financial structuring of infra projects

8/8/2019 Financial Structuring of Infra Projects

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Fiacia Srucurig fIfrasrucure Prjecs i

Pubic-Privae Parerships:

A Appicai

Waer Prjecs

Ai Vives, Agea M. Paris ad Jua BeavidesIer-America Devepme Ba

Peer D. Raymd, Dar Quirga ad Javier MarcusPricewaerhuseCpers

[Revised Edii]

IntER-AMERICAn DEVEloPMEnt BAnk


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Ai Vives is Seir Depuy Maager he Privae Eerprise ad Fiacia Mares Subdeparme;

Agea Paris is Seir Privae Secr Devepme Advisr; ad Jua Beavides is Seir Irasrucure Spe-ciais, a he Susaiabe Devepme Deparme he IDB. Peer D. Raymd is a Pricipa ad Javier

Marcus is a Seir Assciae PricewaerhuseCpers llP. Dar Quirga is a Direcr Pricewaer-huseCpers SRl. Juia Dmeici, Seir Assciae a PricewaerhuseCpers SRl, ad Aa-Maria

Eimiadis, Direcr a PricewaerhuseCpers llP, as cribued his pubicai. the auhrs hahe IDB-neherads Waer Parership Prgram r is acia cribui ad Sivia oriz he IDB rher ireess ers i maig his repr pssibe.

the piis expressed herei are hse he auhrs ad d ecessariy represe he cia psii

he Ier-America Devepme Ba. Permissi is graed reprduce his pubicai i whe r ipar r cmmercia purpses y ad wih prper aribui he auhrs, he Susaiabe Devep-

me Deparme ad he Ba.

Pubicai he Ier-America Devepme Ba, December 2006.

Fr addiia cpies his pubicai, pease cac:

Privae Eerprise ad Fiacia Mares Subdeparme

Mai Sp W-504Ier-America Devepme Ba1300 new Yr Aveue, n.W.

Washig, D.C. 20577

E-mai: [email protected]: 202-623-1608

Web Sie: hp://www.iadb.rg/sds/privsec_e.hm

Caagig-i-Pubicai daa prvided by heIer-America Devepme BaFeipe Herrera library

Fiacia srucurig irasrucure prjecs i pubic-privae parerships : a appicai waer prjecs

/ Ai Vives [e a.].

p.cm

Rev. ed.Icudes bibigraphica reereces.

1. Irasrucure (Ecmics). 2. Ecmic devepme prjecsFiace. 3. Pubic-privae secr cp-

erai. 4. Waer-suppy. 5. Saiai. I. Vives, Ai. II. Ier-America Devepme Ba. SusaiabeDevepme Dep. III. PricewaerhuseCpers llP.

HC79.C3 F46 2006363.6 F46-------dc22


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FInAnCIAl StRUCtURInG oF InFRAStRUCtURE PRoJECtS In PUBlIC-PRIVAtE PARtnERSHIPS

this repr ses u a apprach ad a se s r he acia srucurig pubic-privae parership prj-ecs, wih a paricuar appicai he pabe waer ad saiai secr. the aayica ramewr deveped

here arse rm he experiece ad isigh ivesrs, eders, gvermes, advisrs ad Ier-AmericaDevepme Ba sa, i he devepme ad acig irasrucure prjecs i lai America.

I he ms widey pubicized versi pubic-privae parerships, which rigiaed i he Uied kigdm wihhe Privae Fiace Iiiaive (PFI), he gverme cracs wih a cmpeiivey seeced privae secr rm

deiver services is beha, which e ivves buidig ew irasrucure. the rm has buid, perae,maiai ad ace he asse, ad prvide he service r he g erm i exchage r recurre paymes

rm he pubic secr. A he ed he cracua perid he perai he asse revers he gverme.Hwever, his variey pubic-privae parership wi y deiver uder very srige cdiis: here musexis sucie pubic uds r he gverme cmpy wih is paymes schedue; ad he judiciary sysem,

reguary isiuis ad he dispue resui mechaisms mus be sid eugh miimize he chaces ex postppruisic behavir. these circumsaces d geeray exis i devepig curies, where

cracs have bee breached, chaged arbirariy r, very requey, reegiaed. Ms riss are csiderabyarger ad he miigai s reaivey ess deveped.

the Ier-America Devepme Ba he ead i devepig a iiia aayica ramewr ha prvidesa rdered prc examie he ypes srucures ha may uci i he cex devepig cu-

ries (Beavides ad Vives, 2005). PricewaerhuseCpers was reaied urher devep he ramewri ccer wih he Ba. I his repr we devep he ciuum suis avaiabe by examiig he

cfics ha he privae ad he pubic secrs ace uder varius cgurais ca cdiis ha havea sigica impac ivesme decisis, ad by aayzig he appicai ris miigai s.

the apprach ad s are mea serve as a guide assis gvermes ad ivesrs i evauaig dier-e pis esabish a successu pubic-privae parership, csiderig he piica ad ecmic reaiies

each cury ad he ris miigai s ha ca be impemeed. the pricipes ad aayses preseedhere, whie cmprehesive, ca be csidered cver a pssibe cases. they are si beig researched ad

reed, hus, eedbac ad cmmes are ecuraged.

Eve hugh he ca cdiis, case sudies ad exampes discussed i he repr rigiae i he waerad saiai secr, he ramewr is by meas resricive i scpe ad cud be used i her irasruc-ure secrs. We chse he appicai he waer secr because we csider i be mre cmpex give

he wide ragig piica impicais he service ad he ac ha may prjecs ed be deveped aa subaia eve where cmpicais are arger. thus, appicai eergy ad rasprai wud be

simper ha he es preseed here.

the auhrs hpe ha his repr wi mae a cribui he devepme pubic-privae parerships rhe acig irasrucure prjecs ad, i ur, ead a icrease i ivesmes i devepig curies.

they wud as ie ha he IDB-neherads Waer Parership Prgram r is acia cribui hamade his repr pssibe.

Washig, D.C.

Sepember 2006

Foreword


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1. Irduci ad overview 3

2. A new Aayica Framewr: Pricipes 6

3. Descripi Framewr Cmpes 8

3.1. lca Cdiis/Variabes 8

3.2. Prjec Mdaiies 93.3. ts 11

4. Creaig he Prjec Feasibiiy Map:Appicai he ts ad Mdaiies r Wea lca Cdiis 12

4.1. Assess lca Cdiis 12

4.2. Evauae Which Mdaiies May Wr 134.3. Assess Which ts May Appy 16

4.4. Cmbie ts ad Mdaiies DeermiePeiay Feasibe Prjec Srucures 17

4.5. Imprvig lca Cdiis 20

5. Csig Remars 23

Appedix A. lca Cdiis/Variabes 29

Appedix B. Prjec Mdaiies 37

Appedix C. ts 51

Appedix D. Hypheica Exampes 56

Appedix E. Case Sudies i Waer ad Saiai 68

Bibigraphy 83

CoNTeNTS



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PrIMerAPorTAdAreeMPLAZArCoN eL PdF

FINANCIAL STRUCTURING OF INFRASTRUCTURE

PROJECTS IN PUBLIC-PRIVATE PARTNERSHIPS


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Local conditionsr variablesreer specic cmpes a curys r a areas busiess cimae hahave a sigica impac he cdiis r ivesme ad ivesme decisi maig. thrughu his

paper we wi assume ha local conditionsare xed i he shr ru, bu cud imprve i he medium ermas a resu chages i he busiess cimae ad/r he quaiy isiuis. Modalitiesr project modali-

tiesreer he specrum pubic privae paricipai aeraives ha cud be appied ace a give

prjec. Toolsreer isrumes ha cud be used wih he modalities miigae specic riss. Project

structurereers he specic cmbiai modalitiesad tools(whe hey ca be isrumeay cm-

bied) i a give prjec beer cpe wih he riss ad hreas psed by he local conditions.

deFINITIoNS


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As i is cear, a acig mechaism requirig eveua recurse he ega sysem (a Buid-perae-raserscheme, r exampe) wud iey ai i his cex, eve i he presece srg ris miigai s.

the ramewr preseed here is desiged hep ivesrs ad gvermes assess ivesme cdiisad he apprpriae mix pubic ad privae secr paricipai i ay idividua irasrucure secr ives-me. For policymakers, he ramewr prvides a guide he issues ha gvermes eed csider ipreparig r, aracig ad reaiig ivesme i he secr. I heps ideiy cdiis ha may impede

eecive r greaer privae ivesme, ad prvides a r evauaig hse cdiis. As such, he rame-wr ca serve as guidace measures imprve he prgressive devepme privae paricipai

i he secr. For investors, he ramewr serves as a guide r he ideicai ad evauai pssibeprjec srucures i he secr. Whie i des subsiue r eecive due diigece, i des sugges areas

cus r ha due diigece. I is ieded prvide a mechaism r csiderig he ms apprpriaesrucures give ca cdiis ad he ris miigai s avaiabe.

the ramewr prvides guideies r arrivig a hese assessmes ad a prc r evauaig dieresrucura pis. I is desiged prvide, as we, a meas by which pubic ad privae paricipas may e-

er i a eecive diague ver prjec mdaiy ad ris miigai. Each prjec srucure uimaey musbe shaped by he cdiis specic ha prjec ad caiy. the ramewr is desiged aciiae ha

evauai ad hep reach successu ucmes.

I rder shw he appicai he ramewr i pracice, we have chse he ms cmpicaed he

irasrucure secrs; ha is, waer ad saiai. I geera, because he piica impicais, he per-cepis ha hese services are a righ, he scia csequeces decie services, he ac ha ms

hese services are prvided a he ca eve, ad dicuies i cuig- service as we as her bsaces,mae his secr e he hardes ace ad e he risies ivesmes r he privae secr.

this repr is rgaized i he rm a guide, eabe he reader quicy absrb he ramewr ad isucis. Cmpes he ramewr are briefy described herei wih urher deaied irmai avai-

abe i he appedices.

the reader is ecuraged pay paricuar aei he rich maeria ha he auhrs paced i he appe-dices. the ccepua ramewr he mai ex ca be beer grasped whe subjec bh a des es (via

diere hypheica vaues he ca variabes) ad a vaidai hrugh rea cases ha were careuy piced iusrae gd ad bad srucure chices. this is precisey wha he reader wi d u i he appedices. A

brie descripi he ve secis ad ve appedices his guide ws:

Seci 1: Introduction and OverviewPrvides he irduci he paper ad ses he ver-

a cex r he guideSeci 2: A New Analytical Framework: PrinciplesIrduces he aayica ramewr, ad

describes hw i ca assis i srucurig a successu prjec;Seci 3: Description of Framework ComponentsIrduces ad uies he hree cmp-

es he aaysis: ca cdiis, Pubic-Privae Parership (PPP) mdaiies ad ehacemes. Deaied descripis each hese are ud i Appedices A, B ad C respecivey.Seci 4: Creating the Project Feasibility Map: Application of Tools and Modalities for WeakLocal ConditionsShws hw cduc he aaysis deermie ms iey easibe prjecsrucures. As irduces he use he ramewr r dyamic aaysis (i.e., as he secr ad

cury cdiis evve). Appedix D prvides six disic hypheica scearis r urher re-erece ad udersadig he ramewr ad is appicai. Appedix E uses he ramewr

aayze specic waer ad saiai ivesme cases.


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Seci 5: Closing RemarksPrvides a brie summai he uiiy he ramewr.Appedix A: Local Condition/VariablesPrvides a wrig deii he variabes wih a

srg impac he viabiiy srucures, as we as discussig such impacs ad suggesig

sme idicars measure r assess he sregh r weaess each variabe.Appedix B: Project ModalitiesDiscusses ve majr ways srucurig a prjec (rm uypubic uy privae) ad sme he ey varias (pubic crpraized, cperaives, ccessis,ji veures, ec.), icudig graphic iusrais he reaiships amg he reguary uc-

i, csumers, gvermes, sharehders ad prviders.Appedix C: ToolsDiscusses eigh s ad isrumes ha may be avaiabe ehace sruc-

ures, ad he riss ha hey address.Appedix D: Hypothetical ExamplesIcudes six hypheica cases varyig cmpexiy i-

usrae he appicai he ramewr, begiig wih a discussi he give ca cdiisad shwig hw use he easibiiy map d he ms easibe srucures ad hw addigs p ca reduce riss.

Appedix E: Case Studies in Water and SanitationPrvides e ieraia case sudies i hesecr, aimed a iusraig (ex ps) he ex ae easibiiy he appied srucures, he srucures

ad miigai s ha were used ad hse which cud have bee depyed isead.


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Whie may cdiis aec a ivesrs wiigess ad abiiy paricipae i irasrucure ivesmes,hree acrs have geeray had a sigica impac he success such ivveme. these are: he pres-

ece r absece ca cdiis avrabe ivesme, he ype mdaiy used ad he appicai ris miigai isrumes.

Fi 1. Analtical Fam

Structure 1

Structure 2

Structure 3

Feasible

ProjectModalities

Tool 1

Tool 2

FeasibleTools

Feasible

Project

Structures

Step 1 Evaluate local

conditions, review

available risk mitigants

Step 2 Tailor tools and

project structure to

local conditions

Local Conditions

Legal Framework

Fiscal Space

Political Risk

Macroeconomic Factors

Willingness to Pay

Institutional Capacity

Size and Location

Tariff Sustainability

Fully Public

Fully Public - Corporatize

Joint Venture - Public

Cooperatives

Outsourcing

Management Contracts

Franchise

Leasing

Concession

Joint Venture - Private

BOT / BOO / BOOT

Fully Private - Sale

Fully Private - License

Fully Private

Project Modalities

Tools

Political Risk Insurance

Partial Credit Guaranty

Partial Risk Guaranty

Subsidies

Credit Enhancement

Local Currency Financing

the aayica ramewr depiced i gure 1 shws hw hese hree criica cmpes ca ierac a a

high eve shape a successu prjec srucure. Simpy pu, ca cdiis dicae much wha ca besuccessuy accmpished i ay give cury r prjec. the mdaiy used se up he prjec ad he ris

isrumes avaiabe mus address issues raised by he ca cdiis. A careu aaysis such cdiis,

herere, is he sarig pi r deermiig which mdaiies may be successu. Ris miigai s mayhe expad he rage pssibe mdaiies by miigaig riss ha are raised i he ca evirme.

A grea umber aiures i ivesmes i irasrucure, paricuary i waer ad saiai, ca be arib-

ued he appicai acia srucures, msy impred rm her evirmes, wihu payig dueaei he local conditionsdescribed i his paper, aig r graed r severey uderesimaig heir

impac he success he prjec. the aayica ramewr preseed csiders he easibiiy dieremodalities, give he prevaiig, r iey prevai, ca cdiis ad cassies hem as beig easibe, -

easibe r easibe y wih ehacemes r ris miigas (available tools).

2. A New ANALyTICAL FrAMework: PrINCIPLeS


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the aayica ramewr deveped i his paper prvides a r cducig such aaysis. I ecurageshe reader assess eigh ey ca cdiis (r variabes) ha have bee prve have a high degree

ifuece he success prjecs. oher sigica variabes may exis ad each ivesme evauai

shud csider hse ms reeva r he ivesr ad he cury, caiy ad prjec. this guide asreviews PPP mdaiies (ha is he mix pubic ad privae secr paricipai) ad heir peia appica-i uder varius ca cdiis. I as evauaes hw ris miigai s ca ehace mdaiies, maigaddiia aeraives pssibe.

Give he ca cdiis, prjec mdaiies ca be seeced i cjuci wih avaiabe s ideiy

prjec srucures wih a higher peia r success ha her srucures. the erm project structureis usedhere represe he a ucme he aayica ramewr, ha is, he prjec srucure ha is perceived

be he ms easibe give ca cdiis, mdaiies ad s.

the aaysis prceeds sysemaicay. A assessme is made he imiais ha ca cdiis creae

r privae ivesme i he secr. Prjec mdaiies are reviewed r wih ca cdiis, ad prjecehaceme r ris miigai s are assessed r appicai. A prjec easibiiy map (see gure 2) is

as geeraed. the prjec easibiiy map reaes ca cdiis wih prjec mdaiies, icrpraig avai-abe s assess ad evauae he ms iey easibe prjec srucures.

Figure 2 shws a ba prjec easibiiy map ad prvides a guide he secis his paper ha addresseach cmpe he map.

Fi 2. Pct Fasiilit Map Fam Cmpnnt

ModalitiesSection 3.2. - Appendix BLocal Conditions

Section 3.1.Appendix A

ToolsSection 3.2.Appendix C

Section 4.Application of the tools and modalitiesto suggest feasible project structures

FullyPublic

FullyPublic-Corpora

tize

JointVenture-Public

Cooperatives

Outsourcing

ManagementContra

cts

Franchise

Leasing

Concession

JointVenture-Private

BOT/BOO/BOOT

FullyPrivate-Sale

FullyPrivate-License

FullyPrivate

n Feasible Modalities

n Tool-enabled Modalities

g Non-fvailable Modalities


Willingness to Pay


Size and Location


Fiscal Space

Political Risk

Legal Framework

Variables with

Low Rating


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the cre ramewr cmpes ca cdiis, mdaiies, ad s are described i brie here. De-aied irmai each cmpe is ud i Appedices A, B ad C, respecivey. the wig seci,

Seci 4, discusses hw hese cmpes are cmbied cmpee a prjec easibiiy map r a giveprjec.

3.1. Lcal Cnitins/vaials

Eigh variabes have bee ideied by he Ier-America Devepme Ba as havig a sigica impac

he viabiiy prjecs. these are a curys ega ramewr, sca space, piica ris evirme, macr-ecmic cdiis, isiuia capaciy, he wiigess users pay r services, he susaiabiiy

aris, ad he size ad cai he aciiy. Sme hese variabes cmpud (i.e., ega ramewr adpiica ris) ad shud be aayzed accrdigy. these variabes are iusraive he ms cmm acrs

ha appy a curies ad a secrs, bu he user is ecuraged chage hem r heir deii suihe case a had.

Appedix A urher dees he variabes seeced, prvides guidace aayzig heir peia impac privae ivesme i he secr, ad suggess idicars ad appraches r deermiig he sregh r

weaess a give variabe i a ca seig.

Figure 3 prvides a brie deii he variabes ad heir areas high impac usig as a exampe a waersuppy ad saiai (WSS) prjec.

Fi 3. Slct vaials

Identifed Variables Defned in This Paper As Area o High Impact

lega Framewr the capaciy he curs, he bdy aws, reguai ad cmpemeary

isiuis (icudig he exisece

aeraive resui mechaisms) erce cracs

- Cfic resui mechaisms- lega reame waer, waer irasruc-

ure, ad prpery righs, icudig cec-

i righs ad avaiabiiy erce servicesuspesi i he case -payme

- Abiiy see recurse r breach c-rac

- Crac erceme

Piica Ris the ieihd ha a prjec wi be sig-

icay aeced by a chage i hepiica cdiis a give cury r

muicipaiy

- Piica iererece wih prjecs, icudig

exprpriai r paria exprpriai breach crac, raser ad cveribiiy is-

sues- Caera impacs due civi ures r war

Fisca Space the acia capaciy he aiaad/r subaia eiies prvide

susaiabe ad credibe suppr aprjec.

- Avaiabiiy pubic capia expad ser-vice prvisi ew areas

- Abiiy ace gig maieace he irasrucure

- Abiiy suppr a prjec wih a gver-me uded subsidy sream

3. deSCrIPTIoN oF FrAMework CoMPoNeNTS


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Fi 3. Slct vaials

Identifed Variables Defned in This Paper As Area o High ImpactMacrecmicFacrs

Ecmic vaiiy ha icudes he ps-sibiiy currecy devauais r high

ifai as a csequece iera-

ia shcs r ususaiabe macr-ecmic picies.

- Devauai ad her macrecmiceves ha aec he ecmic viabiiy

a prjec as we as is vaue

Isiuia Capaciy Isiuia capaciy reers ur

geera pics: (i) he exisece areiabe waer reguar; (ii) is capaciy

impeme he reguary ramewr;

(iii) he quaiy secr auhriies prvide echica suppr waer rms;

ad (iv) he prevaece crrupi i

he cury ad waer ad saiaisecr.

- the abiiy se, erce ad mir a ra-

ia reguary regime, icudig he ariregime

- lac ca capaciy ad echica w-

edge ha ca imi he perais heuiiy, r ca aec hw he prjec is impe-

meed

- Crrupi eves aec accuabiiy, ras-parecy ad rus, reducig ivesr c-

dece

Wiigess Pay the beies ad aiudes regardigwaer as a auray ree cmmdiy;

he accepace privae services ruiiies; ad/r accepace reig

ivesme. this deii ges beyd

he exisece a ecmic demadr waer ad saiai.

- Abiiy service prvider cec ad searis a cs recvery basis

tari Susaiabiiy Csumer abiiy ard he u cs

recvery aris r waer prvisi

- Ardabiiy aris r csumers wi

have a impac he g-erm susai-

abiiy a prjec ad he mehd used rsrucurig i (i.e., ivve shadw aris,

subsidies, upu based aid (oBA), ec.)

Size ad lcai the eecs he size a prjec adis cai decisis regardig asse

wership, prjec mdaiy, exi sra-

egies, ad cgurai a specicprjecs srucure

- Size ca aec access ivesrs ad busiess resurces prvided by a svereig

r subsvereig gverme

- lcai i urba, peri-urba r rura areas,ca dee he ype prviders ha e-

ciey suppy waer

3.2. Pct Malitis

Prjec mdaiies reer he specrum pubic privae paricipai pssibe i a give prjec. Figure 4preses his rage ad he acai respsibiiy bewee he pubic ad privae secrs uder dier-

e mdaiies, as we as he ypica durai cracua arragemes wih he privae secr uder hamdaiy.

(Cnt.)


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Fi 4. Spctm f Plic t Piat optins - Allcatin f rspnsiilitis Accin t Malit

8 to 15 yearsLeasing

< 1 yearOutsorcing

IndefiniteDivestiture by Sales

IndefinitePrivate Supply

IndefiniteDivestiture by License

Fully Private

20 to 30 yearsBOO

20 to 30 yearsBOT

25 to 30 yearsTypical Concession

Concession

Franchising

3 to 5 yearsGeneric Management


IndefiniteCorporatized Cooperativesand State Companies

IndefiniteCooperatives

IndefiniteState Companies

Fully Public

DurationAsset OwnershipCapital InvestmentCommercial RiskO&M

Private Public Public and PrivateAllocation of Responsibility

I geera, wih srg ca cdiis, greaer privae paricipai is pssibe as riss ivesrs ad ed-

ers ed be wer. A srg capaciy erce cracs, r isace, maes ms he s r rismiigai eecive, ad hece aws a brader rage prjec srucures ha ca be arraged sui heca cdiis. Wih wea ca cdiis (icudig he abiiy erce cracs), privae paricipai p-

is wi ed a i he ype se-ercig agreemes. A ieraia WSS perar/ivesr maychse pursue a maageme crac i e cury ad a ccessi crac i aher due verydiere ivesme cdiis i each cury. Whie hey may preer ccessi srucures vera, hey wi

ris equiy capia whe cdiis are deemed suiabe r ha rm privae paricipai.

Appedix B deais he srucure ad ris rade-s he mdaiies ised i gure 4.


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3.3. Tls

A umber riss ca be miigaed hrugh he use ris miigai isrumes r s. Figure 5 prvides

a is sme he mre cmmy avaiabe s ad a shr descripi heir uses.

Fi 5. Slct Tls

Tools Brie Description and Scope

Piica Ris Isurace(PRI)

PRI prvides cverage agais riss wih respec exprpriai, piica viece,ad currecy raser ad cveribiiy.

Paria Credi Guaraees(PCG)

PCGs are guaraees ha represe a prmise u ad imey deb service paymeup a predeermied amu (usuay he u vaue he deb). Useu ad-

dress macrecmic riss r ac a apprpriae sca space.

Paria Ris Guaraees(PRG)

PRGs are guaraees miigae riss assciaed wih specic gverme cuer-pary uceraiies. they are issued by he muiaera devepme bas, which arecuer-guaraeed by a hs-cury gverme.

Subsidies A raser rm a gverme r devepme cmmuiy a prvider r csumer

assis he waer secr i prvidig a pubic eed.Subsidies vary greay i appicai. Fur mai caegries icude: ieraia gras

r upu-based aid (oBA), specia purpse uds, gverme subsidies ad crss-

subsidies. Subsidies hep miigae ac ardabiiy r wiigess pay riss.

Credi Ehaceme the sregheig a brrwers baace shee hrugh isurace, guaraees, c-aera ad her meas aciiae acig/udig. Credi ehaceme aciiaes

he abiiy a prvider raise deb ace (reducig riss assciaed wih he sca

space) r raise her uds. I ca as be used icrease credi capaciy ad imprve

brrwig cdiis such as ger mauriies ha cver he ie a capia asse.

lca Currecy Fiacig the use ca currecy ace prjecs. Used miimize he eecs currecy

devauai prjec susaiabiiy by machig he brrwig currecy wih he rev-eue currecy, ad hus awig r a mre sabe surce ace r prjecs ha

e have y ca currecy reveues (macrecmic acrs).

Arbirai Rues the crac shud cai varius prvisis r arbirai i he eve dispues

bewee he prvider ad eiher he reguar r he crrespdig gverme.thse rues cud icude he creai a exper pae aayze ay dispues ha

may arise.

o-ae Cracs Crac bewee he prvider ad he gverme whereby he gverme guar-

aees a miimum purchase eve. the agreeme is a cmmime ae r pay r

a specic amu waer a a specied ari. this ype agreeme is cmmyused i he csruci waer reame pas. I ca be used icrease arisusaiabiiy by givig a miimum amu reveue he prviders.

Whie a hese s ad isrumes are avaiabe r equay appicabe, heir use ca mae a sigicadierece he a ris pre a prjec r a privae paricipa. I ac, heir appicai ca eabe mre

PPP mdaiies ha migh herwise exis wihu hem. this wi be expaied i mre deai i Seci 4.Appedix C urher describes he s ha are avaiabe ad heir peia use i PPP srucures.


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this seci uies hw he ramewr cmpes described i Seci 3 ca be used evauae hepeia viabiiy varius prjec srucures r a give PPP ppruiy. the seci irduces he prjec

easibiiy map as he syhesizig r his assessme.

Figure 6 shws he aayica prcess ha shud be wed.

Fi 6. Pct Fasilit Map - Analtical Pcss

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

nnnnnnnSize and Location

nnnnnnnnnnnTariff Sustainability

nnnnnWillingness to Pay

nnnnnnnInstitutional Capacity

nnnnnnnMacroeconomic Factors

nnnnnnnnnnnFiscal Space

nnnnnnPolitical Risk

nnnLegal Framework

Variables with

Low Rating

B. Evaluate whichmodalities may work

A. Determine weaklocal conditions

D. Combine tools and modalitiesto determine potentially feasibleproject structures

C. Assesswhich toolsmay apply

FullyPublic

FullyPublic-Corporatize

JointVenture-Public

Cooperatives

Outsourcing

ManagementContracts

Franchise

Leasing

Concession


BOT/BOO/BOOT

FullyPrivate-Sale


FullyPrivate



g Non-fvailable Modalities

4.1. Assss Lcal Cnitins

the aaysis begis wih a assessme he ca cdiis/variabes. (Appedix A uies each variabe ad

suggess sme idicars which may be used assess he sregh r weaess ha variabe i a givecury r caiy.) A variabe raed as w (r wea) idicaes ha here are higher riss a prjec. Higher

riss assciaed wih w ca cdiis raigs imi he umber easibe prjec srucures pssibe.

A abe such as he e iusraed i gure 7 may be used scre ca cdiis. Usig he idicars ud

i Appedix A r her idicars he ivesr ees mre apprpriae, esabish a sadard miima accepabecrieria r he ca cdii (a i he abe bew) ad he evauae he ca cdii as eiher meeig/ex-

ceedig r meeig he crieria.1 A scre meeig he crieria wud idicae a wea variabe.

1 Sme ivesrs may preer a scae a bimia scrig sysem.

4. CreATINg The ProjeCT FeASIbILITy MAP:APPLICATIoN oF The TooLS ANd ModALITIeS For weAk LoCAL CoNdITIoNS


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I is impra e ha each ivesr wi iey have his/her w ierpreai a miimum accepabe eve,which wi deped ris appeie, cury expsure ad her acrs. As a ivesr, hwever, he miimum

eve required shud serve as a hreshd marer r ris assessmes. this may urher be expaded draw

cmpariss amg her curies, caiies r prjecs. Fr a prjec desiger, he miimum eve requiredcud be used seec he peraig pre ha i wud ie have r he prjec, ryig mimic cdiisha have successuy araced ivesme i her curies r regis he same cury.

Fi 7. ratin vaials it Inicats

Size and Location


Willingness to Pay


MacroeconomicFactors

Fiscal Space

Political Risk

Legal Framework

Rating or Perception of LocalConditions

(a) > (b) = low AND (a) < (b) = high

LocalConditions

(b)

MinimumLevel

Required (a)Indicator(s)Variable

Each variabe shud be evauaed accrdigy ad a deermiai made as which ca cdiis areviewed as wea ad which are .

4.2. ealat wic Malitis Ma w

Aer he iiia assessme he variabes, prjec mdaiies eed be csidered. Whie a ivesr rgverme may have a specic prjec mdaiy i mid (r exampe, a ccessi), a mdaiies wi

wr successuy where here are wea ca cdiis.


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Fi 8. Fasiilit f PPP Malitis un wa Lcal Cnitins

nSize and Location

TariffSustainability

Willingness to Pay

InstitutionalCapacity

MacroeconomicFactors

Fiscal Space

Political Risk

Legal Framework

Variables with

Low Rating

n n n n

n n n n

n

n

n n n n n

n n n n n

n

n

n n n n

n n n n n n n n

n n

n n

n

n n n n n n

nn

n

FullyPublic


JointVenture-Public

Cooperatives

Outsourcing

ManagementContracts

Franchise

Leasing

Concession


BOT/BOO/BOOT

FullyPrivate-Sale


FullyPrivate


g Non-feasible Modalities

Figure 8 shws which mdaiies are mre iey be successu (a her higs beig equa) whe ca c-

diis are csidered wea. Readig vericay i ca be see ha mdaiy, eve a uy pubic secruiiy, is iey succeed i a ca cdiis are csidered wea.2 Bu i ca as be see ha here are aumber mdaiies ha are mre iey succeed eve whe here are muipe wea ca cdiis.

Fr exampe, gure 9 shws ha whe bh he sca space ad macrecmic acrs are raed w,easig ad cperaive mdaiies may prvide he ms easibe srucures (bh easig ad cperaive

mdaiies have psiive idicars i bh sca space ad macrecmic acrs).

Wea macrecmic acrs expse ivesrs peia devauai, ieres rae ad ifai riss. Weasca space idicaes ha pubic secr resurces suppr subsidy r her pubic udig are imied. A

cperaive mdaiy is a c-ivesme users perae ad maiai a aciiy. I geera, give ha heivesrs are he users, hey have a ihere ieres i he upu he sysem (mre s ha usideivesrs) eve uder usabe macrecmic cdiis. Cperaives may as be ess sesiive imia-

is pubic secr resurces because hey e use ped resurces ives i a aciiy.

leasig imis gvermes capia ivesme ad deb repayme requiremes, maig hese mdai-ies ess sesiive macrecmics acrs. Depedig he ari regime ad reveue requiremes,

easig ca icude pubic udig sreams (subsidies) r . I pricipe, i des rey hem, maigsca space ess a imiai. oher mdaiies privae paricipai such as usurcig, maagemecracs ad rachisig miigae he macrecmic ris bu expse he gverme peia acia

2 A bx wih a circe idicaes a peiay viabe mdaiy eve i he crrespdig cdii is wea.


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suppr requiremes i he perai he aciiy i a evirme where i is pssibe r he geeraad ca budge susai he waer uiiies (w sca space).

See Appedix B r mre irmai abu PPP mdaiies.

Figure 9 iusraes his mre ceary, highighig he w variabes specicay.

Fi 9. Fasiilit f PPP Malitis un wa Lcal Cnitins - eampl 1

n

n

n

n

n

n

n

n

n

n

n

n

n

n


nTariffsustainability

nnnWillingness topay

nnnnnInstitutionalCapacity

nnnnnnMacroeconomicFactors

nnnnnnnFiscal Space

nnPolitical Risk

nnnLegal Framework

Variables with

Low Rating FullyPublic

FullyPublic-Co

rporatize

JointVenture-P

ublic

Cooperatives

Outsourcing

ManagementC

ontracts

Franchise

Leasing

Concession

JointVenture-P

rivate

BOT/BOO/BO

OT

FullyPrivate-Sale


FullyPrivate



Feasible modalities thatmitigate the risks imposed byfiscal space andmacroeconomic factors

Ay cmbiai wea variabes ad mdaiies ca simiary be evauaed quicy usig his char. the case wea ega ramewr ad wea sca space is highighed i gure 10, shwig ha a cperaive is hemdaiy ms iey prvide a viabe prjec aeraive.


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Fi 10. Fasiilit f PPP Malitis un wa Lcal Cnitins - eampl 2

n

n

n

n

n

n

n

n

n

n

n

n

n

n


nTariff sustainability

nnnWillingness to pay

nnnnnInstitutionalCapacity

nnnnnnMacroeconomics

Factors

nnnnnnnFiscal Space

nnPolitical Risk

nnnLegal Framework

Variables withLow Rating

Feasible modalities thatmitigate the risks imposed byfiscal space and legalframework

FullyPublic


JointVenture-Public

Cooperatives

Outsourcing

ManagementContracts

Franchise

Leasing

Concession


BOT/BOO/BOOT

FullyPrivate-Sale


FullyPrivate



4.3. Assss wic Tls Ma Appl

I he abve exampes, mdaiies ivvig privae capia are iey be ess easibe. Hwever, he appica-i ris miigai s may eabe pis r privae ivesme ha wud herwise exis.

the rage ris miigai s geeray avaiabe ad hw hey ehace prjec easibiiy is described

i deai i Appedix C. Each prjec wi require is w assessme avaiabe s ad hw hey may

ehace prjec easibiiy. Hwever, gure 11 shws, i pricipe, which s ad ris miigai isrumesare avaiabe ad ca hep address ideied ca cdii variabes.


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Fi 11. Applicatin f Pct enancmnt Tls

n

n

n

n

n

nSize and Location

nnnnnTariff Sustainability

nnWillingness to Pay

nInstitutional Capacity

nnMacroeconomic

Factors

nnnFiscal Space

nPolitical Risk

Legal Framework

Project Tools AvailableVariables with

Low rating

n Project Tools Available Politica

lRisk

Parti

alCr

edit

Gua

rant

ee

PRG

-M

arke

tRisk

PRG

-Excha

ngeLi

quidity

PRG

-Re

gulat

oryRi

sk

Subs

idie

s

Cros

s-Subs

idie

s

Outpu

tBased

Aid

Credit

Enha

ncem

eent

LocalC

urrenc

yFi

nancin

g

Administ

ratio

nRule

s

Off-takin

g

S, r exampe, where here is w sca space a prjec may be abe ae advaage a paria credi

guaraee, crss subsidies, upu based aid, ad/r credi ehaceme. Hwever, prjec ehacemes d prvide wide cverage acrss muipe ca cdiis. As a resu, his may pi areas rurher devepme he par he ieraia cmmuiy.

4.4. Cmin Tls an Malitis t dtmin Ptntiall Fasil PctStcts

Wih he ideicai wea ca cdiis, he evauai pssibe mdaiies ad he review avai-

abe ris miigai isrumes, i is pssibe csruc he prjec easibiiy map.

taig he w exampes rm gures 9 ad 10, we ca see wha mdaiies becme pssibe whe specic

ca cdiis are wea bu ris miigai s are avaiabe.

Figure 12 iss he addiia avaiabe prjec mdaiies whe ris miigai s are appied. Hwever, i isecessary udersad ha his gure assumes ha a s are avaiabe, a assumpi ha is aways

rue. the purpse he gure is prvide specic suis bu sugges peia arragemes adaw r a beer udersadig he reaiships amg he variabes, s ad srucures. Aayzig aspecic variabe i he gure, e ca see he addiia prjec mdaiies ha are ypicay avaiabe r such

w-raig variabes. Addig he ris miigai isrumes peraiig a specic variabe, mre prjec m-daiies ca be csidered r devepig peiay easibe prjec srucures.


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Fi 12. Incasin Accss t Pct Malitis T Tl Applicatin - Slct List f Tls an

Applicatin

SubsidiesFully Public

Fully public Corporatize

Joint Venture Public

Cooperatives

Outsourcing

Management Contract

Franchise

Leasing

Joint Venture Private

Fully Private

Size and Location (the

structure will depend on

the size of the providers)


Cooperatives

Outsourcing

Management Contract

Franchise

Leasing

Concession


BOT/BOO/BOOT

Fully Private

- PRG Market Risk

- Government Subsidies

- Cross- subsidies

- Output Based Aid

- Off-take Contracts

Fully PublicTariff Sustainability


Franchise

Leasing

Concession

- Government Subsidies

- Cross-subsidies

- Off-take contracts

Fully Public

Fully Public Corporatize


Cooperatives

Outsourcing

Willingness to Pay

Leasing

Concession

- PRG - Regulatory Risk

- Arbitration rules included in the

legal framework

- Off-take Contract

Fully Public



Cooperatives

Outsourcing

Management ContractFranchise



Concession- Partial Credit Guarantee

- Credit Enhancement

- Local Currency Financing

Fully Public



Cooperatives

Outsourcing

Management Contract

Franchise

Leasing


Fully Public


OutsourcingManagement Contract

Franchise


- Cross-subsidies

- Output Based Aid

- Partial Credit Guarantee- Credit Enhancement

Cooperatives

Leasing

ConcessionBOT/BOO/BOOT

Fully Private

Fiscal Space

Outsourcing

Management Contract

Franchise

Leasing

Concession

- Political Risk Guarantee

PRG Exchange liquidity

Fully Public



Cooperatives

Political Risk

- Arbitration rules included in the

legal framework

Fully Public



Cooperatives

Outsourcing

Legal Framework

Additional Feasible Modalities

with Risk Mitigation Tools

Applied

Apply Available

Risk Mitigations Tools

Feasible Modalities

without Risk Mitigation

If

Low Rating in


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Figure 13, which is a exesi he exampe deveped i gure 9, prvides he prjec easibiiy mapwih s ha address he variabes sca space ad macrecmic acrs. As ca be see, he addii

prjec ehaceme s maes mre prjec mdaiies avaiabe r srucurig he prjec. Addiia

exampes are icuded i Appedix D.

Fi 13. Pct Fasiilit Map - eampl 1 it Tl Applicatin

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n

n


nTariff sustainability

nnnWillingness to pay

nnnnnInstitutional Capacity

nnnnnnMacroeconomicFactors


nnPolitical Risk

nnnLegal Framework

Variables withLow Rating

Expanded range of potentiallyfeasible project structuresto choose from

FullyPublic


JointVenture-Public

Cooperatives

Outsourcing

ManagementContracts

Franchise

Leasing

Concession


BOT/BOO/BOOT

FullyPrivate-Sale


FullyPrivate




I summary, gure 12 was used ideiy avaiabe s miigae riss assciaed wih he variabes ide-

ied as wea. the addiia mdaiies ha becme avaiabe hrugh he use he ideied s werehe mached wih gure 8, he viabiiy PPP mdaiies uder wea cdiis. the cmbiai he

w gures ay dees he prjec easibiiy map iusraed i gure 13. Wih he appicai he s,he wig eigh prjec srucures may w be easibe: uy pubic, uy pubic crpraize, ji veure pubic, cperaives, usurcig, maageme cracs, rachise, ad easig. the prjec desig eam

cud arrw dw is ppruiies by seecig he mdaiy ha beer suis is piica ad busiess ie-

is. I he ga is mre privae ivveme, he easig wud be he mdaiy seeced because i is hee wih he ms privae respsibiiies. Hwever, i he bjecives are icrease privae ivveme imaageme, he he rachise r maageme cracs mdaiies shud be seeced. Fiay, a gver-

me ha supprs pubic crprais, wud as suppr a uy pubic crpraized prvider.


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4.5. Impin Lcal Cnitins

these exampes iusrae aayses ca cdiis ad appicai he aayica ramewr a e

pi i ime. this shr-ru, saic aaysis is impra r udersadig hw icrprae he hreecmpes he aayica ramewr (ca cdiis, s r prjec ehaceme ad prjec mdai-ies). Hwever, i is as impra csider he dyamic evui ca cdiis as hey imprve (rdeerirae) i he medium erm, creaig evvig cdiis r prjec success.

A dyamic aaysis ca iusrae he eecs chagig a variabe wih a w raig e wih a high raig.

As ca cdiis imprve i his ashi, mre s ad srucures becme avaiabe. this evui cacdiis prvides iceives r ca regis ciue imprve cdiis i rder mae mre p-

is avaiabe r y waer prjecs, bu her irasrucure ad devepme prjecs as.

Aicipai chage i a secr ca shape may viewpis regardig curre versus peia uure p-

is. Prjec desigers shud aicipae a mderizai cracua arragemes, i egay easibe,

ad i he bees he chage are equiaby shared bewee he crac paries. I addii, whe hsechages are expeced ccur i he g ru, i migh be beer seec a srucure ha eeps he pi mderizai aive.

Figure 14 demsraes he evui ca cdiis hrugh a series saic aayses. As a ca cdi-i imprves, is respecive idicars wi sugges a higher raig, uimaey remvig i rm he wea vari-

abe is as i exceeds he miimum sadard se r ha ca cdii. As a rue, he ewer wea variabesha exis he greaer he easibe prjec srucure pis wi be as mre mdaiies ad ehaceme s

are avaiabe.

Figure 14 iusraes his i he wig way.

I perid 1 here are ve ca cdiis wih w raigs: ega ramewr, piica ris, sca space, wiig-

ess pay ad size ad cai. the aaysis prjec mdaiies ad ehaceme s suggess he -wig ve easibe prjec srucures i his case: uy pubic, uy pubic crpraized, ji veure pubic,

cperaive, ad usurcig.

I perid 2, ega ramewr cdiis have imprved ad ger have a w raig. Fr his reas, i isremved rm he aaysis, which cuses he remaiig ur variabes ad he respecive prjec pis.

Seve easibe srucures are w pssibe i perid 2. these icude: uy pubic, uy pubic crpraized,ji veure pubic, cperaive, usurcig, maageme cracs ad rachisig, he aer w beighe addiia easibe srucures i perid 2.

Fiay, i perid 3, aher imprveme i he ca cdiis wih regard wiigess pay aes pace.

Remvig his variabe rm he aaysis eaves hree remaiig variabes as w-raed. the resu is ha eighprjec mdaiies ca w be csidered r he srucure he prjec. these icude: uy pubic, uy pub-

ic crpraized, ji veure pubic, cperaive, ad usurcig; pus he w rm perid 2: maagemecracs ad rachisig; pus easig.

overa, he dyamic aaysis he hree perids highighs hw imprvemes i ca cdiis ca giveway urher pis i prjec srucurig.


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Fi 14. eltina Fasiilit Map un wa Lcal Cnitins

n

n

n

n

n

n

n

n

n

n

n

n





nnnLegal Framework

Low Rating

Variables atEach Period

n

n

n

n

n

n

n

n

n

n





n

n

n

n

n

n

n

n




SCENARIO 1

SCENARIO 2

*Refer to Figure 10 for the specific tools corresponding to the local conditions identified.

Original Local Conditions

With Improved Legal Framework

With Improved Willingness to Pay

Potentially Feasible Project

Modalities in Each Period

SCENARIO 3

FullyPublic


JointVenture-Public

Cooperatives

Outsourcing

ManagementContracts

Franchise

Leasing

Concession


BOT/BOO/BOOT

FullyPrivate-Sale


FullyPrivate




Perio

d1

Per

iod2

Period3

Figure 15 shws he series he hree scearis i he evuiary prjeci described i gure 14. this

gure urher iusraes hw he umber prjec mdaiies avaiabe r a regi ca icrease as he sae he ca variabes imprves.


27/94

Fi 15. eltin f Stcts as a Cnsqnc f t eltin f t vaials

Feasible Project Modalities

Management Contract

Lease

Concession

BOT/BOO

Franchise

Outsourcing

Fully Public

Fully Private

Local Conditions

HighLow

Scenario 1

Scenario 2

Scenario 3 Joint Venture - Private

Joint Venture - Public

Cooperatives

ne i gure 15 hw he easibe prjec mdaiies mve ag he privae secr paricipai ciuum.

the icreased easibiiy hese mdaiies meas ha a regi has mre pis chse rm ehaceivesmes i irasrucure.


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the analyical ramework presened here can be a pracical ool or use by invesors and governmens as

projecs are designed, implemened and improved. the goal o his repor has no been o prescribe soluions

or emplaes or he uure developmen o inrasrucure, bu raher, o provide a mehodology o design suc-

cessul fnancial srucures, wih public and privae paricipaion, hrough he ineracion o local condiions,

projec modaliies and projec enhancemen ools. As a ramework, i can be adaped o he condiions exis-

ing or a specifc counry, projec and invesor. While, i is no mean o subsiue or horough due diligence

on he par o invesors or governmens, i should provide useul guidelines and insigh or properly conduced

due diligence examinaions.

5. CLoSINg reMArkS


29/94


SeguNdAPorTAdA

reeMPLAZArCoN eL PdF

APPENDICES


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26


Irduci he Appedices 28

Appedix A lca Cdiis/Variabes 29

A.1. lega Framewr 30

A.2. Piica Ris 31A.3. Fisca Space 32

A.4. Macrecmic Facrs 32A.5. Isiuia Capaciy 33

A.6. Wiigess Pay/Cuura Views 34A.7. tari Susaiabiiy 35A.8. Size ad lcai 36

Appedix B Prjec Mdaiies 37

B.1. Fuy Pubic 37

B.1.1. Pubic Suppy ad operai by he Gverme 37B.1.2. Fuy Pubic Crprai 38B.1.3. Pubic Suppy by lca Cperaives 39

B.2. Maageme Cracs 41B.2.1. ousurcig 42

B.2.2. Perrmace-Based Cracs (Geeric Maageme Cracs) 42B.2.3. Frachise 43

B.3. Ccessis 43B.3.1. leasig Cracs 43B.3.2. Geeric Ccessis 45

B.3.3. Bot/Boo 46B.4. Ji Veures 47

B.5. Fuy Privae 48B.5.1. Fuy Privae - licese 48

B.5.2. Fuy Privae - Sae 49B.5.3. Fuy Privae - Privae operar 50

CoNTeNTS


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Appedix C ts 51

C.1. Piica Ris Isurace 51C.2. Paria Credi Guaraees 51C.3. Paria Ris Guaraees 51

C.4. Subsidies 52C.5. Credi Ehaceme 53

C.6. lca Currecy Fiacig 54C.7. Arbirai Rues Icuded i he Crac 54

C.8. o-ae Cracs 54

Appedix D - Hypheica Exampes 56

D.1. Sceari 1 56

D.2. Sceari 2 58D.3. Sceari 3 60

D.4. Sceari 4 62D.5. Sceari 5 63D.6. Sceari 6 65

Appedix E Case Sudies i Waer ad Saiai 68

E.1. Case Sudies - Variabes 68

E.2. Case Sudies - Mdaiies 78E.3. Case Sudies - ts 81

Bibigraphy 83


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these appedices are mea be used i cjuci wih he mai repr as reerece maerias aciiae

is use as a guide. the maerias caied herei are exhausive, bu idicaive he ca cdii vari-abes, heir pssibe measureme, pubic-privae parership mdaiies ad ris isrumes r s which i-

vesrs ad gvermes shud csider i evauaig prjec srucure pis r a irasrucure prjec.

As ed i he repr, his maeria was deveped as a ccepua ramewr. I des serve as a de-iive evauai ivesme parameers. Addiia research ad esig he ramewr wi assis ireig is uiiy users. Ivesrs ad gvermes wi eed exercise prper due diigece i evaua-

ig specic prjec ppruiies ad csrais. I is hped his ccepua ramewr wi beer aciiaeha aaysis, bu i is expeced subsiue r i.

INTroduCTIoN To The APPeNdICeS


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this appedix shud be used i cjuci wih Seci 3.1. he mai repr ad r guidace i cmpe-ig gure 7 i he repr.

Eigh variabes r ca cdiis have bee ideied as havig a sigica impac he viabiiy PPPsrucures i he waer ad saiai secr. these are a curys:

ega ramewr,

piica ris evirme,sca space,

macrecmic acrs,isiuia capaciy,he wiigess users pay r waer ad saiai services,

he susaiabiiy aris, adhe size ad cai he aciiy.

neiher he umber variabes, heir deiis, r appicais as used here are exhausive. Fr ay give

cury, caiy r prjec here may be her variabes ha hse highighed here, r he impacs hseideied here may vary r hse specic cdiis. Hwever, hese eigh variabes have bee ideiedrm he experiece he IDB, ivesrs, eders ad prjec spsrs as havig peiay sigica im-

pacs a prjec. I pracice, sme hese variabes are highy crreaed as a resu heir cevuiad muua reirceme i a give cury r muicipaiy. this may ead a cmpudig prbems

because a pry maaged ris ca easiy rigger urher riss (wea crac erceme wi magiy pii-ca ris, r exampe).

this appedix dees he variabes seeced, prvides guidace aayzig heir peia direc impac privae ivesme i he secr, ad suggess idicars ad appraches r deermiig he sregh r

weaess a give variabe i a ca seig. there exis severa aeraives ra he reaive sregh rweaess each variabe, depedig he avaiabiiy ad reiabiiy aayica wrs ha prvide umeri-

ca raigs r quaiaive appraisas r he variabes (high, w i he aer case, r exampe). Creaiviyad judgme prduce pracica ad meaigu idicars eed be exercised by prjec desigers. I is

iey ha hey wi exis r a subse variabes ad may reer msy he cury eve.

APPeNdIx A LoCAL CoNdITIoNS/vArIAbLeS


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A.1. Lal Fam1

Defnition: this variabe reers he exisece a ega ramewr supprive privae ivesme ieress

ad he capaciy he curs, he bdy aws, reguai ad cmpemeary isiuis erce hseaws ad he cracs. the wig six aspecs a curys ega ramewr shud be csidered:

he deii ad preci privae ivesme ad prpery righs i he cury i geera,

ad r he irasrucure secr, i paricuar;he exisece, quaiy ad cmprehesiveess secr aws ad heir erceme;

he exisece, quaiy ad cmprehesiveess secr picies ad heir execui;avaiabe dispue resui mechaisms;

he capaciy he judicia sysem prcess issues i a imey ashi (i.e. sucie curs, ec.), adhe acua rigr, airess ad capabiiy eecivey adjudicae ad erce privae secr righs; adhe quaiy cracua reaiships bewee cie, prviders, gverme ad reguary bd-

ies, i hey exis.

Ivesme aws prvide a ramewr r privae paricipai i he cury. Secr aws ad reguaisgver he secr ad is aeced payers. the capaciy he judicia sysem prvides a meas by which

erce he aws ad picies. Avaiabe aeraive dispue resui mechaisms, ca ad ieraia,cmpeme he judicia sysem ad he cracua reaiships hey suppr.

Impact: the quaiy he ega ramewr ca have a impac : he ega reame secr ad reaedresurces, prpery righs, prvisis r cfic resui, prvisis r accuabiiy, he scpe r privae

secr paricipai, ceraizai ad deceraizai edecies, prjec seeci crieria, pricig ad csrecvery mechaism, ierregia ad/r secra righs ad rues, user paricipai, privae secr paricipa-

i ad aw-picy iages ad he degree ega iegrai wihi secr aw. I he quaiy he egaramewr is pr, ivesrs wi be as wiig ae riss, ieviaby imiig he ris appeie ad hegeviy ivesme i a regi, r shiig css uprepared gverme r reguary eiies.

Indicators: Ivesrs ad picymaers ca a umber idicars gauge he sregh a curys

ega ramewr. these measures icude, amg hers, he quaiy he reguary ramewr, crrupiidices, ad gverme eeciveess. Mre specic idicars icude he airess ad idepedece

he judicia sysem, he erceabiiy gverme ad privae cracs, ad he speediess he judiciaprcess. Avaiabe idicars csider are ised bew.

Judicial/Legal Eectiveness Index (JLEI)- the JlEI surveys rms pics such as judicia idepedece, judiciabribery, he quaiy he ega ramewr, prpery preci, pariame, ad pice eeciveess. the JlEI is

deveped rm a quesi he Execuive opii Survey. Fr urher irmai, reer Daie kaumaschaper, ied Crrupi, Gverace ad Securiy: Chaeges r he Rich Curies ad he Wrd, (hp://

www.wrdba.rg/wbi/gverace/pd/kauma_GCR_101904_B.pd) i he Gba Cmpeiiveess Repr,a aua sudy avaiabe hrugh he Wrd Ecmic Frum (hp://www.werum.rg/gcr).

Corporate Governance Index (CGI)- the CGI surveys rms pics such as preci miriy sharehders,quaiy raiig, wiigess deegae auhriy, epism ad crprae gverace. these idices prvide

a idirec suppr evauae he ega ramewr ad as prvide guidace as hw measure he impac his variabe (ISS Prxy ad FtSE have a CGI idex a hp://www.issprxy.cm/isiuia/cgi/idex.jsp).

1 Fr mre irmai abu his ca cdii variabe r he waer secr, see Saeh ad Diar (2004), Guasch (2004) ad

oECD/EAP tas Frce (2002).


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Addiia surces idicars r his variabe are:

Gba Isigh - hp://www.gbaisigh.cm

laibarmer - hp://www.aibarmer.rgthe Ecmis Ieigece Ui - hp://www.eiu.cm

A.2. Plitical ris2

Defnition: Piica ris reers he pssibiiy sses arisig rm ivesmes i a give cury adcaused by chages i a curys piica srucure r picies, such as ax aws, aris, 3 exprpriai as-

ses,4 resrici i repariai prs, r ay her gverme aciviy ha has a sigica impac heecmic viabiiy a prjec. Piica ris icudes urigh exprpriai r aciviies by he gverme ha

ver ime have he eec reducig he acia viabiiy he prjec (paria exprpriai). I as reers resricis currecy rasers ad cveribiiy, ad damage resuig rm war r civi srie. this ype

ris ca be highy vaie a he svereig, subsvereig, ad ca eves.

Impact: Piica vaiiy ca give rise ecmic sses due :

ss he ecmic bee a veure r specic asse wihu air cmpesai;

he irduci aws, reguais r her resricis by he hs ai ha impair he pera-is he ivesme r veure;

havig abad he ivesme r veure r a exeded perid due a evacuai require-me r advice rm he hme gverme;

beig uabe repariae uds rm he hs ai, geeray as a resu eiher isuciereig currecy reserves he hs ai r havig resricis impsed by he hs ai;physica damage asses, r ss abiiy perae r use he asses, due piica viece

r errrism; adrusrai a crac eiher bere r aer he shipme r deivery gds whe he buyer r

seer is a gverme.

Indicators:5 Cury raigs ad her survey daa prvide idicars piica ris. the mai surces hisirmai are isiuis prvidig piica ris cverage i deveped curies, ie CoFACE, oPIC, EDC,EFIC, onDD, SACE,6 amg hers. Idicars used i cury aayses are prvided by grups such as he

PRS Grup, he EIU, ad hers.

PRS Group: Prduces he Ieraia Cury Ris Guide (ICRG), which prvides assessmes piica,ecmic ad acia ris i a arge umber deveped ad devepig curies. the ICRG assesses

hree majr caegries piica, acia ad ecmic riss. Fr mre irmai, access: hp://www.prsgrup.cm/icrg/icrg.hm

the EIU prvides assessmes piica vaiiy. Fr mre irmai, pease see: hp://www.eiu.cm

2 For more information about political risk in the water sector see Baietti and Raymond (2005) and Dinar, Balakrishnan and Wambia (2000).

3 A ari is a ax impsed a prduc whe i is impred i a cury (see hp://www.ivesrwrds.cm/4877/aris.hm).

4 A asse is ay iem ecmic vaue wed by a idividua r crprai, especiay ha which cud be cvered

cash (see hp://www.ivesrwrds.cm/273/asses.hm).

5 t be abe assess he piica riss assciaed wih isiuia rerms, i is ecessary w hw he saehders

(as caed ieres grups r payers) are aeced by he rerms, wha heir ieress are, ad heir abiiy impac he rerms.

A quaiaive evauai ris ca be esimaed ce he exe he piica eecs he isiuia rerms is w.

(Diar, e a., 2000, p. 4).

6 Ms he aia expr credi agecies pubish piica ris raigs.


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A.3. Fiscal Spac7

Defnition: Fisca space is deermied by he exe which a gverme ca prvide resurces a prjec

wihu adversey aecig is acia psii. the sca space variabe aayzes he capaciy he aia,subaia r ca gverme cmmi he cash fw suppr a prjec. the aaysis cuses hesurces uds r specic prgrams ad, depedig he eve deceraizai a cury, ca ivvemuipe gverme eiies ad/r mre ha e gverme brach. I wud icude he acia reai-

ships bewee cera ad ca gvermes ad he exe, reiabiiy ad capaciy acae sca rasers.

Impact: I sme irasrucure secrs, paricuary waer ad saiai, i is aways pssibe r aris cver he css services. Gras, subsidies, ier-gvermea rasers, ad reig brrwig are

mechaisms by which gvermes ca suppr irasrucure ivesmes. Hwever, he abiiy gver-mes prvide hese resurces is imied by heir avaiabe sca space. A gverme wih w sca spacewi have ew resurces (wheher gras, as, subsidies, acia guaraees r her) chae r susai

prjecs. A gverme wih high sca space wi have a greaer abiiy chae ad susai acia

resurces pubic services prjecs.

Indicators: Ecmiss have deveped umerus mehdgies r measurig sca space. the apprach

used ad deveped by he IMF reies budge irmai ad aes i csiderai aspecs such as:

he capaciy he ca ad cera gverme impse ad cec ew axes r raes ad

icrease he acua ax reveue;prese ad uure capia ivesme cmmied by he gverme which cud have a impac

he a sca psii he gverme;ppruiies repririize expediures i rder icrease prduciviy ad ree varius uds

r her purpses;recased ecmic grwh;he abiiy pri mey; ad,

he capaciy raise deb i capia mares.

Fr mre irmai, see he arice by Peer Heer i Finance and Development(V. 42, n. 2, Jue 2005;hp://www.im.rg/exera/pubs//add/2005/06/basics.hm).

Praciiers shud aayze hese aspecs wih due diigece i rder udersad he uure avaiabiiy

uds suppr ay prjec desig ha cais acia gverme suppr.

A.4. Maccnmic Facts

Defnition: Fr he purpse his repr, macrecmic acrs icude hse eves ha aec he ec-mic perrmace a cury, icudig acia fws, rade ad ecmic picies ifueced by a rage

acrs such as currecy devauais, deb deau, baig iquidiy crises, ad he prices impr/expr

gds ad services. these acrs ca chage suddey ad aec acia srucures supprig prjecsusaiabiiy. the ms sigica riss aced by he irasrucure secr are ied currecy cveribiiy,ifai, exchage rae ris, ad ieres rae fucuais.

Impact: Macrecmic acrs ie currecy devauais r high ifai raes aec he irasrucure secrsigicay because he geera dicuy i dig g-erm acig i ca currecy. Currecy devau-

ais have a paricuary damagig eec because he mismach bewee currecies ivesmes ad

7 Fr mre irmai abu sca space, see Heer (2005), kessides (2004) ad kmives, e a. (2005).


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reveues. Addressig his issue cracuay by iserig pass-hugh prvisis i he agreemes has prve be ieecive, as rae hies are he riggered a a ime whe he geera ppuai is ess abe pay due

he geera ifaiary rce devauais. Adverse macrecmic shcs are cuped wih higher cs

capia ad wer peraig margis, ad hus are widey assciaed wih risig prjec aiures.

Indicators: Ivesrs have severa idicars avaiabe aayze diere acrs measure macrecmicacrs ad he vaiiy ca cdiis.

Gd surces irmai are i he svereig reprs credi agecies, as we as muiaera rgaiza-

is such as he Wrd Ba. Furhermre, he Wrd Ecmic Frum prduces a Macroeconomic Envi-ronment Rank, which cmbies aspecs he Cury Credi Raig, hard daa he ca ecmy ad

survey daa abu ecmic perspecives. this specic raig is par he Gba Cmpeiiveess Repr(see: hp://www.werum.rg/gcr).

A.5. Instittinal Capacit8

Defnition: Fr he purpses his repr, isiuia capaciy reers a sud isiuia ramewr

ha icudes cear divisi respsibiiies ad ies accuabiiy amg secr ad cera isiu-is ha versee he perais cmpaies, icudig he way i which picies are impemeed ad

hw ha rgaizai ucis. Give ha irasrucure services ca be aura mpies ad havesigica exeraiies, sme rm reguai is ecessary regardess he isiuia srucure

prvisi, ad ca ead icreased rasparecy ad pressure r rerm. Eemes isiuia capac-iy icude:

he exisece r a reguar r reguai uci;he quaiy he reguary ramewr ad he eve rgaizaia devepme he secr

dea wih he reguary ramewr requiremes;he eve ad quaiy capaciy he secr auhriies ad paricipas dea wih he issues

he idusry (paig ad echica capaciies, pubic heah awareess, gverace ad admiis-raive sis, abiiy prvide advice sma rms, raiig, ec); ad

he eve crrupi i he isiuis.

Amg he ms criica ass r picymaers i devepig ad rasii ecmies is desigig ad

impemeig sabe, eecive irasrucure reguai. Reguais ha prvide a credibe cmmime saeguardig he ieres bh ivesrs ad cusmers are crucia aracig he g-erm privae capia

eeded secure a adequae, reiabe suppy waer services.

Impact: lac ca capaciy ad echica wedge i he irasrucure secrs, especiay i he waersecr, ca imi he exe prjec devepme ad perais hrugh -erceme cracuabigais, pr versigh, r he impsii ureaisic echica ad quaiy arges r service prvi-

si, cverage arges ad madary ivesme he par he prviders. Ay hese isiuia

aiures cud aec he prabiiy he service prvider. Crrupi is i ad ise a prbem haudermies devepme by disrig he rue aw ad weaeig he isiuia udai whichecmic grwh depeds. Crrupi eves aec accuabiiy, rasparecy ad rus, reducig ivesr

cdece.

8 Fr mre irmai abu isiuia capaciy i he waer secr, see Saeh ad Diar (2004).


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Indicators: Isiuia capaciy ca be aayzed by raigs, raigs ad her survey daa. Mai surces his irmai are isiuis such as trasparecy Ieraia, Gba Isigh, he Wrd Ecmic Frum

Isiue Maageme Devepme ad Cumbia Uiversiy.

Transparency International (TI)(hp://www.rasparecy.rg): this is a gba ewr icudig mre ha 90cay esabished aia chapers ad chapers-i-rmai ha gh crrupi by brigig geher pay-ers rm gverme, civi sciey, busiess ad he media prme rasparecy i eecis, i pubic

admiisrai, i prcureme ad i busiess. tIs gba ewr chapers cecs surveys a auabasis measure he eve crrupi i a umber curies. the idex is pubished auay.

Global Insights(hp://www.gbaisigh.cm/PrducsServices/PrducDeai1027.hm ) iegraed suie

cury aaysis prducs prvides daiy updaes cury reprs ad cury ris sysem. Each sigicaeve is aayzed ad repred as i ccurs, whie simuaeusy refeced i heir cury reprs, recassad ris raigs. this isa aaysis is achieved hrugh a prprieary parm ha jis geher a gba

eam piica aayss, ecmiss, ad edirs, prducig highy speciaized research ad advisry ser-vices ver 120 idusries ad 200 curies.

World Economic Forum (hp://www.werum.rg/) spsrs he Gba Cmpeiiveess Repr (www.we-

rum.rg/gcr), a aua repr prduced i cabrai wih he Harvard Isiue r Ieraia Deve-pme, which measures he percepis busiess execuives abu he cury i which hey perae.the gverme eeciveess sub-idex, which icudes such higs as he cmpeece pubic secr

perse ad he quaiy geera irasrucure, cud be used as a prxy r he quaiy he isiuiacapaciy gverme as a whe.

A.6. willinnss t Pa/Cltal vis9

Defnition: Wiigess pay des address he ecmic abiiy cusmers pay, bu raher hepersa aiudes idividuas ward he prvisi waer ad saiai services. there are w mai

aspecs his variabe: he beies ad aiudes regardig he service, paricuary i he case waer; adhe accepace privae perars r reig ivesme i uiiies.

Fr exampe, varius cuures have radiia beies ha waer is a gd-give ree cmmdiy. I his cu-ura cex i is dicu impse a user ee r waer service because ca csumers are wiig

pay r his ype cmmdiy. I Bues Aires, bere he privaizai waer services, ceci csswere paid hrugh geera ciy reveues ad csidered a cmmuiy cs. Aer privaizai, ceci

css were passed cusmers (as ppsed he cmmuiy); a segme hese cusmers wereuwiig pay r he waer service.

I sme regis, accepace privae prvisi services ca be dicu because pas experieces wihprivae ccessis r simpy because he beie ha a pubic gd shud be maaged by a pubic eiy.

I sme cases, ivveme privae ivesrs r perars ereches his view ad sme irasrucure

services begi be see aia ieres.

Impact: Uwiigess pay r waer ca ead civi ures. Faiure udersad he eeds ad demads

he ca ppuai ca ead a uavrabe resui he prbem. this was he case Aguas detuari i Bivia where civi ures resued i he ijury ad deah presrs ad, uimaey, he devui services he Bivia gverme.

9 Fr mre irmai abu wiigess pay r waer services, see kessides (2004) ad kmives e a. (2005).


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Indicators/Methodology:there are umerus mehdgies r measurig wiigess pay. these meh-dgies a i w brad caegries: reveaed preerece appraches ad saed preerece appraches.

Reveaed preerece appraches rey exisig ecmic behavir i her pubic services (eec-riciy, eecmmuicai, gas, ec.) deermie he preereces a husehd wih regard he paricuar service i quesi. Fr exampe, are csumers wiig pay r heir eergybis?

Saed preerece appraches, ie cige vauai, rey asig husehds quesisabu careuy csruced hypheica scearis. I cige vauai surveys, husehds

are ased hw much hey wud be wiig pay r wheher hey wud be wiig pay a ceraiamu.

these appraches y prvide mehdgies r esimaig he wiigess pay ad have severa shr-cmigs ha shud be evauaed, paricuary vis--vis he ris appeie he ivesr. I addii, he deve-

pme idicars requires carryig u specic ca sudies. Ye, a geera i ca be gaied by iga idicars such as hse pu geher by laibarmer.

The World Bank Energy Working Notes(n. 3, March 2005) prvides urher isigh i hese issues (see

hp://web18.wrdba.rg/ESSD/sdvex.s/81ByDcname/DevicieiFkychivaIPaersrSWiig-esspayrwaeradeergyMarch2005/$FIlE/EergyWrignes_Srs3_hires.pd).

A.7. Taiff Sstainailit10

Defnition: tari susaiabiiy deas wih esabishig a se-susaiabe service prvider ha ca recver ucss hrugh aris. Frm he prviders pi view, his variabe is represeed by he cusmers abilitypay he u cs recvery aris. Frm he cusmers perspecive, ari susaiabiiy is he ardabiiy he

services prvided. Whie a ari ca be ardabe a cusmer, i may si cver he u css he prvid-er. this dierece i viewpi eeds be ae i csiderai r he devepme easibe prjecs.

the cusmers abiiy pay he aris is reaed icme. the ari susaiabiiy variabe aes i csid-

erai he pre he cusmers: resideia, cmmercia, idusria, r gverme. o he her had, a-rdabiiy csiders he recvery cs prvidig service. Depedig he css, cerai ardabiiy imisca be impsed by a reguar r cmmuiy grup. this variabe is impra udersad ari srucures

ad supprig subsidies creae g-erm, se-susaiabe prjecs.

Impact: Frm he service prviders perspecive, he aaysis he ari srucure achieve u cs recv-ery wi be a ey ipu i prjec paig, paricuary due he high impac ha ari susaiabiiy has

he cash fw he prvider ad his abiiy pay he u ivesme. Whe he ari is se high eugh recver he u cs, he g-erm susaiabiiy he prvider, ad mre impray, service prvisiad he quaiy services cusmers, is a ris.

Indicators:three diere ypes mehdgies cud be appied.11 Reveaed preerece appraches, saedpreerece appraches (as previusy described i he wiigess pay seci) ad busiess sadards.

10 See nics (2000).

11 I is impra mei ha diere appraches have be appied r ari susaiabiiy ad wiigess pay. the

aaysis r ari susaiabiiy cceraes he reaiship bewee u cs recvery aris ad he dispsabe icme

he cie. Fr wiigess pay, he irmai aayzed is he amu mey ha he users are wiig pay. (Fr a mre

i-deph aaysis, see Appedix E, SAGUAPAC Case Sudy (Seci E.1.3).


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Reveaed preerece appraches rey exisig ecmic behavir i her services deermiehe preereces a husehd wih regard he paricuar service i quesi. Fr exampe, are

csumers wiig pay r heir eergy bis?

Saed preerece appraches, such as cige vauai, rey asig husehds quesisabu careuy csruced hypheica scearis. I cige vauai surveys, husehdsare ased hw much hey wud be wiig pay r wheher hey wud be wiig pay a ceraiamu.

Busiess sadards ca icude merics such as he price per cubic meer as a maximum remergig mares ad ardabiiy imis based he perceage husehd icme.

A.8. Siz an Lcatin12

Defnition: this variabe reers he eecs he size a prjec ad is cai decisis regardigasse wership, prjec mdaiy, exi sraegy, ad cgurai a specic prjecs srucure.

Prjecs ca be imied by heir size ad/r heir cai. trasaci css r bh he gverme ad heprivae secr are direcy reaed he size he prjec, as here are sigica xed rasaci

css. therere, here is e a ivesr ad gverme preerece r arger prjecs ha are based iurba areas. Ecmies scae, which ca be ud i maageme, maeria, huma resurces ad ace

(amg her acrs) d avr smaer prjecs r reme cais. Mrever, ris miigai s adacig avaiabe r arger aia prjecs are much mre imied i access ad appicai r smaer sub-

svereig prjecs. this variabe highighs a grwig red ward ris pig ad he aggregaig assesby smaer uiiies ad ivesrs achieve ecmies scae ad udig bjecives. 13

Impact: Prjecs ha are a a disadvaage because size ad/r cai ypicay ace high barriers acig ad shared iquidiy. newr uiiies have arge ecmies desiy ad scae. Smaer prviders

ca absrb he addiia capaciy css ha resu rm he eed address imied csumer desiy isparsey ppuaed areas.

lcai i urba, peri-urba r rura areas ca urher dee he ype prviders abe suppy he service

eciey. Peri-urba ad rura areas have w csumer desiy, requirig uique service prvisi.

Indicators: key idicars ecessary aayze his variabe icude he umber cecis, he average

bi, csumer desiy, regia ppuai desiy ad her cai-specic csiderais.

In summary, fgures 3 and 7 o the main report should be reerenced in conjunction with this appendix.Figure 3 provides a brie description o each variable and fgure 7 provides the ramework to analyzethe risk profle and local conditions or project development and associated investment.

12 See CIDA (2005).

13 See Baiei ad Raymd (2005). Privae prjecs i secdary r smaer urba ws have bee eve ewer, despie wha

cud be regarded as simiar prjec ris pres ad adherece mare pricipes.


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this appedix highighs he rage prjec mdaiies avaiabe bewee a uy pubic secr uderaigad a uy privae secr uderaig. Much has aready bee wrie he specrum pubic privae

srucures. therere, his appedix serves y irduce ad uie he ey mdaiies.

Figure B.1 iusraes he pubic privae ciuum r privae secr paricipai i irasrucure devep-

me.

Fi b.1. gnic Malitis tat Can b us t Implmnt Pcts

Public to Private Continuum

PUBLIC PRIVATE PARTNERSHIP

Fully Public

*As defined by the International Cooperative Alliance in 1995, a cooperative is an autonomousassociation of persons united voluntarily to meet their common - economic, social, and cultural needsand aspirations through a jointly owned and democratically - controlled enterprise.

1. State

Companies

3. Joint Venture-

Public3. Cooperatives*

4. Corporatized

Cooperatives

and State

Companies

ManagementContracts

1. Generic

Management

2. Outsourcing

3. Franchising

Concession

1. Typical

Concession

2. Joint Venture-

Private3. Leasing

4. BOT/BOO

Fully Private

1. Fully Private-

License

2. Fully Private-

Sale3. Private Supply

b.1. Fll Plic

Mdaiies deed as uy pubic are eiher wed, peraed ad maiaied by aia, regia r cagvermes r by a grup ciizes i cmm ieres, as i a cperaive.

B.1.1. Public Supply and Operation by the Government

Pubic uiiies w, perae ad maiai pubic irasrucure services i a deed area. the uiiy ca per-ae as a se-supprig eerprise ud whereby he perais ad capia expediures are uded wih

APPeNdIx b ProjeCT ModALITIeS


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reveues geeraed rm cusmer user ees ad e-ime ees paid r capaciy a he ime ceci he sysem r i sme cases wih sme suppr he gverme budge.

the uiiy is par a aia, subaia, r sae perai, ad he adpi busiess picies ied eciecy ad perrmace is a maer he curre admiisrai raher ha a g-erm decisi abupubic picy i he secr.

Fi b.1.1. Fll Plic - Plic Sppl an opatin

Customers

Provider / Government

Provide WSSServices

Collect Revenue

Contingency

No Contingency

B.1.2. Fully Public Corporation

Fully public or state-owned enterprises (SOE): SoEs are deed as direcy r idirecy sae-wed r c-red ecmic eiies ha geerae he bu heir reveues rm seig gds ad services. this dei-

i imis he SoE se cmmercia aciviies i which he sae is abe cr maageme decisisby virue is wership r vig righs ae. this deii icudes hse scieies where he privaesecr shares maageme respsibiiies wih he gverme ad he gverme has ve pwer ver

is decisi.

Crpraizai is a admiisraive meas irducig he discipie mare rces pubicy wed adperaed uiiies. Crpraizai irduces a ew reaiship bewee he gverme ad he maage-

me-perars he uiiy. Aer crpraizai, he reaiship is gvered by egisai speciyig he

pwers ad respsibiiies he paries. the reaiship mimics he privae secr, wih he uiiy peraiguder a bard maageme wih he gverme acig as he sharehder.

Crpraizai ivves he irduci he wig ur pricipes, which chage he reaiship be-

wee he gverme ad he uiiy: cariy bjecives, maageme aumy ad auhriy, sric ac-cuabiiy r perrmace ad a eve payig ed wih privae secr perars.

Ahugh he gvermes reaiship wih he waer uiiy chages, i ciues cr areas such aswaer resurce acai ad maageme, ad evirmea quaiy, as we as saeguards mpisic


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behavir. Ideed, he shi a crprae mde meas ha he reguais ver such issues shud be wespecied ad raspare i heir perai.

Fi b.1.2. Fll Plic - Cpatiz

Customers

Provider

Provide WSSServices

Collect Revenue

Government

Regulate Price,

Quality andOther Aspects

of the Water

Business

Subsidies or

Transfers

RegulatoryFunction

Government

Capital

Contributions

Insecure Cash Flow

Dividend

Contingency

No Contingency

B.1.3. Public Supply by Local Cooperatives

Cperaives14 are a hybrid rm smewhere bewee a reguaed pubic uiiy ad a se-gverig userscub. legay, cperaives maiai a idepede saus ad mae heir w ivesme decisis wih-

u a gverme madae uiversa service, ad wihu a excusive righ serve he areas where heyperae r resricis i expadig his area. Hwever, hey are recgized ad edrsed by aw, ad heir

raes ad service sadards are reguaed by a rmua. the ms esabished cperaives have becmequasi-cia ver he years.

Eve hugh cperaives are privaey wed, here are impra diereces cmpared wih privae (ives-r-wed) uiiies. I ivesr-wed uiiies, ivesrs share prpria wership righs i he rgai-zai. Few ivesrs, i ay, have a cmmercia reaiship wih he rgaizai beyd heir equiy ives-me. the rgaizais bjecive is maximize prs ad disribue hem based equiy righs. Equiy

righs are uy raserabe, awig ivesrs adjus heir paricipai mee heir ivesme bjecivesad capure uy he capiaized vaue heir ivesme.

14 the Saeme Cperaive Ideiy, adped by he ICA i 1995, dees a cperaive as a aumus assciai

perss uied vuariy mee heir cmm ecmic, scia, ad cuura eeds ad aspirais hrugh a jiy-wed

ad demcraicay cred eerprise.


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I cras, i he case a cperaive, wership he rgaizai aes a very diere meaig. Prsare pursued ad i baied, are geeray reivesed i he cperaive. Because members ca wih-

draw ad reacae heir ivesmes, he y way hey ca capure he vaue he cperaives aciviies

is hrugh he use he service. Geeray bigaed mee perrmace sadards ad pay crpraead exraci axes, cperaives ca raise ivesme capia by seig shares heir csumers, i a wayha privae r-pr perars ca.

thus, i heir dua re as wers ad users, i is i he members ieres have he uiiy deiver gd ser-vice a w cs. A bvius dierece bewee cperaives ad pubic uiiies is ha wership righs.

Fi b.1.3. Fll Plic - Plic Sppl Lcal Cpatis

Customers

Provider

Provide WSS Services Collect Revenue

Government

Regulate Price,

Quality andOther Aspects

of the Water

Business

Subsidies or

Transfers

Regulatory

Function

Customers

as QuoteHolders

Capital

Contributions

Contingency

No Contingency

A he same ime, cperaives ad pubic uiiies share a missi: prvide gd service raher ha reaize

prs. I shud be ed, hwever, ha i pracice, pubic uiiies e deviae rm he bjecive prvid-ig gd service due piica iererece r ac accuabiiy.

I csumer cperaives, he ac ha wers ad cusmers are e ad he same heps aig bjecives.I Bivia ad Argeia he arger cperaives have becme esabished ad ca eve ge aia gver-

me gras r guaraees r muiaera as. tday, Argeias cperaives have a dicu ime cmpe-ig wih ccessis, sice heir ari reguais geeray d prvide r recvery ivesme css.

I Bivia, where cperaives are he se suppier r severa majr ciies, cperaives cmpee r ew

mares. new cperaives i peri-urba areas are paricuary erepreeuria, ad cmpee acivey wiheach her recrui members a he budary heir service areas.


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b.2. Manamnt Cntacts

Maageme cracs raser respsibiiy r he perai ad maieace gverme-wed busi-

esses he privae secr. the gverme is respsibe r he cmmercia maageme ad he expa-si he ewr, ad is he wer he asses.

the maageme cracs are a ciuum i hemseves: hey rage bewee usurcig e ed

he specrum rachises he her. Uder usurcig, he payme he perar has i wih heperrmace he wr ad he uiiies. I he aer crac, he remuerai he privae perar is

ay ied heir perrmace ad ha he uiiies. I he midde area he ciuum, mre resp-sibiiies ca be deegaed he privae perar ad here are mre is bewee he cmpesai he

privae perar ad he resus achieved.

Fi b.2. Manamnt Cntact - otscin, Fancis an Pfmanc-bas Cntacts

Customers

Provider

Provide WSSServices

Collect Revenue

Government

Regulate Price,Quality andOther Aspects

of the WaterBusiness

Subsidies

Regulatory

Function

Government

Insecure Cash FlowDividend

CapitalContributions

or Transfers

Private

Operator

Operation andMaintenance

SecurePayments

and/or

PerformancePayments

Contingency

No Contingency

the maageme crac (i a is rms, usurcig, rachise ad perrmace-based) ca be viewedas diere is i he vaue chai he service. there is usuay a cus he perai ad maieace

(o&M) i bu i sme cases as a cmmercia i i he vaue chai, such as meer readig ad biig adi sme cases, ceci.

these cracs are useu i he cre bjecive is icrease a uiiys echica eciecy r he perrmace specic ass, bu cmpee privaizai is csidered easibe due he very w quaicai i he

variabes described i Seci 3 ad Appedix A. Maageme cracs are a shr-erm sui r smeirasrucure prjecs, paricuary r waer ad saiai prjecs, because hese mechaisms creae a

iceive prbem ha resus rm he rade- bewee he o&M cs, he respsibiiy he privaeperar, ad capia ivesme, ad, by he respsibiiy he wer (pubic, privae r cperaive) which

is pariay subsiued by he prduci uci he waer uiiy. In other words, an investment, or lackthereo, made by the owner o the assets, can aect the prot and loss o the private operator.


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Mrever, maageme cracs are a apprpriae pubic-privae parership pi i a gvermesmai bjecive is accessig privae ace r ew ivesme, as maageme cracs ypicay eave a

respsibiiy r ivesme wih he gverme. o he her had, because hey d ecessariy ras-

er ay he cmmercia riss he maageme cracr, hey draw ie privae secr iceives reduce css ad imprve he quaiy services.

B.2.1. Outsourcing

ousurcig, csidered a rs sep wards privae secr ivveme, is a we-esabished mechaism

i he waer suppy ad saiai idusry. ousurcig reers cracs bewee waer ad wasewaerservice prviders ad rms wih he wig characerisics:

a crac perid, cmmy, reewed auay;a crac budge ha species a ee ha bears direc reaiship uiiy perrmace, s he

privae service prvider des share ay he ris reaed he uiiys waer busiess; adhe crac gives he privae prvider say ver he uiiys iera resurces.

Services cmmy usurced icude equipme maieace, buidig maieace, pipe-ayig ad repairwr, meer readig ad biig ad ceci cusmers, ceaig, ad simiar services.

I cases where privae perars r cperaives are avaiabe prvide he services, usurcig is e

csidered mre cs-eecive because privae prviders ca ae u advaage ecmies scae, adcmpeiive ederig wi eder he jb he ms ecie prviders. I addii, his id privae par-

icipai imprves quaiy because privae prviders ejy advaages speciaizai.

Hwever, i shud be ed ha usurcig may drive up prices because privae rms may add pr mar-

gis service deivery css, which may ivie cusi ad crrupi ad requires expesive mirig.ousurcig may be a apprpriae pi r irducig privae secr paricipai i he waer uiiies

sma ad medium ws. Sice hey are characerized by disecmies scae, wer per capia icmes,ad wer ppuai desiy, privae rms may be uwiig egage i ccessi cracs.

B.2.2. Perormance-Based Contracts (Generic Management Contracts)

Maageme cracs raser respsibiiy r he perai ad maieace gverme-wed busi-esses he privae secr. they have he characerisics deaied bew.

Cracs are geeray r hree ve years.Simpes cracs ivve payig a privae rm a xed ee r perrmig maageria ass. Mre

sphisicaed maageme cracs ca irduce greaer iceives r eciecy, by deigperrmace arges ad basig remuerai a eas i par heir ume. t be wrhwhie,

hese mre cmpex maageme cracs mus prduce eciecy gais arge eugh se

he reguary css esabishig arges ad mirig perrmace agais hem.I sme cases, he privae prvider ca be ivved as a advisr he uiiys iera resurces.


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B.2.3. Franchise15

the rachise ccep appied he waer ad saiai secr meas ha a waer perar acig as a ra-

chisr wud prvide is echica w-hw regardig he perai a waer uiiy her waer perars(rachisees). the rachise crac has he characerisics deaied bew.

Cracs are geeray r ve r mre years.Crac budge species a ee ha is ied he perrmace he uiiy; hus, he privae

service prvider shares he ris reaed he uiiys waer busiess, ad a rachisee buys sup-pr rm a rachisr r a ryay ee. this ypicay icudes a iiia up-r ee (a ump sum sigig he rachise crac) ad a gig ryay ee (a perceage he rachisees grss

saes, cacuaed a peridic basis ad paid hrughu he eire durai he crac).the privae prvider has sme advisry re wih respec he iera resurces he uiiy.

Frachisrs ca prvide rachisees wih suppr i a areas pressia experise eeded ru a uiiy,

icudig: asse maageme, biig ad ceci, egieerig (csruci, perai ad maieace),huma resurces maageme ad prcureme.

Frachisig ers a busiess mde r ieraia perars eer higher ris mares, as we as i-cury mares. As rachisig des ivve capia ivesmes, ieraia perars migh use his

busiess mde eer i mre risy mares ha hey wud csider eerig hrug

financial structuring of infra projects

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