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PRIVATE PUBLIC PARTNERSHIPS IN INFRASTRUCTURE DEVELOPMENT IN ASIA

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Title: PRIVATE PUBLIC PARTNERSHIPS IN INFRASTRUCTURE DEVELOPMENT IN ASIA


1
PRIVATE - PUBLIC PARTNERSHIPS IN INFRASTRUCTURE
DEVELOPMENT IN ASIA by Edwin Khew Chairman Sing
apore Association for Environmental, Occupational
Health Safety Companies (SAFEco)
Executive Director Vivendi Universal Asia Pacific
2
Contents
  • Infrastructure Development
  • Sources of Funding
  • Why Involve Private Sector ?
  • How Private Sector can be involved
  • Formula for Successful Private - Public Sector
  • Cooperation
  • Why PPP in Water Sector
  • Examples of Structures for Private Sector
    participation in Water
  • Risks faced by Private Sector in PPP
  • Problems faced by Private Sector in PPP
  • Solutions for Success in PPP for Private Sector
  • Examples of successful PPPs
  • Conclusion

3
1) Infrastructural Development
  • OECD classifies Infrastructure into two
  • broad categories -
  • Economic Infrastructure
  • Water, Sewerage, Stormwater, Drainage, Highways,
    Power Supply, Telecoms, Ports, Airports, etc.
  • (b) Social Infrastructure
  • Schools, Universities, Hospitals, Prisons, Public
    Housing, Sporting Facilities, etc.
  • Infrastructure facilities general
    characteristics -
  • High capital cost
  • Long life span
  • Critical to economic development and growth
  • Critical to Sustainable Development

4
2) Sources of Funding
  • Public Sector
  • Multilateral Agencies (World Bank, ADB, etc.)
  • Private Sector

5
3) Why Involve the Private Sector ?
  • Increasing and urgent demand for infrastructure
    because of population growth, economic growth,
    migration to cities and vocal middle class.
    Budget constraints of Governments and their
    reduced borrowing capacity
  • Large resource of funding available from Private
    Sector investors worldwide
  • Rapid and proactive execution of projects
  • Improved level of service and efficiency
  • More responsive to changes and needs of users -gt
    greater flexibility
  • Reduced cost to Government

6
4) How Private Sector can be Involved
  • Service Agreements
  • OM
  • Planning and Design
  • Revenue collection
  • (risk borne by Public Authority)
  • Leasing (Affermage)
  • BOT (Build, Operate, Transfer)
  • Operation Management (OM)
  • Repair/Replacement
  • Full Administration of Plant (Private Sector does
    not finance or own the facility)
  • DB (Design Build)
  • Similar to BOT, no operation (except DLP period
    for training of staff)

7
4) How Private Sector can be Involved Contd
  • c) Franchising
  • BOOT (Build, Own, Operate and Transfer)
  • Similar to BOT except Private Sector provides
    financing (15-25 years operation)
  • BOO (Build, Own and Operate)
  • Similar to BOOT except no handover
  • Award to Private Sector via a concession
  • arrangement. Revenue collected by
  • concessionaire based on pre-defined tariff
  • formula (running cost or ROI or both)

8
4) How Private Sector can be Involved Contd
  • Divestiture
  • Full Privatisation
  • Service levels, efficiency and rates governed by
    one or more regulatory bodies encompassing
    interests of Customers, Government, Private
    companies and Shareholders
  • Danger of being private monopolies
  • Government reserves the right to terminate
    licence after 25 years or immediately if licensee
    defaults in meeting regulatory requirements

9
5) Formula for Successful Private - Public Sector
Cooperation
  • Government should position itself as a strong
    regulator and facilitator
  • Private sector should provide items 4(a) (c)
    depending on local conditions
  • Project must be financially sound (bankable),
    feasible (technically) and affordable to users
  • Minimise Risk (political and economic)
    government guarantees to insure against payment
    defaults

10
5) Formula for Successful Private -Public Sector
Cooperation contd
  • Sound legal and administrative framework in place
    e.g. Laws and regulations on foreign investment,
    corporate law, taxation, sovereign guarantees,
    intellectual property, etc., must be developed,
    tried and tested
  • Win-Win formula where convergence and coherence
  • achieved between social motivation (government)
  • and business motivation (private).

11
6) Why PPP in Water Sector
  • Rapid population growth
  • Deterioration in quantity quality of raw water
  • Increased affluence
  • Municipalities face huge technical problems in
    meeting increased demand for water because of
  • Shortage of raw water
  • Polluted raw water, and poor water treatment
    standards
  • Existing equipment requires upgrading and
    maintenance
  • New treatment processes are more sophisticated
    and therefore require more skills training

12
  • WATER needs are URGENT and
  • Municipalities do not have the budget

13
7) Examples of Structures for Private Sector
participation in Water
  • A. Service and Management contracts
  • of specific existing equipment
  • of specific services (repairs, metering,
    invoicing)
  • BOT on new equipment
  • The municipality controls the Water
  • Distribution but outsource Treatment
  • Management which will be done more
  • efficiently by the Private Sector.
  • Investments and tariff collection are by
  • the municipality.

14
7) Examples of Structures for Private Sector
participation in Water (Contd)
  • B. Concessions or lease contracts
  • of existing equipment or of the full utility
    water company
  • BOT on new equipment
  • The municipality keeps the ownership of the
  • assets, but delegates the operations,
  • maintenance and responsibilities to the
  • Private Sector under a contractual scheme.
  • The tariff, under the agreement, is collected
  • by the private sector. Investments are paid
  • by the concessionaire.

15
7) Examples of Structures for Private Sector
participation in Water (Contd)
  • C. Assets sales
  • The entire water company, and its assets are sold
    out
  • BOO on new equipment
  • The municipality sells the water
  • company and all its assets to a private
  • partner subject to a regulatory regime. The
  • Private Sector operates under a license that
  • sets certain service levels and tariff rates.

16
8) Risks faced by the Private Sector in PPP
  • Market Political Risks
  • Currency Cash Flow Risks
  • Regulatory Risks
  • Health Environmental Risks
  • Corruption Risks

17
Market Political Risks
  • Will tariff be affordable for consumers ?
  • What is local willingness to pay ?
  • How stable is country politically ?
  • What is demographic profile ?
  • How will population change in longer term ?
  • Affordability
  • To bear the cost without major sacrifices

18
Currency Cash Flow Risks
  • What is the prognosis of currency stability ?
  • What is the cost of capital locally ?
  • What is the ability of municipalities and
    government to honour their financial obligations
    ?
  • What is the potential for contract delays ?
  • Can profits be repatriated ? If so, when how ?

19
Regulatory Risks
  • What is the potential for tariff revisions?
  • Will competitive mechanisms be introduced after
    protective agreements ?
  • Are there re-negotiation windows in the contract
    and if so, for which party ?
  • Who is responsible for monitoring services, water
    quality and environmental performance ?
  • Is there a potential conflict of interests
    between the regulator and the municipality ?

20
Health Environmental Risks
  • What are the countrys drinking water quality
    criteria ?
  • Are these in line with WHO standards ?
  • If not, is there a convergence timetable ?
  • Who is responsible for monitoring water quality ?
  • Who is responsible for monitoring environmental
    compliance ?
  • What is the state of environmental laws
    enforcement ?
  • How are its environmental laws evolving ?

21
Corruption Risks
  • Do you have a strategic local partner or a
    crony company ?
  • How corrupt is target country ?
  • Is it worth entering when to play fair is to lose
    ?

22
9) Problems Faced by Private Sector in PPP
  • Existing Difficulties
  • Low coverage (25 to 85 in large Asian cities)
  • High rate of unaccounted - for water (40 to
    60)
  • Revenues cover only 35 of water costs
  • Staffing levels (10 to 20 per 1000 connections
    vs. 2 to 3 per 1000 in an efficient undertaking)
  • Current international funding
  • available US2.5 billion
  • Funds needed US400 billion

23
10) Solutions for Success in PPP for Private
Sector
  • Structure contract to balance risk rewards
  • Reduction of UFW (unaccounted for water)
  • Making the price of new connections affordable
    (or even free of charge under certain
    conditions)
  • Introduce a formal policy for service to the
    urban poor (where the rich subsidise the poor)
  • Ensure 100 metering of production and
    consumption
  • Repair all visible leaks
  • Eliminate Police illegal connections
    (legislate against illegal connections)
  • Ensure every utility is able to measure its own
    performance

24
11) Examples of Successful PPP
  • In China
  • Tianjin (3rd largest city in China), Generale des
    Eaux won the first 20 years contract concession
    in 1997 for an already existing installation.
    The plant (500,000m³/day capacity) serves 4
    million inhabitants
  • Chendu (Sichuan), Generale des Eaux, with its
    Japanese partner Marubeni, won Chinas first BOT
    contract in water sector in July 1998 (3.2m
    inhabitants). Generale des Eaux is currently
    constructing the plant (400,000m³/day capacity)
    and will operate it for 18 years.

25
  • In Malaysia
  • Selangor State
  • Since 1987, Generale des Eaux operates 26 Water
    Plants (950,000m³/day) serving a population of
    4.1 million people
  • Perak State
  • In June 1998, Generale des Eaux took a 30 stake
    in Intan Utilities and now operates the water
    facilities for the city of Ipoh (600,000
    inhabitants), the capital of the Perak State
  • In Indonesia
  • - In April 1997, through its subsidiary, United
    Water (47.5 stake), Generale des Eaux won the
    first BOT contract in Indonesias water sector at
    Sidoarjo, a city east of Java with 500,000
    inhabitants. The contract calls for the
    construction of a new water treatment plant and
    its operation for 25 years.

26
Vivendi Water in Asia-Pacific (Contd)
  • In Australia
  • Vivendi Water Australia, through Wyuna Water and
    United Water, provides water services to almost
    two million people e.g.
  • A 15-year contract to operate the water and waste
    treatment facilities of Adelaide (six water
    plants and four wastewater plants). 1.2 million
    inhabitants served.
  • Two Water Plants in Sydney Illawara and
    Woronora (500,000 people served)
  • A 25-year DBO (Design, Build Operate) contract
    for the city of Noosa (35,000 people) in
    Queensland
  • A BOT Contract for the first waste water
    treatment system in Australia awarded to a
    private sector company. The 20 years contract
    covers the waste water services of Gerringon and
    Gerroa, south of Sydney.

27
Vivendi Water in Asia-Pacific (Contd)
  • Vivendi Water also operates Privatised Water and
    Waste Water Plants in Vietnam, Thailand and
  • New Zealand
  • and
  • Serves more than 20 million people in Asia Pacific

28
Vivendi Water Worlds leading distributor
  • Water treatment and distribution
  • Collection and treatment of waste water
  • Construction and operation of water and waste
    water treatment plants
  • Installation and maintenance of piping
    (distribution) networks
  • Merging of Generale des Eaux
  • and US Filter in October 1999
  • Vivendi Water
  • 110 million consumers
  • worldwide
  • 6 billion cubic metres of
  • drinking water supplied
  • annually
  • Waste water treated for 70
  • million people
  • ISO 9002 and 14001
  • certifications

29
12) Conclusion
  • PPP is necessary for the development of Asia
  • Private sector financed projects are the most
    appropriate instruments for developing economies,
    particularly in Asia
  • A successful PPP project requires the packaging
    and facilitation of private sector funding, most
    appropriate technology, project management,
    engineering, training, legal support, etc.
    together with government support
  • As graduates of this MEM course it is your
    responsibility if you are from a developing
    country to find out the most appropriate PPP
    formulation for your countrys infrastructure
    development and sustainable growth. If you are
    not from a developing country, you can look at
    bringing FDI into the less developed countries

30
  • Successful PPP Progress
    FDI
  • Jobs
    S.D.

31
  • Thank You
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