PPP’s IN NIGERIA: Prospects in the Water Sector PATRICIA SIMON-HART INTRODUCTION Water and Sanitation Services are different from other infrastructure sectors! Many Governments are trying to figure out how to strike a balance between roles of the public and private sector in water • PPP approaches successful elsewhere (transport, power, etc) cannot be replicated directly in the water sector • Direct Private Investment should not be the focus in the Water Sector • Combining efficient private operation with public/IDA financing is more appropriate PPP approach THE NIGERIAN WATER SECTOR URBAN WATER SUPPLY (20,000+) SMALL TOWNS WATER SUPPLY (5,000 – 20,000) RURAL WATER SUPPLY (UNDER 5,000) INSTITUTIONS IN THE NIGERIAN WATER SECTOR THE FEDERAL MINISTRY OF WATER RESOURCES STATE MINISTRY OF WATER RESOURCES STATE URBAN WATER UTILITIES SMALL TOWN WATER SUPPLY AGENCIES RURAL WATER SUPPLY AGENCIES WATER SERVICE REGULATORY BODIES PPP’s IN WATER Promoting Public-Private Partnerships in the Water Sector requires striking the right balance between capabilities that public and private entities bring to the table. 1. Public Sector Ability to provide commercial frameworks for infrastructure acquisition, financing, licensing – as well as creating the enabling environment to assist private firms operate and achieve full cost recovery. 2. Private Sector Ability to invest and produce innovative, affordable products and reliable, efficient services based on profit motives. 3. Partnership Enabled through the Public Sectors Ability to regulate and facilitate operations contracts to private firms while not burdening them. WHY DO WE NEED PPP’s IN WATER TO MOBILIZE PRIVATE FINANCE TO INCREASE THE EFFICIENCY OF CAPITAL INVESTMENT RESTRUCTURE GOVERNMENT ESTABLISHMENTS TO REDUCE POLITICAL INTERFERENCE IMPROVE THE QUALITY OF SERVICE OPTIMIZE THE USE OF EXISTING INFRASTRUCTURE IMPROVE COMMERCIAL ORIENTATION INTRODUCE TECHNICAL EXPERTISE IMPROVE OVERALL OPERATIONAL EFFICENCY REDUCE OPERATING COST ELIMINATE GOVERNEMENT INTERVENTION FOR O&M PROFITABILITY IS LINKED TO SERVICE DELIVERY! THE ENABLING ENVIRONMENT FOR PPP’s in Water WATER GOVERNANCE REGULATION FINANCE EFFECTIE RISK MANAGEMENT • Political will for change • Sector Reforms - Policy and New Legislation • Performance based management • Utility reforms – Financial and Operational autonomy, Capacity Development • State Water and Sanitation Regulation • Tariff policy and model • Strong enforcement • Clear Government Communications Strategy • Access to affordable finance • Government guarantees • Government subsidies • Favorable investment climate • Detailed PPP transaction modeling • Transparent Private sector engagement process • Transparent private sector players AREAS OF INTERVENTION IN THE VALUE CHAIN WATER PRODUCTION oFresh/Ground Water collection o Fresh/Ground Water Treatment o Desalination Plants DISTRIBUTION & SUPPLY SEWAGE AND SANITATION oMunicipality/H ousehold Supply o Waste Water Collection o Supply to Industries o Supply to Unplanned Settlements Unplanned o Waste Water Treatment & disposal OTHERS o Irrigation o Bottled Water PPP OPTIONS SERVICE/MANA GEMENT CONTRACTS LEASE/AFFERM AGE 1-5 8-15 TERM (YEARS) CONCESSION 20-30 BOT FULL DIVESTITURE 20-30 NA ASSET OWNERSHIP Public public public Private then public private INVESTMENT FINANCE public public private private private COMMERCIAL RISK public shared private Public/shared private OPERATIONAL RISKS Public/shared private private private private GOVERNMENT REVENUES Tariffs minus service fees, taxes Tariff minus affermage operating price, taxes Concession fee, taxes Tariffs minus offtake Sales private, taxes PRIVATE REVENUES Service fees Affermage operating price Tariffs minus concession fee Bulk water sales tariffs CURRENT TRENDS IN THE NIGERIAN WATER SECOTR URBAN WATER SUPPLY SMALL TOWN WATER SUPPLY DBOO/ BOO CONCESSION LEASE/ AFFERMAGE MANAGEMENT CONTRACT MANAGEMENT CONTRACT SERVICE CONTRACT SERVICE CONTRACT RURAL WATER SUPPLY COMMUNITY OWNERSHIP ASSESSING YOUR RISK VS REWARDS HIGH Design-Build-Operate (BOT) Concession REWARDS Lease/ Operating Contract RETURN ON INVESTMENT Service Contract LOW LOW Management Contract RISK REQUIRED INVESTMENTS HIGH Divestiture (InvestorOwned Utility) TYPICAL PPP PROCESS KEY CHALLENGES OF WATER PPP’s Access to Water is considered a Fundamental Human right. People still reluctant to pay Absence of proper Preparation of suitable PPP structure and viable Financial Models Governments need be willing to share the associated risks The Political economy Lack of access to affordable finance THE WAY FORWARD… RECOMMENDATIONS AND CONCLUSION As the Nigerian Water Sector continues to implement reforms new prospects and opportunities shall continue to emerge for Private Sector participation. There has to be political will at State Level to reform and also to create the enabling environment for Private Sector participation Sector Regulation at State Level must be in place and enforcement evident The must be detailed studies and financial modeling to determine Tariffs, Transfer and subsidies State Governments must still be willing to invest in Infrastructure costs as and when required The Private Sector should consider starting with Management contracts and gradually move ultimately to concessions Tariffs must be set for full recovery of O&M and any management fees Utilities should design networks to offer bulk water services to an area that can operate in isolation Development funding should be structured to encourage the Private sector access at affordable rates for investment in the water and sanitation sector In the water Sector one solution does not fit all. Understand your environment and structure the PPP to the unique environment. Thank you for listening. WATER IS LIFE! SANITATION IS DIGNITY!! LET’S BUILD PARTNERSHIPS!!!