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

2. a global network for water professionals The What and the How We know that … Well-functioning utilities are required to accomplish desired service objectives The question is … What are the attributes of an effective and efficient (“well functioning”) utility? What is the pathway to well-functioning utilities?

3. a global network for water professionals 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

4. a global network for water professionals How Does One Achieve All of This?  Privatize immediately!  Never privatize!

5. a global network for water professionals 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

6. a global network for water professionals Strategies for Performance Enhancement: A System Approach Licensing Mechanism for Renewing the Franchise Institutional Restructuring & PSP Comprehensive Regulatory Framework Benchmarking and Reporting National Stimulus for Innovation Effective, Efficient & Sustainable Utilities Rigorous Planning Processes New Institutional and Governance Forms Consolidation Health, Environmental, Service, Economic Externally imposed or self- imposed Linked through a national/ state regulatory system Uniform framework needed Leads to transparency, yardstick competition Reassessment of Options for Private Sector Participation Strategic asset management Pricing and resource management

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

8. a global network for water professionals 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

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

10. a global network for water professionals 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

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

12. Delegated Services Contracts Types of Private Sector Involvement Private Company AFFERMAGE (Lease Contract ) Fully Privately Owned CONCESSION Technical Assistance Build, Own, Operate, Transfer (BOOT) Time in Years 3Forever5103020 Municipality Degree of Private Involvement Joint Venture Public/Private Design, Build Operate (DBO)

13. a global network for water professionals 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 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 authority Assets 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 Continuum of Institutional Models Public -----------------------------------------------------| ---- Private ----| Public ------------------------------| Private ------------------------------| Asset Owner-> Svc Provider-> None -------------------------------More --------------------------- Complete Separation from Gov’t - 

14. a global network for water professionals Governance & Regulatory Interface Corporate Regulation Informal Economic and Service Regulation – through Community Governance Formal Economic and Service Regulation – through Regulator or Contract MunicipalDelegatedFully Private Corporatized Public Public -----------------------------------------|Private Public -----------------------| Private ------------------| Asset Owner-> Svc Provider-> None ----------------------More ------------------- Complete Separation from Gov’t -  Health & Environmental Regulation

15. a global network for water professionals Observed Evolution Between Structures Municipal Public Corporatized Public Equity Private Delegation Public -----------------------------------------------------| Private Public ---------------------------------| Private ------------------------| Asset Owner-> Service Provider

16. a global network for water professionals 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

17. a global network for water professionals 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

18. 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

19. a global network for water professionals Benefits of Well-Designed Overall Approach -- Australia Operating Revenue-24% Operating Cost-27% Interest-77% Tax Revs & Dividend275% Improvement: 1988 -- 2001 (Real $)

20. a global network for water professionals Thank You!