The story of two recent water projects…….. The story of two recent water projects……..

June 2005

Two ProjectsTwo Projects ………………

Morocco Irrigation project: Ground water Morocco Irrigation project: Ground water depleting. Irrigation system badly depleting. Irrigation system badly maintained. PPP to bring tariffs to a maintained. PPP to bring tariffs to a reasonable level. BoT…two local companiesreasonable level. BoT…two local companies

Greater Bangalore Water: Piped water and Greater Bangalore Water: Piped water and sanitation for suburbs of Bangalore… 12% sanitation for suburbs of Bangalore… 12% per annum growth endangered by per annum growth endangered by infrastructure bottlenecksinfrastructure bottlenecks

Introduction of

Private Sector

Participation

in Irrigation

GuerdaneProject

A Conservation ProjectA Conservation Project

Covers 10,000 hectares in Souss-Massa region (near city of Covers 10,000 hectares in Souss-Massa region (near city of Agadir)Agadir)

Cultivated with citrus groves (including export products) Cultivated with citrus groves (including export products) Over 100,000 people estimated to be earning a living (directly or Over 100,000 people estimated to be earning a living (directly or

indirectly) from citrus farming in the regionindirectly) from citrus farming in the region

Land owned by 670 farmers, noted for high-level productivity Land owned by 670 farmers, noted for high-level productivity and innovative commercializationand innovative commercialization

Private wells are currently the only source of irrigation waterPrivate wells are currently the only source of irrigation water

Due to over-exploitation, the groundwater table level is Due to over-exploitation, the groundwater table level is diminishing by 2.5 meters per year on averagediminishing by 2.5 meters per year on average

Several farms are abandoned every year as wells dry up or Several farms are abandoned every year as wells dry up or water pumping costs become unaffordablewater pumping costs become unaffordable

The Project - ConceptThe Project - Concept

Delegation of public service to private sectorDelegation of public service to private sector

30-year concession30-year concession

Build-Transfer-Operate (BTO) scheme:Build-Transfer-Operate (BTO) scheme: Private sector will be responsible for construction Private sector will be responsible for construction

(including its financing)(including its financing) Upon completion, infrastructure is transferred to the stateUpon completion, infrastructure is transferred to the state Operation of infrastructure is delegated to private sectorOperation of infrastructure is delegated to private sector

Surface water allocation of about 45 million mSurface water allocation of about 45 million m33

Cost of infrastructure estimated at USD85 million Cost of infrastructure estimated at USD85 million (conveyance pipe + network) with working capital… (conveyance pipe + network) with working capital… US$100 millionUS$100 million

Public Sector ContributionPublic Sector Contribution

Public Sector Contribution

Tariffs

No incentives for economical use of water Too high for farmers

Actual Cost Pumping Ground Water

Commercial tariffs based on the true economic cost of service may be too high relative to affordability/willingness to pay of farmers

Public sector contribution (subsidies) could reduce the tariffs required for the private investor to realize its return on investment

Balance is key between the public sector contribution and the incentives for economical use of water

Transaction StructureTransaction Structure

Private Sector Concessionaire –us$42 million

ORMVADelegating Authority

Users US$ 8 million Hassan II Funds$ 50 million Public Contribution

Agence de BassinWater Supply

WaterDistribution

TariffPayment

ResultsResults

Bids received from 2 consortia, both led by local financial investorsBids received from 2 consortia, both led by local financial investorsBoth bidders met the criteria for technical and financial capabilities, Both bidders met the criteria for technical and financial capabilities, and submitted responsive bids in accordance with the bidding and submitted responsive bids in accordance with the bidding proceduresproceduresResults were outstanding, especially given the base price of 1.8-1.9 Results were outstanding, especially given the base price of 1.8-1.9 Dh/mDh/m33 estimated for the Project: estimated for the Project: The losing bidder’s financial offer was 1.88 Dh/mThe losing bidder’s financial offer was 1.88 Dh/m33

The winning bidder’s financial offer was The winning bidder’s financial offer was 1.48 Dh/m1.48 Dh/m33

ONA, CDG, InfraMan, BRLONA, CDG, InfraMan, BRL

Farmers are thus set to enjoy a substantially favorable tariff, on top Farmers are thus set to enjoy a substantially favorable tariff, on top of the high quality of service expected from private sector operationof the high quality of service expected from private sector operationThe winning bidder, led by the Moroccan conglomerate Omnium The winning bidder, led by the Moroccan conglomerate Omnium Nord-Africain (ONA), will be Morocco’s first ever domestic private Nord-Africain (ONA), will be Morocco’s first ever domestic private infrastructure operator in irrigation projectsinfrastructure operator in irrigation projects

Greater Bangalore WaterGreater Bangalore Water

Chequered success of urban water privatizationsChequered success of urban water privatizationsThe “software” rather than “technical” issuesThe “software” rather than “technical” issues Tariff strucure/tariff level/tariff adjustment/service Tariff strucure/tariff level/tariff adjustment/service

improvement/PPP/out-put based aidimprovement/PPP/out-put based aid Level of Local industry involvement (vested interest), Level of Local industry involvement (vested interest),

base line unrealisticbase line unrealistic Pro-poor program and public mobilizaiton Pro-poor program and public mobilizaiton

(tariffs,NGOs,pilot projects,ward committees,monitoring (tariffs,NGOs,pilot projects,ward committees,monitoring report card)report card)

Transparency and Public relationsTransparency and Public relations Paced introduction of PSPPaced introduction of PSP

Decision CriteriaDecision Criteria

Technical ManagementTechnical Management““Low Input Consumption & Operating Cost , Minimized Capital Cost”Low Input Consumption & Operating Cost , Minimized Capital Cost”

Consumer Satisfaction Consumer Satisfaction ““Excellent service to consumers at reasonable Tariff, to achieve efficiency of Excellent service to consumers at reasonable Tariff, to achieve efficiency of 24/7”24/7”

Financial and Economic SustainabilityFinancial and Economic Sustainability “ “ NO Demand for funds from GOK, to maintain self funding system”NO Demand for funds from GOK, to maintain self funding system”

Risk Level AllocationRisk Level Allocation““Shifting of Risk to Private Sector”Shifting of Risk to Private Sector”

Environmental/Social impact Environmental/Social impact ““Efficient use of water resources. Reduction in losses. Effluent Treatment, Efficient use of water resources. Reduction in losses. Effluent Treatment,

Water safety standards significantly above WHO”Water safety standards significantly above WHO”Political SustainabilityPolitical Sustainability

““Pro-Poor, Transparency & Legitimacy, Communication, Partnership, Public Pro-Poor, Transparency & Legitimacy, Communication, Partnership, Public Feedback” Feedback”

Key DevelopmentsKey Developments

Greater Bangalore Water Supply and Greater Bangalore Water Supply and Sanitation ProjectSanitation ProjectLoss Reduction in Bangalore cityLoss Reduction in Bangalore cityCauvery IV – Phase IICauvery IV – Phase IIOthersOthers Addition of STPsAddition of STPs Expansion of distribution system (W&S) in Expansion of distribution system (W&S) in

Bangalore CityBangalore City Expansion / Replacement of WTPExpansion / Replacement of WTP

Current Status – Bangalore Metropolitan AreaCurrent Status – Bangalore Metropolitan Area

Bulk Water Supply (Cauvery Stages and WTP)

Water and Sewerage

Services in Bangalore City

8 ULBs – nominal or No

coverage

Sewerage (STPs)

BWSSB Public Third Party Private Third Party GB Contractor

…….After Greater Bangalore Water Supply and .After Greater Bangalore Water Supply and Sanitation ProjectSanitation Project

Bulk Water Supply (Cauvery Stages and WTP)

Water and Sewerage

Services in Bangalore City

Water and Sewerage

Services in 8 ULBs

Sewerage (STPs)

BWSSB Public Third Party Private Third Party GB Contractor

Contract for Bulk Water

Contract for Sewerage Treatment

PSP in GBW&S

4 addnl STPs (BTO)

5 year program to improve Losses and improve sewerage

Spin-off Bulk Water to a new Public Sector Company

…….After City of Bangalore Loss Reduction .After City of Bangalore Loss Reduction Program (2006-2010)Program (2006-2010)

Bulk Water Supply (Cauvery Stages and WTP)

Water and Sewerage

Services in Bangalore City

Water and Sewerage

Services in 8 ULBs

Sewerage (STPs)

BWSSB Public Third Party Private Third Party GB Contractor

Contract for Bulk Water

Contract for Sewerage Treatment

Contract for Bulk Water

STPs - BTO

Additional Raw Water Requirement

Three integrated W&S utilities (Concession)

Expansion of WTP or new WTP (BTO) or divestment of Old WTP

…….After Implementation of Cauvery IV Phase .After Implementation of Cauvery IV Phase IIII

W&SBangalore

- North

Sewerage (STPs)

BWSSB Public Third Party Private Third Party GB Contractor

Contract for Bulk - Raw

Water

Contract for Sewerage Treatment

Contract for Bulk - Treated Water

Cauvery Stages WTP

W&SBangalore - Central

W&SBangalore

- South

Characteristics of a Hybrid PSPCharacteristics of a Hybrid PSP

Term: 7 years water distribution and sewage collection….. New STPs will be BTO’sTerm: 7 years water distribution and sewage collection….. New STPs will be BTO’s

ServicesServices Provide UWSSProvide UWSS Detailed engineering and quality control on sewerage componentDetailed engineering and quality control on sewerage component EPC on ongoing capital investmentsEPC on ongoing capital investments

Performance Based LOSPerformance Based LOS Quality of H2O and availabilityQuality of H2O and availability Technical parametersTechnical parameters Customer SatisfactionCustomer Satisfaction

Major constraint… government not ready to give up control of tariffs…Major constraint… government not ready to give up control of tariffs…

Financial ConsiderationsFinancial Considerations Provides initial and ongoing incremental working capitalProvides initial and ongoing incremental working capital Revenues are escrowed to cover with output based aidRevenues are escrowed to cover with output based aid

O&M, Bulk Water, STP, MF, Ongoing Capex and Debt ServiceO&M, Bulk Water, STP, MF, Ongoing Capex and Debt Service

Hybrid StructureHybrid StructureManagement Contract Affermage / Lease Hybrid

Technical OperationProvides UWSS Y Y YConnection/Disconnection Y Y YCommercial OperationsContract with Consumers N Y ?Access to Private Property Y Y YCollection of Revenues N Y YFinancial DetailsInitial Working Capital N Y YIncremental Working Capital N Y YManagement Fee N Y YOngoing Capital CostsSupervision N N YFunding N N NDebt servicing N N NStep-in/Security Rights N N NOwnershipTiltle / Leasehold N N / Y NRegulatoryTechnical N N / Y YEconomic N Y YEnvironmental N N N

Legislative Amendment Required

Rules or Regulations required assuming that there is a detailed amendment enabling PSP

Amendment Not Required

Combined Impact on Bangalore Metropolitan AreaCombined Impact on Bangalore Metropolitan AreaProjectProject Current StatusCurrent Status GBWSGBWS Loss Reduction ProgamLoss Reduction Progam Cauvery IV – Phase IICauvery IV – Phase II

PSPPSP GBWSGBWS Bulk Water SeparationBulk Water Separation 3 W&S Concessions + WTP 3 W&S Concessions + WTP BTOBTO

TechnicalTechnical

100% Coverage100% Coverage

24 / 724 / 7

EU HEU H22O QualityO Quality

15% UAW15% UAW

CommercialCommercial

98% Collection98% Collection

OFWAT Customer ServiceOFWAT Customer Service

UK Grievance RedressalUK Grievance Redressal

FinancialFinancial

Access to MarketAccess to Market

No Recourse to GoKNo Recourse to GoK

Risk AllocationRisk Allocation

Borne by OperatorBorne by Operator

EnvironmentalEnvironmental

Full effluent treatmentFull effluent treatment

Phase out of BoreholesPhase out of Boreholes

PoliticalPolitical

Pro –poor PolicyPro –poor Policy

Full Regulatory SystemFull Regulatory System

……..Thank You..Thank You