Outsourcing and franchising How ONEP (Morocco) mobilizes small scale local enterprises to cut down running costs Bernard Collignon Hydroconseil Water and Sanitation Services in Small Towns and Multi-Village Schemes Addis Ababa June 11-15, 2002 Water and Sanitation Program The World Bank and the World Bank Institute

ONEP is mostly a bulk water supplyer. Rural areas accounts for only 0.1 % of its turn over.

PAGER objectives in rural areas are very ambitious: 80 % coverage in year 2010 ( villages)

ONEP has been asked to cover a large part (> 50%) of PAGER scope. Task sharing between ONEP and DGH

The challenge for ONEP is : how to supply many thousands more villages and small towns…. how to supply many thousands more villages and small towns…. ….although the utility is already loosing money in small towns and villages… ….although the utility is already loosing money in small towns and villages… …and is supposed to stay financially autonomous (no subsidy) ? …and is supposed to stay financially autonomous (no subsidy) ?

In order to reduce costs in small towns and villages, ONEP uses three main contracting arrangements : (a) Outsourcing technical functions to local enterprises (b) Outsourcing some retail sales (standposts) (a) + (b) = (c) Franchising local small enterprises for water distribution

ONEP outsources many technical tasks to enterprises Pumping station operation Pumping station operation Network inspection Network inspection Leakage detection Leakage detection Field water analysis and water sample collection Field water analysis and water sample collection House connection……. House connection……. (a) Outsourcing technical functions

Typical enterprises contracted by ONEP (a) Outsourcing technical functions

ONEP provides strong support to these local enterprises (a) Outsourcing technical tasks

Outsourcing standpost management : it works, but water sales at standposts are very low in small towns and villages (b) Outsourcing retail sales

For ONEP, the challenge is to cut running costs for small towns, villages and scattered customers : For the time being, small towns are highly unprofitable (50 % financial losses) For the time being, small towns are highly unprofitable (50 % financial losses) In villages, perspective are worst In villages, perspective are worst  Long pipes and few users (rising maintenance costs)  Remote villages (rising logistic costs)  Few customers per village (rising metering / billing / recovery costs)

Franchising is the most promising solution to cut running costs in rural areas : (a) Simple technical outsourcing is not feasable (turnover in village is not enough to keep alive a professional entreprise) (b) Outsourcing retail sales (standpost) do not meet the demand (users ask for connections) and do not pay the standpost manager (a)+(b)=(c) But a contract for all the local operations is feasible : operating the system, managing the standposts, installing house connection, managing customers (metering, billing, recovering)

The management option chosen by ONEP in rural areas is one step ahead of its management system in towns : ONEP manages most of the investments and supplies bulk amount of water at the head of the branch. ONEP manages most of the investments and supplies bulk amount of water at the head of the branch. The local micro-enterprise manages all the functions, downstream a bulk meter The local micro-enterprise manages all the functions, downstream a bulk meter  Connecting new customers  Running equipment (including booster stations)  Recovering costs (metering / billing…)

It looks like a franchising agreement : The franchisor (ONEP) : The franchisor (ONEP) :  Provides bulk amount of water  Define standards for service, tariffs…and advertise them The franchisor (ONEP) : The franchisor (ONEP) :  Provides bulk amount of water  Defines standards for service, tariffs But ONEP undertakes all initial investment and that is a big difference with most common franchising aggreements But ONEP undertakes all initial investment and that is a big difference with most common franchising aggreements The franchisee (local enterprise) : The franchisee (local enterprise) :  Manages all relationships with customers  Uses the ONEP trade mark  Pays a fee (according to water consumption)

What is different with ONEP ? (Most water utilities do not practice franchising in small towns) Most national water utilities provides water to some dozen of medium sized towns and negotiated contracts excluding very small towns Most national water utilities provides water to some dozen of medium sized towns and negotiated contracts excluding very small towns On the other hand, ONEP has been assigned a global ambitious objective by Morocco government : 5,400 villages in year 2006 … On the other hand, ONEP has been assigned a global ambitious objective by Morocco government : 5,400 villages in year 2006 … …and that makes the difference ! …and that makes the difference ! NB : SODECI is another water utility providing water to very small towns (545 towns in Côte d’Ivoire)…….and it is also outsourcing daily management of the systems to local sub-contractors

Outsourcing and franchising How ONEP (Morocco) mobilizes small scale local enterprises to cut down running costs Bernard Collignon Hydroconseil Water and Sanitation Services in Small Towns and Multi-Village Schemes Addis Ababa June 11-15, 2002 Water and Sanitation Program The World Bank and the World Bank Institute