Domestic private sector participation for small town water supply

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Domestic private sector participationfor small
town water supply

• Some key lessons learned from MIREP

Presented by Noupheuak Virabouth
Director of the Water Supply Authority
(WASA)Deputy Director of Department of Housing
and Urban Planning (DHUP), Ministry of Public
Works and Transport Frédéric Naulet
Program ManagerGroup of Research
and Technological Exchange (GRET)
National Consultation Workshop on PPP Delivery of
Basic Services in Mongolia, Nov. 2008
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MIREP in Laos pioneering water supply delivery
through PPP approach
Since 2004, water supply projects are
implemented in 8 small towns (500 families on
average) through decentralized concession/BOT
contracts

• District authorities are the owner of the water
  utilities
• Domestic private investors are granted as the
  concessionaires of the water supply services.

MIREP has been implemented by DHUP and WASA with
technical assistance from the NGO GRET. The
Programme is funded by the French Ministry of
Foreign Affairs, SEDIF and Municipality of Paris.
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MIREP main stakeholders
Ministry of Public Works an Transport (MPWT)
NationalLevel
WASA and WSD of the Department of Housing and
Urban Planning
Provincial Government(Cabinet of the Governor)
GRET
ProvincialLevel
DPWT
District Authorities
Private Investor
LocalLevel
Users

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The implementation process 3 main phases
Phase 1 Conducting the feasibility study Step
1 identification of the site -gt Step 2
socioeconomic survey -gt Step 3 technical survey
-gt Step 4 financial analysis -gt Step 5 PPP
approval Phase 2 Selecting the
investor/Establishing the contract Step 6
concessionaire selection -gt Step 7 detailed
designs -gt Step 8 poor HHs selection -gt Step 9
contracts negotiation-gt Step 10 contracts
signature Phase 3 Constructing the
system/Managing the service Step 11 supervisor
selection -gt Step 12 construction works -gt Step
13 community training -gt Step 14 connection
works-gt Step 15 training and follow-up
activities
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MIREP subsidy mechanism

• Investment subsidies are provided by MIREP
  through Investment Funds established at
  provincial level
• Objective The Provincial Investment Funds aim
  to mobilize financial resources to develop water
  supply services under PSP
• Resources the Funds receive resources from
  MIREP Program and from the yearly concession fees
  paid by the concessionaires
• Management Subsidy contracts are signed between
  DPWT and each investor granted for a water
  concession. The contracts mention about
• 1) The amount of subsidies allocated on average
  30 of the total investment costs are subsidized
  the remaining is private equity
• 2) The conditions of subsidies disbursements
  investment subsidies are disbursed through
  Output Based Aid mechanism

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MIREP credit mechanism

• MIREP set up a Guarantee fund in February 2008 in
  partnership with a commercial bank to release
  low-cost loans to the concessionaires
• Objective The Guarantee Fund aims to cover some
  of the losses of the bank (Lender) in case of
  default loan repayment by the concessionaires
  (borrowers) the Fund covers 50 of the the
  outstanding debt in case of default loan
  repayment
• Management The Guarantee Fund is managed by
  DHUP (the Guarantor) a guarantee agreement is
  signed between the Guarantor and the Lender to
  define the modalities of using the Guarantee Fund
• In exchange to the right of using the Guarantee
  Fund the Lender must release loans to the
  concessionaires under certain conditions,
  including
• 1) low interest rate (class A)2) medium-term
  loans (5 years maximum)3) lower collaterals

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MIREP DONORS
GUARANTOR(DHUP Ministry of Pubic Works and
Transport)
TECHNICAL ASSISTANCE(GRET)
Guarantee Agreement
LENDER(Lao Development Bank)
LoanContract
LoanContract
LoanContract
Borrower 1
Borrower 2
Borrower 1
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Examples
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Lesson learned 1 a learning process approach

• Innovative models such as PPPs are better
  implemented through learning process approach
  allowing trials, mistakes and adjustments
• Analyze the institutional context and the
  socio-economic situation before exploring the
  potential of domestic private sector for water
  supply service delivery and pilot
  experimentations
• 2) Build political consensus at the earliest
  stage of the programme implementation through
  information sharing, debates and promotion of
  successful PPP experiences
• 3) Adjust the model regularly during the
  experimentation by
• Assessing continuously the program outputs
• Ensuring that the experiences are transformed
  into lessons learned

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Lesson learned 2 Target the right domestic
entrepreneurs

• Understand their motivations and interest They
  seek safe business opportunities but are not only
  driven by profit making (contribute to developing
  the small-town)
• 2) Evaluate their investment capacity and
  financial constraints usually varies between
  60,000 and 150,000 US but low cash flow
• 3) Identify their assets They have previous
  experience of business management (in water
  business, civil engineering). They have good
  understanding of the public sector and are
  willing to partner with public authorities

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Lesson learned 3 Set-up the appropriate PPP
Various PPP schemes have been developed for
water supply but they must be reinvented with
regard to the local conditions.
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Lesson learned 4 Adapted regulation

• Achieving sound regulation implies building
  cooperation between various public and private
  actors requires time, common rules and
  articulating different regulatory instruments
• 1) At national level
• Water regulation agency (e.g. WASA in Laos)
• Adapted specifications, monitoring and evaluation
  (benchmarking), set up tariff grid, professional
  licenses,
• 2) At provincial level
• contract used as regulation instrument
• But mostly a learning tool for the local
  authorities and entrepreneur
• 3) At local level
• Involve local authorities (chiefs of village,
  traditional leaders)
• Monitoring committees channel information in both
  direction (top - down, bottom up)

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Develop decentralized / tailored contracts to
promote responsibilities at local level but most
important is the process of contracting out
(preliminary consultations, methodology to
negotiate) and the legal document itself
Local Authority
Local Entrepreneur(water provider)
Contract
Clients / Users

• A transparent but simple tendering process
• The contract is made deliberately simple in local
  language (no juridical terms)

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Lesson learned 5 Combine different sources of
financing
The water supply investments can be financed
through 3 main different ways a. Private equity
from the entrepreneurs savings b. Public
subsidies from government agencies or external
donors c. Commercial loans from financial
institutions Within MIREP Laos, the entrepreneurs
finance most of the investment with private
equity. However some subsidies are provided and
medium-term commercial loans are released
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• Subsidies Combine a mix of upfront and output
  based subsidies
• Upfront subsidies help attract domestic
  entrepreneurs and reduce capital barriers
• Output based subsidies provide incentive to
  increase service coverage rate and to target
  special communities
• Credit it comes as a complementary (10 to 30)
  source of funding
• Leave the credit to a commercial bank
• When necessary put in place partial credit
  guarantee schemes
• to secure the bank,
• decrease collateral size,
• increase duration (5 years 10 years)

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Lesson learned 6 Build mutual confidence
between public and private sectors

• Obtaining good cooperation between public and
  private stakeholders requires confidence and
  mutual understanding
• 1) Multiply meeting opportunities
• Regular contract review meetings
• Regular public hearing and committee meeting
• 2) Emphasize exchanges between local
  stakeholders
• experience sharing during study tours
• between operators, officials or heads of village
• 3) Facilitate relations, create links

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Lesson learned 7 Users, from awareness to
marketing

• Innovative communication approaches should be
  developed to optimize service connection rate and
  good use of piped water
• 1) Social marketing approaches,
• involving the local water entrepreneurs
• With incentives to connect maximum numberof
  families
• Festive marketing campaign
• 2) Introduce quality concept to users and
  entrepreneurs
• Train on rights and obligations of users
• Water service and quality

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Thank you
Mr. Noupheuak Virabouth Water Supply Authority
(WASA)Deputy Director of the Department of
Housing and Urban Planning, Ministry of Public
Works and TransportLane Xang Avenue, Vientiane
Capital, Lao PDR Mr. Frédéric Naulet Groupe de
Recherche et dEchanges Technologiques (GRET) Ban
Phonxay, Xaysettha District PO 2483, Vientiane,
Lao PDR www.gret.org fnaulet_at_gret.org