privat sector participation
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Private Sector Participation
Session 3
ADB – Viet Nam Sanitation Dialogue16-17 April 2009Thanh Hoa
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Partnership Arrangements
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Reasons for private sectorparticipation
The public sector has failed to deliver a good level
of service because of lack of expertise and funds.
Assumptions:
The private sector is more efficient, and will deliver
a more cost-effective and improved quality of
service, resulting in lower budgetary allocation by
the government.
Private sector management and administration ismore flexible, dynamic and responsive.
Private sector has better knowledge of or access to
technology.
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Private Sector Participation –Objectives
The objective of a utility is to deliver a service
The objective of the private sector is to make
money
These two objectives are not compatible, but
can be made to work together through a wellstructured and fair contract and good contract
management practices
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Private Sector Participation –Risk
Risk equal dollars
The more risks you place on the private sector the
more you will pay for the serviceRisks can derive from assigned accountabilities orunknowns
The poor definition or assignment of risks at theformation of a contract leads to the majority ofcontract disputes
There is no advantage in causing a contractor tolose money or go broke
Risks should be placed where they can best bemanaged
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Private Sector Participation –Contracts
Menu of investment arrangements:
management contracts
service contracts
lease
concessionsBuild-Operate-Transfer (BOT), Design-Build-Operate (DBO), Rehabilitate-Operate-
Transfer (ROT), Build-Operate-Own (BOO) joint capital ventures
divestiture
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Private Sector: Needs
It is well worth the time and cost to ensure theseneeds are met:
Certainty – risks beyond the contractors control areexcluded from the contract, but those that mayaffect the contractor are allowed for
Clarity – what is wanted, how delivery will bemeasured, how payments will be made
Duration – important in contracts involving thedelivery of services
Fairness – one-sided contracts come with a pricetag
Legal redress
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Private Sector Arrangements
The main options for private sector participation
can be clearly distinguished by how they
allocate responsibility for such functions as:asset ownership
capital investment between public and
private sectors
service provider vs. enabler and regulator
risk mitigation/management
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Private Sector Arrangements
INVESTMENT Private SectorPublic Sector
GOVERNMENT’S
ROLE
Enabler and
RegulatorProvider
Service
Contract
Management
ContractLease
Concession,
BOT, DBO
BOO,
Divestiture
INVESTMENT Private Sector
GOVERNMENT ’S
ROLE
Enabler and
RegulatorProvider
Service
Contract
Management
ContractLease
Concession,
BOT, DBO
BOO,
Divestiture
Increasing private sector involvement
… Changing role of the government
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Option Asset
Ownership
Operations
andMaintenance
Capital
Investment
Commercial
Risk
Duration
Servicecontract
Public Public andprivate
Public Public 1-2 years
ManagementContract
Public Private Public Public 3-5 years
Lease Public Private Public Shared 8-15
years
Concession Public Private Private Private 25-30years
BOT/BOO/DBO/ROT
Public andprivate
Private Private Private 20-30years
Divestiture Private orPublic and
private
Private Private Private Indefinite(may be
limited bylicense)
Private Sector Arrangements
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Private Sector Arrangements
Select the type of contract most suitable to theneed
Keep it simple – don’t follow the latest fashionif this is not right for you
You must:know what you want (which includes how
this contract will contribute to the success of
your business),know how you will measure success, and
have sufficient capacity to manage
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Examples
Site Project PartnershipArrangement
InvestmentFinancing
Cost Recovery
San Fernando
City, LaUnion, Phil.
Sanitary
landfill
Design-
Build-Operate
Loan from
World Bank
real property
and businesstaxes
Guangzhou,
PR China
Xingfeng
landfill
Design-
Management
City
government
user fees, sale
of electricpower
Xilangsewage
treatment
Build-Operate-
Transfer
Mixed source(local & foreign
companies)
user fees
Bali,Indonesia
Sewagetreatment
Design-Build-
Transfer
Loan fromJBIC; co-
financing fromcentral andlocal gov’ts
user fees (stillto be
determined)
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Key Messages
Financing is not a constraint - there are avariety of sources
Operations funding is the real issue – canoperating costs be covered?
Utilities (public or private) providingsanitation services can be financially viable
Private Sector is prepared to get involved ifrisks are manageable
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THANK YOU.