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WSSB Capacity Enhancement Workshop1.  Definition: Public-Private Partnerships (PPPs) are a form of legally enforceable contracts between the public and.

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Presentation on theme: "WSSB Capacity Enhancement Workshop1.  Definition: Public-Private Partnerships (PPPs) are a form of legally enforceable contracts between the public and."— Presentation transcript:

1 WSSB Capacity Enhancement Workshop1

2  Definition: Public-Private Partnerships (PPPs) are a form of legally enforceable contracts between the public and private sectors, which requires new investments by the private contractor (time/expertise, technology, money, reputation, etc.) and which transfers key risks to the private sector (operation, service delivery, design, construction, etc.), by which payments are made in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector.

3  Under publicly-provided services, the Govt. decides the INPUTS to be used (#staff hired, chemicals purchased, when equipment gets maintained or not)  Under PPP, the private operator is told the OUTPUTS to meet (# new connections, collection rates, NRW levels, etc.) but it is the private operator, NOT the client water authority that decides what inputs to use to meet those specific output standards.  Value comes from telling the operator “WHAT needs to be achieved” and NOT “HOW to achieve it.”

4 1. Improving the value for money that end-users receive from their public services 2. Additionality: More public services are available than without PPPs 3. Avoided Public Borrowings: Attracting new private investment into public services sectors 4. Improved management, technology, & performance: clearer standards and force of contract 5. BUT, the private sector is NOT always more efficient & effective than the public sector. Analysis and comparison of performance is needed first to determine which is better!

5 QUESTION: Which Option Provides the “Best Value for Money?” The lowest-price may mean low value & highest value may be unaffordable

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7  By contracting with the private sector to undertake a cost-recovering economic infrastructure project, scarce Government capital budgets can be directed to other priority social services (education, health care, etc.) Without a PPP With a PPP : Govt. Capital Budget Govt. Capital Budge t Private PPP Developer OR AND PPP Project A: Water System Expansion Project B: Health Clinics Construction Project A: Water System Expansion Project B: Health Clinics Construction BUT Beware: PPP Options should still pass the test of offering “better value for the public’s money”…

8  PPPs require contracts that include clear performance (output-based) standards to meet  If the private contractor does not perform, it should not be paid  This incentivizes private contractor to perform better. Any mistakes will have direct financial costs.  Experience shows that making service providers accountable for meeting specific performance standards reduces the frequency of problems in service delivery (better prevention of risks and problems)

9 “RISK” (Private Sector Investment Required) “REWARDS” (Returns to The Private Sector) High Low Service Contract Lease/ Operating Contract Concession Divestiture (Investor- Owned Utility) Low High Design-Build-Operate (BOT) Management Contract

10  A specific water utility service is “unbundled” (i.e. billing & collections, leak repair, new connections, equip. maintenance, customer service, etc.)  A prior full cost analysis of the specific service must be performed to benchmark current performance levels to compare with competitive bids. Must include indirect costs (i.e. overhead costs)  Private (and Public) firms competitively bid on providing the service  Capital requirements are very low, asset lives of < 3-5 years  Operating efficiency & lowering indirect costs is usually the goal  Labour participation/opposition issues are critical  Repeating the process throughout the organization can make a public water authority more competitive overall Private Service Contractor Service 3 Service 1 Public Services Corp. Service 2 Service 3 Service 1 Service 1 Service 2 Fees Service Pub. Services Corp.

11 Board Public Water Corp. MANAGEMENT Employees Board SENIOR MANAGEMENT Private Management Contractor Management Fees Independent Management Employees  A public water corporation identifies specific, priority operating problems  Private firms competitively bid for the right to provide the senior management services in exchange for a “Management Fee”  The Contract identifies specific minimum performance levels that the Contractor must meet (ie UFW, Collections, New Connections. etc.)  Most management contracts include performance-based incentives (payments for superior performance)  The Contractor needs authority to make all operating decisions (including hiring & firing), Government owns assets and makes long-term decisions  Contract terms usually 2 - 5 years  Keys to success: Sound Corporate Governance & a detailed contract

12  A private firm(s) establish a new “Special Purpose Project Company” to Build/Expand & Operate a water system.  The new Project Company must provide the long-term financing (from its own equity and new debt) to finance all new long-term assets (treatment plants, water mains, pumps, pipes, etc.)  Contract Term: usually 10 – 25 years Priv. Sponsor 1 $ Users Priv. Sponsor 2 Concession Contract Equity Loan Repayment Energy/Water Services Rates Equity Special Purpose Project Co. Government Lenders

13 Planned Service Level Time 4. Post-Award Monitoring of ACTUAL PPP Performance delivered Actual

14  Water’s key role in public health, a “public good” ◦ Limited affordability to pay for the full cost of water  Water as a “Local-level” service: ◦ Limited Local Funds to Prepare PPPs ◦ Limited Local-level capacity to Administer PPP Contracts  Attracting long-term private investment will require more risk- sharing ($) by Govts. Water user-fees will not be enough  Benchmarking & Monitoring Sector Performance  Funding Environmental Challenges: ◦ The need to pay for more water treatment ◦ Limited water resources available ◦ The need to pay for more wastewater treatment

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