SUEZ ENVIRONMENT AS A PROVIDER OF TAILOR MADE SOLUTIONS TO HELP MUNICIPALITIES RESPOND TO THEIR WSS NEEDS

26 / 02/ 09

Gabriela Prunier, Country Head

SUEZ ENVIRONNEMENT

Table of Content

• THE PROFILE OF SUEZ ENVIRONMENT

• THE EXAMPLE OF AN INNOVATIVE PPPP IN ALGIERS

• SUEZ ENVIRONMENT’S OFFER TO INDIAN MUNICIPALITIES

• EXAMPLES OF ACHIEVEMENTS OF SUEZ ENVIRONMENT•

SUEZ ENVIRONNEMENT

THE PROFILE OF SUEZ ENVIRONMENT

Presentation of Suez Environnement

• An international Group with experience of WSS service provision to 20 Emerging countries

•SE has been managing WSS services for local authorities and businesses for 120 years

•It is a worldwide reference in the WSS sector that provides world class solutions adapted to the local context

• 62,000 employees worldwide

• Supplies 68 million people with drinking water

• Consolidated revenues (2007) 12 billion euros

Suez Environment’s Profile

Suez Environment’s structure incorporates:

– An engineering company (SAFEGE)

– A global constructor (Degrémont)

– Various operators of complex urban water and waste management systems

Management of the Whole Water Cycle from catchment to release into the natural environment after treatment

SE has experience with all types of PPP

Years3 Forever5 2510

Degreeof PrivateInvolvement

Affermage

Concession

DBO

BOT

Operations & Maintenance

Management Contracts

Technical Assistance

USA (75 contracts) Management

Support

Infrastructure

Contract

Delegated

Management

Private OwnershipPrivatisation or

Perth , Los Angeles

USA, UK, Chile

France, Macao, Jakarta,Casablanca , Barcelona…

Johannesburg, Amman, Algiers, Gaza, Palmira…

Sydney , San Luis Potosi

Mexico City, Durban

Because of this broad experience, SE can help ULBs respond to their WSS needs through tailor made solutions.

THE EXAMPLE OF AN INNOVATIVE PPP IN ALGIERS

The Initial Situation: Major BottlenecksCity Capital of Algiers: Population: 3,3 Millions (33,5 million nationwide)

Sewerage

• Incomplete system, clogged

• Only 2% of wastewater treated

• Serious pollution of the bay

Water supply

• Poor availability of water (every 3rd day in 2002)

• Poor network and customer management

> NRW = 65%

> 300.000 meters to be replaced

> High level of illegal connections

> 300.000 people living in informal areas

Institutional & financial

• Poorly trained and demotivated staff

• Too much bureaucracy

• Competing agencies

• No performance incentives

• Chronic financial deficit of the service providers

Major Bottlenecks

Steps of the Contract: From Diagnosis to Implementation

• Available data were poor, thus preventing from doing any reasonable long term projections possible

•Diagnosis of WSS sector

• Two realistic contractual targets (March 2006)– One major contractual objective to be achieved: H24 in 3 ½ years– Creation of an efficient utility (international standards)

• An action plan and Business Plan defined for a 5 year period- OPEX and CAPEX evaluated in collaboration between both Parties- Revised yearly in order to stick to realistic and efficient investments

An Innovative PPP in a Favorable Context

• Negotiated contract based on transparency and confidence

• Strong demand from the Government for

– Efficient use of public financing– Reduce subsidies– Increased accountability

• 100% financing comes from the Algerian authorities (> €100 million)

• Co-management of the company and transfer of know-how

Contractual Set Up & Main Roles

ADEWater

ONASewage

Ministry of Water Ressources

• Set Up SEAAL•Transfer of staff and assets• Provides Capex and Opex

Suez EnvironmentManagement Contrat Based on Transfer of Know How

• Co-Manage SEAAL

• Transfer of Know-how

• Train local staff

Shareholders 50/50 ADE/ONA

SEAALControls Own Capex & Opex

Major Contractual Obligations of SE (1/2)

• Main target: water supply 24/7 after 3,5 years

• Implement through SEAAL a comprehensive Action Plan for meeting targets

• Update Master plan

• Implement a planning methodology allowing to forecast the CAPEX / OPEX for SEAAL

• Deliver a medium term plan

• Implement a world class accounting system that comply with local and international rules and allowing to calculate the real costs and revenues of WSS

• Implement a transparent chain of command and clear responsibilities

Major Contractual Obligations of SE (2/2)

• Implement a clear set of:

• Administrative procedures

• Operational procedures

• Purchase procedure

• Definition of KPIs for WSS and proposals for their improvement within the contract period

• Transfer of know-how to improve the quality of public service through:• Provision of permanent and temporary experts

• Technical assistance to SEAAL

• Training to SEAAL staff in Algiers and in France for top Algerian managers

• Daily co-management of SEAAL by SE at all levels

Major Contractual Obligations of ADE/ONA

• Provide raw water to SEAAL (quantity and quality)

• Provide necessary funding on time (CAPEX, OPEX)

• Help SEAAL & SE in obtaining permits, licenses, visas, etc.

• Transfer of ADE/ONA staff to SEAAL

• Allow SEAAL to implement a performance-based bonus system

• Allow SEAAL to increase remuneration of transferred Management staff

• Deal with the stakes within civil society (NGOs, etc.)

Why is this PPP innovative?

• SEAAL is publicly owned

• It is not submitted to public market rules, but operated according to procedures as approved by the Board of Directors (e.g. budgeting, procurement, etc.)

• SEAAL, is co-managed by a private operator

• Government retains control over assets, staff and tariff setting

• The value creation is based on transfer of know-how

Access to and transfer of the know-how of SE lies at the core of the contract

• After 5 years, SEAAL is to be soundly managed by Algerians.

• The condition for this success is the transfer of Suez Enviroment’s know-how in its core processes. 

• The methodology for this transfer is known as the Water International Knowledge Transfer Initiative, « WIKTI »

Methodology for WIKTI: From Diagnosis to Follow Up

Diagnosis

Follow Up Indicators

Deployment of Transfer of Know How

Diagnosis

Follow Up Indicators

Deployment of Transfer of Know How

• WIKTI focuses both on technical skills and change management.

• It is a formalized methodology in three steps which allows:

− Priority needs to be assessed: Step 1

− A local deployment structure to be put in place: Step 2

− Progress to be monitored via specific indicators: Step 3

The Initial Outputs in Algiers: A Rapid Added Value (Data June 2008)

•H24 coverage: 75% in June (100% expected in September 2009, against 15% in 2006)

Launch of a program dedicated to regularize informal connections

Reorganization of the departments and management:

Compliance of water quality with international standards: 99 %

Re engineering of the network structure

200 000 meters replaced

Training center built to increase rhythm of transfer of know how (10.000 man days of training per year)

Launch of a dynamic internal and external communication campaign

SUEZ ENVIRONMENT’S OFFER TO INDIAN MUNICIPALITIES: THE TRANSFER OF KNOW HOW AS A SUTAINABLE AND EFFICIENT ANSWER TO WATER SUPPLY AND SANITATION ISSUES

An Innovative Model Adapted to ULBs

The model offered by SE will help ULBs overcome their bottlenecks because it allows:

• ULBs to retain control on the WSS company (assets, staff and tariff setting)

• The development of a 5 years investment plan (Capex) that will: - Lead to more efficiency (H24 and improved NRW)- Help reach an efficient and world class WSS utility ran by Indians If all financial and technical conditions as stipulated in the contract are met

• Training and building of capacity of Staff at all levels

NB: Only an integrated approach (combining technical, managerial, commercial and financial aspects of WSS), taking into account all the aspects of water supply and sanitation, (from catchment to release into the natural environment after treatment), will lead to rapid and dramatic efficiency gains.

Objective and Methodological Approach

Help ULB to:

- Know the cost of WSS

- Create a publicly owned WSS company

- Help Indian Management operate WSS company through formal transfer of know-how

- Reach H24 and world class utility (final long term objective)

Help ULB to:

- Know the cost of WSS

- Create a publicly owned WSS company

- Help Indian Management operate WSS company through formal transfer of know-how

- Reach H24 and world class utility (final long term objective)

Objectives Phases Outputs

Phase 1Diagnosis

- Diagnosis (Administrative; Technical; Institutional)- Business Plan- Action Plan

Contract with transfer of know-how through “WIKTI”

Phase 2Launch Contract

TIMING

Creation of the WSS company

A Long Term Progressive Contract

Phase 1: Advisory (diagnosis) in order to:

- Define and / or validate the technical baseline (CDP and DPR)

- Identify and prioritize fields for action - Define a five year sound business plan (technical, financial and institutional)

Phase 2: 5 to 7 years operational contract in which

- The business plan is implemented (Investments)

- Transfer of know how is deployed

- WSS company reaches international standards

- 24/7 and other contractual outputs are reached

Phase 3: Longer contract, with investments from the private operator (?)

Expected Outputs

• Transparent and accountability of JNNURM funding / other

• Efficient allocation of resources to reach feasible technical / financial / managerial outputs

• Economic optimization between refurbishment / renewal and extension of assets

• Savings in energy consumption

• Reach an efficient WSS utility ran by Indians after a few years

EXAMPLES OF ACHIEVEMENTS OF SUEZ ENVIRONMENT

•

• MACAO CONCESSION CONTRACT

• JOHANNESBURG MANAGEMENT CONTRACT

• PALYJA (JAKARTA, INDONESIA) CONCESSION CONTRACT

MACAO

• 25 years Concession Contract

• Services provided: production and distribution

• Population served: 530 000 (+ 23 million visitors p.y.)

• Signed in 1985

• Status: ongoing

MACAO: Unaccounted For Water

22% in 1985

11% in 200650%

MACAO: Productivity gain: reduction in power consumption in KWH/m3

0,36 KWH/m3

0,20 KWH/m3

Beginning of the contract

47%

MACAO: The Water Tariff Decreased in Real Value

The water tariff decreased by 17% in constant currency terms

2,50 MOP/m3 in 1985

2,08 MOP/m3 in 2005

JOHANNESBURG MANAGEMENT CONTRACT

• 5 years Management Contract (2001-2006)

• Services provided:- Distribution of water

- Collection and treatment of sewage

• Population served:- Water 3.2 million

- Sewage 2.8 million

JOHANNESBURG: Main Achievements

• Meter reading increased from 50% to 94%

• Creation of a Customer Care Center- + 90% of calls answered in less than 30 seconds

- 80% of water network repairs and sewers blockages completed within 48 hours

• Decrease of UFW from 42% to 35%

JOHANNESBURG : IMPROVEMENT OF FINANCIAL SITUATION

Revenue increase(196 M euros to 287 M euros)

Reduction of loss(47 M euros to 9 M euros)

PALYJA, West Jakarta, Indonesia

• 25 years concession contract (1998)

• Status: ongoing

• Population served: 3.2 million

• Services provided:- Production of water

- Distribution of water

Unaccounted For Water

46.58%47.96%

50.57%

47.23%

44.92%44.51%

48.09%49.48%

55.10%

59.71%

40%

50%

59%

69%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

PALYJA : Reduction of network losses

Decrease from 59.7 % by 1998 to 46,6 % by Dec 2007

32,0%

47,0%

39,0%

48,3%49,9%

52,2%53,7% 54,6% 55,5%

59,0%

30,0%

35,0%

40,0%

45,0%

50,0%

55,0%

60,0%

65,0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Service Coverage ratio

Population served increased over 1 Million persons in 10 years, of which

20% are low-income communities

From 32% in Feb’98 to 59.0% by end 2007

PALYJA : Coverage extension

PALYJA : Customer Base Composition

2,077

11,659

64,829

57,299

50,926

23,105

3,428

69,581

116,649

77,545

81,948

28,614

Social

Low-income domestic

Middle-class domestic

Upper-class domestic & smallbusiness

Luxury household & business

Industry

Feb'98 Dec'07

Added Value

• Rehabilitation/Development of infrastructure

• Contribution to the MDGs: Access to drinking water and sanitation

- 9.2 million people connected to drinking water

- 5.3 million to sanitation

• Improvement of public utilities management, finance recovery and local staff training

THANK YOU FOR YOUR ATTENTION QUESTIONS WELCOME