southern european water summit
DESCRIPTION
John Raspin European Research Manager Status of the Water Sectors in Southern European Countries 12th March 2001. Southern European Water Summit. The Agenda. The drivers of market change PSP models in Southern Europe The degree of privatisation Market value of PSPs - PowerPoint PPT PresentationTRANSCRIPT
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Southern European Water Summit
John Raspin
European Research Manager
Status of the Water Sectors in
Southern European Countries
12th March 2001
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The Agenda
The drivers of market change
PSP models in Southern Europe
The degree of privatisation
Market value of PSPs
Market Prospects and Timeframes
Conclusions and Ongoing Thoughts
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Drivers of Market Change
Capital Investment Requirements
• Regionally low connection rates• Variable water quality• Wastewater treatment and sludge disposal• New water resources - Desalination?
• Regional backlog of public works• Scarcity of municipal capital• Pressure to reduce public sector debt
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Drivers of Market Change
Widespread need for:
• Technological development Expertise required for advanced technologies
• Operational efficiency gains OPEX cuts required
• Released municipal management time New management practices?
• Funds Private sector capital?
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Drivers of Market Change
Some Specific Details:
• EU legislative targets• Urban Wastewater Treatment Directive
(91/271/EEC)• New Drinking Water Directive (98/83/EC)• Water Framework Directive
• Slowdown in EU funding to Southern Europe• Shift in Cohesion and structural funds to CEE
• Pressure on water resources• Already high exploitation rates …...
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Drivers of Market Change
Southern Europe
• Spain - 36.8 %• Italy - 32.2 %• Greece - 12.1 %• Portugal - 11.9 %
Other EU Countries
• Austria - 2.7 %• Netherlands - 4.9 %• UK - 14.6 %• Denmark - 15.7 %
Water withdrawals (% of gross annual availability):
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Drivers of Market Change
Specific Challenges to Southern Europe:
• Leakage loss issues, at least:• Spain - 24%• Greece - 31%• Italy - 22%• Portugal - 27%
• Seasonal fluctuations in demand• Tourism• Agriculture (high reliance on irrigation)
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Drivers of Market Change
The Capital Demands (For EU Compliance):
From 2000 to 2005
• Spain: € 20 to 28 billion
• Portugal:€ 2 to 5 billion
• Italy: € 15 to 20 billion
• Greece: € 5 to 10 billion
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Drivers of Market ChangePrivatisation theory for the water industry:
Efficient ManagementModern Technology
PSP contractwith experienced
operator
Raise capitalthrough
share sale
Sale ofAssets?
CAPEX fundedthrough savings
OPEXcuts
Level of Service(LoS)
Improvements
Bills stableor down
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However ……..
Some Restraints on Private Involvement:
• Slow timetable• Hard to attract venture capital?
• Small number of large projects• Restricted to large towns and cities?
• High transaction costs• May eliminate smaller municipalities from PSPs
• Capital intensive industry• Restricts market entry to small no. of global players
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However ……..
Some Restraints on Private Involvement:
• Uncertainties• Legislative changes (environmental)?
• Future water quality/health requirements
• Demand risk - Changing demand levels?
• State of underground assets?
• Condition of assets after 25 years?
• Future regulatory changes (contract .v. regulation)
• Situations change over 25 year contract periods!
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PSP Models
With a note of caution:
• Markets have traditionally been very fragmented• Diverse reasons for wanting privatisation• Successful examples cannot always be transposed• Not all PSPs follow models
Each PSP contract is completely uniqueMust adapt to local characteristics
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… and Compared to the Rest of the World
ServiceContract
ManagementContract
LeaseContract
ConcessionContract
Full/PartialDivestiture
AustriaCanadaChileMexicoRussiaUSA
ChileGermanyThailandUK
CanadaFranceGreeceJordanTurkeyUSAVenezuela
ColombiaCzech Rep.FranceHungaryPolandPortugalSpainUSA
ArgentinaBulgariaChinaEgyptFranceGermanyGreeceItalyPhilippinesPortugalRomaniaSpainUSA
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… and Compared to the Rest of the World
ServiceContract
ManagementContract
LeaseContract
ConcessionContract
Full/PartialDivestiture
AustriaCanadaChileMexicoRussiaUSA
ChileGermanyThailandUK
CanadaFranceGreeceJordanTurkeyUSAVenezuela
ColombiaCzech Rep.FranceHungaryPolandPortugalSpainUSA
ArgentinaBulgariaChinaEgyptFranceGermanyGreeceItalyPhilippinesPortugalRomaniaSpainUSA
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PSP ModelsPrivate sector equity in concessionaires/operators:
PRIVATISATION
PSP contractwith experiencedprivate operator
Raise capitalthrough
share sale
Sale ofAssets?
Concessions
EYDAP (Greece)ACEA (Italy)AMGA (Italy)ASCM (Italy)
FCC (Spain)Agbar (Spain)
Lusagua (Portugal)Camuzzi (Italy)
CI II (Spain)
LowHigh
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PSP Models
Why dominance of concessions contracts?
• Benefits of attracting a third party• Delegates responsibility for CAPEX• Municipality usually maintains asset
ownership• Possible to split operation from ownership of
assets• Can combine with BOOT and BOT contracts
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PSP Models
Regulatory Approaches
• Regulation model = critical component of PSP model• Regulator or Contract?
• Three interrelated aspects of regulation• Economic - Environmental - Health (water quality)
• Defines ability of industry to react to unanticipated events• Economic changes; demographic changes; natural disasters; axiom
shifts
Regulatory/Contractural transparency imperative for PSP!
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PSP Models
Regulatory Approaches
Contracts .v. Regulation
• Regulation model must maintain level playing field for current and future competition
• Renegotiation costs to be minimised
• Dedicated water regulator requires specialised skills
• There is no ‘correct’ approach, only an ‘appropriate’ one
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PSP Models
Regulatory Approaches
• The optimal regulation model depends on:
• The chosen privatisation model• The aims and objectives of the privatisation• The operating economies• The historical approach in the country/region• The size of the city/region• The timeframe of the concession (longer contracts
broaden the scope for unexpected evens)
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PSP Models
Models of Regulation in Southern Europe
Local National
Regulation
Contracts
PortugalSpain
Greece
Italy
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The Degree of Privatisation
Considered in terms of:
• % of population with a PSP supplier (served either by private sector or PPP)
• % of market revenues collected by PSP suppliers
• Historic/recent patterns of privatisation
• Future projections:
• Projects in pipeline
• Market expectations
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Portugal
• Population = 9.9 million• % With Mains water = 84%• % Connected to STP = 35 to 40%
• Private sector water supply = 11%• Private sector sewerage = 9%
• Value of Industry = €2.1 billion
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Portugal
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
0.5
1
1.5
2
2.5
Mark
et
Siz
e (
€ B
illi
on
)
Rate of Private Sector Penetration (Portugal), 1995 to 2005
PSP Revenue Value
Total Market Revenue Value Note: All figures are rounded. Source: Frost & Sullivan
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Spain
• Population = 39.6 million• % With Mains water = 75%• % Connected to STP = 52%
• Private sector water supply = 48%• Private sector sewerage = 54%
• Value of Industry = €7.3 billion
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Spain
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
1
2
3
4
5
6
7
8
9
Mark
et
Siz
e (
€ B
illi
on
)
Rate of Private Sector Penetration (Spain), 1995 to 2005
PSP Revenue Value
Total Market Revenue Value Note: All figures are rounded. Source: Frost & Sullivan
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Italy
• Population = 57.4 million• % With Mains water = 75%• % Connected to STP = 69%
• Private sector water supply = 29%• Private sector sewerage = 14%
• Value of Industry = €4.38 billion
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Italy
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
1
2
3
4
5
6
Mark
et
Siz
e (
€ B
illi
on
)
Rate of Private Sector Penetration (Italy), 1995 to 2005
PSP Revenue Value
Total Market Revenue ValueNote: All figures are rounded. Source: Frost & Sullivan
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Greece
• Population = 10.6 million• % With Mains water = 80%• % Connected to STP = 45%
• Private sector water supply = 35%• Private sector sewerage = 35%
• Value of Industry = €2.45 billion
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Greece
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
0.5
1
1.5
2
2.5
3
Mark
et
Siz
e (
€ B
illi
on
)
Rate of Private Sector Penetration (Greece), 1995 to 2005
PSP Revenue Value
Total Market Revenue ValueNote: All figures are rounded. Source: Frost & Sullivan
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Conclusions
• PSP opportunities will continue• Concessions to dominate in foreseeable future• Customers want products, services and
investment
But:• Synergies do not always exist between cases• Optimal concentration is very difficult to define• PSP must optimise the unit costs of water supply and
wastewater treatment• This industry in not straightforward!
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Final Thoughts
Final Thoughts and Questions
• Must safeguard public interest• What is ideal asset ownership structure?• Financial risks with concessions?• Can the industry concentration be optimised?• Where must regulatory accountability lie?• Can national and local regulators co-exist?• Privatisation is a technical and political
challenge!
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Final Thoughts
Thank-you very much.