Private sector involvement in water service

J.M. Moss (7219094)

J.P. Terme (7219097)

English

Loughborough University Institutional Repository

B   INSTITUTIONS & MANAGEMENT: MOSS and TERME8920th WEDC Conference Colombo, Sri Lanka, 1994AFFORDABLE WATER SUPPLY AND SANITATIONPrivate sector involvement in water servicesJ.M. Moss and J. P. Terme, Lyonnaise des Eaux, France.IT IS BECOMING more frequent for the private sector to beinvolved in the provision of public services such as waterand waste water.There is a range of ways in which a dedicated servicescompany from the private sector can be involved in themanagement and provision of municipal services. Theserange from a very restricted provision of technical serv-ices, through a variety of contracts involving increasingresponsibility to full ownership of the supply system.This is illustrated in the chart attached which indicatesthe main structural alternatives in a hierarchical manner.The principal stages of this are as follows:1) The division between the provision of the servicesthrough a contractual relationship with a municipal-ity or a State and the situation where the private sectoris the outright owner of the supply company andassets.2) Within the contractual subdivision there is a divisionbetween the provision of services only, the provisionof services with working capital and the provision ofall investment and operation.Starting with the simplest arrangement which involvesthe least level of private sector responsibility and pro-gressing to total private sector ownership the main alter-natives are characterised as follows :Ancillary operationsThe operating contractor provides a well defined techni-cal or management service in support of the municipalitiy’smanagement resources. For example a municipalitywishes to implement a mains rehabilitation exercise. Pres-sures on its resources are such that it finds that it isbeneficial for it to engage an operational contractor whocan undertake the management of the programming,works implementation and control, consumer liaison etc.The municipality continues to operate the network usingits own staff while the contractor completes the specialistwork.Operation and maintenance (O&M)The operating contractor carries out the day to day opera-tion and routine maintenance of a specific geographicalsector or defined level of responsibility.In this situation the operator would be paid for the workdone in accordance with the contract price structure.Maintenance expenses would be reimbursed againstschedules of rates and where appropriate priced bills.Operation (with working capital only)(AFFERMAGE)The operator is contracted to carry out all routine opera-tion and maintenance. The operator is not involved in thefinancing of capital works. He is only called upon toprovide the working capital required for the actual opera-tion. It is likely that he will be required to provide aconsultancy service in respect of any new works whichmay be proposed. The operator may be involved in theoperation right through to customer billing, or he may bepaid by the undertaking who bills the customers.Operation with new capital investment(CONCESSION  &  B.O.T.)These forms are similar. The operator finances all costs forthe installation of the utility (new works and renewals)and the working capital required for its operation andmaintenance. In the most highly developed contracts(Concession) the operator is responsible for billing theindividual customers. The price of the water sold iscontrolled under the contract and also includes a propor-tion which is collected by the operator on behalf of theundertaking. In BOT’s, which are slightly more simple,the customers are usually charged by the undertakingand the operator is paid in accordance with rates set in thecontract. In either case, these payments can include pro-ductivity bonuses, or shares in increased profits if appro-priate. At the end of the contract period the installationsare handed over to the municipality unless the contract isrenewed or extended.Joint ventureIn this case the private operator and the municipalitycreate an appropriate special purpose company in whichthey both have a shareholding. This joint venture com-pany undertakes the provision of the full service andcharges the customers direct. The joint venture can eitheroperate under a contract with the municipality or undera licence arrangement. Remuneration to the shareholdersis through the payment of dividends.  Often the privatesector partner also provides special management andtechnical support.B   INSTITUTIONS & MANAGEMENT: MOSS and TERME90Private ownershipIn this case the operating company and the infrastructureand assets are owned entirely by the private sector. Theregulation of the private monopoly thus created is nor-mally by some form of statutory control or licence agree-ment.Whilst from the foregoing it may appear that eachcategory is clear cut, in reality this is not the case as thereis a great deal of flexibility. Eventually the solution isadapted to meet the needs of the individual case inquestion.This can be illustrated with examples from China,Indonesia, Malaysia, Viet Nam, Australia, Argentina,North America and Europe.  Each case shows how theprivate sector service company focusses on differentcustomer needs and political requirements.  They alsoshow how the solutions are adapted to the cultural,economic, legal and financial structures of the countriesin question.Figure 1. Options for private sector involvement.Contractual ArrangementsPrivate CompanyOwnership ArrangementsOperations & Maintenancewith Working CapitalAFFERMAGEOperations & MaintenanceAncillary OperationsJoint VenturePublic/PrivateTotallyPrivate OwnershipInvestment & OperationCONCESSIONor B..O.T.

Private sector involvement in water services

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Private sector involvement in water services

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