1 private sector roles in delivering public services: policy options for developing cities penelope...
TRANSCRIPT
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Private Sector Roles in Delivering Public Services: Policy Options
for Developing Cities
Penelope Brook
The World Bank
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Outline
Why involve the private sector? Options for private participation in
municipal services Choosing an option
Why Involve the Private Sector?
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The Problem
Chronic poor performance is the rule rather than the exception in many publicly run municipal services– many households lack good access to services
(especially the poor)– service is often of poor quality– service delivery is inefficient
Population with Access to Public Infrastructureby Income Quintile (%)
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Cost Recovery is Often Inadequate
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Traditional Solutions Often Fail
Conventional projects centered on public investments in new capacity, training, and public sector managerial reforms often seem to make little difference
More and more governments are turning to private sector participation as an alternative solution
Options for Private Participation
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Basic Options
service contract management contract lease build-operate-transfer (BOT) concession divestiture
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The Basic Options Compared
Option AssetOwnership
O&M Capitalinvestment
Commer-cial Risk
Duration
Managementcontract
public private public public 3-5 years
Lease public private public shared 8-15 years
Concession public private private private 25-30 years
BOT/BOO private / public private private private 20-30 years
Divestiture private private private private indefinite
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Service Contracts
Definition: specific tasks are contracted to the private sector, but overall utility management remains with the public sector
Typical duration: 6 months - 2 years Pros: can inject good technical expertise Cons: unlikely to improve performance
greatly where overall management is weak
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Example: Mexico City Water
Mexico City is divided into 4 zones, each allocated to a private service contractor for 10 years, beginning in 1993
Contracts are in 3 stages, and cover:– mapping the network, consumer census,
metering– regularization of billing– loss detection and reduction
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Management Contract
Definition: a private company is paid a fee to operate a set of municipal services
Typical duration: 3 to 5 years Pros: gains in managerial efficiency Cons: gains can be difficult to enforce; city
remains responsible for investment
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Example: Solid Waste Collection
Management contracts for waste collection are common
» Caracas, Seoul, Bangkok, Jakarta, Lagos
Contractors are often medium-size enterprises » 100 contractors in Lagos, 85 in Seoul
Cost savings can be significant» US data - private sector is 10-30% cheaper
» UK & Canada data - private sector is 20-40% cheaper
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Lease
Definition: a private company leases the assets of a utility, and maintains and operates them, in return for the right to revenues
Typical duration: 10 to 15 years Pros: commercial risk borne by the private
sector, giving strong performance incentives Cons: administratively demanding; government
remains responsible for investments
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Example: Water in Guinea
Guinea instituted a lease contract for water supply in Conakry and 16 other towns in 1989– benefits have included:
» a substantial increase in access to potable water
» increased connections
» progression to full cost recovery
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Guinea: Ongoing Issues
Continuing difficulties:– connection rate below expectations– high unaccounted-for water– high prices
Underlying institutional issues– problems in clearly allocating responsibilities and
risks– problems in coordinating investment and operations
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Build-Operate-Transfer
Definition: private sector develops, finances and operates bulk facilities
Typical duration: 15 to 30 years Pros: good way of getting efficient delivery of
bulk services, with private investment Cons: not a good solution if supporting
distribution systems are in bad shape, or traffic levels are uncertain
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Example: Solid Waste in Hong Kong
DBO (Design-build-operate) for refuse transfer stations and a chemical waste plant
- for waste plant, capital cost paid over 5 years in monthly installments;
DBO for landfills (including restoration and aftercare)
- capital costs paid in lumpsums at milestones
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Concession
Definition: city owns the assets, but contracts with the private sector for operations, maintenance and investment
Typical duration: 25 to 30 years Pros: potential for high efficiency in operations
and investment Cons: requires considerable commitment and
regulatory capacity
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Example: Water & Sanitation in Manila
A 25-year water and sewerage concession began in Manila in 1997
– requires increase in water connections from 65% to 100% of households within 10 years
– requires increase in sewerage connections from 8% to 83% of households within 25 years
– requires decrease of technical and commercial loss from over 60% to 25% within 25 years
– projected to involve total investments in excess of $7 billion
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Divestiture
Definition: the assets of a municipal utility are sold to the private sector
Typical duration: indefinite, but may be limited by a license
Pros: potential for high efficiency gains Cons: requires credible regulatory
framework
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Choosing an Option
Governments have multiple objectives from private sector participation:– technical and managerial expertise– improved efficiency– large-scale private investment in the sector– reduced public subsidies to the sector– making the sector more responsive to
consumers’ needs and preferences
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Mapping Options to ObjectivesObjective Technical
ExpertiseManagingExpertise
OperatingEfficiency
Investmentin Bulk
Investmentin DistributionOption
Service Contract
ManagementContract
Lease
BOT
Concession
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Some
Yes
No No No
No
No
No
Yes
No
No
Yes
Yes
Some
Yes
Some
Yes
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Mistakes are Easy
A number of African cities have begun by thinking of BOTs as a solution to perceived water supply problems, BUT:
» real danger that new supplies of water will be lost in leaky distribution systems
» danger of bankruptcy if poor collections undermine ability to meet take-or-pay obligations
In such cases, better to begin by focusing on distribution efficiency
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What Can the Municipality Get?
The preferred option of the municipality may not be the preferred option of the private sector
Options that yield higher benefits for consumers also tend to demand a higher level of government commitment, and a better prepared institutional framework
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Key Private Sector Objectives
A fair rate of return, over a period that allows the private sector to recover its investments
This requires:– a well-specified contract– consumer willingness to pay (and the ability to
enforce payment)– credible, stable regulatory arrangements– mechanisms for handling risks beyond the utility’s
control
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Mapping Options to PrerequisitesRequirement Political
CommitmentCost-coveringTariffs
RegulatoryFramework
GoodInformationOption
Service Contract
ManagementContract
Lease
BOT
Concession
Low
Moderate
Moderate
Moderate
High
Low
Moderate
High
High
High
Low Low
Low
High
High
High
Moderate
High
High
High
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Getting What You Want
If the starting conditions are not especially conducive to private investment the municipality may:– delay the transaction, and pursue institutional and
regulatory reforms first;– go ahead with the transaction, but be prepared to
pay a relatively high price; or– opt for a stepwise approach to private
participation