1

Can Franchising be a Business Approach for the Nigerian State

Water Agencies?

Workshop on franchisingLagos, Nigeria

3 and 4 December 2003

2

Contents

• Challenges of the State Water Agencies• Strategy Options

• Possible franchising packages

• Questions for the working groups

3

Challenges of the State Water Agencies

• Increase operational efficiency– decrease operational cost– increase billing and collection efficiency– achieve full cost recovery

• Increase service levels– continuous supply– increase water quality

• Expand water supply to the whole population - service to the poor

4

Strategy Options

• At institutional level– organisational restructuring– human resources development– introduce new methods and systems– involvement of the private sector– investment planning and attract finance

• At operational level– rehabilitation and improved operation &

maintenance of the assets– systems expansion

5

Application to a (sample) Nigerian State Water Agency

State Water Agency

WSS district

Private operator

Private operator

WSS district

WSS district

Conce

ssion

contr

act

Mng

tco

ntra

ct

Third partyFranchise contract

6

Possible Franchising Modes

• Capacity building (classroom/in service)• Continuous specialist support

– Counselling– Technical support

• Supply and implementation of systems• Special services

7

Possible Franchising packages- Capacity Building -

• Technical management and operations• Financial management and operations• Commercial management and operations• Project management

8

Possible Franchising packages- Counselling -

• Organisational restructuring• Business and strategy planning• Investment planning• Attract finance

9

Possible Franchising packages- Technical Support -

• Operation & maintenance• Financial management• Asset management• Project management• Construction management• Contract management

10

Possible Franchising packages- Supply and Implementation of

Systems -

• General– Management information system

• Technical– Geographical information system

• Financial & commercial– Billing and collection– Consumer information system

11

Possible Franchising packagesSpecial Services

• Any subject for which the franchisee might need the assistance of the franchisor

12

Special services

Franchising packagesContinuous specialist support and systems

$$

time

Capacity building

13

Questions for working groups

• Which modes of franchising would be most suitable in the case of the Nigerian State Water Agencies ?

• Which areas of know-how would be most needed?

• What would be the preferred intensity of intervention of the franchisor?

14

15

Franchising must be:

• A real partnership• Attractive to both parties• For the longer term• Tailor made• Flexible • Performance based• Governed by a balanced contract

The Concept of Franchising in the Water Supply and Sanitation Sector and Introduction to the Workshop

Meike van Ginneken, World Bank Lagos, December 3rd 2003

Outline of the presentation

nWhat is franchising?n Franchising in the WSS sector: what’s

new?n Franchising packages & feesn This workshop: objectives and agenda

What is franchising?

Franchisee

Franchisor

Royalty fee $$support

‘Franchising’ is a business methodology that focuses on the transfer of business know-how and practices, often accompanied by specific training, in order to provide the necessary skills and expertise for a particular business.

Useful examples of franchising from (public) service industries

n Hotel industryn Postal services in Canada, UK, NL and Braziln Some initial experience of franchising-like

constructions in WSS:– Formosa, Argentina (International private – local

private) – Riga, Latvia (“twinning-by-contract” between

international public – local public)

Outline of the presentation

nWhat is franchising?n Franchising in the WSS sector:

what’s new?n Franchising packages & feesn This workshop: objectives and agenda

PSP: Introducing private management

concessionlease/ affermage

service /managementcontract

Direct public management

GazaGermanyMexicoBurkina Faso

ColombiaHungarySenegal

ArgentinaBoliviaManilaMorocco

Privatemanagement

PSP: introducing professional supportn Twinning

– Traditional between public entities – No contract (sometimes MoA): low accountability – Often financed by donor directly to twinnor

n Technical assistance / consultancy– Contract with clear deliverables and accountabilities– Unit fees: Consultants do not share risks inherent in the

implementation of their recommendations– Useful for discrete time bound assignments

n Joint ventures – Traditionally between private companies– Both parties enter and finance new company – Long term intensive relationship for shared operations

n Franchise – Contract with clear accountabilities– Performance-based fee payment – comprehensive and long-term support

Continuous specialist

assistance

Special services

SystemsCapacity building

Franchisee(operator)

Franchisor(third party)

royalty fee $$

support

Franchising in the WSS sector

Franchising contract

Franchisee

Country A

Country C

Country B

Country D

localcompany

Local company

Joint venture

Internationalcompany

Franchisor

Franchising options

Outline of the presentation

nWhat is franchising?n Franchising in the WSS sector: what’s

new?n Franchising packages & feesn This workshop: objectives and agenda

The franchising package

Areas of know-how

n utility managementn asset managementn billing and collectionn engineering

(construction, O&M)n human resources

management n procurement n etc

Modes of know-how transfer

n capacity building n systems n continuous specialist

assistancen special services

Special services

Franchising packages

Systems and continuous specialist support

$$

time

Capacity building

Royalty fees (1)

n Up-front fee: lump sum at contract signingn Monthly fee: fee per month n Unit fee: fee per unit delivered (man month,

course, etc)n Performance-based fees: a percentage of the

Franchisee’s gross sales or bonuses based on other indicator

Unit fee

Royalty fees (2)

Performance-based feeMonthly feeUpfront fee

$$

time

Balancing services and fees

$$

time

Services deliveredFees paid

Balancing what inputs and outputs for both partiesFranchisorFee should cover or

exceed cost of being a franchisor:

n cost of business & new product development

n operational costsn Franchisor’s profits

FranchiseeFee should cover or

exceed net benefits of being a Franchisee:

n Increased cash-flowsn Reduced

expenses/costs

Not too Much Not too Little

Outline of the presentation

nWhat is franchising?n Franchising in the WSS sector: what’s

new?n Franchising packages & feesn This workshop: objectives and

agenda

Application to a (sample) Nigerian State Water Corporation

State Water Corporation

WSS district

Private operator

Private operator

WSS district

WSS district

Conce

ssion

contr

act

Mng

tco

ntra

ct

Third partyFranchise contract

Objective of the workshop

to examine whether or not the principles of franchising could provide decision-makers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry

Workshop agenda

Pros & consFranchising packagesPM

Closing plenary

Fees and contractsOpening plenaryAM

Thursday Dec 4rd

Wednesday Dec 3rd

Workshop on Franchising in the Water Supply & Sanitation Sector

An attempt to draft some conclusions

Answering the question we asked yesterday a.m.:

Whether or not the principles of franchising could provide decision-makers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry

The conclusion today:

Cautiously YES

Given that certain prerequisites are met

If we adopt the principles to local conditions

Prerequisites for franchising

n Autonomy of State Water Agency– Financial & institutional autonomy– Autonomy on paper and in reality

n Minimum level of trust and confidence n Present status of State Water Agency

– Cost recovery– Infrastructure– Etc

n Willing franchiseesn Should be part of a broader package of

sector reform (and part of a broader donor financing package to implement advise)

Types of know-how

nManagement approaches (high level mentoring)

n Skills– operation & maintenance– Billing & collection– Information gathering & analysis– Asset management

Application to a (sample) Nigerian State Water Corporation

State Water Corporation

WSS district

Private operator

Private operator

WSS district

WSS district

Conce

ssion

contr

act

Mng

tco

ntra

ct

Franchise support

Third party

Modes of know-how transfer

n Capacity building, especially on the job training

n Preference to have specialists on side permanently, rather than intermittent periods

How to pay for it

Performance-based feeFixed fee

$$

time

Revenue financed

The core principles of franchising

nOperator – operator partnershipn The franchisor supports, the franchisee

is in the driving seat (how can franchisorinfluence decisions?)

n Long termn Performance based n Flexibility (need to communicate and to

adjust franchise to changing reality)Franchising requires a change of thinking à if

approached like a consultancy contract it will not work

Remaining question

Is franchising more suitable to be focused on larger cities or smaller towns?

State Water Corporation

WSS district

Private operator

Private operator

WSS district

WSS district

Conce

ssion

contr

act

Mng

t con

tract

Franchise support

Third party

Workshop on Franchising in the Water Supply & Sanitation Sector

Lagos 3-4 December 2003

Conclusions

Answering the following question:

Whether or not the principles of franchising could provide decision-makers in Nigeria with an additional tool that could be used to transfer knowledge and best practices to the WSS industry

The conclusion is:

Cautiously YES

Given that certain prerequisites are met

If we adapt the principles to local conditions

Prerequisites for franchising

n Autonomy of State Water Agency– Financial & institutional autonomy– Autonomy on paper and in reality

n Minimum level of trust and confidence n Present status of State Water Agency

– Cost recovery– Infrastructure– Etc

n Willing franchiseesn Should be part of a broader package of

sector reform (and part of a broader donor financing package to implement advise)

Types of know-how

nManagement approaches (high level mentoring)

n Skills– operation & maintenance– Billing & collection– Information gathering & analysis– Asset management

Application to a (sample) Nigerian State Water Corporation

State Water Corporation

WSS district

Private operator

Private operator

WSS district

WSS district

Conce

ssion

contr

act

Mng

tco

ntra

ct

Franchise support

Third party

Modes of know-how transfer

n Capacity building, especially on the job training

n Preference to have specialists on site permanently, rather than intermittent periods

How to pay for it

Performance-based feeFixed fee

$$

time

Revenue financed

The core principles of franchising

nOperator – operator partnershipn The franchisor supports, the franchisee

is in the driving seat (how can franchisor influence decisions?)

n Long termn Performance based n Flexibility (need to communicate and to

adjust franchise to changing reality)Franchising requires a change of thinking à if

approached like a consultancy contract it will not work