1 ADB – Workshop on PPP in Water Water Management Contracts Key Principles Anand K Jalakam

2 Presentation Structure Water utility operational functions Policy issues for sustainable O&M Management Structures for O&M Key issues for delegation Key principles of contracting

3 Water Utility Service Regime PUMP SOURCE TREATMENTSTORAGE CUSTOMER MEASUREMENT

4 Strategic Business Units PUMP SOURCE TREATMENTSTORAGE CUSTOMER MEASUREMENT Bulk Retail

5 Key Operational Functions WTW OHT  WRU CORD’N  PROTECTION  MANAGEMENT  MONITORING  MECH & ELEC  CHLORINATION  QUALITY& SAFETY  PRODUCTION  VALVING  LABORATORY  FACILITY MGMT  DISTRIBUTION  MAINTENANCE  REPAIRS  CUSTOMER SERVICE  METER READING  BILLING & COLLECTION  DEBT MANAGEMENT ACCOUNTS, FINANCIAL CONTROL, HUMAN RESOURCES, SAFETY, AUDIT, LEGAL PLANNING,WATER SAFETY, ENGINEERING, ASSET MANAGEMENT, PROCUREMENT, IT  DEMAND MGMT  VALVING  REPAIRS SOURCE PUMPMETER

6 Policy issues for sustainable O&M Governance Operational autonomy Ability to manage staff Flexibility in decision making Transparent subsidies Management Responsiveness to consumers Efficiency Commercial viability Capacity to grow and transform

7 Possible options for reform A. Integrated Municipal Management (IMM) B. Dedicated Municipal Management (DMM) C. Municipal Water Company (MWC) D. Regional Water Corporation (RWC) E. Delegated/Outsourced Management (DOM)

8 A - Integrated Municipal Management

9 A – Integrated Municipal Management Advantages Simple to administer Managerial control with Municipal Commissioner Customers can deal with one agency for all services Democratisation at the grass-root level Weaknesses Low accountability Key staff does not belong to ULB Difficult to link tariffs to service delivery Less focus on water Councilor and operator conflicts leads to controversies

10 B - Dedicated Municipal Management Mumbai, Pune Nagpur, Surat

11 B – Dedicated Municipal Management Advantages All the strengths of Option A holds good Ring-fencing of water account leads to improved financial control and discipline Tariffs can be linked to service levels Transparent subsidies to poor can be ensured Possibility of performance incentives to staff Weaknesses Limited career opportunities to staff Un-economical for small towns Councilor and operator conflicts leads to controversies

12 C - Municipal Water Board/Company Bangalore, Chennai Hyderabad, Delhi

13 C – Municipal Water Board/Company Advantages Protected from daily interference from policy makers Civil society can be included in management Functional autonomy but ownership with ULB Tariffs and service delivery can be linked Better financial planning and management Weaknesses Require detailed initial planning and preparation Staff who are deputed may be unwanted by the parent agency Not economical as each ULB requires a separate agency Require elaborate training to induce corporate culture Councilors involvement low hence they may resist

14 D - Water Corporatisation Electricity Cos’ Orissa, AP, Karnataka

15 D – Regional Water Corporation Advantages Facility to regulate by comparison Payments and performance can be lined ULBs can choose any utility Electricity unbundling experience in the state Weaknesses Initial preparation and legislative support required for sound organisational structure Regulatory regime required for ensuring competition Low competition as there can be max 2/3 regional utilities

16 E - Delegated Management (PPP) Belgaum, Hubli, Mysore Nagpur

17 E - Delegated Management Advantages Suitable for medium to large size ULBs Performance based incentive linked contracts feasible Contractual Regulation possible ULB would gain value time for policy Contract management skills sufficient for ULBs Disadvantages Low information availability can hinder business planning Large companies can exploit small municipal authorities Some initial legal preparation required

18 Management Options Management Service Providers Full Service Providers Technical Service Providers Bulk Supply Providers

19 Level of Private Participation

20 Key Contractual Issues - 1 Imperfect Baseline Data – Either a Baseline study (with consultants) or – Include as contractual obligation as a preparatory period + Contract rebasing or readjustment Scoping of Work – Bulk supply vs Distribution services – Service improvement planning – Business Planning – Billing and Collection – Procurement

21 Key Contractual Issues - 2 Contract management capability – ULB being the Obligator for service – SLA can support contract administration – Technical Auditor Payment to Operator – Availability of funding stream – Payment security – Incentives

22 Key Contractual Principles Selection methodology – Transparent bidding Parties to Agreement – ULB as obligator – Operator as service provider – SLA as contract administrator Contract Phasing – Preparatory Phase – Service Improvement Phase – Operating Phase Obligations of parties Risk Allocation – Operating, Market, Collection

23 Performance Deliverables Preparatory Phase – Service improvement plan – Annual Operating Plan – Information Management System Service Improvement Phase – Incremental increase in cash collected per unit volume of water sourced – Metering, increased coverage of HSCs – Response times – Service Interruptions Operating Phase – Incremental performance improvements

24 Operator Remuneration Preparatory Phase – One off Set up costs – Annual Operating Costs – Fixed Fee Service Improvement Phase – Rehabilitation costs – Annual Operating Costs – Fixed Fee + Performance Fee – Share of positive cash accrual Operating Phase – Annual Operating Costs – Fixed Fee + Performance Fee – Share of positive cash accrual

25 Other Key Contract Principles Dispute Resolution – Amicable Settlement – Adjudication - local – Courts Indemnity – Historical defects – Negligence Termination – Continuous default by either Party – Fraud – Insolvent

26 Experience in Karnataka

27 Acknowledgements KUIDFC BWSSB KUWSDB KRWSSA USAID FIRE Project WSP-SA, World Bank “Thank you”