Executive Vice President United Water & Suez Environment A review and outlook of Public Private Partnerships (PPP) in the water sector Patrick. R. Cairo Executive Vice President United Water & Suez Environment

Outline of Presentation Fundamental Principles of PPP’s --- value created and overall experience Case Studies --- results from Argentina, Bolivia and Morocco Successes and Failures --- why ? Future of PPP’s --- Lessons Learned 9/20/2006

The fundamental principles of the PPP 1.    Goal is continuous service improvement  Requires some flexibility in the offering 2.    Local anchoring 3.    Transparency and dialogue for all Stakeholders 9/20/2006

Public Private Partnerships --- Range of Alternatives Privatisation or Asset Transfer Private Ownership Shared Ownership Degree of Private Involvement Delegated Management Affermage Concession Infrastructure Contract DBO BOT Public Private Partnerships Management Support Operations & Maintenance Technical Assistance Years 3 ∞ 5 25 10 9/20/2006

Conditions required for the PPP to succeed --- Private Sector Perspective A clear definition of the roles of the partners   Keeping operational control to achieve the goals Appropriate financial risk Political continuity An environment in which the law and legal certainty are ensured so that the contract is observed 9/20/2006

Role of Government --- National, Regional & Local Ensure access to water and sanitation to all people Ownership of the Water Resources Develop and Implement Policies Planning and Oversight Tariffs and Subsidies Determine proper delivery of water and sanitation services (role for Local Government) OPTIONS : Facilitate self-provision by the people themselves Direct provision by municipal service Engage private sector service company Monitoring/Control  separate  Delivery Functions 9/20/2006

Creating a Sustainable Water and Sanitation Management Model Governance USERS Expect Efficient Service Delivery Investment Management Public Private Multilateral Agencies Local Municipal Public Private Partnership Participatory Approach is Utilizing to the Strength of Each Party 9/20/2006

Value Created by PPP Improve Infrastructures to provide water and wastewater services for all (financial investment ?) Operate and maintain existing assets to extend their useful life and minimize the needs costly new investments Insure the sustainable use of water resources (Integrated Water Resources Management – IWRM) Provide affordable water costs for rich and poor In Developing countries: Provide sustainable water and sanitation services to those not presently served (i.e. the poor) 9/20/2006

Water in Developing Countries: Public Utilities Performance (World Bank 2002) In 2002, the World Bank studied the performance of 246 water utilities in developed and developing countries. I have extracted some indicators showing that, in many countries, there is a need for significant improvement. 9/20/2006

Water and Sanitation for Developing Countries … Millennium Development Goals 1.1 billion people without access to water 2.4 billion people without access to sanitation 2.2 million deaths each year from diarrhoea, mainly children under 5 During the last decade and despite huge investment, the number of people without access to water and sanitation services did not decrease: there is still 1.1 billion people without water and 2.4 without sanitation. Water related diseases remain on of the major causes of morbidity and causes more than 2 million death every year, mainly among young children In 2000 the international development communities met in New York and committed in a 8 goal agenda to be achieved during the next 15 years. Among those goals, there is the one to halve the number of people without access to water and sanitation services. To achieve this target, an additional 1,5 billion people will need to be served with water and an additional 2 billion with sanitation. This goal raises two comments: In 2015, there will still be a large number of poor people without access to those services. What will the international community do for them? To Provide 1,5 billion people with water and 2 billions with sanitation services will require huge investments? At the Millennium summit, there was neither answer no specific proposal for the financing of those investments. Millennium Development Goals (MDG’s) : to halve the proportion of the population without sustainable access to safe water and sanitation by 2015 Who will pay for the needed infrastructure? Who will ensure sustainable operation and maintenance of these services? 9/20/2006

Millennium Development Goals --- Investments Needs Source: 1990-2000 - WHO Global Assessment 2000 2000-2015 – Global Water Partnership/WB Estimates Average Annual Investment Implications of MDG Targets ($USB) * Increase of ~$US 10 Billion (+70%) in annual investment 2001-2015 is needed Water, Sanitation & Poverty * ______________________________________________________________ The average annual investment in WSS Sector in developing countries in last decade was taken from WHO Global Assessment 2000 report. Note: WHO reports similar estimates as $20 Bn. Annually. The report projects increase in the current investments in percentage terms as follows: Water Supply 39% in urban water supply 19% in rural water supply Sanitation 28% in urban sanitation 100% in rural sanitation. 9/20/2006

The contribution of PPP’s to Meeting the Millennium Development Goals  NEARLY 10 MILLION PEOPLE IN THE EMERGING COUNTRIES ARE NOW SUPPLIED WITH DRINKING WATER 8 million with individual access 1.8 million via a collective water supply     4.5 MILLION PEOPLE HAVE BEEN CONNECTED TO THE SANITATION SYSTEM 5 9 5 8 4 7 4 6 3 5 in million inhabitants in million inhabitants 3 4 2 3 2 2 1 1 1 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Additional population connected during the 1993 - 2004 period with potable water Additional population connected during the 1993 - 2004 period to the sanitation system 9/20/2006

Potable water Sanitation GROWTH RATE OF SUEZ ENVIRONMENT COVERAGE HIGHER THAN THE AVERAGE RATES IN THE URBAN AREAS FOR THE COUNTRIES CONCERNED   SUEZ ENVIRONMENT RATE RATE FOR URBAN AREAS IN THE COUNTRY LYDEC – Casablanca 3.40% 1.89% PALYJA - Jakarta 7.46% 1.60% AGUAS DEL ILLIMANI – La Paz/El Alto 2.07% 1.75% AGUAS ARGENTINAS – Buenos Aires 3.24% 0% Potable water   SUEZ ENVIRONMENT RATE RATE FOR URBAN AREAS IN THE COUNTRY LYDEC – Casablanca 3.40% 0% PALYJA - Jakarta AGUAS DEL ILLIMANI – La Paz/El Alto 5.11% 2.93% AGUAS ARGENTINAS – Buenos Aires 2.46% Sanitation 9/20/2006 Source: WHO/UNICEF Joint Monitoring Programme

THE RECORD AFTER 13 YEARS WITH AGUAS ARGENTINAS 2 million inhabitants were connected to the potable water supply 1 million people were connected to the sanitation system A major effort was made to renew and expand the services 6,000 km of new networks were laid 2,000 km of networks were rehabilitated Network leaks were reduced Leaks dropped from 44% in 1993 to 32% in 2003, or an improvement of 25% $1.7 Billion Investments were made: on average, 200 Euro million a year, or 4 times more than OSN (Obras Sanitarias de la Nacion), and with lower rates. 91% of the resources were reinvested in the community 9/20/2006

Case Study (see accompanying presentation) AGUAS ARGENTINAS 1993-2005

THE RECORD AFTER 8 YEARS WITH AGUAS DEL ILLIMANI (La Paz / El Alto Bolivia) 100% 92% 100% 71% 82% 36% 63% 0% 10% 20% 90% 80% 70% 60% 50% 40% 30% La Paz Water La Paz Sanitation El Alto Water El Alto Sanitation Start of Contract 2005 9/20/2006

Infrastructures realised (1997-2005) Connections La Paz El Alto Total Potable water 32 338 64 703 97 031 Sanitation 24 768 51 173 75 941 People connected (1997-2004) La Paz El Alto Total Potable water 310,000 298,000 608,000 Sanitation 238,000 235,000 473,000 Networks installed La Paz El Alto Total Potable water 289 km 683 km 972 km Sanitation 322 km 263 km 585 km 9/20/2006

LYDEC (Casablanca, Morocco)  Each year 20 to 25 million m3 of water are saved, i.e. equivalent to the needs of a Moroccan city of 800,000 inhabitants. The percentage of "Non-revenue Water" (commercial and physical losses) has dropped from 38% to 28%. The number of subscribers has risen from 440,000 to 710,000 (1997- year-end 2005). 9/20/2006

But --- Argentina and Bolivia PPPs have ended early … Are these failures ??? 9/20/2006

If you listen to the anti’s … 9/20/2006

Conclusion --- Overall, Results of PPP’s has been Mixed Successes --- Limeira, Brazil; Santiago, Chile; Casablanca; Jakarta; BOTT’s South Africa; China; Eastern Europe Management contracts in Johannesburg; Amman; Algiers (also --- over 1,200 in US including Seattle Tolt and Cedar Projects) Ended by Mutual Consent --- Atlanta and Puerto Rico  Poorly structured contract; inability of private sector to achieve needed efficiencies and lack of government support for labor reforms Ended in Disputes  however, significant improvements in water and sanitation have been achieved Buenos Aires; Bolivia; Manila  dramatic currency devaluation producing unsustainable financial operation 9/20/2006

Water: an Economic or Social Good? This is Free … This has a cost ……… somebody must pay for it ! 9/20/2006

Water: an Economic or Social Good? Can she pay for water ??? She can pay for water ……… 9/20/2006

The Poor often pay 20-100 Times More for Water Jakarta 1 jerrycan (20 l.) = 0.06 - 0.12 € = 3 - 6 €/m3 Water tariff (low-income) = 0.04 €/m3 9/20/2006

Who Pays for What? Common situation in developing countries Poor --- usually not connected but pay high price Non-poor --- connected to the water network and pay a price below the cost of the service Municipal budget --- finances the operating deficit, or… Water system --- progressively falls into disrepair and ultimately collapses 9/20/2006

Future of PPP’s Lessons Learned

Observations from the Private Sector “Heavy” Concession is not well adapted for developing countries Need political continuity Require an environment where the right and security of legal commitments are provided Large financial debt obligation by the operator does not function Not adapted to the political rhythm which is often unstable in developing countries Periodic economic crises will occur Ideological reasons Private sector moving toward a “Light” concession model Operation and maintenance of existing infrastructures No large new infrastructure construction requiring heavy investments Financing in local currency Shorter contract duration – 5 to 10 years This will insure sustainable water and wastewater utility 9/20/2006

Actions Required by Local Governments and International Institutions (UN … WB … others) Provide local / international Financing to insure the building of new infrastructures and the Renewal/Replacement of existing facilities that have met their useful life Provide proper governance, high integrity and transparency of management Engage all stakeholders in process (particularly the local users) Implement affordable water tariffs For the Poor: Provide financial assistance (subsidies) for new water and sanitary connections Create affordable water services through cross subsidies in overall tariff structure 9/20/2006

Public Private Partnerships --- Range of Alternatives Privatisation or Asset Transfer Private Ownership Shared Ownership Degree of Private Involvement Delegated Management Affermage Concession Infrastructure Contract DBO BOT Public Private Partnerships Management Support Operations & Maintenance Technical Assistance Years 3 ∞ 5 25 10 9/20/2006