Private Sector Participation PSP in water and sanitation services

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Private Sector Participation (PSP) in water and
sanitation services

• Jim Conlon
• General Manager
• Glen Water

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Key Messages

• The scale of global need for safe drinking water
  and effective sanitation is so great that it
  cannot be met by the public sector alone
• Private Sector Participation can contribute
  powerfully to sustainable development
• The public sector must have the choice and the
  capacity to decide whether and how to invite
  private sector partners to help deliver water and
  sanitation services

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Content

• The scale of global need
• Defining Private Sector Participation
• Current bureaucratic and market failures
• Balancing tariffs, access and shareholder returns
• Valuing water properly
• Technological expertise
• Environmental improvements
• Community participation
• Capacity building
• The wider 'globalisation' debate
• Conclusion

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The scale of global need

• Over 1 billion people are without adequate access
  to safe drinking water
• Over 2 billion people are without access to
  adequate sanitation
• These are often the poorest in society
• More than 2 million children die each year from
  disease
• Improving access to safe drinking water and
  sanitation would deliver very real public health
  benefit
• Water is central to sustainable development

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The scale of global need

• World leaders at the World Summit on Sustainable
  Development agreed targets on drinking water and
  sanitation
• Additional investment of up to 100 billion a
  year in water infrastructure is needed
• The additional investment is unlikely to come
  from public funds
• At present, a little over 5 of world's water and
  sanitation services are provided by the private
  sector
• Practical examples of Private Sector
  Participation remain low

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Defining Private Sector Participation

• A publicly accountable body working with one or
  more private enterprises to provide a service for
  the common good
• PSP allows communities to improve the efficiency
  and effectiveness of water and wastewater
  services
• Community control over prices, standards and
  assets
• PSP schemes vary according to local needs and
  circumstances, all can contribute to sustainable
  development
• An enabling environment is required

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Defining Private Sector Participation

• In the water sector, all PSP schemes are designed
  to meet, in the long-term, the needs of a
  community for safe water provision and sanitation
  at a fair and affordable price
• Public bodies can choose to use the private
  sector to
• share risks
• bring investment
• provide managerial expertise or
• obtain world-class scientific and technical
  resources

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Defining Private Sector Participation

• The possible forms that a PSP scheme might take
  include
• Simple contracting out of services
• Operation and maintenance of existing
  infrastructure
• Private sector investment in new, publicly-owned
  infrastructure
• Specially-created joint venture
• Complete privatisation of tangible assets,
  subject to regulatory constraints on price,
  quality, extent of service provision etc.

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Current bureaucratic and market failures

• Many suppliers of water and wastewater services
  do not recover even the basic costs of their
  services
• This can lead to a downward spiral
• PSP has the potential to halt and reverse this
  downward spiral
• A successful PSP results in
• planned annual investment through good management
• adequate cost recovery
• appropriate tariff charges
• sufficient income
• more planned annual investment

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Current bureaucratic and market failures

• The participation of the private sector in the
  water sector can be an emotive and controversial
  issue
• Current spending on water and wastewater has not
  been sufficient to prevent an overall decline in
  relative coverage
• New resources from the public and private sectors
  are urgently needed if targets on water and
  sanitation are to be achieved

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Balancing tariffs, access and shareholder returns

• Sustainable water and sanitation services cannot
  be achieved without adequate cost recovery
  mechanisms
• Social protection can be built into PSP schemes
• Affordability can be addressed through continuing
  grant funding or subsidies for vulnerable
  sections of the community
• In Chile Private operator is working with the
  local authority in Concepión to deliver 15 cubic
  metres of subsidised water to each of almost
  100,000 customers in the area

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Valuing water properly

• The cost recovery principle is total cost of
  providing services should be met in full by
  consumers
• This creates a 'virtuous circle'
• The UN Commission on Sustainable Development
  supports the principle of cost recovery in the
  water sector
• Fair and effective water pricing is the World
  Commission for Water's "most immediate and
  important" recommendation
• Private sector partners need to make a fair and
  reasonable profit in addition to recovering their
  costs

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Valuing water properly

• The cost recovery principle is different to
  profitability
• But profitability is a legitimate and necessary
  aspect of the economic dimension of sustainable
  development
• PSP should create a link between efficiency
  savings and profit
• PSP can bring a community benefits in terms of
  the financial and environmental elements of
  sustainable development
• The private sector can contribute towards the
  better stewardship of a vital natural resource...
  
• and provide a foundation for sustained economic
  activity
• This should not be achieved at the expense of the
  social element of sustainable development

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Technological expertise

• Water companies have the opportunity to meet
  changing customer expectations and to keep pace
  with new technologies
• Water companies must continue to be at the
  forefront of water efficiency and to spread best
  practice around the world
• Case study - Adelaide's largest sewage treatment
  works

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Da Chang, China

• Private operators participation has brought
  benefits
• allows other plants in the region to be operated
  at fixed-rates of throughput for maximum
  efficiency
• allows the client to manage peaks and troughs in
  the region's water demands
• brings down overall pumping and energy costs,
  with additional environmental benefits
• delivers water quality and customer service
  benefits

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Environmental improvements

• Water is a renewable but finite resource and
  needs to be managed in a sustainable way
• Sustainable development needs to be a commitment
• Case study - Gran Concepión, Chile. Wastewater
  treatment Biobio river
• PSP achieving ISO 14001 at all operations

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Community participation

• Control over water use and access is often
  fragmented
• Commitment to dialogue with the local communities
  that it aspires to serve
• It is primarily the right and the responsibility
  of the public body to consult and involve the
  local communities affected

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Marunda, Indonesia

• Project began as a result of a direct plea from
  the Mayor of North Jakarta, highlighting the
  plight of the community
• Work undertaken as part of the Business Partners
  for Development (BPD) initiative, involving the
  World Bank, the U.K. Government and WaterAid
• In 1999-2000 Thames Water invested ca. GBP 64,000
  to
• Extend the citys network of water mains to
  connect Marunda
• Install new water supply pipelines and
  rehabilitate existing mains within the district
  and
• Connect over 1,600 households to piped water
  supply, benefiting some 12,000 residents

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Marunda, Indonesia
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A case by case basis

• Demonstrate the diversity of Private Sector
  Participation options through case studies
• No single universal solution exists
• Each project is tailored to maximise the
  community benefits

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Capacity building

• Water companies need to be committed to capacity
  building
• Thames Water sponsors students from around the
  world to undertake MSc and PhD studies
• Engagement with partners in technological
  research and training programmes to facilitate
  knowledge transfer
• Involvement in a project to study Integrated
  River Basin Management in Jakarta, Indonesia

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The wider 'globalisation' debate

• The private sector invested over US25 billion in
  developing countries between 1990 and 1997
• Additional investment 100 billion per year for
  next 25 years
• A major portion of this investment will be in
  urban centres in the developing world

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Conclusion

• Water is vital to sustain human life
• Access to safe water and to effective sanitation
  services should be considered a basic human right
  for all
• Water should be treated as an economic commodity
  as well
• It is the right and the responsibility of
  governments to decide to invite private companies
  into agreements in the water sector
• Governments, or their independent regulators,
  have the right and the responsibility to set the
  tariffs

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Conclusion

• Private sector companies must cover costs must
  also make a fair financial return on its
  investments
• Most public authorities have no choice but to
  offer stringent terms of conditions to private
  companies
• Private companies usually only make a reasonable
  return on investment after a period of
  partnership and tangible results
• Private sector accepts this as a basic reality

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Conclusion

• It is for public authorities to decide to invite
  private companies to work with them in service
  delivery
• The public sector's choice of PSP model is not
  the only success factor
• The nature of the contract process is invaluable
• This should include open technical briefing,
  competitive bids and negotiated bids between
  competent parties

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Conclusion

• A lack of institutional capacity is a potential
  obstacle to expanding PSP arrangements
• Private companies should not have primary
  responsibility for capacity building
• Greater resources should be devoted to capacity
  building
• Companies should exercise due diligence in
  agreeing contracts

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Conclusion

• Thames Water welcomes civil society organisations
  in the task of tackling corruption and
  inefficiency
• Clear and transparent processes lay the
  foundations for successful PSP projects
• The input of local stakeholders in PSP schemes is
  essential
• Successful operations in the world work with
  local stakeholders and encourage community
  participation

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Conclusion

• PSP can play an important part in poverty
  reduction and sustainable development
• Links to existing strategies for sustainable
  development are important
• Implementation should maximise the use of
  existing knowledge, methods and best practices
• The exclusion of the private sector is not an
  option
• The delivery of successful water supply and
  wastewater projects will start to change the
  nature of the debate