8th INPIM International Seminar on Participatory Irrigation Management PublicPrivate Partnerships in

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8th INPIM International Seminaron Participatory
Irrigation ManagementPublic-Private
Partnerships in IrrigationLessons from WSS and
Perspectives for LDCsJan G. Janssensand
Philippe MarinWorld Bank Institute

• Tarbes, France, May 9 - 13, 2005

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Key topics of this Session

• What do we mean by PPPs?
• Why look at PPPs? the parallel between WSS and
  ID
• Lessons from a decade of PPP in WSS in developing
  countries
• Applying PPP models in ID challenges and
  limitations

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What do we mean by PPP in Water? the public
service delegation concept
Asset owner
Operator
Delegation of Management
The Government as asset owner and entity
responsible ultimately for the delivery of the
public service to the population - contracts out
to a private party the service provision
operation of assets through delegation of
management. PPP in water is NOT privatization
(no sale of assets)
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Public-Private Participation (PPP) models
PPP
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PPP Pre-requisites
MARKET TRANSPARENCY
REGULATORY FRAMEWORK
COST-COVERING TARIFFS
POLITICAL COMMITTMENT
OPTION
Low
Low to Moderate
Low to Moderate
High
Management Contracts
Moderate
Moderate
Moderate to High
High
Lease / Affermage Contracts
Moderate
High
High
High
Concession Contracts
High
High
High
High
Full Divestiture
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Why was PPPs promoted in the 90s for WSS
utilities ?

• Poor performance of water utilities delivering
  poor service and without funding for coverage
  expansion
• Improve service quality and access
• Better governance framework arms-length
  relationships between operator and owner
• Access to private financing

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The same basic rationale hold for public ID
agencies !

• Poor performance deteriorated infrastructure,
  lack of customer focus, poor financial situation
  (low tariff)
• Governance widespread political interference in
  management (over-staffing, bill collection)
• Funding budgetary constraints makes public
  financing more difficult for new expansion

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Lessons from a decade of PPPs in WSS (1)

• PPP can bring significant benefits on service
  quality for customers
• But it requires government to address the issue
  of tariff
• financial viability full cost recovery
• PPPs are viable only if tariffs are high enough
  to support cost recovery
• Political resistance to tariff increases
• God gave us the water for free but he forgot
  to give us the pipes

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Low Tariff Poor Service The Vicious circle

• Tariff level insufficient to cover full OM and
  assets rehabilitation
• Degradation of service quality
• Customer dissatisfaction
• Low WTP translates into low collection rate and
  resistance to tariff increase
• ..

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Lessons from a decade of PPPs in WSS (2)

• Ideological resistance to private sector
  participation in water is a reality
• PPPs are complex agreements, which need strong
  supporting legal institutional framework
• Limited number of private actors, with little
  appetite for projects in developing countries

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Lessons from a decade of PPPs in WSS (3)

• Limited scope for private financing
• Financial capacity of operators
• Foreign currency risk
• Lack of long term loans in local currency
• Moving to models of private management/operation
  with public financing (lease/management contract)

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Potential of PSP in Irrigation ?

• The irrigation sector shares significant
  similarities with other public infrastructure
  sectors (urban water supply)
• network infrastructure serving a group of
  consumers, with monopoly characteristics
• inefficiencies under public management.
• Not many successful attempts globally yet to
  introduce PPP in the irrigation sector
• where a private operator would invest, construct,
  and operate an irrigation system while billing
  and collecting directly from farmers.

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PPPs in Irrigation where are we?

• Water users associations are a well established
  scheme (equivalent to the cooperative scheme in
  urban WSS)
• WSS models of PPPs are starting to be implemented
  in irrigation (Guerdane, Morocco West Nile
  Delta, Egypt)

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PPPs in Irrigation (1) the tariff challenge

• Need to support high rate of return required by
  private sector
• In irrigation low tariff and tradition of poor
  payment by farmers
• ? Highest potential is for private investment is
  for export crops that can support substantial
  water tariffs (Guerdane, Morocco)

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PPP in irrigation (2) getting the Sector
Framework right

• Establishing a PPP is no substitute for adequate
  reform of the sector framework
• Water rights allocations
• Investment/contractual protection
• Bill collection from farmers
• The enabling environment is as important as the
  PPP contract itself

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PPP in irrigation (3) importance of the process

• Farmers are not comparable to households (WSS)
  water viewed as economical input
• Participative process fostering stakeholders
  involvement transparency
• Farmers association
• Integrated river basin management
• Benefits must be properly communicated, and
  shared for sustainability

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UnbundlingISP and Bulk Water Supply

• as the size and variety of demands on water
  resources expand, it becomes increasingly likely
  that a bulk water supplier will be wholesaling
  water to a number of different users, including
  irrigation service providers (ISPs), municipal
  suppliers, and the environment.
• along with this separation, however, comes the
  challenge of linking the two together through
  some form of agreement that can regulate their
  interactions and exchanges.

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PPPs in Irrigation (4) some unique risks for
investors

• Demand risk projection for water demand in
  irrigation are dependent on the evolution of
  agricultural markets
• Commercial / political risks farmers vs.
  households
• Raw water supply risk usually priority to
  municipal/hydro over Irrigation in case of
  drought

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PPPs in Irrigation (5) which private sector?

• Currently no major international operators like
  in WSS
• With exception of France, private expertise lies
  in consulting, engineering firms and suppliers
• ? private consortia combining international and
  local expertise

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Keep in mind that

• Need for realism
• Private sector appetite for risk
• Political support
• PSP can not substitute for serious sector
  reform (tariff, accountability)
• The success of a partnership - like a marriage -
  is based on sustained mutual commitment

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Merci !