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Asia Water Action: Public-Private Models Offer Options to Utilities

Asia Water Action: Public-Private Models Offer Options to Utilities

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Published by: adbwaterforall on Oct 16, 2012
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Country water actions are stories that showcase water reforms undertaken by individuals,communities, organizations, and governments in Asia-Pacific countries and elsewhere.
Country Water ActionsAsia: Public-Private Models Offer Options to Utilities
August 2005
Asia is facing a stunning bill, withmuch of it owed to the poor: $8billion to be paid annually until2015. That is what it will cost tohalve the number of Asians livingwithout access to safe water andsanitation by 2015, according to aforthcoming report on Asia'sprogress toward meeting Target 10of the Millennium DevelopmentGoals.Who is going to pay that bill?For cities, it has rarely been withinthe reach of public utilities, which typically lack the capital,the management expertise and sometimes even the politicalwill to undertake such large scale reforms and investments.A few cases of public-led reform can be found in PhnomPenh, Kuala Lumpur and Singapore.Most public utilities, however, are turning to privatecompanies, where there is the capital, expertise andmarket-driven incentives to offer the public what theydeserve-clean, affordable, reliable water and sanitationservices.
The private sector has always been involved in the urbanwater sector. Private companies tender for constructioncontracts, sell meters to utilities and provide water vendingin areas lacking network connections.The last several years, however, have ushered in a greaterrole for private sector participation (PSP) in Asia. Across theregion, governments are beginning to look more closely atthe following three models of PSP, weighing the advantagesand disadvantages and learning from Asia's experienceswith these models.
Management contracts:
The public sector transfersthe management of only specific activities to theprivate sector, such as metering or bill collection, fora fee.
These smaller-scope contracts may specifically benefitlocal governments, who more and more are being heldresponsible for service delivery as a result of decentralization. Too often, responsibility is decentralizedbut not the money to deliver proper services. To makematters worse, local governments rarely have the capacityto run systems or qualify for lending to improve thesystems. Where there is improved capacity at thesubsovereign level, though, there is potential for PSP. 
Because investment is not directly linked to serviceprovision, these contracts tend to focus on existingcustomers, with the public sector still responsible forfinancing and developing expansion programs.
Azerbaijan, Malaysia, India
Build-Operate-Transfer (BOT) projects:
Theprivate operator is responsible for financing,constructing, operating and maintaining a bulk watersupply facility for a specific period of time beforetransferring it back to the public authority. During theperiod of the BOT-often up to 30 years-the operatoris responsible for meeting certain targets, such asamounts of water supply or wastewater treatment, inexchange for guarantee on the prices they charge tousers.
BOT is specifically used for large infrastructure projects,such as water and production of wastewater treatmentprojects, which the public sector often lacks sufficientfunds to do alone.
Because of the emphasis on infrastructure, BOT rarelyhelps to improve the efficiency of water distribution orlead to a reduction in illegal connections.
ADB-financed Chengdu Water Supply Project, the firstsuch BOT project in the People's Republic of China.
The private sector takes fullresponsibility-not only for operations andmaintenance of a system but also for investments toimprove it-while ownership of assets remain with thepublic authority. Concessions tend to be substantial inscope, covering whole cities and regions over a 25-30year period and normally include one or all of thefollowing: the rights to provide water, sewerageand/or drainage services.
Concessions with clear targets and an independent orcredible regulator can be an excellent means of using theskills of the private sector to leverage investment, providehigh-quality service as well as expand it and collect aviable tariff to help with cost recovery.
Macau, Indonesia (Jakarta and Batam Island), Manila

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