alexandria psp: feasibility study - final report

US Agency for International Development

Government of Egypt

Governorate of Alexandria Feasibility Study for Private Sector Participation (PSP)

in the Operation & Maintenance of the Alexandria Water & Wastewater System

FINAL REPORT

By

SEGURA/IP3 Partners LLC

Contract No. AFP-I-00-03-00035-00 Task Order No. 800

November 2004

Feasibility Study for Private Sector Participation (PSP) in the Operation & Maintenance of the Alexandria Water & Wastewater

System

FINAL REPORT

Table of Contents Chapter Title Page Executive Summary i

1 Background and Scope of Work 1 2 Implementation Schedule 4 3 Policy Statement - Recommendations 6 4 Needs Assessment & Feasibility Studies 7

4.1 • AWGA - Metering Billing & Collections 7 4.2 • AGOSD - Septage Management, Site 9 N and

Transport 11

5 Transaction Implementation Plans 18 5.1 • AWGA - Metering, Billing & Collections 18 5.2 • AGOSD - Septage Management, Site 9N and Transport 21

6 Conclusions and Recommendations 29

Attachments A1 AWGA’s Financial Statements 32

Table A1-1. AWGA’s Balance Statements 32 Table A1-2. AWGA’s Cash Flow 33

A2 AGOSD Income Statement 34 A3 Partial List of Individuals Contacted 35


System

Executive Summary This report summarizes the activities performed by SEGURA IP3 consultants retained by USAID Egypt under the SEGIR Privatization II IQC (Task Order No. 800), to conduct a feasibility study for Private Sector Participation (PSP) in the operation and maintenance of the Alexandria water and wastewater system, which was undertaken from March to November 2004. During this period, the consultants reviewed extensive existing information from prior technical assistance projects; interviewed relevant actors and stake holders, gathered and analyzed additional data and had numerous working sessions and meetings with representatives of the Alexandria Water Governmental Authority (AWGA), the Alexandria Governmental Organization for Sanitary Drainage (AGOSD), the Secretary General of the Alexandria Governorate and USAID, and the Holding Company. The initial Scope of Work (SOW) called for the delivery of the following products:

1) Project Implementation Schedule 2) Governorate Policy Statement Paper 3) Workshop on Policy Statement 4) Status Report & Needs Assessment 5) Feasibility Study 6) Workshop on Feasibility Study 7) Draft Transaction Implementation Plan; and 8) Final Report

Copies of the above deliverables have been submitted to USAID and Government of Egypt (GOE) authorities and final versions of the same were produced for easier use in CD format. The project was initiated in close coordination with the Governorate of Alexandria (GOA) and the top management of the utilities. A significant event in connection with this project was the enactment of Presidential Decree No. 135 of April 27, 2004, which establishes the "Holding Company for Water and Wastewater" and converts fourteen (14) organizations and public companies in the sector into wholly owned subsidiaries. When the SOW for this project was prepared, the Governorate of Alexandria was the main GOE policy decision-making entity. However, the new Holding Company is now the organization in charge of the sector and significant

USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria reforms are beginning to take place. Given the period required for the new entity to start operating in earnest, this event had a direct impact on the proposed feasibility study. In light of the above developments and after presentation of the Policy Statement Report, and based on discussions held with USAID, the Chairpersons of AWGA and AGOSD, and the Secretary General of the Governorate, the team was instructed to focus on specific "service contracts" as prospective PSP activities: a) billing and collection for AWGA; and b) PSP options for septage management, as well as for the operation of Site 9-N, and transport of waste materials for AGOSD. As a result, SEGURA IP3 consultants focused on evaluating the feasibility of these service contracts and estimating the potential impact they could have on the overall operation of the utilities. As described in more detail in previous separate reports and summarized in the following chapters, the potential impact of introducing PSP in the metering billing and collection functions at AWGA is likely to generate significant additional revenues. In the case of AGOSD, the evaluation had to be done at a pre-feasibility level due to shortcoming in basic information; however, from the analysis conducted it becomes apparent that important cost reductions can be achieved via licensing of septage collection and disposal, in leasing out the operation of site 9N including composting and service contract for transportation of dewatered sludge and other wastewater by products to this site. AWGA metering, billing and collection The consultants considered two basic alternatives: a metering-only contract and a comprehensive metering, billing and collection contract.

• For the metering-only alternative, AWGA would delegate to a private operator

the metering function, including installation, replacement, and meter reading. The operator could read the meters with its own staff or directly supervise AWGA’s staff. Further, and most importantly, AWGA would continue to be the primary contact with the customer.

• For the comprehensive alternative, AWGA would delegate to the private operator all the metering function plus billing and collection. Under this alternative, the operator should be given full control over staff hiring and firing matters and preferable over staff compensation.

The consultants recommended the comprehensive metering, billing and collection contract as the most desirable and cost-effective alternative for AWGA. The contract would be for a ten year period in order to allow the contractor sufficient time to amortize the cost of new meters that will need to be purchased. A ten-year contract should also allow AWGA sufficient time to learn from this PSP experience and evaluate ideas that a contractor may offer to improve the continuity of service issues that exist in the pilot area. This alternative has major advantages over a metering-only contract namely: 1) net revenues for AWGA will be higher; 2) it will have a more profound and lasting impact on

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria AWGA’s commercialization practices as it will help to substantially improve performance of AWGA’s branches. This type of contract would be more effective if authorities implement policy changes to support the contractor’s efforts to enforce collections and affords the contractor flexibility to experiment with alternative type of meters and billing and collection practices. Further, the contractor would need full control over employee compensation and hiring and firing matters in order to be effective. This may cause AWGA to transfer some employees to other organizational units outside of the branches in the pilot area. AWGA should consider granting licenses to employees now working in this activity in exchange for retiring from service. Upon consultations with AWGA authorities, they expressed a preference for the metering-only option. Thus, the team has focused on this alternative for the "Transaction Implementation Plan" report submitted separately. The consultants believe that these contract alternatives do not address the more fundamental water supply management issues mentioned in the report. Investments needed for the optimal rehabilitation of the distribution system that impact the quality of service, as well as metering of water delivered to each zone will continue to be AWGA’s responsibility and therefore outside the scope of any of these contract alternatives. A much more capital intensive contract that places responsibility for network maintenance on a contractor would be needed to address these issues. This type of contract would most likely be a long-term concession contract, which ultimately fell beyond the scope of this PSP initiative. AGOSD Service Contracts Pre- Feasibility AGOSD sought advice on how to structure service contracts for (a) septage collection and disposal; (b) operation of Site 9N including composting; and (c) transportation of dewatered sludge and other wastewater byproducts to this site.

a. Septage collection and disposal.

The consultants considered two basic alternatives to promote private sector participation in the collection and safe disposal of septage: service contracts; and licensing of private operators.

Service contracts. Under this alternative, AGOSD would delegate the collection and disposal of septage to private operators. The contracts can be structured along two basic options: 1) each area (or branch) is served by a pre-determined number of contractors; or 2) contractors are free to operate anywhere in the city. Under both options, a minimum number of operators should be selected to insure competition. Service fees are determined by AGOSD and operators collect them on its behalf.

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Under both options contractors would operate under exclusive service conditions. Therefore AGOSD has to strictly enforce control of “illegal” operators, and to develop regulatory and supervisory functions to ensure that service contracts perform as intended.

AGOSD’s organization has had severe difficulties in managing the existing collection and disposal of septage by its own forces, including rent-seeking opportunities that affect its revenues. Therefore, it is unlikely that it will be successful in implementing and monitoring these service contracts whose characteristics mirror, to some extent, existing operations. Moreover, AGOSD lacks adequate operational data on the number and location of septic tanks and frequency of service to make an informed decision on the optimal size of the trucking fleet and thus on service fees to be charged to ensure the financial viability of the operation.

Licensing. This policy-based approach, widely used in other countries, involves the transfer of responsibility of septic collection and disposal from AGOSD to licensed operators. Operators would keep the fees collected but should be required to pay in addition to the licensing fee, a tipping fee (determined by AGOSD) to compensate AGOSD for the costs incurred in processing these wastes.

Under this alternative, a pre-selected number of licensed contractors would operate in any area of the city. It is important to promote adequate competition in the market to ensure reasonable prices for service. This competition would eliminate, to a large extent, the need to control prices.

Pre-selection of contractors can be carried out on a competitive basis and based on the initial premium bidders are willing to pay over a minimum preset license fee. Licenses could be granted for two-three years and the license fee established (including the premium in the initial bidding), to cover as a minimum, AGOSD’s regulatory and supervisory functions. At the expiration of the license, AGOSD can use the opportunity to ascertain if additional operators are needed to foster competition and keep prices at a reasonable level.

AGOSD regulatory and supervisory functions include: a) licensing operators; b) monitoring their performance; and c) exercising the right to revoke licenses if operators do not comply with service standards. Under this alternative, AGOSD supervisory functions will be simplified, as it will not be directly involved in the collection and disposal of septage or with the collection of fees.

AGOSD should consider granting licenses to employees now working in this activity in exchange for retiring from service. Such employees could purchase or lease trucks from AGOSD under special terms and conditions. USAID may be able to assist with the financing through its Development Credit Authority (DCA) facility.

The consultants recommended the licensing option as it would eliminate AGOSD’s operating losses and reduce illegal dumping. However, this option would require the creation in AGOSD of a supervisory unit and the training of this staff. This unit would

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria monitor performance of operators and maintain adequate competition to ensure a fair pricing system determined on the basis of supply-demand forces. It is important for AGOSD to improve the quality of existing information, in particular the location of septic tanks and characterization of septage (domestic, industrial and commercial), to reduce information risks detrimental to AGOSD’s interests.

b. Operation of Site 9N. There are two basic alternatives to delegate the operation of site 9N to a private operator: a management contract and a lease contract. These two alternatives are quite similar in scope but differ in the way decisions are made to price and sell compost and other by-products, on the risks assumed by the contractor on the sale of compost and on the bidding strategy.

Management contract. This contract can be structured for a 5 to10 year period and interested contractors bid on the fee to manage the operation. Under this contract, pricing decisions are made by AGOSD, and the main responsibility of the contractor is to operate the facilities as specified in the bidding documents. Marketing decisions can be delegated to the operator including incentives to reward its efforts to improve sales and reduce costs. Investments, replacement, and maintenance costs are the responsibility of AGOSD. It is possible however, to structure the transaction assigning some of these costs to the operator, but this decision is likely to extend the length of the contract, increase the management fee or both.

Leasing contract. This contract can be structured for a 10 to 15 year period, and interested contractors will bid on an annual fee to be paid to AGOSD for the use of this facility, including the equipment. Leasing fees can be tailored to benefit AGOSD in response to the financial performance of the operator.

Under this alternative, sales and price decisions are the responsibility of the private operator as well as investments (like reception facilities to handle septage and other improvements deemed necessary) and maintenance costs.

Consultants recommend to AGOSD the lease alternative as it gives more incentives to the private operator to fully optimize the use of this facility, to be more proactive in the search for new customers and products (such as enhancing compost by adding nutrients such as potassium) and to tailor prices to competitive products. These advantages, in turn should benefit AGOSD as it can expect higher financial returns from the leased operation.

The consultants also recommend that AGOSD makes an effort to improve the information including projections of the supply of different waste materials to site 9N. The consultants estimate that about 7-8 months are required for the full implementation of this option.

c. Transport of waste materials to Site 9N.

Transportation of waste by-products and operation of site 9N are two different types of businesses that require different managerial skills and equipment. Moreover,

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria transportation costs of dewatered sludge, scum and grit are significant compared to the operating costs of Site 9N.

Consultants recommend not to incorporate the transport of these materials into the operation of site 9N, since this could make the combined contract not financially attractive and will likely limit competition to the detriment of AGOSD.

Nonetheless, AGOSD has two basic options to deal with the transport of these materials from the wastewater treatment plants, sewage pumping stations, and sewer cleaning operations to Site 9N: 1) transporting these materials using its own resources; and 2) delegating this activity to private operators under separate service contracts.

In both cases, there is a need to develop contractual operational arrangements between AGOSD and the Site 9N operator; for instance, minimum quantities of materials delivered to the site and hours of delivery.

Alternative one is a continuation of present practices where the possibilities of cost reductions are not obvious. Alternative two presents coordination issues between the operator and AGOSD. AGOSD needs to decide on the use of transport and handling equipment that contractors would be operating. AGOSD can also delegate maintenance costs of the vehicles to operators. Option two offers the potential for cost reductions through competition for and within the market and therefore, the consultants recommend it. Transaction Implementation Plans – AWGA and AGOSD AWGA expressed an interest in developing the transaction implementation plan for the metering-only option; and has also indicated that it believes it can improve its billing and collection efforts through internal efforts and does not wish to pursue the more comprehensive metering, billing and collection option. The activities needed to procure the services of a metering contractor will take up to nine months, and will require the service of a transaction advisor and several AWGA staff. The first three months of the transaction activities will include efforts to gather and refine information that will be needed to allow bidders to assess the situation in the pilot area and make a responsible bid. Once the necessary background information has been compiled, promotional efforts can occur, bidding documents prepared, proposals evaluated and a contract negotiated and executed. These activities will take an additional three to four months to complete. The consultants estimate that the transaction activities will cost L.E. 2.1 million. Assuming a 10-year contract, it is approximately 6% of the total contact value. A metering-only contract like the one envisioned for the pilot area should be considered as an initial step toward a more comprehensive use of the private sector in AWGA. If this is not AWGA’s and the Holding Company's intention, the consultants recommend that no further action be taken on this transaction.

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria The consultants recommended to AGOSD licensing to private operators the collection and disposal of septage, which should be granted for two to three year periods; leasing the operation of Site 9N, that should be for 10 years; and service contracts with several operators for the collection and transport of wastewater byproducts for three to five years. The estimated time to carry out these projects through implementation is nine months. This period includes about four months required to improve the information on all three projects, which is critical to reduce information risks to interested operators and improve AGOSD’s position. The consultants estimate the costs of the transaction process, including AGOSD’s activities and efforts to gather and refine information, at L.E. 4.2 million. The breakdown of these costs is L.E. 2.9 million for the transaction advisor is L.E. 1.3 million for AGOSD’s efforts. Conclusions and recommendations The consulting team has clearly indicated to USAID/ Egypt and GOE authorities that although "service contracts" of this nature are steps in the right direction, they will not address the structural problems facing the two utilities (especially in the case of AGOSD). These problems include primarily: adequate maintenance of existing infrastructure, capital investments to meet new demand, settlement of accumulated debt and extremely low service rates, which do not make full cost recovery operation a realistic expectation for the Alexandria W & WW utilities in the near future. Given the significant steps undertaken by GOE with the creation of the Water & Wastewater Holding Company and the Egyptian Regulatory Authority (EWRA), we strongly recommend to include more comprehensive PSP alternatives in the reform program and to undertake the proposed service contracts at AWGA and AGOSD as part of the implementation of the sector reform.

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USAID - SEGIR Privatization II IQC Government of Egypt


System

1. Background and Scope of Work The original Scope Of Work for this project stated as main objective - " to provide advice to the Governorate of Alexandria on all economic, tariff, and regulatory matters related to the preparation of a feasibility study for private sector participation in the water and wastewater sector in Alexandria, concentrating on a management contract/concession option. This feasibility study will take into full consideration the implications of the state of water and wastewater sector reform (corporatization and creation of a regulatory agency) currently underway in Egypt". The tasks and deliverables agreed upon, were the following:

1) Project Implementation Schedule 2) Governorate Policy Statement Paper 3) Workshop on Policy Statement 4) Status Report & Needs Assessment 5) Feasibility Study 6) Workshop on Feasibility Study 7) Draft Transaction Implementation Plan; and 8) Final Report

In this report, the consulting team summarizes the key elements of the project and present their conclusions and recommendations of the study conducted, covering each of the above activities and reports. The services Drinking water supply. AWGA provides services to Alexandria, Marsa Matruh, and parts of the Beheira Governorate. The area of service is quite extensive as it stretches 340 kms from east to west and 125 kms to the south. AWGA’s sources of water are the Mahmodia and Noubaria canals fed by the Rosetta branch of the river Nile. Water is treated in eight treatment plants with a total design capacity of 3.5 million m3/day (mM3/day). Drinking water quality meets government standards. However, intermittent supplies and low pressures in some areas and the use of house storage tanks compromise drinking water quality. Water production varies seasonally, being the highest in the months of July to September and the lowest in January to March. The Water Master Plan indicates that projected population growth in Alexandria and other cities points out to an “increased competition for water in the Nile and its canal system” and that water withdrawn by AWGA being

SEGURA / IP3 JV 1

USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria downstream of almost all other users is “seriously threatened from both a water quality and quantity perspective”. Close to 99% of the population is connected to the water distribution system; but some areas of the city receive water less than 24 hours a day or at low pressures. The distribution system is a network that includes 6,500 kms of water mains with diameters from 75 mm to 1,500 mm; 43 pumping stations and 250,000 m3 of storage capacity. Most of consumption is metered but it is estimated that about 5% of meters are inoperative. In the last four years (2000-2003) water losses have remained at about 37 % of production. This system was serving some 978,000 accounts in 2003. Table 1 shows some of the main operational indicators of the water distribution system.

Table 1. Water Distribution Network Operational Indicators

Indicator AWGA Other cities 1/ Mts of pipe/account 6.7 6 – 24 Storage capacity/account; m3/user 0.3 0.7 – 3.0 Water losses; % 37 < 20 (best

practice) Pipe bursts; total per 100 km/year2 630 <20 (best

practice) During the period 2002-2004 AWGA has done a good job in balancing its cash flows so as to be able to service most of its debt3 and to cover its cash operational expenditures. Most AWGA investments are financed with loans from the National Investment Bank. A smaller portion is financed by grants and customer contributions to investment. AWGA’s bill collection effectiveness varied from 85% (2002) to 74% (2003) and 78% (2004). Sewerage. AGOSD (Alexandria General Organization for Sanitary Drainage) was in 1979, to provide wastewater collection, treatment and storm drainage system for the city of Alexandria and its surrounding areas. AGOSD’s wastewater collection and disposal system serves some 83% of Alexandria population and includes:

• A pipe collection network of 2,390 kms with diameters between 200 and 2,750 mms

• Seventy two (72) pumping stations; and • Two primary wastewater treatment plants with a design capacity of 1.20

million m3/day. • Site 9N for the reception and disposal of waste by-products. Composting

operations also take place at this facility

1 Yepes, Guillermo & Augusta Dianderas. Water and wastewater utilities. Indicators. TWUWS, The World Bank. 1996. 2 Based on information on ten branches. Not including Borg El Arab and Sahel. 3 A portion of the interest owed by AWGA to the National Investment Bank is converted into long-term debt. Of an average yearly interest of L.E. 41 million, L.E. 13 million/year has been converted into long-term debt between FY 2002 and FY 2004.

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USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Treated and untreated wastewater flows are discharged into Lake Mariout, south of the city, without complying with the provisions of Law 48, which establishes standards for wastewater effluents and mandates secondary treatment, chlorination and post aeration4. Lake Mariout is a shallow body of water with a total area of some 5,000 hectares. Population living close to Lake Mariout is affected by foul odors. AGOSD’s cash flows have been clearly insufficient to cover its cash requirements. This is the result of tariff levels, which are insufficient to cover even its cash operational expenditures. AGOSD’s cash deficits have been covered by government contributions to finance current expenditures and by arrears on its debts with the National Investment Bank. As in the case of AWGA, AGOSD finances its capital expenditures program with loans from the National Investment Bank. Demand growth The Water Master Plan projects a “significant growth along the periphery of Alexandria City, in Ameriya and west of Alexandria. New highways around the city, new industrial zones in Ameriya and Borg El Arab City, and tourism development to the west will all drive future growth”. The projected population and water production growth is presented in Table 2.

Table 2. Population and Water Production Projections

Population (millions) Year Average Peak summer

day

Maximum day demand

(000 m3/day) 2000 4.14 5.22 1,950 a/ 2007 5.07 6.30 2,800 2012 5.65 7.09 3,200 2017 6.25 7.88 3,600 2022 6.86 8.45 4,040 Source: CDM Master Plan (cited) a/ Average production (AWGA)

Recent updates of investment needs indicate that in order to meet full service levels by 2022 AWGA will need to invest some L.E. 4,900 million. Similarly AGOSD will need to invest L.E. 3,300 million over the same period. Based on these recent investment estimates, Consultants have estimated the economic costs (Average Incremental Cost)5 at: • Water ~ L.E. 1.20/m3 • Sanitary drainage ~ L.E. 0.80/m3

4 WWGC. Alexandria Wastewater Program. Master Plan Update 1992. 5 SEGURA-IP3. Alexandria Water and Wastewater Services. Policy Statement, June 2004.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria • Combined services ~ L.E. 2.00/m3 Clearly, both AWGA and AGOSD face a daunting challenge to recover all costs, meet projected demand and improve the quality of services. 2. Implementation Schedule This project covered a period of time of about 40 weeks, starting on March 18, 2204, and schedule to deliver the final report and presentation on the first half of November 2004. SEGURA/IP3 expatriate team worked on-field several times with an average of 2-week visit period. The project had permanent support from the local team on data collection and validation. This activity extended through mid October. Consultants prepared a total of six reports (including this one) and presented them to representatives of AWGA, AGOSD and USAID for further discussions. Four main tasks were performed covering policy considerations statement, scope of work adjustment, feasibility studies, and to conclude with the transaction and implementation plans. A more detailed description of the activities and timing can be found in Table 3. as a result, consultants presented seven reports (including this one) to representatives of AWGA, AGOSD and USAID. These reports were thoroughly discussed with these agencies.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria

Table 3. Alexandria Water & Wastewater PSP Study

Updated Project Implementation Schedule

- - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42April May June July August September October November

TASK 1 (Policy Statement)Initial Trip to Egypt (3/18-3/29)Data collection and validation (local team)Considerations for main policy decision making * Report 1Policy Statement * Report (2) * Team in Egypt - Policy - discussion * Workshop (1)

TASK 2 (SOW adjustment - Service Contracts) * Report (Needs Assessment merged into FS report)

TASK 3 (Feasibility Study) * Team in Egypt - Service Contract for M/B+C * Consultant in Egypt - Service Contract for Septage Mgt * Briefings to USAID - AWGA - AGOSD * Reports 3 & 4 - Feasibility M/B+C and Options Septage Mgt * Team in Egypt -Service Contracts / Transaction Plan * Workshop (2) - Service Contract Definitions

TASK 4 (Transaction & Implementation Plan) * Report (5) - Transaction Implementation Plan - AWGA

* Report (6) - Steps Toward Transaction Implementation - AGOSD * Final report (7) * Final Presentation USAID/GOE

Religious holidays (Ramadan) -Oct 16 - Nov 14 (approx)

Notes: 1. Weeks start on Sundays, from March 21/04 2. Schedule shows deliverables, workshops and expatriate visits only

March


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria 3. Policy Statement - Recommendations The recommended policies, consistent with Decrees 135 and 136 of 2004, center on six priority areas: a) Governance. To promote efficient and high standards of service throughout the country local differences are recognized. Local government authorities and the public at large, as main stakeholders, can play an important role in defining priorities to meet particular local needs and in increasing accountability of service providers. To promote this participation local and central government sector agencies should strive to:

• Seek active participation of local authorities in the board of directors of local companies;

• Seek active participation in the board of directors of non-government members to bring their perspective and vision, and enrich the dialogue.

• Delegate responsibility to subsidiary companies for financial and personnel management, and planning and construction responsibilities to promote accountability

• Allow subsidiary companies to retain operational cash surpluses to finance investments and debt service requirements. If is deemed necessary on distributive grounds, to capture some of these cash surpluses, the holding company can define a percentage of revenues from each utility to be transferred to the holding company.

• Empower the public and the users through education campaigns to give them a better understanding of the issues in sector development.

b) Pricing of services. Pricing of water and sanitation services will aim to reconcile four important objectives:

• Efficient use of resources and water conservation by recovering economic costs and metering consumption.

• Financial viability of service providers by allowing them to cover all financial costs.

• Social development by ensuring that all inhabitants have access to adequate basic services at affordable prices.

• Transparency in tariff setting and adjustments to foster good planning, and to promote their understanding by policy makers and the public.

c) Personnel management. Service providers should have discretion, within labor laws, to manage their personnel and to provide incentives to encourage higher levels of efficiency and better response to users needs. d) Financial Viability. Service providers should have incentives to promote the gradual implementation of tariffs that reflect financial requirements to cover operational, rehabilitation and expansion costs and debt service obligations.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria The government will promote the development of reliable long-term financing for the sector while avoiding distortions to capital markets and undue fiscal pressures. e) Private sector participation. Participation of the private sector will be promoted as a means towards achieving sector development goals. Participation of the private sector will be sought to serve two main goals:

• Efficient and sustainable services. Through the know-how, and more agile private sector management systems, practices and decision making processes.

• Financing. To provide the capital to expand services and to promote a more efficient use of existing infrastructure.

f) Regulation. To promote high levels of efficiency in operations and investments and better customer relations, the regulatory system will make use of complementary instruments such as: i) Command and control, or explicit directives to influence behavior of sector agencies and to promote desirable sector outcomes; ii) Policy incentives designed to achieve higher productivity gains and service standards; and iii) Benchmarking to promote competition by comparison of performance among service providers.

4. Needs Assessment & Feasibility Studies 4.1 AWGA – Metering, Billing & Collection The pilot project is a complement to AWGA’s ongoing institutional development program. Its objective is to improve customer services, improve revenues and reduce costs and use this experience with a private operator, through an adequate benchmarking and information system, to improve branch operations. The pilot area consists of 3,600 km2 located in the western part of Alexandria, with about 125,000 customer accounts, and includes three branch offices: Ameriya, Borg El Arab, and Sahel (see Table 4). The effects expected by AWGA are twofold: first, improved operations in the pilot area, as a result of the work of the private contractor and, second, improved performance of AWGA-operated branches, as a result of the “comparative competition” with the privately-operated branches. AWGA provides water service to virtually 100% of the population in the pilot area. A recent willingness to pay survey indicates that most customers in the pilot area consider the quality of the services as fair to poor because of low water pressure and intermittent service. Domestic customers represent 98% of the total customer base but only 30% of the total billings. This distribution clearly indicates a high level of cross-subsidies (discussed in


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria some detail in the Policy Statement Report). Most domestic customers are billed bi-monthly based on the results of meter readings. Further, many domestic customers live in apartment buildings and are billed based on the results of a master meter for the building and individual apartment sub-meters. The difference between the master meter reading and the total readings of all sub-meters is prorated to all sub-metered customers in the apartment building.

Table 4. Pilot Project Customer Base

(End of FY 04)

Branch Item Ameriya Borg

El Arab Sahel Total

Water Supply Accounts (No.) • Domestic 72,490 22,700 26,440 121,630 • Large 640 1,170 300 2,110 • Government 710 330 270 1,310

Total 73,840 24,200 27,010 125,050 Service Area and Accounts Density

• Total service area (km2) 1,800 1,300 500 3,600 • Density (accounts per km2) 41 19 54 35

Large customers are defined as those that have a meter 2” or greater. Large customers represent 2% of the total customer base in the pilot area, 39% of water volume billed and 50% of the total billings. Government customers only include government agencies. Public companies, including state owned enterprises, are classified as large customers. Government customers represent 1% of the customer base, 17% of water volume billed and 19% of the total billings. Contract options and feasibility Consultants considered two basic alternatives for a contract with a private operator: i) Metering only, and ii) Comprehensive metering, billing and collection. Metering only Under this alternative, AWGA would delegate to a private operator the metering function, including installation, replacement, and meter reading. The operator could read the meters with its own staff or directly supervise AWGA’s staff. AWGA’s branches would continue being the primary contact with the customer, as well as being responsible for billing and collection.

The consultants consider that a metering contract with the appropriate incentives would lead to a significant increase in the volume of water billed, particularly for large and government accounts. The effectiveness of the contract to increase the volume of water billed to domestic customers is, however, dependent to a large extent on the authority


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria delegated by AWGA to the private contractor to purchase the most cost-effective meters available in the domestic or international markets.

The private contractor could achieve the expected improvements in water billing through the implementation of:

• Alternative metering technologies. • Systematic meter replacement and repair programs. • Strict control of meter readers.

To provide adequate incentives for good performance, the contract should include a fix payment to the contractor for achieving the targets established in the contract, penalties for non-meeting the targets, and bonuses for exceeding the performance targets.

Comprehensive metering, billing and collection Under this alternative, AWGA would delegate to the private operator all the metering function plus billing and collection. Under this alternative, the operator should be given full control over staff hiring and firing matters and preferable over staff compensation.

The consultants consider that a comprehensive metering, billing and collection contract with the appropriate incentives has the potential to significantly increase the volume of water billed and the collection rate. The effectiveness of this contract to achieve the desired goals is dependent, however, on the authority delegated by AWGA to the private contractor to:

• Purchase the most cost-effective meters available in the domestic or international markets.

• Enforce bill collection through appropriate penalties to delinquent customers, including shutting-off the services and fines.

• Experiment with alternative billing and collections practices with domestic customers.

As in the case of the metering-only contract, the operator’s remuneration would be based on a fix payment for achieving the targets established in the contract, plus penalties for non-meeting the targets, or bonuses for exceeding them.

Actions common to both contract alternatives

To achieve the full benefits under both contracts is necessary to:

• Conduct a user census to determine that customers are accounted for and properly classified and to refine the information on the need for additional meters.

• Provide incentives to implement alternative meter technologies, such as automated meter reading6.

• Replace broken meters in the pilot area (about 5% of all meters). • Conduct accuracy test on most meters to determine a cost-effective replacement

program.

6 The selection scope of alternatives depends on the relative price charge to different consumers. Better meters are more accurate but cost more. Therefore, AGOSD needs to balance these higher costs against additional revenues (benefits) in order to decide on the most cost-effective technologies.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria These contracts would most likely be of interest to a joint venture that includes a meter

anufacturing company and an information technology company. Given the relatively

n Table 5 the results of the financial feasibility of the service contracts are ositive:

g only contract has the potential of increasing annual collections in the pilot rea by about L.E.11.2 million or about 20% of current annual collections and net

g and collection has the potential of creasing annual collections in the pilot area by L.E. 16.8 million or 30% of existing

msmall size of the contract it is most likely that the interested companies will have already a significant presence in Egypt. Egyptian companies interested in these contracts should be given incentives to enter into long-term technical assistance agreements with international companies to improve their opportunities and know how to enter into these contracts. As shown ip A meterinarevenues by L.E. 7.6 million. The consultants believe this is a reasonable estimate based on the current meter conditions in the pilot area and the results achieved by other utilities that have implemented similar metering programs. The alternative of comprehensive metering, billininannual collections, and increasing net revenues by L.E.11.0 million

Metering Comprehensive

Collection increase from: 11.2 16.8Broken meters 2.8 2.8Improved metering 8.4 8.4Collection activities - 5.6

Expenses increases from: 3.6 5.8Meter related 2.9 2.9Renovations & IT - 0.5Contractor staff 0.7 1.8Performace bonus - 0.6

Additional net collections 7.6 11.0As % total pilot area collections 14% 20%

Contract Financial Feasibility(annualized L.E. in Millions)

Item


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Whenever an organization contracts-out part of its activities, a contract administration

o effectively discharge its contract administration functions AWGA will require: nd its

• arising from AWGA and the contractor

• GA’s-operated branches

• e contractor and AWGA’s operational

he information requirements depend on the services to be provided by the contractor,

he location of the Contract Administration Unit within AWGA’s organization is another

like the

GOSD has identified three operational activities where it would like to assess the

unit is needed to ensure that the contractor is performing as expected and meeting the performance standards included in the contract. In this case, AWGA’s contract administration functions will require a small group of qualified staff with experience in data processing, commercialization, and financial issues. Legal and technical audit resources would also be needed periodically. On a full time equivalent basis, the contract administration unit would probably range from 4 to 6 people depending on the contract option selected. T

• Good information about the performance of the private contractor acompliance with contractual clauses. An adequate system to resolve issues providing different interpretations of contractual clauses. An adequate system to compare performance among AWand the contractor-operated branches. An adequate interface between thdepartments.

Tthe operational targets stipulated in the contract, the basic payments to the contractor and the bonuses for superior performance. These requirements should be precisely spelled out in the service contract. Timportant point to consider. One of the options is to establish it as an advisory function to the Chairperson. This option has several positive aspects, including (a) providing a clear signal to the staff about the importance attached to the contract and (b) promoting the independence of the Unit from the operational departments, which may have a vested interest in the status quo. Alternatively, the contract administration unit could be established as part of AWGA’s central revenues and customer department. The positive aspects of this option include (a) in-depth knowledge of commercialization issues by current staff and (b) uniformity in dealing with commercialization issues in all branches. Possible objections to the second option include lack of objectivity in dealing with the private contractor, and resistance to the implementation of new approaches.

s there is no experience in AWGA on the administration of service contractsAone proposed for the pilot project, it is important to provide adequate training to the staff of the Unit. The training should aim at providing the staff a good understanding of the objectives of the contract, administration of service contracts, and negotiating skills. .2 AGOSD – Septage Management, Site 9N and Transport 4

Aviability of private sector participation (PSP) through service contracts: i) Collection and


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria disposal of septage; ii) Operation of Site 9N waste disposal facility for wastewater by-products and sludge composting; and iii) Transport of waste byproducts to site 9N. These projects can be structured to provide incentives to the private operators to reduce AGOSD costs and/or increase revenues, while affecting AGOSD labor force as little as possible. Collection and disposal of septage AGOSD provides collection and disposal of septic tank waste to residents and businesses within its area of operations on a fee basis. This activity was assessed by CH2MHILL in a 2000 report7. The report estimates that there are about 180,000 septic tanks in Alexandria, most of them serviced by AGOSD. Septage collection and disposal is also provided by an unknown number of private operators whose operation is considered illegal. AGOSD trucks are dispatched on a request or pre-set schedule basis to pump out the contents of septic tanks (assumed in the report as once a year on average) and deliver the waste material to authorized receiving sites. However, the report indicates that “in some cases, sewage is discharged directly into the sewer system at street manholes sites”, with undesirable consequences on the operation of the sewerage system. The consultants understand the situation today has changed little as not all septage is discharged to the sewerage collection system with possible illegal discharges to local waterways. This outcome likely applies also to illegal operators. The report also indicates that AGOSD’s septage program is also affected by “a general lack of detailed operations” and suffers from “the absence of an accounting system which does not permit concise control systems to exist or provide accountability to [its] managers”. The report also recognizes that in spite of assistance received from AGOSD personnel, “it was necessary to proceed with minimal data. This was particularly true in determining the number of septic systems in the service area and the detailed cost for [the] vehicles assigned to the septic program”. These information shortcomings persist today. The present outcome of the septage operation strongly suggests that AGOSD has severe limitations to control the staff in charge of providing this service, as well as the safe discharge of the septage. It is also clear that this operation, as presently implemented, represents a heavy drain on AGOSD financial resources. Consultants considered two basic alternatives to promote private sector participation in the collections and safe disposal of septage: a) service management contracts; and b) licensing of private operators. 7 CH2MHILL. Privatizing the AGOSD Septic System, Cleaning & Hauling Program. January 2000.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria a) Service management contracts Under this alternative, AGOSD would delegate the collection and disposal of septage to private operators. These contracts can be structured along two basic options: Each area (or branch) is served by a pre-determined number of contractors8 and trucks to foster competition; and Contractors are free to operate anywhere in the city.

Under both options contractors charge the price defined by AGOSD (under clear and specified criteria), operate under exclusive service conditions and collect fees on behalf of AGOSD. Contractors, in turn would be paid by AGOSD for services rendered.

AGOSD main responsibilities would be to: a) control “illegal” operators; and b) supervise operations and enforce applicable laws and regulations to ensure that service contracts perform as intended, including the safe disposal of septage.

Under present conditions, service management contracts can be problematic to implement as:

• AGOSD’s organization is not adequately prepared to monitor payments to contractors and thus to ensure that it will receive all the proceeds from this operation.

• AGOSD lacks adequate operational data on the number and location of septic tanks and frequency of service to make an informed decision on the adequate size of the trucking fleet. However, this decision will affect the financial viability of the operation. Moreover, AGOSD is also in a weak position to determine, ex-ante, the service fee operators can charge in each area. In particular, if fees are too low it risks that some zones will not receive service, thus encouraging “illegal” operations or rent seeking.

b) Licensing Under this alternative, a pre-selected and adequate number of licensed contractors, to promote competition for services, operate in any area of the city. This competition is essential to ensure good services and to eliminate, to a large extent, the need to control prices9. Service fees are collected and kept by the licensee and AGOSD receives the license fee.

The license fee can be established to cover as a minimum, AGOSD’s regulatory and supervisory functions. Selection of contractors can be carried out on a competitive basis and based on the initial premium bidders are willing to pay over a minimum preset license fee. Licenses could be granted for two to three years.

AGOSD should have the right to revoke the license at any time for lack of compliance with operating norms. At the expiration of the license, AGOSD can use the opportunity

8 Contracting this service with only one operator for the whole city or for one particular zone will remove any competition in the market to the detriment of service. 9 The exception could be in the initial 2-3 years of the contract to ensure a smooth transition and wider acceptance of users to the license system.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria not to renew the license of poor performers and to ascertain if additional operators are needed to foster competition and keep prices at a reasonable level.

Under this alternative, AGOSD supervisory functions will be simplified, as it will not be directly involved in the collection and disposal of septage or with the collection of fees. Its primary role will be as grantor of the licenses and regulator and supervisor of service quality.

AGOSD should consider granting licenses to its employees working in this activity, in return from them leaving the company, and to lease or sell them the vehicles under special terms and conditions. USAID may be able to assist with the financing through its Credit Development Facility (CDF).

Under both alternatives AGOSD needs to define:

• The number of trucks, if any, that it is prepared to lease or sell to interested operators, and

• The relocation of staff working in this service, or the conditions imposed on operators for the incorporation of this manpower in their labor force.

For the latter, the private operator should have full control over these employees. Otherwise, protracted discussions are likely to occur, as inadequate control of personnel is detrimental to the efficiency and quality of service. Septage wastes pose several environmental risks that require careful handling and disposal. Septage, particularly from industrial or commercial activities can contain harmful or toxic substances to humans, crops and the environment at large. Similarly wastes from hospitals can contain highly infectious viruses, bacteria and/or radioactive materials10. Nonetheless, a program for the systematic characterization and monitoring of septage from these institutions needs to be developed and enforced (law 37 of 1967)11 and non-approved establishments should be mandated to dispose these wastes at specified sites and under tight and controlled conditions. Consultants were not able to obtain information on the characterization of septage material in Alexandria.

Existing AGOSD sewerage infrastructure provides several non-exclusionary alternatives for the proper disposal of septage; they include:

• Addition to both wastewater treatment plant head works. o At a point immediately upstream of the screening and grit removal

processes, or o At selected manholes to large drainage pipes upstream of the treatment

plants (current disposal practice in Alexandria).

10 The factor that differentiates commercial and industrial from domestic septage is not the type of establishment generating the waste; rather it is the type of wastage being produced. 11 The Ministries of Agriculture and of Environmental Affairs regulate the disposal of these wastes.



• In this alternative, it might be necessary to impose septage discharge restrictions at each wastewater treatment plant, to prevent overloading or operational disruptions.

• Disposal at Site 9N. Septage would be delivered to a holding pond to improve dewatering and handling at peak flows.

• Direct addition to the sludge dewatering facility. Direct addition of septage to the dewatering facility reduces the loading to the primary treatment process thus eliminating potential problems that could affect the quality of the primary treatment system. However, as septage is resistant to dewatering, it can also complicate the operation of the MDF and increase the wear of pumps, if septage is not previously screened and de-gritted. The first two alternatives are the most promising and should be studied in more detail to determine the location, characteristics of receiving facilities and loading parameters. Consultants cannot recommend alternative 3 at this time for lack of adequate operational information. If this alternative is of interest to AGOSD, consultants suggest field tests for a representative period of time (3-6 months) to assess its overall feasibility. A cost-benefit optimization is particularly sensitive to the distance between septage collection and disposal, the number of septic tanks and volume emptied per year. Therefore with the scant information available, the financial viability of the two proposed alternatives and the impact on potential private operators and AGOSD cannot be developed with any degree of confidence. SEGURA/IP3 considers that the licensing alternative is the most desirable option for AGOSD. This alternative has major advantages over a service contract approach, including:

• AGOSD will be able to cut operational losses of over L.E. 6 million per year almost immediately.

• AGOSD does not need to control prices, as the presence of an adequate number of certified operators will promote competition in the market and thus fair pricing.

• AGOSD needs only to create a supervisory unit to provide information to potential users and receive feed back from them, and to ensure that that licensed operators meet required standards of service, and customers receive a satisfactory service.

• The licensing fee can be easily adjusted to cover the cost of the supervisory unit and even produce a surplus for AGOSD.

• Illegal operators can be brought under control, as licensees will likely report them to proper authorities.

• The period of time between license renewals can be set to promote healthy competition

If this alternative is selected AGOSD needs to:

Develop a regulatory framework and ope• rating policies and the organization and functions of the supervisory unit.



• Determine the level of tipping fees that private operators should pay at points of discharge to cover handling costs at receiving stations.

• Make an informed decision about the possible auction or leasing of unneeded service trucks to potential licensees.

• Develop a political acceptable policy to deal with staff working in septage collection activities.

Operation of Site 9N Site 9N is located some 40 kilometers south west of WWTP and has an area of about 150 hectares (360 feddans). Facilities at the site include administration building, warehouse, maintenance area, operational equipment and pilot green areas. Some 60 staff works at this facility. Site 9N receives dewatered sludge, grit, scum and screenings from the two major wastewater treatment plants (East and West) and sewage pumping stations, as well as oil, grease and screenings from industries and commercial establishments. Grit and scum loads represent about 25 percent of the total handled at this site. Site 9N could also be adapted to receive and compost septage. Operations at Site 9N include: a) composting of dewatered sludge transported by truck from the mechanical dewatering facility (MDF) at the West wastewater primary treatment plant (WWTP); b) grit treatment; and c) sanitary landfill of for industrial wastes. One of the local uses of compost and treated grit is to improve the conditions of calcareous soils, common in the area. The manager of Site 9N operations indicated that during FY 2004, this site received from AGOSD’s operations about 300 tons/day of dewatered sludge, 30 m3/day of grit, 20-30 m3/day of screenings and 20 m3/day of scum. It also received about 20m3/month of industrial wastes, mainly from three companies. The volume of septage is not known as there is no reliable information on the number and volume of septic tanks in the area and how often, on average, they are served. There are two basic alternatives to delegate operation of site 9N to a private operator: a) a management contract, and b) a lease contract. These two alternatives are quite similar in scope but differ in the way decisions are made to price and sell compost and other by products, and on the bidding strategy. a) A management contract can be structured for a 5 to10 year period and interested contractors bid on the fee to manage the operation. Under this alternative, pricing decisions are made by AGOSD. The main responsibility of the contractor would be to operate the facilities as specified in the bidding documents. Marketing decisions can be delegated to the operator including incentives to reward its efforts to improve sales and reduce costs. Investments,


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria replacement, and maintenance costs are the responsibility of AGOSD. It is possible however, to structure the transaction to assign some of these costs to the operator, but this decision is likely to extend the length of the contract, increase the management fee or both. b) A Leasing contract can be structured for 10 to 15 year period, and interested contractors will bid on an annual fee to be paid to AGOSD for the use of this facility, including equipment. This fee can be set to provide additional benefits to AGOSD if operating results are substantially better than anticipated and adjusted periodically for inflation. Under this alternative, sales and price decisions are the responsibility of the private operator as well as investments (like reception facilities to handle septage and other improvements deemed necessary) and maintenance costs. To set realistic bidding conditions there is a need to have better market information about supply and demand to assess the economic potential of a full-fledged operation. This market analysis should include price comparison with alternative fertilizer products as well as an input analysis to ascertain with greater confidence the amounts of dewatered sludge and septage that can be expected during the life of the contract. In addition to the market assessment, the financial and economic viability of such contract can be enhanced if:

• A tipping fee for the reception of septage, grease and any other acceptable waste material is imposed (most likely this would be determined by AGOSD as there is no competition for this service)

• Reception of waste materials is open to other governorates; and • AGOSD can guarantee a minimum amount of dewatered sludge and enforce

adequate disposal of septage. Contracting the operation of Site 9N and the production of composting can be a win-win situation for AGOSD and a private operator. AGOSD can benefit financially from a more efficient operation and a more aggressive marketing approach. A private operator can also bring needed know-how and more streamlined management practices that are likely to reduce costs and thus increase net revenues. On the other hand, AGOSD’s supervisory functions would be simplified if the operator is given a free hand to decide on the selling price of its products or production of enhanced compost. Based on this pre-feasibility analysis, the consultants recommend therefore adopting the lease alternative as it gives more incentives to the private operator to fully optimize the use of this facility including equipment, to be more proactive in the search for customers and in tailoring prices to competitive products. These advantages, in turn should benefit AGOSD as it can expect higher financial returns from a lease operation. It is important to reduce information risks to improve the response of interested bidders for the operation of Site 9N. The experience of consultants in other international contracts, indicates that perceived information deficiencies by prospective bidders tend to lower the price (lease fee) they would be willing to offer at bidding time. This negative


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria perception would be detrimental to the stream of financial benefits to AGOSD. As the size of this contract is small, it does not seem practical to expect that interested bidders make a significant investment (due diligence) to ascertain inputs over which they have no control (projection of quantities and characteristics of materials delivered to the site) and market opportunities for the compost. Therefore, the bidding outcome will be greatly enhanced if AGOSD undertakes this input and market analysis. Transport of dewatered sludge and other wastes to Site 9N Transportation of waste by-products and operation of site 9N are two different type of business requiring different managerial skills and equipment. Therefore, consultants recommend not incorporating the transport of these materials into the lease operation of site 9N, as this incorporation will make the combined contract not financially attractive and will likely limit competition to the detriment of AGOSD. Nonetheless, AGOSD has two basic options to deal with the transport of these materials the wastewater treatment plants and sewage pumping stations to Site 9N:

• Transporting these materials it using its own resources and at its own cost. • Delegating this activity to private operators under separate service contracts.

The first alternative is a continuation of present practices, where the possibilities of cost reductions are not obvious. The second one should contemplate hiring at least 2-4 operators to ensure adequate competition. However, this alternative poses coordination issues between the operator and AGOSD. Nonetheless, this alternative offers the potential for cost reductions through competition for and within the market and therefore consultants recommend this option. In both cases, there is the need to develop contractual operational arrangement between AGOSD and site 9N operator. For instance, minimum quantities of materials delivered to Site 9N and hours of transport, collection and delivery. The consultants recommend that AGOSD delegates responsibility for the transport of dewatered sludge and other waste materials to site 9N, to private operators under separate service contracts. 5. Transaction Implementation Plans 5.1 AWGA – Metering, Billing & Collection Two options were identified for PSP in a pilot area of AWGA’s service area: i) A metering only, and ii) A more comprehensive AWGA has expressed an interest in developing the transaction implementation plan for the metering only option. AWGA has also indicated that it believes it can improve its


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria billing and collection efforts through internal efforts and does not wish to pursue the more comprehensive metering, billing and collection option. Private Sector Participation Metering Activities The metering only contract envisioned by the consultants would be a 10-year contract that delegates a number of activities to a contractor in the pilot area. These activities are expected to include the following:

• Conduct a customer census and identify illegal connections. • Based on the customer census, reclassify customer accounts to tariff categories

indicative of actual use. • Replace broken meters. • Relocate inaccessible meters so they can be read more easily. • Test and replace meters over 2” as soon as practical. • Install advanced meter technology for large and government accounts. • Test and replace apartment master meters. • Expand the use of hand held meter reading devices in Ameriya and Borg El Arab. • Purchase motor cycles for meter readers and redesign meter routes as needed. • Replace most domestic meters over a 5 to 10 year period with higher class meters.

Many of the above activities have taken place to some extent through technical assistance programs supported by USAID. In the consultants' opinion, a PSP contract for metering services will build upon the technical assistance already provided and offers a mechanism to ensure that the assistance is sustainable on a long term basis. The above activities are estimated to result in annual revenue increases on approximately L.E. 7.6 million. The amount could be more if a large number of illegal connections are found which often occurs when a customer census is conducted. It is also likely that the above activities will improve the collection rate if the customers believe that there water use is being more accurately measured. Inaccurate meter readings are currently one of the reasons some customers do not pay their water bills. The installment of advanced meter technology for large and government accounts, could include implementation of hand held meter reading devices, more sophisticated automated meter reading (AMR) or Smart meters. Telephonic reading may also be possible depending upon security access allowed by customers. For purposes of estimating the potential increase in billings the consultants have assumed AMR would be used. However, each bidder is likely to propose alternative technologies that they believe will be most effective for the situation. The consultants have no bias toward any particular technology and believe the final decision should be based on a cost-benefit evaluation of proposals that are received.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Potential Bidders The companies to bid on a metering only contract will probably include a joint venture between a meter manufacturer and a local service provider and /or international water companies. The consultants believe there are several companies that will have a keen interest in this opportunity. The level of interest and ultimate costs of the metering-only contract will be influenced by the bidders understanding of the potential size of this opportunity. If the bidders believe this is an opportunity limited to one pilot area in Alexandria, the level of competition will be limited and thus the costs higher than it might otherwise be. AWGA could also consider a requirement in the contract to install meters in the distribution system (technical meters) to measure the amount of water delivered to the pilot area. This type of activity would allow the volume of unaccounted for water to be monitored and measured and provide valuable information to help solve the continuity of service issues described in the needs assessment and feasibility report. At least in the Sahel area, the installation of technical meters requires minor changes in the distribution network. In the other two areas more extensive modifications are needed. It is worth mentioning that some utilities that have contracted-out services, like metering, allow their employees to bid on the contract. In AWGA’s case some of the managers in the pilot area branches could organize themselves as a local company and pursue a joint venture with one or more meter manufactures. AWGA would need to support this type of initiative and possibly provide some technical assistance to get it started. Transaction Activities Table 6 includes a Gantt chart of the major tasks that will be involved in securing the services of a qualified contractor for a metering only contract. Moreover, evaluation of proposals and contract signature is likely to take more than one month. The Transition can start on month 10. As shown in Table 6, the transaction process will take up to nine months to complete from the date a transaction advisor is retained. The first three months of the transaction process includes activities to gather and refine information and to make decisions on policy matters that will have an impact on employees in the pilot area. Once these matters are resolved, the transaction will take an additional six months of elapsed time to complete.



ontract Costs

he total value of the metering only contract over a ten year term to the winning

evel of Effort

he consultants estimate the costs of the transaction process, including an estimated

5.2 AGOSD – Septage Management, Site 9N and Transport

he consultants developed, at the request of AGOSD, the pre-feasibility analysis for

operational by-products to site 9N.

1 2 3 4 5 6 7 8 9 10

1 Retain a transaction advisor 2 Organize a contract administration unit 3 Prepare and enhance existing metering data 4 Agree on policy and legal matters 5 Issue RFQ 6 Evaluate qualification statements and short list firms 7 Conduct site visits with short listed firms 8 Prepare and issue RFP, including draft contract 9 Evaluate proposals and select firm 10 Begin transition assistance

Table 6. AWGA - Transaction Activities

Activities Months

C Tcontractor is estimated at L.E 36 million. By international standards this is a small contract. Further, considering the fact that the contractor will not be able to fully control all of the metering operations, most contractors will be reluctant to accept contract terms that base too much of their compensation on incentive payments for increasing the amount of annual billings. The contractor will most likely be paid a fixed fee for every meter read and a fixed payment for every meter replaced based on meter size. In the consultants' opinion, a small performance bonus ranging from 5% to 10% of increased annul billings would be an appropriate performance bonus. If this is done the estimated fixed payments would be reduced. L Tvalue of AWGA’s efforts to gather and refine information, at L.E. 2.1 million, or approximately 6% of the total contract value. The estimated cost of the transaction advisor is L.E. 1.8 million and the estimated values of AWGA’s efforts are L.E. .3 million

Tcontracting three operational activities with private operators, namely12: i) septage collection and disposal; ii) operation of Site 9N; and iii) transport of wastewater

12 SEGURA-IP3. AGOSD Pre-feasibility study-October, 2004


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria These contracts with private operators are closely interrelated as:

• The disposal of septage (contract 1) and waste materials (contract 3) effects the operation of Site 9N (contract 2);

geable. Therefore, it is

Therefooperati

a) Information enhancement staff and resources to improve the

ation relevant to these operations. Information shortcomings pment of these projects could only be

s strategy should be compatible with a sound llocation of risks to contractors and AGOSD, and to promote adequate

se contracts are interrelated, it is recommended to retain an advisory consulting firm (TA advisors) to help AGOSD in executing these transactions

ulta ccompany and support AGOSD on all

basis. It is the consultants' opinion at given the nature of the consulting work to be performed and the nature of the

ivities will likely be affected by GOSD decision to delegate these operations to private operators. The

sult t AGOSD would prefer to minimize this impact. Therefore, AGOSD needs to develop a consistent staff policy to manage this

• Most of the equipment used in these operations is interchanimportant to allocate this equipment in an optimal way to ensure the maximum net benefits from their use.

re, the consultants recommended pursuing private sector participation in these ons simultaneously.

Implementation activities common to all contracts 1. Feasibility

One important and urgent task is to allocate quality of informwere the main reason why the develoadvanced to the feasibility level. The enhancement of information is important to help minimize the perception, by prospective bidders, of information risks and thus to ensure a more positive response from them and better competition likely to benefit the interests of AGOSD. Once this information is available, a base-line cost contracting strategy for each contract can be developed. Thiacompetition (for the market) for each of the contracts and during the implementation phase (competition in the market), to optimize the benefits for AGOSD.

b) Selection of transaction advisors Due to the

sim neously. The TA advisors should aaspects of the transaction. If deemed necessary, they should also participate in the evaluation of bids and negotiations that may follow as well as in the transition phase to private operations of these services. The advisors can be retained on a professional fee plus reimbursable expenses basis, or on a professional fee plus success feethservice contracts the first option is preferable. c) Staff reallocation The staff currently assigned to these three actAcon ants understand tha



initiative in a fair and transparent basis and balance its interests with those of the staff and operators. Towards this goal, AGOSD should consider several options (and combinations):

• Staff can be offered the opportunity to join the private operator. Staff would

be allowed to take a leave of absence without pay but with the option to be reincorporated, say after two years, if the staff so decides. It is in the interest of a private operator to hire some, but not necessarily all, AGOSD staff

•

Selected staff, particularly those working currently in the septage collection

at they resign from AGOSD if they are selected.

Consucma o the private sector.

mine: The equipment that is not worth repairing; this equipment could be sold as

scra

2. e

hould have the

should report directly to the Chairman to ensure that the requests for artments are carried out promptly. The main

working in these activities. However, the operator needs to be given full authority over this staff, as otherwise accountability of the operator will be compromised. Therefore, AGOSD needs to reconcile its own and private operators concerns to reach a workable and effective solution.

Staff not willing to take a leave of absence or not selected by the operator can be transferred to other positions within the organization.

• and disposal or in the transport of materials to site 9N, could be given the opportunity to bid on these contracts, on condition th

sultants were informed that the first two options have been recently

cessfully implemented in Alexandria in the context of the solid waste nagement initiative delegated t

d. Condition of the equipment There are no updated records on the condition of the equipment utilized in these operations. Therefore, is important for AGOSD to deter•

p. • The equipment that it would like to retain for other operations. • The equipment that it would like to lease or sell to operators.

Pr -transaction activities sa. Creation of the implementation unit within AGOSD, which

mandate to carry these projects successfully to completion. The head unit

information from other depfunctions of the unit will be: • To liaise closely with and supervise the work of the TA advisors; • To contact prospective bidders and invite them to participate; • To prepare public announcements and call-for-bids documents; • To answer in writing, following proper internal consultations, the

questions that interested operators may pose; and



• Carry out all activities leading to the successful implementation of the

b.

the general nature of the contracts and to invite them to participate. This document should be prepared once AGOSD has made the key decisions

c.

at a centralized point and made available to interested contractors. A log of all visitors and information requests should be

3. Public relations and promotion activities • It is important in all public relations activities to offer factual information

about the present service conditions, and to make realistic promises about the erent users. In particular, they are

•

workshops with professional associations; contacts with national and

4. Tra

hese activ• Request for proposals.

contracts.

Information memorandum. Its purpose is to inform prospective bidders on

relevant to each contract (in particular type of private sector participation and policy on reallocation of staff).

Organization of the data room. All documents pertinent to these contracts should be classified and stored

maintained.

expected benefits and impact on diffbeneficial to illustrate to the public at large, about AGOSD’s development plans to improve services to the population, via private sector participation and how they will benefit from these improvements; and AGOSD staff, through internal seminars, about the reasons for private sector participation and how this participation will affect their positions.

The purpose of the promotion activities is to raise the interest of prospective private operators and listen to their concerns. Promotion activities include

international operators that may have an interest in these contracts; and organization of technical visits for operators to illustrate in detail the scope of the proposed contracts.

nsaction ities include the preparation and issuance of: T

In local newspapers and international trade magazines. n often includes a general description of the contracts, cost of

tion of documents and the form This informatiodocuments. It indicates the date for presentaand time limits for clarifications.

• Field visits and pre-bidding conference. Interested bidders should be invited to visit the project sites under the guidance of AGOSD and for formal discussions to foster comments from interested bidders on the bidding documents.

• Pre-qualification documents. In general, it is customary to pre-qualify interested contractors. However, care should be taken to avoid an early



decision on this matter as if the number of pre-qualified bidders is inadequate it will have an adverse effect on the competition for the contracts13. Bidding documents• . Provides information about the scope of the contract, submission of documents including performance guaranties, and bit

• evaluation and award procedures. The contract. Contains all contractual obligations, conflict resolution provisions (arbitration), forms of payment and non-compliance penalties. It

Depending rocess, final contract negotiations m y or not be part of the transaction process. In some instances, consultations with

5 Transition period & Contract Monitoring It is important to plan for an orderly transition of operations to private operators.

an adequate level of detail to avoid

vision of the service contracts entails: • Periodic reporting by operators in accordance with pre-established rules and

• ;

ilar of waste materials to

•

6. f contract

Licensing of septage collection and disposal

should be prepared (in draft) as early as possible to elicit a meaningful response from prospective bidders. Amendments, if deemed appropriate, are introduced in response to these comments.

on the overall approach to the bidding pa

prospective bidders are sought in earnest to accommodate, to the extent possible, their concerns to the contract. If this approach is followed, it is customary to request that all bidders sing the pro-forma contract to signal their acceptance to all contract conditions.

.

Therefore, the transition needs to be developed withdisruptions in service. This transition includes the legal possession of sites and equipment by the operators and the transfer of AGOSD staff to contractors. During this process operators begin a more thorough familiarization with the service they will be in charge of, and AGOSD staff should be attentive to promptly iron out any glitches in the transfer process. The super

formats set in the contract; • Validation of this information by the Supervisory Unit;

Monitoring and evaluation of contracts; • Spot and random checks to assess operators’ performance

eral contractors are involved in sim• Comparison of performance when sevoperations (collection and disposal of septage and transportsite 9N);

• Periodic meetings with operators to discuss matters of common interest; and Applying remedial actions when necessary.

Specific implementation activities by type oi)

13 An alternative to pre-qualification is to set minimum qualification criteria that bidders have to demonstrate at the time of bid presentation. If a prospective bidder does not pass the minimum qualification criteria it is disqualified and the second envelope is returned unopened.


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Information enhancement: It is important for AGOSD to develop reliable information

e, and frequency of service. This

fely discharged at the head-works of existing waste treatment plants and at site 9N. For

s an important activity that needs to be carried out in arallel with the census of septic tanks. Its purpose is to identify users, most likely from

ks of septage that will be ccepted at each of the receiving stations. Routine characterization analysis should be

formation enhancement is necessary to assess in greater detail: onal variations of different materials to be

e of the lease. It should

• pect that potential bidders will perform a

iii) Se aste materials It is ne ssary to improve information related to the volumes and projections, over the

f t

regarding the location of existing septic tanks and volumactivity should be closely coordinated with AWGA as it can be used to validate the information on the billing system. As part of this exercise, it is also advisable for AGOSD to update its capital investment plans and population growth for the next 5 to 10 years as they will affect the number and location of septic tanks to be served in the future. Definition, design and construction of septage receiving stations: Septage can be sathe first two, there is a need to define where these reception facilities will be located and to design and build them. In addition, limitations on the septage discharge on these plants should be defined to avoid operational disruptions. The construction cost of these facilities is modest and not likely to exceed L.E. 100,000 each. Construction of septage reception facilities at site 9N can be delegated to and paid for by the operator of this site as part of the leasing arrangements. Characterization of septage: This ipindustrial, commercial and healthcare activities that generate waste with biological and physical-chemical characteristics that can pose a danger to staff or to the environment. Based on these findings certain wastes are likely to be excluded from being discharged at reception facilities. Both private operators that collect septage and operators at receiving stations should be thoroughly familiar with these restrictions. It is also good practice to establish routine and spot checadone by AGOSD or contracted with an independent and qualified laboratory. ii) Leasing of operation of Site 9N In

• The volumes and likely seasreceived at this site, including projections over the lifbe noted that the contractor will have no control over these quantities, some of which (dewatered sludge in particular) are critical to the financial viability of the compost operation. The potential market for compost. Given that the size of the lease contract is small, it does not seem realistic to exthorough due diligence process to assess the demand for this product (potential users, volume and price).

rvice contracts for the transport of wce

life o he contract, of materials to be transported to site 9N.



roject execution timetable

s shown in Table 7, the time to carry out these projects to implementation is estimated includes about four months required to improve the

formation on all three projects, which as indicated previously is critical to reduce

P Aat nine months. This periodininformation risks to interested operators and improve AGOSD’s position.



SEGURA / IP3 JV Final Report -

1. Feasibility Information enhancement Septage Site 9N Transport of materials Selection of transaction advisors Staff deployment Assessment of equipment

2. Pre-transaction activities Creation of transaction unit Information memorandum Organization of data room

3. Public relations and promotion

4. Transaction Bidding documents Bid evaulation

5. Transition period

One week =Continuous but not full time activity =

7 8

Table 7. AGOSD - Steps Toward Transaction Implementation

9 10Phase / activityTime, months

5 61 2 3 4

28

USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria Transaction preparation costs The consultants estimate the costs of the transaction process, including AGOSD activities and efforts to gather and refine information at L.E. 4.2 million. The estimated cost of the transaction advisors is L.E. 2.9 million, and of AGOSD’s efforts L.E. 1.3 million. An estimate of the level of effort to implement these transactions is presented in Table 8.

Table 9. AGOSD - Estimated level of Effort

Ex-pats Local Ex-pats Local

1. Feasibility 1473 Information enhancement Septage a/ 6000 1000 15 20 110 50 18,000 900 Site 9N 6000 1000 40 80 320 50 160 8 Transport of materials 6000 1000 10 20 80 50 80 4 Selection of transaction advisors 50 40 2 Staff relocation 6000 1000 5 5 200 30 6 Assessment of equipment 6000 1000 5 10 40 50 60 3

2. Pre-transaction activities 385 Staffying of transaction unit 50 1,800 90 Base-line 6000 1000 30 50 230 Information memorandum 6000 1000 10 5 65 b/ Organization of data room 6000 1000 b/

3. Public relations and promotion 6000 1000 40 100 340 b/ 340

4. Transaction b/ 1350 Bidding documents 6000 1000 180 120 1200 Bid evaluation 6000 1000 20 30 150

5. Transition period

Sub-totals 355 440 2535 20,170 1013 3548Direct costs and incidentals 335 317 652

Totals 2870 1330 4200Notes; a/ Includes employing university students to do the census b/ Included in operation of transaction unit

Transaction implementation costs, L.E (000).

Phase / activityT. Advisors AGOSD

Unit costs Staff-days T. Cost Unit cost Staff-days T. Cost T. costs



6. Conclusions and Recommendations

• SEGURA/IP3 JV was retained by USAID at the request of the Governorate of

Alexandria (GOA), to advance the analysis of the proposed reforms exploring the feasibility of Private Sector Participation (PSP) in the operation and maintenance of the water and wastewater system. Government authorities had expressed interest in possibly merging the water supply –AWGA- and sanitation –AGOSD – agencies.

• The consultants prepared an initial “Main Policy Considerations” report to provide

government authorities with alternative scenarios and recommendations to guide their policy decisions. These decisions provided the basis for the development of the Governorate Policy Statement Paper.

• From the consultants’ point of view merging water and sanitation services could be a

desirable but not a necessary condition to improve services. The merger would demand substantial involvement of senior government officials to overcome resistance to change both in AWGA and AGOSD, which is likely to distract their attention. Therefore, it is necessary for government authorities to assess the benefits and costs of embarking on this aspect of reform when it appears that there are other reforms that can have a more significant impact on the quality of service and operations.

• When the GOE issued the Presidential Decrees No. 135 and 136 of the year 2004,

establishing a Holding Company for water and wastewater companies the consultants analyzed the implications of the modified legal framework and incorporated their views into the Policy Statement Paper, along with feedback from GOE officials.

• Its highly desirable to “right size” the work force at both entities, not only to reduce

operational costs but also to facilitate reaching a more balanced skill-mix. The government needs to assess the political and social implications of staff reductions and determine a plan to achieve the desired targets. Staff reduction by attrition only will not be adequate, as it will take a long time to produce meaningful results. Likewise, reaching the desirable levels of productivity through service growth will require at least 25 years (assuming 2.5 % growth per annum).

• Regarding the service rates, the consultants believe that additional tariff increases are

certainly needed. It is also important to revise the tariff structure to improve targeting of subsidies to the poor, and substantially reduce or abolish subsidies to many consumers that do not need them, which can facilitate the tariff adjustment process.

• It is still not clear at this stage how the Water & Wastewater Holding Company will

operate in practice. Nonetheless, the consultants made two recommendations: o Local service agencies should be given substantial operational and financial

autonomy, including the management of their internal cash generation; and.



o To consider the inclusion of municipal authorities in the board of directors of these companies to coordinate and take into account their more in-depth knowledge of local conditions and priorities.

• A settlement of the outstanding debt of these entities it an urgent issue to be solved by the

government, as it is an essential element of the sector restructuring plan. It is highly unlikely that a private operator, under any of the PSP options considered, will assume part of this debt. In similar situations in other PSP contracts, the outstanding debt has been serviced by a special surcharge on the tariff, with the private operator acting as collecting agent on behalf of the administration.

• After the creation of the Holding Company, the GOA and USAID agreed that we should

concentrate on the feasibility of service contracts. In the case of AWGA, the consultants considered two basic alternatives: i) Metering only; and ii) Comprehensive metering, billing and collection. In our view the comprehensive metering, billing and collection contract is the most desirable alternative. This alternative has major advantages over a metering-only contract: a) Net revenues for AWGA will be higher; and b) It will have a more profound and lasting impact on commercialization practices as it will help to substantially improve performance of AWGA’s branches.

• AWGA expressed an interest in pursuing the metering only option. AWGA has also

indicated that it believes it can improve its billing and collection through internal efforts and does not wish to undertake the more comprehensive metering, billing and collection option at this time.

• None of these contract alternatives addresses water supply management issues, or

investments needed for the optimal rehabilitation of the distribution system. Metering of water delivered to each zone will continue to be AWGA’s responsibility and therefore outside the scope of any of these contracts. AWGA also needs to create a contract administration unit, with qualified staff for which training should be considered.

• The consultants have prepared a Draft Transaction Implementation Plan for the selected

alternative (presented separately)

• AGOSD sought advice on how to structure service contracts for (a) septage collection and disposal; (b) operation of Site 9N including composting; and (c) transportation of dewatered sludge and other wastewater byproducts to this site. The pre-feasibility of AGOSD’s potential service contracts is developed in this report.

• At the request of AGOSD, SEGURA/IP3 consultants developed the pre-feasibility

analysis for contracting three operational activities with private operators, namely: 1) septage collection and disposal; 2) operation of Site 9N; and 3) transport of wastewater operational byproducts to site 9N.

• From this analysis the consultants recommended:



o Licensing to private operators the collection and disposal of septage. These licenses should be granted for two to three year periods;

o Leasing the operation of Site 9N that handles the safe disposal of waste byproducts and produces compost from dewatered sludge that is sold to local markets. This leasing contract should be 10 years, to allow the recovery of likely investments by the private operator, related primarily to the production of compost;

o Service contracts with several operators for the collection and transport of wastewater byproducts (dewatered sludge, grit, scum and grease) from the two waste treatment plants and 72 pumping stations to site 9N. These service contracts should be granted for three to five years, to stimulate competition and to lower future costs associated with re-bidding.

• The consultants presented a separated report outlining the “Steps Toward Transaction

Implementation” for the above service contracts options. • The consulting team has clearly indicated to USAID/ Egypt and GOE authorities that

although "service contracts" of this nature are steps in the right direction, they will not address the structural problems facing the two utilities (especially in the case of AGOSD). These problems include primarily: adequate maintenance of existing infrastructure, capital investments to meet new demand, settlement of accumulated debt and extremely low service rates, which do not make full cost recovery operation a realistic expectation for the Alexandria W & WW utilities in the near future

Given the significant steps undertaken by GOE with the creation of the Water & Wastewater Holding Company and the Egyptian Regulatory Authority (EWRA), we strongly recommend to include more comprehensive PSP alternatives in the reform program and to undertake the proposed service contracts at AWGA and AGOSD as part of the implementation of the sector reform.



Attachments

A1 AWGA’s Financial Statements

FY 04 FY 03 FY 02Current assets

Cash and cash equivalents 111 108 124Accounts receivable 284 262 214Provision for doubtful accounts (-) -12 -13 -13Debit balances and other 38 22 52Inventory (net) 26 26 23

Total current assets 447 405 400Fixed assets

Gross fixed assets 1,038 950 900Accumulated depreciation (-) -394 -362 -327

Net fixed assets in operations 645 588 573Work in progress 266 258 205

Total fixed assets and W.P 911 846 7781,358 1,250 1,178

Current liabilitiesSuppliers and others 307 283 272Provisions 27 7 8

Total current liabilities 334 290 280Long-term loans

Ministry of Finance 43 31 31National Investment Bank 424 374 349

Total long-term loans 467 405 380

Capital and government cont. 528 364 364Reserves 29 390 353Accumulated losses (-) 0 -198 -198

Total equity 557 555 518Total Equity and Liabilities 1,358 1,250 1,178

1/ Balance sheets as of June 30 for FY 02 and 03. The balance sheet for FY04 is as of April 29 when AWGA was converted into a Public Business Sector Company (P.D. 135/2004).

Liabilities

Equity

Table A1-1. AWGA - Balance Statement 1/(L.E. Million)

Assets

Total Assets

SEGURA / IP3 JV Final Report A -33


FY 04 FY 03 FY 02

Funds from operations Net income before after taxes and before int. 31 28 52Plus, depreciation 33 37 35Decreases (increases) in working cap. 1/ 5 -11 -3

Funds from operations (A) 70 54 84

Debt servicePrincipal 19 63 58Debit interest 32 45 45

Debt Service (B) 51 108 103

Net internal cash generation (A-B) 19 -54 -19

Loans and grantsNIB loans for investment 2/ 57 75 57NIB loans to cover debit interest 2/ 12 13 13Grants 4 5 6

Total loans and grants 73 92 76

Capital expenditures 90 102 831/ Excluding cash.2/ NIB: National Investment Bank

Concept

Table A1-2. AWGA - Selected Cash Flow Figures


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria A2 AGOSD’s Income Statement

Concept L.E. Million

Operating revenues 42Operating expenses (excluding depreciation) 61Operating profit before depreciation -19Depreciation 56Operating profit -75Interest 56Profit before taxes -131Income taxes 0Net income -131

Table A2. AGOSD - Income Statement FY O3


USAID - SEGIR Privatization II IQC Government of Egypt Feasibility of PSP in the Water & Wastewater System, Alexandria A3 Partial list of individuals contacted

Name Title Entity Ms. Aida Mahargy Head of Administration/

Commercial Affairs AWGA

Ms. A. Nasser AWGA Mr. Ahmad Shaheen Chairman (March/04) AGOSD Mr. Ahmed Hassan Legal Counsel Mr. Anthony N. Vance Associate Mission Director USAID Cairo Mr. Ashraf Dessouky General manager Hydro-Comp Enterprises Dr. Beyaly Hosney Mohamed El Beyaly

Chairman AGOSD

Mr. David Logan

Saur International

Mr. David Osgood Chief of Party of the WWSPR Project

CH2MHill

Eng. El Shafhie El Dakroury Chairman National Organization For Potable Water & Sanitary Drainage NOPWSD

Mr. Eric Reading

Consultant Chemonics

Mr. Ernest A. Slingsby Chief of Party Planning and Development Collaborative International. Middle Egypt Utilities Institutional Strengthening Project

Mr. Gharieb El-Sawi Project Manager, Office of Environment & Infrastructure

USAID

Mr. Ghazi Almani Representative Severn Trent International Mr. Hassaan Morsi Deputy Project Director Metcalf & Eddy Dr. Hossam Rashwan

Official Arab Soft

Mr. James Harmon Chief Division of Water & Waste Water

USAID

Mr. Jeffrey C. Wuorinen Regional Representative – MENA (Middle East North Africa)

IP3

Mr. Joe Haddad

Representative Prestage Supplies and services

Ms. Kathy Shandling

Executive Director International Private Water Association

Eng. Mahmoud M. Hamed Managing Director, the department of environmental monitoring

Alexandria Governorate

Eng. M. Magd Eldin Ibrahim First Under Secretary, Supervisory of Minister Cabinet

Ministry of Housing, Utilities, and Urban Communities

Eng. Mamdouh Raslan Project Officer, Environment & Infrastructure

USAID

Mr. Michael C. DeMetre Senior engineer USAID



Name Title Entity Mr. Michael R. Giddinge, PE Chief of Party Metcalf & Eddy Mr. Mohamed Ahmed Bassiony Secretary General Governorate of Alexandria Eng. Mohamed El Alfy Deputy Chairman Water & Wastewater Holding

Company Eng. Mohamed H. Ashmawi President IP3 MENA Mr. Mohamed Mohamed Gamal Head of the Administration

Affairs AWGA

Eng. Nabil M.A Shehata Engineer AGOSD Ms. Eng.Nadia Abdou Chairperson AWGA Mr. Patrick Grayson

Representative ABB

Mr. Rick Albani Project Director, AWGA ISC Project

PA Government Services

Mr. Roland Gomez

Representative Badger Meters

Dr. Shacker Helmi Advisor to the Governor of Alexandria for Environmental Affairs

University of Alexandria, Institute of Graduate Studies and Research, Dept. of Environmental Studies

Mr. Simon Langton Representative Severn Trent International Mr. Tyler Holt Infrastructure Policy Advisor USAID Eng. Wassim Daniel Mikhaiel Project manager, Office of

Environment & Infrastructure, Water & Waste Water Sector

USAID

Mr. William Astrasky

Representative Sargent International


alexandria psp: feasibility study - final report

Documents

alexandria governorate

governorate of alexandria

operation maintenance

final report copies

status report

table a1

usaid egypt

agosd septage management