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Trude  Tirsdag 8. Desember 2009, kl. 15:54

Our review of World Bank loans and public comments 
from World Bank staff show that they are slowly backing away from 
conditionalities of private sector participation. However, this new WB 
report finds that "the focus of PPP should be on using private 
operators to improve operational efficiency and quality of service, 
instead of primarily trying to attract private financing." Clearly we 
have more work to do.  I've pasted the Key Findings text below but the 
report is available in entirety on the Bank's website.



Public-Private Partnerships for Urban Water Utilities: A Review of 
Experiences in Developing Countries

This study examines the understanding of the performance of public-
private partnerships (PPP) projects in urban water utilities in 
developing countries.

It focuses on projects in which a private operator is introduced to 
run the utility, consequently excluding build, operate, and transfer 
(BOT) projects and similar arrangements limited to the construction 
and operation of treatment facilities.

It reviews the overall spread of urban water PPPs during the past 15 
years and seeks to respond to the questions of whether and how they 
have helped to improve services and to expand access for the 
populations concerned.

The study analyzes performance data from more than 65 large water PPP 
projects that have been in place for at least five years (three years 
in the case of management contracts), a sample that represents a 
combined population of about 100 million people ? close to half of the 
urban population that has been served by private water operators 
sometime between 1990 and 2007. This sample represents, by size of 
population served, close to 80 percent of the water PPP projects that 
were awarded before 2003 and that have been active for at least three 
years.

Four dimensions of performance are analyzed: access (coverage 
expansion), quality of service, operational efficiency, and tariff 
levels. The analysis focuses on the net improvements and actual impact 
for the concerned populations, rather than whether contractual targets 
were met. Based on what worked and what did not, conclusions are then 
drawn on how governments can better harness private initiative to 
improve water supply and sanitation services in the developing world.

The key findings are:

water PPPs are a viable option in developing countries
the most consistent contribution of private operators has been 
improved efficiency
contractual arrangements for water PPPs have evolved differently in 
different regions
The findings of this study suggest that a new approach is emerging for 
maximizing the potential contribution of private water operators in 
the developing world. The focus of PPP should be on using private 
operators to improve operational efficiency and quality of service, 
instead of primarily trying to attract private financing.

~~~~~~~~~~~~~~~~~~~~~~~~
Key Findings

Water PPPs Are a Viable Option in Developing Countries
Despite limitations related to data accessibility and reliability, and 
the ambiguity
of indicators, the analysis of the four dimensions of performance
(access, quality of service, operational efficiency, and tariff 
levels) suggests
that the overall performance of water PPP projects has been generally 
quite
satisfactory. Several PPP projects performed well on coverage 
(access), service
quality, and efficiency together. More performed well in one or two key
aspects. Some brought sizable improvements to the populations they 
served
even though they proved unsustainable and were terminated early. A few
others failed to achieve any meaningful results by most accounts.

It is noteworthy that out of 65 developing countries that embarked on
water PPPs during the past two decades, at least 41 still had private 
water
operators, and 84 percent of all awarded contracts were still active, 
by the
end of 2007. Twenty-four countries had reverted to public management,
and several contracts had been terminated early following conflicts 
between
the parties. These numbers are not unreasonable considering what has in
practice been a market test of a wide variety of contractual designs 
in many
different (and often challenging) environments. Details do matter; the 
choice
of contractual designs, as well as the willingness of the public and 
private
partners to make it work during implementation, have proved to be major
determinants in the final outcome.

To draw a general picture of the overall outcome of water PPP projects 
in
the developing world, this study attempted a broad classification. A 
total of
205 million people in developing and emerging countries have been served
by water PPP projects at some point during the past 15 years. Of these,
160 million people were still being served at the end of 2007, while 
about
45 million people had been served by PPPs that were either terminated 
early
or not renewed at expiration.

Among the 160 million people served by private operators in 2007, about
50 million are served by PPP projects that can be classified as 
broadly successful.
These are projects that have brought significant benefits to the 
population
and where a working relationship has developed over time between
the public and private partners. Successful PPP projects exist in all 
regions of
the developing world, including Latin America (Colombia, Chile, 
Guayaquil
in Ecuador, and several concessions in Brazil and Argentina), Sub-
Saharan
Africa (Côte d?Ivoire, Gabon, and Senegal), Asia (Eastern Manila in the
Philippines), Eastern Europe and Central Asia (Yerevan in Armenia), and
the Middle East and North Africa (Morocco). Active PPP projects whose
performance was mixed or disappointing are estimated to represent a 
population
of about 20 million. The remainder (90 million people) receive service
under PPP projects that were not reviewed in this study, most of these 
projects
being recent (awarded since 2003).

The Most Consistent Contribution of Private Operators Has Been
Improved Efficiency

In the 1990s, the main attraction of PPPs in the sector was their 
supposed
ability to supply private finance. Experience has shown that this was 
largely
the wrong focus. The review of the cases that worked shows that the
biggest contribution that private operators can make is improving 
operational
efficiency and service quality. These improvements have a major
impact on access to financing, but indirectly. Customers become more 
willing
to pay their bills when service improves and more efficient operation
creates more cash flow from operations to invest in expansion, which in
turn increases the customer base and revenues. As creditworthiness 
improves,
a utility can more easily access funding and invest in service 
expansion.
An efficient operator will make good use of the funding that is 
available
for investment, regardless of whether the funding comes from public or 
private
sources.


Contractual Arrangements for Water PPPs Have Evolved Differently
in Different Regions

A large proportion of the PPPs that were awarded during the 1990s, 
particularly
in Latin America, focused on attracting private funding and therefore
adopted the concession scheme. The early termination of many of
these concessions demonstrated the inherent vulnerability of this 
approach
in the volatile economic environment of developing countries. Colombia
was the first to depart from the standard concession approach, using the
mixed-ownership companies approach or providing public grants to private
concessionaires to accelerate investment. Many of these hybrid PPPs
had positive results. In other regions, several countries experimented 
with
long-term PPPs that combined private operation with public investment,
such as leases-affermages, mixed-ownership companies, and management
contracts.

Looking Forward

The findings of this study suggest that a new approach is emerging for 
maximizing
the potential contribution of private water operators in the developing
world. The focus of PPP should be on using private operators to improve
operational efficiency and quality of service, instead of primarily 
trying to
attract private financing. A new generation of water PPP projects 
already
has been gradually emerging, as these elements were being internalized 
by
the market. In practice, the optimal modalities for financing 
investments
depend on the specific situation of each country.

Emerging Options to Finance Long-Term PPPs: Toward Hybrid Models

Despite the difficulties that were experienced with concessions in 
several
countries, private financing should not be discarded altogether. It 
has started
to prove viable in a few of the more advanced developing countries, 
where
medium- and long-term private debt in local currency have become 
available.
However, in most of the developing world, the bulk of the large capital
outlays required to expand access in the near future will have to come 
from
public sources.

More and more countries are adopting a PPP model in which investment
is largely funded by public money, with the private operator focusing on
improving service and operational efficiency. In practice, funding for 
investment
under these mixed-financing PPP projects comes from a combination
of direct cash flows from revenues, with a variable mix of government
and private sources that tends to make the traditional dichotomy between
leases-affermages and concessions increasingly obsolete. Several 
successful
approaches have been developed over the past decade:

? Concessions that rely largely on revenue cash flow for investment, 
with
cross-subsidies from electricity sales (Gabon), tariff surcharges (Côte
d?Ivoire), or both (Morocco).
? Affermages, as developed in Western Africa, bolstered by enhanced 
incentives
for operational efficiency, a program of subsidized connections to
expand coverage for the poor, and a gradual move to full cost recovery
through tariffs (Senegal, Niger, and now Cameroon).
? Mixed-ownership companies, as used in Latin America (Colombia, La
Havana in Cuba, and Saltillo in Mexico) and several countries of Eastern
Europe (the Czech Republic and Hungary).
? Concessions with public grants for investments to spearhead access
expansion or rehabilitation while minimizing the impact on tariffs. This
is typified by the PPPs in Colombia designed under that country?s 
Programa
de Modernización de Empresas (PME); a similar approach has
been adopted in Guayaquil in Ecuador and in a few concessions in 
Argentina
(Cordoba and Salta).

New Private Water Operators from Developing Countries

In parallel with a shift in PPP models, many new players have been 
entering
the market. In 2000, five international water companies accounted for
about 80 percent of the water PPP market in developing countries. Since
2001, private operators from developing countries have signed most of 
the
new contracts, and some international operators have also transferred 
their
existing contracts to local investors.

Some 90 percent of the growth in the number of people served by PPP
projects since 2001 is due to private operators from developing 
countries.
By 2007, local private water operators served more than 67 million 
people,
or more than 40 percent of the market. This study identified as many as
28 large private operators from developing and emerging countries, each
serving a combined population of at least 400,000 people. In East Manila
in the Philippines as well as several PPP projects in Argentina, 
Brazil, and
Colombia, local private investors have proved their capacity to learn 
the
trade, deliver good performance, and become credible players.

It would be hard to overestimate the importance of this new trend. Not
only do these new operators provide much-needed competition in the 
sector,
but they also may have a better capacity to manage the various risks
inherent in the urban water utility business. Their understanding of 
local
culture can allow them to more easily establish a viable partnership 
with
local authorities and better mitigate political risks. They are also 
probably
better suited than their international competitors to serving small 
cities and
towns, where the needs are considerable.


Toward a More Balanced Debate

It is clear from the many experiences of the past 15 years that public-
private
partnership is not a magic formula to address all the multiple issues 
of failing
public water utilities in the developing world. For many governments in
developing and transition countries, PPP projects have proved to be 
complex
undertakings that carry strong political risks and large uncertainties 
as to
the magnitude and timing of the expected benefits. Contractual targets 
are
difficult to set and baseline data are seldom reliable; they generate 
many
opportunities for conflict. Private operators do not always deliver 
and have
a tendency to seek renegotiations to their advantage. Reforms can become
easily subverted by vested interests. Many obstacles can lead to 
conflicts
and costly early termination. Still, the overall performance of water 
PPPs
is more positive than is commonly believed. PPP projects for urban water
utilities have brought significant benefits to tens of millions of 
people in the
developing world.

Transferring a majority of urban water services to private operators is
unlikely to be the chosen option for most developing countries. But 
having
a few water supply PPPs in a country can still be very beneficial, by 
generating
much-needed pressures to move the whole sector toward higher levels
of performance. The public water utilities that have succeeded in 
improving
performance are those that have applied sound commercial management
principles, emphasizing financial viability, accountability, and 
customer service.
Complacency is the worst enemy of public utilities, and it is rooted in
the assumption that poor service has no consequences. That attitude 
makes
it difficult for even the most skilled and best-intentioned public 
managers
to introduce and sustain improvements in the face of the various groups
that have vested interests in the status quo. In that sense, the 
actual contribution
of water PPPs may be greater than that achieved in specific projects?
through the introduction of a much-needed sense of competition and
accountability in an erstwhile monopolistic sector.

Many public water supply utilities in the developing world are also
opening the door to the private sector through practices that fall 
short of
delegated management but open the way for a new, broader approach for
private sector involvement. These include other forms of providing 
operational
expertise, such as performance-based service contracts, twinning,
and subcontracting. The private sector is also gaining a new role with 
public
utilities thanks to the increasing recourse to private financiers in the
most advanced countries?with, in addition to nonrecourse BOT projects
for treatment facilities, the recent development of subsovereign 
borrowing
or sale of minority equity shares through initial public offerings 
(IPOs).
Finally, publicly owned water utilities are starting to look for 
delegated
management or other contracts outside of their jurisdiction, where they
contractually become private partners. All this makes the traditional 
boundaries
between public and private water utilities increasingly blurred, 
fostering
a more buoyant and competitive market and more choices for decision
makers in government.

The private sector has much to offer, and in many forms. To tackle the
immense challenges facing the urban water sector in developing 
countries,
policy makers need all the help they can get. It might just be time 
for a
broader concept of partnership, one that includes all and excludes none.

__________________________________
Darcey O'Callaghan
International Policy Coordinator
Food & Water Watch
1616 P Street NW, Suite 300
Washington, DC 20036
W: +1(202) 683-2523
M: +1(202) 309-1440
Fax: +1(202) 683-2524
http://www.foodandwaterwatch.org/
docallaghan@fwwatch.org

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