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Urban Water & Sanitation

The world’s towns and cities are growing rapidly. By 2050, 70 per cent of the world’s population, some 6.4 billion people, are expected to live in towns and cities, almost doubling the current urban population. Water utilities struggle to keep pace with this rapid urbanization with urban utility water coverage in many low and middle income countries declining in recent years as they fail to keep pace with growth. Governments and utilities face the constant challenge of balancing the need for water services to be financially self-sufficient with the critical need for poor households to have access to consistent (as opposed to intermittant) service. Lack of wastewater treatment and proper sanitation facilities have a significant impact on the urban environment and the health of citizens. Many countries are also struggling with the availability of water.

Evolution of urban water PPPs in the water sector

The role of the private sector in delivering urban water and sanitation services has developed since the early 1990s, when there was significant optimism that the private sector could turn round poorly performing public utilities. While the number of people served by the private sector has steadily grown to 160 million by 2007, a number of high profile failures of PPP contracts has led to a more nuanced approach with PPPs drawing on the private sector’s ability to improve quality and efficiency in specific areas of service delivery and to extend access, alongside the government’s capacity to raise finance and subsidize expansion to the poor.

A broad review demonstrates that PPPs are more likely to bring about improvements in operational efficiency and quality of service, such as reducing losses, labor productivity and bill collection than to mobilize private capital. The risk of unaffordable consumer tariffs is often cited as a reason against the implementation of PPPs; however, studies have shown that there is no statistically significant difference in water tariffs between comparable public and private utilities.

During the 1990s, a few European operators dominated the management of water utilities under public-private partnership (PPP) arrangements. Indeed, by 2001 just six accounted for 85 percent of the population served under PPP contracts in developing countries. While this situation was a natural consequence of private operation of water utilities being a new phenomenon in most countries, it also raised concern that this was an oligopolistic market. Recent years have seen a big change, however, with growing participation by new private operators from emerging-market and developing countries.

A comprehensive review of water PPPs in the developing world found that the population served by these new players steadily increased between 2002 and 2007, growing by an additional 55 million people and to about 40 percent of the market. Meanwhile, the market for international operators remained stagnant, at about 100 million people served. Local private operators were awarded more than 80 new PPP contracts for water utilities between 2001 and 2008 and have accounted for almost all market growth since 2001. This trend was confirmed in 2008: six of the seven new PPPs awarded for water utilities went to national private operators (in Brazil, China, India, and the Russian Federation). Private water operators from developing countries now serve more than 70 million people through large PPP contracts.

Models

  • The wide variety of models and approaches to engaging the private sector in urban water and sanitation services demonstrates that PPPs can and do play a significant role in the delivery water and sanitation services. All PPP arrangements...

    The wide variety of models and approaches to engaging the private sector in urban water and sanitation services demonstrates that PPPs can and do play a significant role in the delivery water and sanitation services. All PPP arrangements require strong commitment from both the public and private parties to find solutions that best serve customers with a strong focus on capacity building of the public sector.

  • Concessions

    A number of utility concessions, in cities such as Manila  and Bucharest , and divestiture in Chile have resulted both in improved services and mobilization of...

    A number of utility concessions, in cities such as Manila  and Bucharest , and divestiture in Chile have resulted both in improved services and mobilization of private capital into the sector although these models have proved more difficult to sustain in developing countries, given the significant risk transfer involved.  A concession gives a private operator responsibility not only for the operation and maintenance of assets but also for financing and managing investment and taking demand risk. Asset ownership typically rests with the government from a legal perspective, however, and rights to all the assets, including those created by the operator, typically revert to the government when the arrangement ends—often after 25 or 30 years. 

  • Lease/affermage

    Lease/affermage PPP arrangements have demonstrated considerable success in improving operational efficiency and expanding coverage particularly in West and Central Africa  including some of the longest...

    Lease/affermage PPP arrangements have demonstrated considerable success in improving operational efficiency and expanding coverage particularly in West and Central Africa  including some of the longest running water PPPs such as Cote d’Ivoire . The model combines private sector operation with government capital investment to leverage private sector efficiencies alongside public sector funding to improve utility performance whilst maintaining an affordable tariff.

  • Performance-based contracts

    While only 7 percent of utilities in developing countries are managed by the private sector, in recent years there has been a growth in public utilities bringing in the private sector through a range of PPP models to address specific challenges...

    While only 7 percent of utilities in developing countries are managed by the private sector, in recent years there has been a growth in public utilities bringing in the private sector through a range of PPP models to address specific challenges faced by the utility.

    Performance-based contracting for non-revenue water (NRW) reduction is a relatively new concept and is a form of PPP where a private company is contracted by the management of a public utility to carry out a comprehensive NRW program to reduce losses with structured performance payments and enough flexibility to ensure risk is shared between the two parties and that the private sector is sufficiently empowered and incentivized to deliver results. In some cases this may involve the operator bringing finance for improvements, and may cover a whole service area or a portion thereof. This model has been successfully implemented in Vietnam, Brazil and Malaysia. 

  • Management contracts

    Management contracts transfer responsibility for managing a utility to a private operator, often for three to five years. The simplest management contracts pay a private operator a fixed fee for making available senior personnel with specific...

    Management contracts transfer responsibility for managing a utility to a private operator, often for three to five years. The simplest management contracts pay a private operator a fixed fee for making available senior personnel with specific expertise to perform managerial tasks. Other management contracts offer greater incentives for efficiency by defining performance targets and basing the fee in part on their fulfillment.

    One challenge in the design of management contracts is determining which targets are measurable and under the control of the operator and how sensitive the operator’s remuneration should be to the achievement of these targets. Given the relatively short term of the contracts and that the operator is likely to be reliant on cooperation from utility personnel, improvements in performance may also be constrained.  Successful management contracts have been shown in the water sector to turn round the performance of a utility, and the end of the contract can lead to the establishment of a well-functioning public utility as was the case with Johannesburg  or the continuation into a longer term PPP arrangement transferring great risk to the private sector as in Yerevan.     

  • Greenfield projects

    Improvements in operational efficiency can only go so far in meeting water demand in the world’s growing cities. New water production and wastewater treatment facilities are ultimately needed to meet growing demand but these are capital...

    Improvements in operational efficiency can only go so far in meeting water demand in the world’s growing cities. New water production and wastewater treatment facilities are ultimately needed to meet growing demand but these are capital intensive projects which place significant strain on a utility’s financial resources.  

    In recent years, private investment in the water sector has largely been mobilized towards the development of these greenfield infrastructure assets through build-operate-transfer (BOT), build-operate-own (BOO) or design-build-operate (DBO) models with the private partner undertaking a combination of designing, constructing, operating and financing the facility and either selling water to or treating wastewater from a public utility, in exchange for a fee from the utility. This model has the advantage of allocating to the private sector the risk of delivering new infrastructure assets on time and on budget. It can also mobilize new sources of capital to accelerate the development of projects, and introduce innovation and technology transfer from the private sector. This model has been particularly successful in Mexico, China, the Middle East  and South Africa

Tools & Guidance

Projects & Case Studies

    • 2013
    • PPIAF, Agence Francaise de Developpement

    Water Services and the Private Sector in Developing Countries

    Comparative perceptions and discussion dynamics

    This book is a synthesis of research work and case studies investigating the role of private sector in the delivery of water and sanitation services in developing countries

    • 2009
    • PPIAF

    Partnering for Water in Cote d'Ivoire

    Lessons from 50 years of successful operation

    This note explores one of the most long running PPPs in Africa and draws lessons or practitioners today.

    • 2011
    • David Earhardt, Melissa Rekas, and Martina Tonizzo
    • World Bank Group (WBG), International Finance Corporation (IFC)

    Water in Bucharest

    A utility's efficiency gains under a concession

    This note is a summary of findings of an evaluation into the performance of the Bucharest Water PPP after 15 years of operations.

    • 2015
    • World Bank Group (WBG), World Bank Group (WBG)

    Beyond One-Size-Fits-All

    Lessons learning from eight water utility public-private partnerships in the Philippines

    This note discusses how different PPP arrangements employed in the Philippines can deliver affordable, reliable, and clean water services, provided there is sufficient market size and willingness to pay.

    • 2014
    • World Bank Group (WBG), World Bank Group (WBG)

    Running Water in India’s Cities

    A review of five recent public-private partnership initiatives

    This note examines a number of PPP projects implemented in India and draws comparisons and lessons from the various approaches.

    • 2008
    • Asian Development Bank (ADB)

    Yerevan Water Supply

    Going private gradually

    This case study focuses largely on how the Government of Armenia first embarked on private sector participation in its water supply and sewerage sector, which was through the 4-year management contract in Yerevan.

    • 2010
    • World Bank Group (WBG)

    Using a Private Operator to Establish a Corporatized Public Water Utility

    The management contract for Johannesburg Water

    In post-apartheid Johannesburg, South Africa, the city water authority had fallen into disarray (a common situation with urban services). In 2001, a public-private partnership emerged as a way to bring new expertise and efficiency to the delivery of public utility services, where a five-year management contract successfully restored services, built local capacity, and helped put Johannesburg Water on a solid footing. This note reviews the project. 

    • 2012
    • Jay Bhagwan (Water Research Commission)
    • Water Resource Commission

    Durban Water Recycling Project

    The Durban Water Recycling Project demonstrates that innovative approaches to water resource management, environmental management, wastewater treatment technology and institutional arrangements can yield exceptional results.

    • Millennium Challenge Corporation

    Recharging the River and Growing Incomes in Jordan

    Jordan is one the most water-scarce countries in the world. Recognizing the need to increase water supplies to unlock Jordan’s potential for economic growth and poverty reduction, MCC invested $93 million to expand the As-Samra Wastewater Treatment Plant and mobilized an additional $110 million in private finance through a public-private partnership. Critical to the success of the project was the use of the build-operate-transfer financing model that enabled the Government of Jordan to invest more public funds in the water sector. As a result of the project, more high-quality treated wastewater can be used in irrigation, and Jordan gets more than one use out of each drop of water.

Lessons & Analysis

    • 2009
    • Philippe Marin
    • PPIAF, World Bank Group (WBG)

    Public-Private Partnerships for Urban Water Utilities

    A Review of Experiences in Developing Countries

    This study reviews the performance of PPP projects in urban water utilities in developing countries over a 15 year period and seeks to respond to the questions of whether and how they have helped to improve services and to expand access for the populations concerned.

    • 2006
    • Bill Kingdom, Roland Liemberger, Philippe Marin
    • PPIAF

    The Challenge of Reducing Non-Revenue Water (NRW) in Developing Countries

    This book analyzes case studies to shares lessons learned and illustrate the potential benefits of NRW performance-based service contracting with the private sector.

    • 2013
    • Luis Alberto Andres, J. Luis Guasch, abd Jordan Z. Schwartz
    • World Bank Group (WBG)

    Uncovering the Drivers of Utility Performance

    Lessons from Latin America and the Caribbean on the Role of the Private Sector, Regulation, and Governance in the Power, Water, and Telecommunication Sectors

    This book conducts a micro-level analysis of various determinants of infrastructure sector performance that affect development. This book focuses on the distribution segment of three basic infrastructure services: electricity, water and sanitation, and fixed telecommunications.

    • 2009
    • Katharina Gassner, Alexander Popov, Nataliya Pushak
    • World Bank Group (WBG), PPIAF

    Does Private Sector Participation Improve Performance in Electricity and Water Distribution?

    This book compares the change over time in performance measures of two sets of utilities, one public the other private. The study finds no robust evidence of an increase in investment by the public or the private sectors or evidence of a change in average residential prices as a result of private participation.

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