5 th World Water Forum Istanbul, March 18, 2009 Paul Reiter

1. On the Pathway toEffective and Efficient Utilities:Global Experience in Private Sector Participation (PSP) 5th World Water Forum Istanbul, March 18, 2009 Paul Reiter Exec Director, IWA

2. The Well-Functioning Utility: Contract Terms • Provide quality services to customers at agreed standards • Expand system to serve new customers within service area • Continuously protect, maintain and rehabilitate system • Manage to achieve economic performance at par with the quasi-market  tariffs in line with community values • Develop means for servicing poor and elderly customers • Conduct interactions with customers, employees, suppliers, shareholders and the community to ensure quality relations • Develop planning capabilities to accomplish all elements • Transparency & accountability framework to ensure outcomes a globalnetworkfor water professionals

3. How Does One Achieve All of This? • Privatize immediately! • Never privatize! a globalnetworkfor water professionals

4. Getting the Logic Right First … • Degree and form of private sector participation is an important issue but is one element of a larger picture • The issue of private sector participation (PSP) needs to be considered in the context of the larger debate about the right framework for utility management • In particular, PSP strategies needs to be considered in the context of local/national circumstances & capabilities a globalnetworkfor water professionals

5. Reassessment of Options for Private Sector Participation Benchmarking and Reporting Comprehensive Regulatory Framework Rigorous Planning Process Effective, Efficient & Sustainable Utilities Institutional Restructuring & PSP Licensing Mechanism for Renewing Franchise Reassessment of Options for Private Sector Participation Consolidation National Stimulus for Innovation New Institutional and Governance Forms a globalnetworkfor water professionals

6. Getting the Logic Right Second … • The provision of community water services may be accomplished in many ways • Through either fully public sector or fully private resources • Or more typically, through a mix of public and private resources • Most water services providers find solutions that are in the “grey zone” between the poles • Understanding this continuum and it organizational and regulatory dimensions is key to good policy and good decision making leading to efficient and effective utilities a globalnetworkfor water professionals

7. Between Black and White:Operating in the Grey Zone Private Public ownership of assets and control of policy Degree of PSP High Other Activities Major Design Construction Low Strategic outsourcing: -- CIP -- Treatment -- Separable specialties Full- scale contract for operations and CIP Private operations and CIP Purely municipal operations and CIP a globalnetworkfor water professionals

8. Why Public ?, Why Private ? • Why Public ? • Public control over critical municipal services • Ready access to low cost public finance • Services are delivered within an acceptable level of efficiency and service standards • Why Private ? • Technical and managerial capabilities • Access to private finance • Clarity and focus via contracting • Break the cycle of wide-spread corruption a globalnetworkfor water professionals

9. Between Black and White:Operating in the Grey Zone Private Public ownership of assets and control of policy Degree of PSP High Other Activities Major Design Construction Low Strategic outsourcing: -- CIP -- Treatment -- Separable specialties Full- scale contract for operations and CIP Private operations and CIP Purely municipal operations and CIP a globalnetworkfor water professionals

10. Types of Private Sector Involvement Degree of Private Involvement Municipality CONCESSION Fully Privately Owned AFFERMAGE (Lease Contract) Build, Own, Operate, Transfer (BOOT) Design, Build Operate (DBO) Joint Venture Public/Private Technical Assistance Private Company Delegated Services Contracts 3 5 10 20 30 Forever Time in Years

11. Continuum of Institutional Models Corporatized Public: Separate agency with commercial charter Assets publicly owned Key Variants:- Legal structure of the entity- Access to private finance- Composition of board Delegated to Private Sector: Typically turnkey private provider to public authorityAssets publicly owned Key Variants:- Nature and sophistication of contracting authority- Financial arrangement Fully Private: Private corporation with publicly traded share Assets privately held Key Variants:- Evolutionary context for full privatization- Regulatory environment Municipal Public: Part of City government traditional charter Assets publicly owned Key Variants:- Role of national governments- Degree of fiscal Isolation - Level of private participation Separation from Gov’t - None -------------------------------More --------------------------- Complete Asset Owner-> Public -----------------------------------------------------| ---- Private ----| Svc Provider-> Public ------------------------------| Private ------------------------------| a globalnetworkfor water professionals

12. Governance & Regulatory Interface Corporate Regulation Informal Economic andService Regulation –through CommunityGovernance Formal Economic andService Regulation –through Regulatoror Contract Health & Environmental Regulation Municipal CorporatizedPublic Delegated Fully Private Separation from Gov’t - None ----------------------More ------------------- Complete Asset Owner-> Public -----------------------------------------| Private Public -----------------------| Svc Provider-> Private ------------------| a globalnetworkfor water professionals

13. Observed Evolution Between Structures Municipal Public Equity Private Corporatized Public Delegation AssetOwner-> Private Public -----------------------------------------------------| Service Provider Private ------------------------| Public ---------------------------------| a globalnetworkfor water professionals

14. International Trends in Utility Ownership, Management and Governance • United Kingdom • 1974 consolidation • 1989 national privatization • Australia • 1994, 2004 national COAG reforms • Various corporatized public models launched within states • Europe • Mixed experience -> Increasingly divided • Netherlands, Scandinavia – Public • France, Spain – Mixed concession/affirmage + municipal public • German trend -> Public + private co-ownership of municipal systems • United States • Muncipal and district models prevalent; ~20% Equity Privates • Large-scale O&M contracts in a few key cities a globalnetworkfor water professionals

15. International Trends in Utility Ownership, Management and Governance • Japan • Municipal and regional public model almost universal • O&M contracting beginning • China • Corporatization of all water and wastewater utilities • Experimenting with alternative public-private models • South East Asia • Various public models prevalent – state, municipal • Concessions in some big cities • Africa • Mixed experience -> • South Africa,Swaziland, Zambia • Ivory Coast, Gabon, Morocco • Uganda • Latin America • Large city concessions • Chilean experience a globalnetworkfor water professionals

16. Which Model is Best? • Depends what your needs, constraints, and goals are • Both require certain prerequisites • A corporatized public works best when … • Strong community belief in public sector delivery of water • Institutional framework supports disciplined approach • Public finance is readily available • A concession model works best when … • Community acceptance of delegated private sector delivery • Technical and managerial capabilities cannot de readily enhanced • Private finance is required • Institutional framework permits effective contracting • Nepotism and corruption are endemic in the status quo • Each model can produce equivalent results under the right circumstances

17. Benefits of Well-DesignedOverall Approach -- Australia Improvement: 1988 -- 2001 (Real $) a globalnetworkfor water professionals

18. Thank You! a globalnetworkfor water professionals