1 Banco Interamericano de Desarrollo Financiacion de los servicios de agua y saneamiento : Opciones y condicionantes Experiencia de un operador privado Charles Chaumin, SUEZ ENVIRONNEMENT

2 CONTENT. SUEZ Environnement in Latin America. Major Features. Assessment. Where do we go from now ?

3 1993–2003 : A « PIONEERING » DECADE 1993 Buenos Aires (Argentina) 1994 Mexico DF (Mexico), Bogota (Colombia) 1995 Limeira (Brasil) 1996Santa Fe (Argentina) 1997Cordoba (Argentina), La Paz (Bolivia) 1999 Santiago (Chile) 2000Manaus (Brasil) 2001 Cancun (Mexico) 2002Puerto Rico (PR)

4 SUEZ ENVIRONNEMENT : A COMPLETE RANGE OF EXPERIENCES AND PSP MODELS IN LATIN AMERICA/CARRIBEAN - Service contracts : Mexico DF - Long term operation / maintenance contracts : Puerto Rico - Bots : Mexico, Bogota - Full concessions : Buenos Aires, Santa Fe, La Paz Manaus, Limeira, Cordoba, Cancun - Privatization : Santiago

5 CONTENT. SUEZ Environnement in Latin America. Major Features. Assessment. Where do we go from now ?

6 MAJOR CHARACTERISTICS OF OUR PROJECTS IN LATIN AMERICA.Dramatic needs for service improvement /expansion - Inexistent / poor mid or long term planning - Poor/inaccurate baseline data.Little / no experience of PSP in country / sector -Lack of regulatory instruments / regulatory practice -bricks and mortar philosophy versus output delivery philosophy.

7 MAJOR CHARACTERISTICS OF OUR PROJECTS IN LATIN AMERICA (2).Abrupt shift from all public financing to all private financing -Difficulties in understanding, accepting and applying full cost recovery principle and its implications -Same with cost of capital.Absence of or limitations on local financial markets -Reliance upon international debt / capital markets -Cost-effectiveness and currency risk

8 CONTENT. SUEZ Environnement in Latin America. Major Features. Assessment. Where do we go from now ?

9 RESULTS. Real delivery of service improvements and service expansion million connected to water / sewerage, -New waste water treatment capacity for 7 million -3 billion US $ CAPEX.Accountability of results / monitoring.Transparency of origin and allocation of costs and resources within operations and investment.Emergence / build up of customer / community awareness

10 Relación Ingresos / Inversión OSN / Aguas Argentinas Nota: La evolución tarifaria contiene el Suma. El cargo está tomado como si fuese un incremento tarifario y no una sustitución de conceptos (Cargo de Infraestructura y los costos diferenciales del PSI ) INDICE INVERSION En base a los montos nominales anuales ajustados por IPM (Indice de Precios Mayoristas) INDICE TARIFARIO En base a la tarifa nominal promedio ajustada por IPC (Indice de Precios al Consumidor)

11 CRISES. Contract Design Crises - Buenos Aires (Cargo de infrastructura) - Manaus (Baseline data, Planning). Tariff Freezes/Breach of Contract - Limeira Argentina ?. Legal System Interference with Contracts (Judicializacion) : - Argentina - Manaus

12 MAJOR RISKS ENCOUNTERED. Baseline data risk. Currency risk. Breach of contract by concedent. Financial risks to concessionnaire and shareholders - Performance bonds - Loans. Legal risks

13 LEARNING FROM EXPERIENCE (1). Sustaining economic equilibrium of long term contracts is highly challenging : - Economic shocks - Change in political objectives - Regulatory/ legal issues. Risk allocation through contracts finds its limits in major change / shock situations. Private operators obligations are enforceable, but public authoritys are not : = Assymetry of obligations

14 LEARNING FROM EXPERIENCE (2). It is key to win and keep a license to operate as private provider of a public service : - customers loyalty - community/stakeholders relations and recognition. Private operation and service to the poor are fully compatible. Adherence of labour to change management is achievable through constructive relations. Attracting / empowering local partners to emerging water business proves complex

15 CONTENT. SUEZ Environnement in Latin America. Major Features. Assessment. Where do we go from now ?

16 PRINCIPLES FOR SUSTAINABLE PPP CONTRACTS. Clear, stable and durable statement, understanding and sharing of project objectives/targets. Sustainable cost recovery at manageable horizons. Clear allocation of tasks / duties / responsabilities. Thorough risk allocation. Reciprocal enforceable commitments of parties. Multistakeholders engagement

17 PRACTICAL IMPLICATIONS (1). Build contracts with adjustment mechanisms to baseline data and with periodic reviews. Control financing needs up-front - Avoid up-front concession fees - Capex programs to be profiled according to cash-flow streams - Adjust to local market/local currency conditions. Differentiate roles : - Operator - Investor

18 PRACTICAL IMPLICATIONS (2). Control investors exposure : - Projects bankable through project finance - Equity protection on political risk. Deploy and apply risk mitigation instruments available or to be made available by IFIs, ECAs and Bilaterals. Mix public funding with private funding : - Revolving funds - OBAs - Grants

19 PRACTICAL IMPLICATIONS (3). Enable performance reporting to project owner and stakeholders. Enable appropriate dispute prevention and dispute resolution mechanisms. Instrument enforceability of both parties obligations and balanced termination clauses

20 THANK YOU / MUCHAS GRACIAS