Public Private Partnership (PPP)

1. Public Private Partnership
in Urban Water Sector
in India
Ankit Tulsyan
Ipshita Das
Khalid Rahman
TERI University
20th October 2014

2. Public Private Partnership:
Definition
• A Public Private Partnership project means a
project based on a contract or concession
agreement, between a government or statutory
entity on the one side and a private sector
company on the other side, for delivering
contractual service on payment of user charges.
• The concept of PPP should not be confused with
other concepts such as Public service(full state
responsibility), Privatization(includes sale of assets) and
Outsourcing(short term contracts, ex: hiring a security).

3. Need for a Public Private Partnership
• The increasing trend of population pressures in a
country alongside various developmental projects
taking place for the welfare of state has severally
constrained the government’s ability to address
public needs through the traditional means.
• Other considerations too, like
 Increased efficiency in project delivery
 Improved operation and management
 Access to advanced technology
 Need to bring in commercial viability considerations in the
provision of urban infrastructure

4. Types of PPP
Supply and
Management
Contract
Manage part or
whole of
Infra/Service
Ownership - State
Management Fees in
lieu
3 – 5 Years
Turnkey
Traditional
Model/Less Complex
Bidding Process of
Selection
Design & Builds at a
Fixed Fee
Low Risk and Low
Pvt. Investment
Lease/Affermage
Public Investment
with private
efficiency
Operator run,
collect revenue, 8-15
Yr period
Lease – fixed fee to
the Owner
Affermage – fixed
fee to the operator
Greater commercial
risk to the Private
operator
Concessions
Public authority
grants the right to
build and operate
Revenue is linked to
performance, 5 to
50 year period
High Pvt.
InvestmentSeveral
Forms –
JV/BOOT/BOT.
Govt. may do VGF
Asset ownership of
Govt

5. Genesis of Public Private Partnership
• Public Private Partnerships (PPPs) were introduced in
1992 in the UK by the Conservative government and
subsequently expanded across the world.
• This was the basis for the first PPP Policy developed
in the state of Victoria, Australia.
• In India, PPP Model was first followed in the power
sector and thereafter expanded to other sector
• In case of Urban water supply, the trend was
primarily Build Operate Transfer (BOT) with 100
percent private financing but post 2010, the
operational contracts are a mix of concession
agreements, BOT projects, and management contracts

6. Overview of PPP in Indian Urban water
Sector
Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

7. Reasons for Failure of the Projects
Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

8. Analysis of factors for Success of the Projects
Source: Trends in Private Sector Participation in the Indian Water Sector: A Critical Review

9. International Case Studies
Senegal
• In early 1990’s only 54% of Senegal’s urban population had
access to safe water.
• In 1994 Gov created steering committee of the ministers of
each Gov agency concerned with WSS
• The committee created a state asset-holding company to
retain the asset and the right to extract water, and
operating company would produce and distribute water.
• Considering the need and constraint of the sector the
committee decided to give it on a affermage contract
• A 10 years affermage contract was signed between
Government and Senegalaise des eaus which was formed
specially for this purpose with specified term and condition

10. How PPP Helped Foster Efficient
Public Investment in Senegal
 Between 1996 and 2003, water production has increased by 18 percent
with 81,000 new household connections and 400 standpipes according to
the World Bank.
 The financial equilibrium achieved in 2003, with average tariff increases
not exceeding 3% per year
 Water cuts are rare and more of Dakar is connected to a clean water
supply than ever before, with careful measures to make sure that poor
areas of town are not overlooked.
 Service to the poor: Social connections programs (SCPs) have significantly
helped expend access of service to the poor
 Thus, the key outcomes of the PPP are:
1. More water to more people
2. Better financial heath
3. Positive change in tariff

11. Key factors for successful implementation
• The choice of affermage contact was an innovation. A performance
contract has never been used before like this and initially there was
a lot of skepticism, but it has proved to be very effective
• The contract addressed the need of the Gov and kept the asset in
hand
• Strong political will and good leadership from the relevant ministry
was present.
• The operations and maintenance function were clearly defined.
• Tariff Adjustments has introduced progressively as improvements
are made in coverage and service quality.

12. International Case Studies Manila (the
Philippines) –Past Scenario, before 1997
• Before 1997, the capital’s water supply and distribution
was in disarray.
• Communal water sources were shared by hundreds of
families who had to line up for hours just to get a few
pails for the day’s use.
• Two-thirds of the water produced was being lost to
leaks, poor metering, and illegal connections
• Clean and potable water was a luxury which poor
families simply did not have, and that others had to
acquire at a steep price

13. International Case Studies Manila (the
Philippines) - Post a PPP arrangement in 1997
• Two concessions were awarded in 1997 to cover two contrasting
areas
• The Ayala-led Manila Water Company took over the East Zone of
Metro Manila & the Western concession by the Maynilad, operated
by Benpres-Suez under a concession agreement. Winners invested
$7 billion to expand and improve the facility
• In the Western concession (Maynilad), coverage expanded
from 67% to 86 percent. In the Eastern zone (Manila Water),
coverage jumped from 26% to 99%.
• An estimated 4 million people gained access to piped water in
Manila during the period 1997–2006.
• Water for poor programme at 1.5$ per month
• With the contract the Price has been decreased by 74% in the east
zone and 43% in the west zone.

14. International Case Studies
Manila (the Philippines)
Source: Public-Private Partnerships for Urban Water Utilities, Marin 2009

15. Way Forward – for strengthening PPP
in Urban Water Sector
 Establish sector trend approach rather than current
project specific approach
 States should follow well established and accepted
principles to increase the chance of success for PPPs in
water sector
 Bureaucracy should be a facilitator and not an
impediment
 Develop sector regulation for long-term measure:
 Develop states implementation and monitoring capacity
 Tariff Structure Reforms for full cost recovery approach