Christophe Schramm, WORLD BANK Urban Environment Workshop March 6, 2006 Private sector participation (PSP) in urban public services Comparison of laws and institutions in MENA countries
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
An important clarification: PPP is not privatization! Privatization = total and definitive transfer of a publicly hold company, its assets and management to a private owner BUT privatization laws or policies in MENA (Lebanon, Jordan, Egypt) provide actually for all others forms of private sector involvement! risk of confusion between privatization and Public Private Partnerships (PPP) We will use Private Sector Participation (PSP) = contractual risk-sharing relationship between the public and the private sector to bring about a desired policy outcome with mutual benefit.
Scope of private sector participation Participation can take place under various forms. The public sector usually retains important responsibilities such as asset ownership, investment financing, facility use or service purchase. In any case, it is up to the public authority to determine the rules of participation according to its objectives and principles. The risk sharing will have to vary according to the option chosen, following the rule that each one bears the risk that he is best able to manage and to mitigate.
Risk sharing Spectrum of private sector participation Service Contract Management contract DBO (Design- Build- Operate) BOT/ BOOT (Build- Operate- (Own)- Transfer) Concession Privatization Asset ownership Public Public Public Public Public/ Private Private Capital investment Public Shared Public Private Private Private Operational efficiency Limited Yes Yes Yes Yes Yes New services No No Yes Yes Yes Yes User fee (to operator) No Yes No No Yes Yes Typical length 1 5 years 8 15 years 15 30 years 15 30 years 25 30 years Undetermined (unless limited by license)
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
What is your objective as a mayor responsible for public service delivery? Deliver the best public service possible in terms of equality, continuity and quality Manage public funds efficiently under budget constraint while maintaining public services and infrastructures (networks, plants, vehicles, disposal sites, etc.)
So why the private sector? Private sector involvement is justified: When the public sector fails to deliver satisfactory services and to maintain or improve infrastructures. When the public sector lacks financial resources to carry out necessary infrastructure investments. One has to look carefully at the initial situation to understand whether private sector participation (PSP) is the right solution, and if so, which form of PSP!
How can private sector participation resolve these problems? Inputs: Build-and-operate approach Performance-based contracts Clear risk allocation Technical innovation Customer-based approach Outputs: Reduced delivery time and cost for infrastructure Reduced operation and maintenance cost Improved service performance Public-private collaboration Financing of infrastructure investments
The role of laws, regulations and institutions International experience on PSP failures shows: Deficiencies in legal and regulatory frameworks Deficiencies in PSP contracts As an actor involved in PSP, you need to know: National PSP laws and sector-specific regulations The rights and duties they give you as a mayor What you can do or not, even if there are no laws and regulations in place
What would be the perfect legal environment? Comprehensive laws and regulations on water, sanitation and solid waste Comprehensive laws and sectorspecific regulations on private sector participation
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
Water and sanitation MENA overview Many countries have recently produced comprehensive sector-specific legislation (e.g. Algeria), but its implementation and execution are often absent. In most countries, water and sanitation are under municipal responsibility according to the law. In practice however, other institutions (e.g. water authorities) often do the work at the local level, creating confusion on respective responsibilities. Existing laws usually provide for cost recovery mechanisms. But the regulated tariffs do very often not allow to cover the real cost of operation, maintenance and investment in urban services.
Water and sanitation MENA overview (2) Even if regulation authorities exist (de iure or de facto) in different countries, they often lack independence and effective regulatory powers. Private sector participation is already taking place in most countries, but only a few (Morocco, Lebanon, Jordan) have gathered experience with several important contracts.
Water and sanitation Lebanon 2001: The government decides PSP in water and sanitation sectors. 2002: 4 public water offices created to manage water services Private Participation: 2003: management contract with Suez for water services of Tripoli (4 years) Management contracts in Baalbeck area and South Lebanon
Water and sanitation Jordan The Water Authority is the actual operator for water and sanitation services, even if municipalities are responsible according to the law. Private participation: 2003: As-Samra wastewater treatment concession for Suez-Ordeco (25 years) 1999: management of Amman Water Authority to LEMA (5 years), renewed until 2006
Water and sanitation West Bank and Gaza Palestinian Water Authority with policy and development role Fees (water and electricity) represent up to 80% of municipal revenues, but costs are not recovered, since prices are set by the Palestinian Authority. Private participation: Management contract for Gaza city
Water and sanitation Tunisia SONEDE and ONAS are the national monopolies for water distribution and sanitation services. Private participation: BOT contract for desalination plant in Djerba planned ONAS has awarded several sewer system maintenance contracts since 1997.
Water and sanitation Algeria Public companies (ADE and ONA) are in charge of urban water and sanitation services. Private participation: BOO contract for desalination plant Currently tendering of water service management contract for Oran, Annaba and Constantine
Water and sanitation Morocco Water tariffs are subject to regulation until 2006 for public companies, but private operators are only subject to their contracts. Concessions: Casablanca (1997), Rabat (1999), Tangier (2002) and Tetouan (2002) 29% private market share
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
Solid waste MENA overview A minority of countries has adopted a solid waste management (SWM) policy. Sector-specific laws exist in Jordan, West Bank and Gaza, Tunisia and Algeria, but implementation is not always guaranteed. SWM (collection, transport, disposal) is a municipal task in all countries. Financial and technical constraints as well as conflicts of competence with other actors are the main problems encountered.
Solid waste MENA overview (2) Several countries have adopted environmental laws and set up agencies to address environmental issues and regulate and monitor SWM activities. Except for Algeria and Jordan, PSP is established in most countries through contracts with national operators. International companies are mainly present in Lebanon, Egypt, Tunisia and Morocco. At the local level, informal collection and recycling networks often play an important role (e.g. Zabbaleen in Egypt).
Solid waste Lebanon The CDR is responsible for investment and operation in sanitary landfills and has taken over a leading role in developing SWM plans. Private participation: Several SWM contracts for Greater Beirut with Sukleen and SUKOMI (since 1994) Contracts in Tripoli with national and international consortium (1 year renewable)
Solid waste Jordan New by-law on SWM under discussion (since 2004) Inter-municipal agreements: municipal collection, inter-municipal treatment facilities Private participation: Mainly public sector, in particular Amman
Solid waste West Bank and Gaza Jordanian SWM law effective in WBG unless superseded by a law passed by the Palestinian Authority Joint service councils for transport and disposal of SW Private participation: Collection of residential waste in Nablus
Solid waste Egypt 2000: National SWM strategy to privatize SWM, i.e. involve the private sector Private participation: Zabbaleen system serving urban neighborhoods International operator contracts in Alexandria (Onyx), Cairo (Ama), Suez, Aswan (10-15 years)
Solid waste Tunisia 1993: National Program for SWM (PRONAGDES) 1996: SWM law (unique in the region): All components of SWM addressed (collection, transport and sorting, recycling, reuse and removal), including different waste types Private participation: Tunis sanitary landfill: national and international consortium
Solid waste Algeria 2001: Comprehensive law on SWM 2003: Law on environmental protection: polluter pays principle Private participation: Mainly public sector actors Several small private sector collection contracts
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
Private sector participation legislation Overview Lebanon and Jordan have adopted so-called privatization laws on PSP and created privatization agencies, but only the latter law provides for complete privatization. Egypt and Morocco have adopted PSP legislation. The Moroccan law is exemplary as it provides for all details to efficiently contract out public services. No sector-specific regulations have been issued so far in the different countries.
Lebanon Privatization Law (2000) Total privatization excluded for natural resources, public utilities and monopolies, since assets return to the State at the end of any type of contract No details on exact tendering procedures Municipal autonomy to tender out projects seems to be limited
Jordan Privatization Law (2000) Whole spectrum of PSP possible Creation of the Privatization Proceeds Fund for privatization and restructuring revenues to pay back among others government debt and infrastructure projects Precise definition of possible forms of PSP
Egypt PPP draft law (2004) Conditions for PSP: significant technical, economic and social gains Job creation, new technology, attraction of foreign currency Existence of regulation and regulatory bodies set up License to conclude PSP contracts to local and central authorities on an equal basis for specific sectors
Morocco an exemplary PSP legislation (2005) Unified and clear law covering all forms of PSP Definition: Management delegation for a public service of economic nature for a limited period of time Right for the operator to be remunerated and make profit on the management of the service Eligible sectors: Public commercial or industrial services whose revenues come mainly from user fees Operator must respect public service principles: Equality of users Service continuity Adaptation to technological, economic and social evolutions
Morocco an exemplary PSP legislation (2) Contract equilibrium Obligation of competitive tendering and procedure Contract setup and compulsory contract clauses Creation of a Special Purpose Vehicle (SPV) Approbation and visa by central government Contract length and early termination Settlement of litigations Tariffs and cost recovery Rights and obligations of the operator
Presentation plan What is Private Sector Participation? Framework for PSP Water and sanitation Solid waste PSP legislation Lessons
Key lessons 1: A successful PSP framework Central governments have to support and assist local authorities. The PSP legal framework needs to be adaptive to new realities. PSP legislation should be coordinated with the restructuring of the concerned sectors and public procurement reform. Importance to brand PSP differently from privatization and public procurement taking into account its specificities
Key lessons 2: A successful PSP contract Tenders based on complete and reliable technical data Clearly defined specifications for bidders Adequate definition of financial resources available to public authorities Sufficient Capacity to evaluate, enforce, monitor and inspect private operations Adequate provisions for financial risks International operators have to adapt to regional specificities (e.g. Zabbaleen).
Key lessons 3: What you can do Define first what kind of PSP you need! Understand your legal PSP framework. Invest resources in the process. Build an informed public debate on PSP. Transfer appropriate risk to the private sector. Negotiate transparent contracts. Set clear dispute resolutions procedures. Have realistic expectations on time. PSP is possible even if there are no specific laws Use international best practice!
Key lessons 4: Don t forget the risks of PSP! Beware of excessive expectations! PSP is not a one-size-fits-all solution to your problems with urban water, sanitation and solid waste. Selecting appropriate projects is critical. PSP is a complex business that needs careful and competent preparation.