:: February 2005 :: :: presentation to :: Global Water PPPs : Meeting the Challenge Richard M. Temple Hogan & Hartson One Angel Court London EC2R 7HJ Tel: +44 (0) Fax: +44(0)

The Challenge By 2015 to  reduce by half the proportion of people without sustainable access to safe drinking water  reduce by half the proportion of people without access to basic sanitation  investment requirements of US$30bn a year to meet millennium development goals

Successful Water PPPs  A water and sewerage PPP lease contract in the Czech Republic  A water and sewerage PPP concession arrangement in Sofia, Bulgaria  A multi-site water and sewerage PPP concession throughout the UK  The World Bank Water and Sanitation Toolkit

Successful Water PPPs  What made these water deals successful?  How can they be replicated?  How best to meet the Challenge?

Water PPPs: special features  Politics  Revenue Risk  assets buried underground  sub-sovereign status  interconnected hydrological systems  complexity and unique risks  natural monopoly  limited number of developers

Successful Water Projects – Czech Republic Private Sector International Operator Municipalities Lease contract EmployeesVoucher HoldersMunicipalities Operating Company Asset Holding Company shareholder 250 members

Special Features  Number of Municipalities  No legal personality in Asset Holding Company  Shared Assets  Large number of shareholders in Operating Company  Lack of precedent

What made this water deal successful?  Municipalities retain ownership of assets  Clear division of tasks  Asset investment responsibility of the municipalities  Operating control to foreign investor  Mitigate environmental risk  Length of contract  Due diligence

 Increasing number of lease arrangements  First step to greater PSP  Hybrid structures  Regulation by contract  Clear definition of roles and responsibilities How can it be replicated?

Successful Water Projects – Sofia Water Municipality of Sofia Sofiska Voda IWL Winning Bidder EBRD Lenders Concession contract (including right of use of water infrastructure assets) VIK Shareholder In-kind contribution of operating assets for shares Customers Tariffs Share- holder

Sofia Water: Special Features  First Project Financing in Bulgaria  First municipal utility concession in Bulgaria  No guarantees  ISPA funding  Scheduled Review  Eligible Events for tariff changes

What made this water deal successful?  One municipality  Integrity of the revenue stream  Multi-lateral involvement  Changes to legislation  Pliego tender approach  Output specifications  Appropriate risk allocation  Regulation by contract

 Need customers able and willing to pay  Mix of public/private finance  Detailed contracts especially integration of future public finance  Clear and fair regulation How can it be replicated?

Successful Water Projects – Project Aquatrine Concession B 550 sites Concession C 2,000 sites Concession A 1,100 sites B C A

 Bundling through multi-site concession (over 3000 sites)  Largest water PFI project in Great Britain  Three packages  Highly complex contractual agreements  Environmental liabilities  Extensive information preparation Successful Water Projects: Project Aquatrine

 Political Will  Public Sector revenue stream  Size  Bundling of Projects  Environmental liabilities and insurance  Transparent procurement process  Detailed contractual arrangements What made this water deal successful?

 Similar synergies apply internationally  Significant project preparation  Bundling of projects  Comprehensive contracts  Integrity of revenue stream  Cross sector application How can it be replicated?

World Bank Water and Sanitation Toolkit  How to select an appropriate option for PSP?  How to design and implement an option for PSP?  What a PSP arrangement should cover?  A new World Bank Water and Sanitation Toolkit to be published in summer 2005

 Mix of public and private finance  Robust legal and regulatory framework  Clear risk allocation  Investment requirement balanced with affordability  Local currency lending  Bundling of projects Meeting the Challenge

 Transparent tender process  Hybrid structures  Phased and pragmatic approach  Output Based Aid  Stakeholder consultation and communication Meeting the Challenge

:: February 2005 :: :: presentation to :: Global Water PPPs : Meeting the Challenge