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