2. “Metrics, Performance & Ratings; A New Paradigm for an Important Business Global Corporate Citizenship: Multi-sector Partnerships for Progress World Environment Center April 25, 2003 New York, NY Norman F. Anderson Norman@cg-la.com

3. The Context A ratings agency focused on municipal water utilities in the developing world will put in place a fundamental infrastructure to meet the Millennium Development Goals of the United Nations and the Bush Administration It is an absolute priority that market forces -- discipline, competition, transparency and entrepreneurial energy -- begin to influence a system that is actually a balkanized set of natural monopolies spread throughout vast territories in developing countries A ratings system could easily replace privatization as the public policy paradigm for rapidly improving water services around the world, in a sustained way, benefiting from market forces while leaving ownership and control in public hands. 2 2

4. AREAS OF FOCUS The Three Big Goals The Problem The Solution - Key Options The Initial Steps The Result Water is the most complicated - and the most sensitive - infrastructure 3 3

5. Goal #1 DEPLOY RESOURCES EFFECTIVELY! Unaccounted for waterEmployees per ‘000 connections 36.01 4 4 $MM Lost through inefficiency $MM Lost through inefficiency Chilean Average

6. Goal #2 MOBILIZE THE EXTRAORDINARY POWER OF SOFT INFRASTRUCTURE! The Market Competition Entrepreneurial energy Goodwill - Government/Private Sector Goal of the UN Goal of the Bush Administration Current Programs PromAgua in Mexico 5 5

7. Goal #3 UNDERSTAND PRIORITY PROBLEMS AND USE BEST PRACTICES TO SOLVE THOSE PROBLEMS! During the two decades since it was famously used by Xerox to transform its fortunes, benchmarking has achieved credibility internationally, in the public and private sectors, as a way of facilitating the comparison of performance and the identification and exchange of best practice. 6 6

8. THE DESIGN SOLUTION The “problem” is remarkably similar to that which S&P was created to solve 7 7 Mexican Municipal Water Banobras/CNA CCAWEC Private Sector CG/LA Black & Veatch Ratings Agency C-Part Funding Efficiency Financeability Ratings

9. Target Countries Latin America Mexico Brazil Peru Venezuela Colombia El Salvador Rest of the World India Nigeria China Kenya Hungary Romania Harvard Wants to do a Series of Case Studies Supporting the Initiative 8 8

10. THE SOLUTION The Mexico Case Can you create an entity to Benchmark Mexico’s Municipal Water Utilities? Yes How would that entity be designed and staffed? Goals/Market Creation/Throughput How would it be funded? Public and Private Sector Commitments Standard & Poors and Moodys model Who would be in it? Board Efficient and Motivated Executives 9 9 The “solution” is very straightforward and not particularly controversial

11. 1. The Entity MX Ratings Model to be replicated in other countries Technical Benchmarking National Credibility Assessment + Best Practices Audit Market Creation Action 10

12. 2. Design & Staffing MX Ratings Audit Goals Market Creation Best Practices A ‘regulator’ is expensive, and does not work - this addresses the problem Market-based Diagnostics Market-based Implementation 100/year 10 Board (P/P) 03 40 Public Information Market-based Audits & Regular Updates 180/year 53 Full Time EXECUTIVES 53 Full Time EXECUTIVES 11

13. 3. Funding Stage 1 - 6 Months Establish Metrics Design Entity Stage 2 - Operation Audits Best Practices Information Sales Grant - $150,000 Mexico US IADB Grant - $150,000 Mexico US IADB ? ? 12

14. 3b. Funding - The Ratings Agency Model Provide an Information Service Fundamental to market creation -- public Fundamental to market operation -- private Products Audits municipal/state/federal Reports private sector Best Practices municipal/state/federal Information Critical for PUBLIC DECISIONS 13

15. 4. Participants Board Mexico Government Funding Agencies Private Executives NOT ALCHEMY - Goal is to IMPROVE EFFICIENCY Key Executives Mexican Ratings Agencies Mexican Engineering Firms Mexican Financial Institutions 14

16. NEXT (Mexico) STEPS Make a preliminary “Go” decision Get Funding Determine benchmarking metrics “Sell” the idea to relevant stakeholders Conduct 3-5 initial audits 15

17. Four RESULTS Catalyze improvement in efficiency of 30% over the next 3 years Releasing $75 million into the market Matched with $75 million in additional funds Create a market, so that municipalities self-generate solutions Internally Through entrepreneurial energy Create a resource, so that appropriate best practices can be implemented Consulting SWAT team Structure a process of budgeting priorities 16

18. LEADERSHIP CHALLENGE This is a BIG change At one level it is a technical change Which is relatively easy, and ‘technical’ At another level it is an adaptive change Which is very difficult, because it tends to create winners and losers Leadership will be required to manage this process 17

19. Critical Actors White House World Bank USAID/MDO UN PriorityOrganizationIssues A Multi-Sector Partnership for Progress? WEC Picking Ripe Fruit Setting up a new agency And also encouraging AID Top FP Goal - anxious Setting up a new agency And also encouraging AID Top FP Goal - anxious Stuck in the strategy of Privatization, and so will move very slowly, but have bench- marking capabilities Stuck in the strategy of Privatization, and so will move very slowly, but have bench- marking capabilities Have funding and mandate, And are seeking a workable Strategy - work well with Private Sector Have funding and mandate, And are seeking a workable Strategy - work well with Private Sector Prime mover behind MDG, Developed through consult With Harvard. Prime mover behind MDG, Developed through consult With Harvard. 18

20. Vision “Where there is no vision the people perish” Proverbs VISIONARY ORG: Sees What Needs To Be Created, And Creates It 7 19