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Cuba Water/Wastewater Infrastructure Assessment Committee Privatization or Self-Strengthening for The Water Sector in Cuba: Lessons Learned From The Water.

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Presentation on theme: "Cuba Water/Wastewater Infrastructure Assessment Committee Privatization or Self-Strengthening for The Water Sector in Cuba: Lessons Learned From The Water."— Presentation transcript:

1 Cuba Water/Wastewater Infrastructure Assessment Committee Privatization or Self-Strengthening for The Water Sector in Cuba: Lessons Learned From The Water Sector in Puerto Rico To: Association for the Study of the Cuban Economy (A.S.C.E.) Miami, Florida, August 1, 2009 By: Jorge Rodriguez Ruiz, P.E. Former Executive President, PRASA

2 Purpose of Presentation Analyze the successes and shortcomings of the Puerto Rico Aqueduct and Sewer Authority (PRASA) under both partial privatization and public control Analyze the successes and shortcomings of the Puerto Rico Aqueduct and Sewer Authority (PRASA) under both partial privatization and public control Discuss similarities between Puerto Rico and Cuba Discuss similarities between Puerto Rico and Cuba Apply lessons learned from Puerto Rico to the future of Cuba’s infrastructure Apply lessons learned from Puerto Rico to the future of Cuba’s infrastructure

3 Presentation Outline Introduction to Cuban Infrastructure Privatization Trends History of PRASA Lessons Learned Applicability to Cuba Conclusions

4 Introduction to Cuban Infrastructure The water and wastewater sector is currently managed by the Instituto de Recursos Hidraulicos The water and wastewater sector is currently managed by the Instituto de Recursos Hidraulicos Facility operations are largely delegated to provincial governments Facility operations are largely delegated to provincial governments The City of Havana and Varadero served under public/private joint ventures with Spanish private companies The City of Havana and Varadero served under public/private joint ventures with Spanish private companies

5 Privatization Trends International lending institutions have favored privatization of water/wastewater for efficiency International lending institutions have favored privatization of water/wastewater for efficiency Mixed Results Mixed Results – Notable successes at privatization in Chile – Efforts in other countries have failed for several reasons Conclusion: The decision of whether to privatize involves many country- specific issues, as well as timing and preparation considerations Conclusion: The decision of whether to privatize involves many country- specific issues, as well as timing and preparation considerations

6 PRASA: The First 40 Years 1945: PRASA was created as a public corporation 1945: PRASA was created as a public corporation During the first 30 years, a rapidly growing industrial sector and increased infrastructure needs led to rapid water/wastewater development and many early successes During the first 30 years, a rapidly growing industrial sector and increased infrastructure needs led to rapid water/wastewater development and many early successes Early labor leadership aligned themselves with corporation goals Early labor leadership aligned themselves with corporation goals Early 1970s: PRASA recognized as the best managed public corporation in Puerto Rico Early 1970s: PRASA recognized as the best managed public corporation in Puerto Rico

7 PRASA: The First 40 Years (cont.) Union leadership gained political power Union leadership gained political power 1970s and 1980s: Several factors led to deterioration of service 1970s and 1980s: Several factors led to deterioration of service – More stringent local and federal pollution laws – Greater infrastructure needs – Costly labor agreements with the union – Insufficient tariffs Late 1980s and early 1990s: PRASA operating at a deficit Late 1980s and early 1990s: PRASA operating at a deficit 1992/1993: Extreme dry season interrupts water service 1992/1993: Extreme dry season interrupts water service – Extremely adverse economic impact

8 PRASA: The 1990s and the Privatization Push 1992: Two major decisions 1992: Two major decisions – Develop a “superaqueduct” from the north of the island to the metropolitan area – Find a private company to manage PRASA Mid-1990s: PRASA became Compania de Aguas Mid-1990s: PRASA became Compania de Aguas – Employees remained government employees – Union continued to represent employees – Capital improvement funding managed by AFI – Operator compensated by “cost plus profit” method – Major organizational changes approved by board 18 plants fined by U.S. EPA for noncompliance 18 plants fined by U.S. EPA for noncompliance

9 PRASA: New Terms in the 21st Century 2000: Government issued an RFP to alter privatization terms 2000: Government issued an RFP to alter privatization terms 2002: ONDEO contracted for a fixed price of $96M/year to manage PRASA’s operations 2002: ONDEO contracted for a fixed price of $96M/year to manage PRASA’s operations – PRASA created a small organization to audit and monitor ONDEO ONDEO offered monetary incentives to union members to perform current duties ONDEO offered monetary incentives to union members to perform current duties ONDEO requested a $100M change order ONDEO requested a $100M change order 2003: Mutual agreement to terminate contract 2003: Mutual agreement to terminate contract

10 PRASA: Government De-Privatizes Operations in 2004 PRASA given more control through changes to the PRASA Governing Law PRASA given more control through changes to the PRASA Governing Law – Key appointments given six-year terms – Appointments placed outside of political turnover 2005: Consolidation 2005: Consolidation – Strategy development – Re-negotiation with union – Development of an environmental compliance plan

11 PRASA: Government De-Privatizes Operations in 2004 (cont.) 2006: Results 2006: Results – 33% improvement in water service to communities with deficient service – 62% improvement in water leaks – 68% improvement in overflows – More than 100 capital projects – Over $400M invested in infrastructure improvements – 15-year compliance agreement with EPA – Two-phase tariff adjustment – 27,000 hours of training – Completion of preventive maintenance plan 2007: PRASA re-entered municipal bond market 2007: PRASA re-entered municipal bond market

12 Projects of Greatest Impact by Region Reference: "Presentation to the Board of Directors," PRASA (2006)

13 Consent Agreement With U.S. EPA for Wastewater Reference: "Presentation to the Board of Directors," PRASA (2006) How did negotiations start and end? AsuntoCómo comenzó?Cómo culminó? Vigencia del Acuerdo5 años15 años Proyectos de Mejoras Capitales 300 PMC a implantarse en 5 años 65 PMC a implantarse en 15 años Proyectos remediativos450 proyectos a completarse en 6 meses 73 proyectos remediativos 25 a seis meses 48 a 12- 24 meses Penalidad civil$4.5 millones$1 millón + $3 millones (SEP en cuatro pagos semestrales) Penalidades estipuladasEstimadas en $39 millones en cinco años Estimadas en no más de $1 a $2 millones en cinco años Plan de Limpieza y Respuesta a Desbordes A implantarse de inmediatoA implantarse en un periodo de tres años The other portion agrees not to levy administrative or judicial actions for alleged violations covered in Agreement, so long as there is compliance with commitments therein.

14 Structure for Follow-Up and Compliance with Objectives AsuntoResponsableFrecuencia 17/ Enero / 2006 LegalV. Candelas1 vez al mes Recursos Humanos- proyectosB. Nieves1 vez al mes Finanzas- Informe financiero mensual/ deudas por cobrar/ deudas por pagar E. AcostaMensual Finanzas- Cobros/ ingresos vs presupuestadoE. AcostaSemanal1 Comunicaciones- operacional/ servicioM. QuinteroSemanal1 Comunicaciones- proyectosM. Quintero1 vez al mes Servicio al Cliente- operacionalC. VizcarrondoSemanal1 Servicio al cliente- proyectosC. Vizcarrondo1 vez al mes Centro TelefónicoC. Vizcarrondo1 vez al mes SistemasH. Sanabria1 vez al mes Seguridad y Manejo de EmergenciasJ. MolinaCada tres semanas AuditoriaR. Matos1 vez al mes 1 1 1 11111 11111 1 11111 1 1 1 1 1 30/Mayo/20065/Junio/200612/Junio/200619/Junio/200626/Junio/2006 Reference: "Presentation to the Board of Directors," PRASA (2006)

15 Overflows Changes of meters Real readings Renewal of lines Users without water Illicit taps and service disconnections Leaks Commercial and Operational Metrics: 5 Regions and Support Functions Working as a Team Reference: "Presentation to the Board of Directors," PRASA (2006)

16 Users Without Water - Without Deficient Sectors Reference: "Presentation to the Board of Directors," PRASA (2006)

17 Achievements in Public Communications, Information Systems, and Human Resources Communications: Water savings campaign, water theft control, water Marathon, Oasis magazine, etc. Communications: Water savings campaign, water theft control, water Marathon, Oasis magazine, etc. Information Systems: Cost reductions for equipment and licenses, new networks and equipment Information Systems: Cost reductions for equipment and licenses, new networks and equipment Human Resources: Institute of Training and Improvement (metrics, absenteeism control, etc.) Human Resources: Institute of Training and Improvement (metrics, absenteeism control, etc.) Reference: "Presentation to the Board of Directors," PRASA (2006)

18 Collections: Actual vs. Target (’00) Comentarios: El presupuesto con- templa el incremento de las cobranzas por el cambio de tarifa a partir de Dic-05. Sin embargo las cobran- zas por el incremento tarifario comenzaron a recibirse a fines de Oct-05. Período: Acum Fiscal – 4/06 Actualizado: 5/8/2006 Reference: "Presentation to the Board of Directors," PRASA (2006)

19 Actual vs. Budget (Million $) *No incluye la capitalización proyectada de gastos operacionales a los proyectos de infraestructura Reference: "Presentation to the Board of Directors," PRASA (2006)

20 Net Savings Proyección 2006 vs. Presupuesto 2006 Concepto (Ahorros)/Incrementos Nómina y costos relacionados (45,200) Seguros y servicios (2,750) Piezas y repuestos operacionales (4,200) Servicios profesionales (2,700) Varios (3,262) Electricidad 24,000 Servicios bancarios 2,000 Contingencias 6,500 AHORROS NETOS (25,612) Reference: "Presentation to the Board of Directors," PRASA (2006)

21 Private Financing 2005: Projections and analyses 2005: Projections and analyses – Work with Government Development Bank (BGF) and local banks – Agreement to cancel lines of credit with BGF and refinance $1.2 billion – Successful presentations to local and continental U.S.banks – Work on new conditions jointly with BGF, U.S. mainland, and local banks Reference: "Presentation to the Board of Directors," PRASA (2006)

22 Lessons Learned: Privatization The management of an essential public utility must operate without political pressure. The management of an essential public utility must operate without political pressure. When implemented, privatization must be complete – not partial. The private operator must have full power to make decisions to meet customer needs and protect the infrastructure. When implemented, privatization must be complete – not partial. The private operator must have full power to make decisions to meet customer needs and protect the infrastructure. The government must have a solid fiscal and regulatory entity to enforce the privatization contract. The government must have a solid fiscal and regulatory entity to enforce the privatization contract. The privatization agreement must have clear metrics and deliverables. The privatization agreement must have clear metrics and deliverables.

23 Lessons Learned: Privatization (cont.) Any incremental cost to the customer must be approved by the government-appointed fiscal agent Any incremental cost to the customer must be approved by the government-appointed fiscal agent The role of the management team should be clearly and strongly defined when a union is involved The role of the management team should be clearly and strongly defined when a union is involved A deep understanding of the culture and an active participation in community activities is essential; a high percentage of the organization’s staff should be locals A deep understanding of the culture and an active participation in community activities is essential; a high percentage of the organization’s staff should be locals

24 Lessons Learned: Self-Management Management and technical resources must be knowledgeable of the business Management and technical resources must be knowledgeable of the business The management plan must be clear and well- understood, and include specific targets, goals, and metrics The management plan must be clear and well- understood, and include specific targets, goals, and metrics Politics must not be part of the decision- making process Politics must not be part of the decision- making process Operation should be guided by clear public policy Operation should be guided by clear public policy

25 Applicability to Cuba Similarities between Puerto Rico and Cuba lending themselves to a collaboration between the two include: Geographic proximity Topography Climate Cultural identity Privatization and self-management experiences Similarities

26 Conclusions If applied properly, either privatization or self- management could prove successful If applied properly, either privatization or self- management could prove successful Goals for early in political transition: Goals for early in political transition: – De-politicize the implementing agency – Establish a strong regulatory agency – Establish clear metrics for performance – Perform a thorough inventory of infrastructure conditions and consequential infrastructure needs – Develop an exchange program with Puerto Rico’s utilities


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