ADB Workshop on PPP in Water Management Contracts

ADB – Workshop on PPP in Water Management Contracts Key Principles Anand K Jalakam +91 -99720 -01819 anandkjalakam@gmail. com 1

Presentation Structure l l l 2 Water utility operational functions Policy issues for sustainable O&M Management Structures for O&M Key issues for delegation Key principles of contracting

Water Utility Service Regime PUMP SOURCE TREATMENT STORAGE MEASUREMENT 3 CUSTOMER

Strategic Business Units PUMP TREATMENT SOURCE CUSTOMER STORAGE MEASUREMENT Bulk 4 Retail

Key Operational Functions PLANNING, WATER SAFETY, ENGINEERING, ASSET MANAGEMENT, PROCUREMENT, IT ØPRODUCTION ØVALVING ØLABORATORY ØFACILITY MGMT SOURCE ØDEMAND MGMT ØVALVING ØREPAIRS PUMP METER WTW ØWRU CORD’N ØPROTECTION ØMANAGEMENT ØMONITORING ØDISTRIBUTION ØMAINTENANCE ØREPAIRS ØMECH & ELEC ØCHLORINATION ØQUALITY& SAFETY OHT ØCUSTOMER SERVICE ØMETER READING ØBILLING & COLLECTION ØDEBT MANAGEMENT ACCOUNTS, FINANCIAL CONTROL, HUMAN RESOURCES, SAFETY, AUDIT, LEGAL 5

Policy issues for sustainable O&M Governance l Operational autonomy l Ability to manage staff l Flexibility in decision making l Transparent subsidies Management l Responsiveness to consumers l Efficiency l Commercial viability l Capacity to grow and transform 6

Possible options for reform A. B. C. D. E. 7 Integrated Municipal Management (IMM) Dedicated Municipal Management (DMM) Municipal Water Company (MWC) Regional Water Corporation (RWC) Delegated/Outsourced Management (DOM)

A - Integrated Municipal Management 8

A – Integrated Municipal Management Advantages l Simple to administer l Managerial control with Municipal Commissioner l Customers can deal with one agency for all services l Democratisation at the grass-root level Weaknesses l Low accountability l Key staff does not belong to ULB l Difficult to link tariffs to service delivery l Less focus on water l Councilor and operator conflicts leads to controversies 9

B - Dedicated Municipal Management Mumbai, Pune Nagpur, Surat 10

B – Dedicated Municipal Management 11 Advantages l All the strengths of Option A holds good l Ring-fencing of water account leads to improved financial control and discipline l Tariffs can be linked to service levels l Transparent subsidies to poor can be ensured l Possibility of performance incentives to staff Weaknesses l Limited career opportunities to staff l Un-economical for small towns l Councilor and operator conflicts leads to controversies

C - Municipal Water Board/Company Bangalore, Chennai Hyderabad, Delhi 12

C – Municipal Water Board/Company Advantages l Protected from daily interference from policy makers l Civil society can be included in management l Functional autonomy but ownership with ULB l Tariffs and service delivery can be linked l Better financial planning and management Weaknesses l Require detailed initial planning and preparation l Staff who are deputed may be unwanted by the parent agency l Not economical as each ULB requires a separate agency l Require elaborate training to induce corporate culture l Councilors involvement low hence they may resist 13

D - Water Corporatisation Electricity Cos’ Orissa, AP, Karnataka 14

D – Regional Water Corporation Advantages l Facility to regulate by comparison l Payments and performance can be lined l ULBs can choose any utility l Electricity unbundling experience in the state 15 Weaknesses l Initial preparation and legislative support required for sound organisational structure l Regulatory regime required for ensuring competition l Low competition as there can be max 2/3 regional utilities

E - Delegated Management (PPP) Belgaum, Hubli, Mysore Nagpur 16

E - Delegated Management 17 Advantages l Suitable for medium to large size ULBs l Performance based incentive linked contracts feasible l Contractual Regulation possible l ULB would gain value time for policy l Contract management skills sufficient for ULBs Disadvantages l Low information availability can hinder business planning l Large companies can exploit small municipal authorities l Some initial legal preparation required

Management Options 18 Management Service Providers Full Service Providers Technical Service Providers Bulk Supply Providers

Level of Private Participation 19

Key Contractual Issues - 1 l Imperfect Baseline Data – – l Scoping of Work – – – 20 Either a Baseline study (with consultants) or Include as contractual obligation as a preparatory period + Contract rebasing or readjustment Bulk supply vs Distribution services Service improvement planning Business Planning Billing and Collection Procurement

Key Contractual Issues - 2 l Contract management capability – – – l Payment to Operator – – – 21 ULB being the Obligator for service SLA can support contract administration Technical Auditor Availability of funding stream Payment security Incentives

Key Contractual Principles l l Selection methodology – Transparent bidding Parties to Agreement – – – l Contract Phasing – – – l l Preparatory Phase Service Improvement Phase Operating Phase Obligations of parties Risk Allocation – 22 ULB as obligator Operator as service provider SLA as contract administrator Operating, Market, Collection

Performance Deliverables Preparatory Phase – Service improvement plan – Annual Operating Plan – Information Management System Service Improvement Phase – Incremental increase in cash collected per unit volume of water sourced – Metering, increased coverage of HSCs – Response times – Service Interruptions Operating Phase – Incremental performance improvements 23

Operator Remuneration Preparatory Phase – One off Set up costs – Annual Operating Costs – Fixed Fee Service Improvement Phase – Rehabilitation costs – Annual Operating Costs – Fixed Fee + Performance Fee – Share of positive cash accrual Operating Phase – Annual Operating Costs – Fixed Fee + Performance Fee – Share of positive cash accrual 24

Other Key Contract Principles Dispute Resolution – Amicable Settlement – Adjudication - local – Courts Indemnity – Historical defects – Negligence Termination – Continuous default by either Party – Fraud – Insolvent 25

Experience in Karnataka 26

Acknowledgements l l l KUIDFC BWSSB KUWSDB KRWSSA USAID FIRE Project WSP-SA, World Bank “Thank you” anandkjalakam@gmail. com +91 -99720 -01819 27