strategies and methodologies Innovation - Research and R&D. - Establish a research network linking international water bodies. - Training people in water PPP.

18. Thank you for your attention! Geoffrey Hamilton geoffrey.hamilton@unece.org