Can Franchising be a Business Approach for the Nigerian State Water Agencies? Workshop on franchising Lagos, Nigeria 3 and 4 December 2003 1
Contents Challenges of the State Water Agencies Strategy Options Possible franchising packages Questions for the working groups 2
Challenges of the State Water Agencies Increase operational efficiency decrease operational cost increase billing and collection efficiency achieve full cost recovery Increase service levels continuous supply increase water quality Expand water supply to the whole population - service to the poor 3
Strategy Options At institutional level organisational restructuring human resources development introduce new methods and systems involvement of the private sector investment planning and attract finance At operational level rehabilitation and improved operation & maintenance of the assets systems expansion 4
Application to a (sample) Nigerian State Water Agency State Water Agency Franchise contract Third party Concession contract Mngt contract Private operator Private operator WSS district WSS district WSS district 5
Possible Franchising Modes Capacity building (classroom/in service) Continuous specialist support Counselling Technical support Supply and implementation of systems Special services 6
Possible Franchising packages - Capacity Building - Technical management and operations Financial management and operations Commercial management and operations Project management 7
Possible Franchising packages - Counselling - Organisational restructuring Business and strategy planning Investment planning Attract finance 8
Possible Franchising packages - Technical Support - Operation & maintenance Financial management Asset management Project management Construction management Contract management 9
Possible Franchising packages - Supply and Implementation of Systems - General Management information system Technical Geographical information system Financial & commercial Billing and collection Consumer information system 10
Possible Franchising packages Special Services Any subject for which the franchisee might need the assistance of the franchisor 11
Franchising packages $$ Capacity building Continuous specialist support and systems Special services time 12
Questions for working groups Which modes of franchising would be most suitable in the case of the Nigerian State Water Agencies? Which areas of know-how would be most needed? What would be the preferred intensity of intervention of the franchisor? 13
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Franchising must be: A real partnership Attractive to both parties For the longer term Tailor made Flexible Performance based Governed by a balanced contract 15
The Concept of Franchising in the Water Supply and Sanitation Sector and Introduction to the Workshop Meike van Ginneken, World Bank Lagos, December 3 rd 2003
Outline of the presentation What is franchising? Franchising in the WSS sector: what s new? Franchising packages & fees This workshop: objectives and agenda
What is franchising? Franchising is a business methodology that focuses on the transfer of business know-how and practices, often accompanied by specific training, in order to provide the necessary skills and expertise for a particular business. support Franchisor Franchisee Royalty fee $$
Useful examples of franchising from (public) service industries Hotel industry Postal services in Canada, UK, NL and Brazil Some initial experience of franchising-like constructions in WSS: Formosa, Argentina (International private local private) Riga, Latvia ( twinning-by-contract between international public local public)
Outline of the presentation What is franchising? Franchising in the WSS sector: what s new? Franchising packages & fees This workshop: objectives and agenda
PSP: Introducing private management Private management Direct public management service / management contract lease/ affermage concession Gaza Germany Mexico Burkina Faso Colombia Hungary Senegal Argentina Bolivia Manila Morocco
PSP: introducing professional support Twinning Traditional between public entities No contract (sometimes MoA): low accountability Often financed by donor directly to twinnor Technical assistance / consultancy Contract with clear deliverables and accountabilities Unit fees: Consultants do not share risks inherent in the implementation of their recommendations Useful for discrete time bound assignments Joint ventures Traditionally between private companies Both parties enter and finance new company Long term intensive relationship for shared operations Franchise Contract with clear accountabilities Performance-based fee payment comprehensive and long-term support
Franchising in the WSS sector Franchisor (third party) Continuous specialist assistance support Special services royalty fee $$ Systems Capacity building Franchisee (operator)
Franchising options Local company Joint venture local company Country B International company Country A Country D Franchising contract Franchisor Franchisee Country C
Outline of the presentation What is franchising? Franchising in the WSS sector: what s new? Franchising packages & fees This workshop: objectives and agenda
The franchising package Areas of knowhow utility management asset management billing and collection engineering (construction, O&M) human resources management procurement etc Modes of knowhow transfer capacity building systems continuous specialist assistance special services
Franchising packages $$ Capacity building Systems and continuous specialist support Special services time
Royalty fees (1) Up-front fee: lump sum at contract signing Monthly fee: fee per month Unit fee: fee per unit delivered (man month, course, etc) Performance-based fees: a percentage of the Franchisee s gross sales or bonuses based on other indicator
Royalty fees (2) $$ Upfront fee Monthly fee Performance-based fee Unit fee time
Balancing services and fees $$ Services delivered Fees paid time
Balancing what inputs and outputs for both parties Franchisor Fee should cover or exceed cost of being a franchisor: cost of business & new product development operational costs Franchisor s profits Franchisee Fee should cover or exceed net benefits of being a Franchisee: Increased cash-flows Reduced expenses/costs Not too Much Not too Little
Outline of the presentation What is franchising? Franchising in the WSS sector: what s new? Franchising packages & fees This workshop: objectives and agenda
Application to a (sample) Nigerian State Water Corporation State Water Corporation Franchise contract Third party Concession contract Mngt contract Private operator Private operator WSS district WSS district WSS district
Objective of the workshop to examine whether or not the principles of franchising could provide decisionmakers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry
Workshop agenda Wednesday Dec 3rd Thursday Dec 4rd AM Opening plenary Fees and contracts PM Franchising packages Pros & cons Closing plenary
Workshop on Franchising in the Water Supply & Sanitation Sector An attempt to draft some conclusions
Answering the question we asked yesterday a.m.: Whether or not the principles of franchising could provide decision-makers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry The conclusion today: Cautiously YES Given that certain prerequisites are met If we adopt the principles to local conditions
Prerequisites for franchising Autonomy of State Water Agency Financial & institutional autonomy Autonomy on paper and in reality Minimum level of trust and confidence Present status of State Water Agency Cost recovery Infrastructure Etc Willing franchisees Should be part of a broader package of sector reform (and part of a broader donor financing package to implement advise)
Types of know-how Management approaches (high level mentoring) Skills operation & maintenance Billing & collection Information gathering & analysis Asset management
Application to a (sample) Nigerian State Water Corporation State Water Corporation Franchise support Third party Concession contract Mngt contract Private operator Private operator WSS district WSS district WSS district
Modes of know-how transfer Capacity building, especially on the job training Preference to have specialists on side permanently, rather than intermittent periods
How to pay for it $$ Fixed fee Performance-based fee Revenue financed time
The core principles of franchising Operator operator partnership The franchisor supports, the franchisee is in the driving seat (how can franchisor influence decisions?) Long term Performance based Flexibility (need to communicate and to adjust franchise to changing reality) Franchising requires a change of thinking if approached like a consultancy contract it will not work
Remaining question Is franchising more suitable to be focused on larger cities or smaller towns? State Water Corporation Franchise support Third party Concession contract Mngt contract Private operator Private operator WSS district WSS district WSS district
Workshop on Franchising in the Water Supply & Sanitation Sector Lagos 3-4 December 2003 Conclusions
Answering the following question: Whether or not the principles of franchising could provide decision-makers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry The conclusion is: Cautiously YES Given that certain prerequisites are met If we adapt the principles to local conditions
Prerequisites for franchising Autonomy of State Water Agency Financial & institutional autonomy Autonomy on paper and in reality Minimum level of trust and confidence Present status of State Water Agency Cost recovery Infrastructure Etc Willing franchisees Should be part of a broader package of sector reform (and part of a broader donor financing package to implement advise)
Types of know-how Management approaches (high level mentoring) Skills operation & maintenance Billing & collection Information gathering & analysis Asset management
Application to a (sample) Nigerian State Water Corporation State Water Corporation Franchise support Third party Concession contract Mngt contract Private operator Private operator WSS district WSS district WSS district
Modes of know-how transfer Capacity building, especially on the job training Preference to have specialists on site permanently, rather than intermittent periods
How to pay for it $$ Fixed fee Performance-based fee Revenue financed time
The core principles of franchising Operator operator partnership The franchisor supports, the franchisee is in the driving seat (how can franchisor influence decisions?) Long term Performance based Flexibility (need to communicate and to adjust franchise to changing reality) Franchising requires a change of thinking if approached like a consultancy contract it will not work