Outsourcing andOutsourcing and franchisingfranchisingHow ONEP (How ONEP (MoroccoMorocco) ) mobilizes small mobilizes small scalescale local entreprises to local entreprises to cut cut down down running running costscosts

Bernard Bernard CollignonCollignonHydroconseilHydroconseil

Water and Sanitation Services in Small Water and Sanitation Services in Small Towns and MultiTowns and Multi--Village SchemesVillage Schemes

Addis Ababa June 11Addis Ababa June 11--15, 200215, 2002

Water and Sanitation ProgramWater and Sanitation ProgramThe World BankThe World Bank and the World Bank Instituteand the World Bank Institute

ONEP is mostly a bulk waterONEP is mostly a bulk water supplyersupplyer. Rural . Rural areas accounts for only 0.1 % of its turn over.areas accounts for only 0.1 % of its turn over.

ONEP deliverydirect distribution

in rural areas (PAGER)

3 private utilities

13 municipal.

pop > 30 000

pop < 30 000

1000 villages

population 6 000 000 1 000 000 1 100 000 900 000 500 000

sales (Mm3/year)

1,1

sales/capita (l/day) 6

turnover (M$US/year)

2,4

256 62

Production and bulk sales

management contract for 251

small towns

654

2 100

45

300

PAGER objectives in rural areas are very ambitious: PAGER objectives in rural areas are very ambitious: 80 % coverage in year 2010 (31 000 villages)80 % coverage in year 2010 (31 000 villages)

Coverage in rural areas

0%

20%

40%

60%

80%

100%

1980 1990 2000 2010 2020

PAGER

ONEP has been asked to cover a large part ONEP has been asked to cover a large part (> 50%) of PAGER scope.(> 50%) of PAGER scope.

Task sharing between ONEP and DGHTask sharing between ONEP and DGH

ONEP DGH

"territory" areas without local water sourcesareas with local water sources

water sourcessupply from remote dams

(regional schemes)on site boreholes

present management model

regular customer service + outsourcing

community management

promising management model

franchisingmanagement

contract

tariff settingnational (cross subsidy between

urban and rural areas)local (full cost

recovery)

The challenge for ONEP is :The challenge for ONEP is :

nn how to supply many thousands more how to supply many thousands more villages and small townsvillages and small towns……..

nn …….although the utility is already .although the utility is already loosing money in small towns and loosing money in small towns and villagesvillages……

nn ……and is supposed to stay financially and is supposed to stay financially autonomous (no subsidy) ?autonomous (no subsidy) ?

In order to reduce costs in small towns In order to reduce costs in small towns and villages, ONEP uses three main and villages, ONEP uses three main contracting arrangements :contracting arrangements :

(a) Outsourcing technical (a) Outsourcing technical functions to localfunctions to local entreprisesentreprises

(b) Outsourcing some retail sales (b) Outsourcing some retail sales ((standpostsstandposts))

(a) + (b) = (c) Franchising local (a) + (b) = (c) Franchising local smallsmall entreprisesentreprises for water for water distributiondistribution

ONEPONEP outsourcesoutsources manymany technical technical tasks totasks to entreprisesentreprises

nn Pumping station operationPumping station operation

nn Network inspectionNetwork inspection

nn Leakage detectionLeakage detection

nn Field water analysis and water sample Field water analysis and water sample collectioncollection

nn House connectionHouse connection…………..

(a) Outsourcing technical functions(a) Outsourcing technical functions

TypicalTypical entreprisesentreprises contracted by ONEPcontracted by ONEP

total (202)

age 0 to 7 years

staff size 2 to 10 people600 people (compared with

6000 for ONEP)

turnover10,000 to 50,000

US $/year5 M $/year (compared with

250 M$ for ONEP)

Typical micro-enterprises

(a) Outsourcing technical functions(a) Outsourcing technical functions

ONEP provides strong support to ONEP provides strong support to these localthese local entreprises entreprises

(a) Outsourcing technical tasks(a) Outsourcing technical tasks

total (202)

age 0 to 7 years

staff size 2 to 10 people600 people (compared with

6000 for ONEP)

turnover10,000 to 50,000

US $/year5 M $/year (compared with

250 M$ for ONEP)

Typical micro-entreprises

OutsourcingOutsourcing standpoststandpost management : it works, management : it works, but water sales atbut water sales at standpostsstandposts are very low in small are very low in small towns and villagestowns and villages

Sta

nd

po

sts

nu

mb

er

aver

age

del

iver

y

con

cern

ed

po

pu

lati

on

con

som

m./

in

hab

itan

t

m3/day.SP l/day.inhab

large towns 731 8,8 436 504 14,8

small towns and villages

1 312 2,2 512 880 5,5

total 2 043 4,5 949 384 9,8

Water delivery for all the ONEP standposts (year 1999)

(b) Outsourcing retail sales(b) Outsourcing retail sales

Standpost managers monthly incomes (US$/month) are very low in small towns

and villages

0%

20%

40%

60%<1

6

16 - 4

0

40 - 8

0

80 - 1

60 >160

(b) Outsourcing retail sales(b) Outsourcing retail sales

For ONEP, the challenge is to cut For ONEP, the challenge is to cut running costs for small towns, running costs for small towns, villages andvillages and scateredscatered customers :customers :

nn For the time being, small towns are highly For the time being, small towns are highly unprofitable (50 % financial losses)unprofitable (50 % financial losses)

nn In villages, perspective are worstIn villages, perspective are worst

ØØ Long pipes and few users (rising Long pipes and few users (rising maintenance costs)maintenance costs)

ØØ Remote villages (rising logistic costs)Remote villages (rising logistic costs)

ØØ Few customers per village (rising metering Few customers per village (rising metering / billing / recovery costs)/ billing / recovery costs)

Franchising is the most promising Franchising is the most promising solution to cut running costs in rural solution to cut running costs in rural areas :areas :

(a) Simple technical outsourcing is not(a) Simple technical outsourcing is not feasablefeasable(turnover in village is not enough to keep (turnover in village is not enough to keep alive a professionalalive a professional entrepriseentreprise))

(b) Outsourcing retail sales ((b) Outsourcing retail sales (standpoststandpost) do not ) do not meet the demand (users ask for connections) meet the demand (users ask for connections) and do not pay theand do not pay the standpoststandpost managermanager

(a)+(b)=(c) But a contract for all the local (a)+(b)=(c) But a contract for all the local operations is feasible : operating the system, operations is feasible : operating the system, managing themanaging the standpostsstandposts, installing house , installing house connection, managing customers (metering, connection, managing customers (metering, billing, recovering)billing, recovering)

The management option chosen by ONEP in The management option chosen by ONEP in rural areas is one step ahead of its rural areas is one step ahead of its management system in towns :management system in towns :

nn ONEP manages most of the investments and ONEP manages most of the investments and supplies bulk amount of water at the head of the supplies bulk amount of water at the head of the branch.branch.

nn The local microThe local micro--entrepriseentreprise manages all the functions, manages all the functions, downstream a bulk meterdownstream a bulk meter

ØØ Connecting new customersConnecting new customers

ØØ Running equipment (including booster stations)Running equipment (including booster stations)

ØØ Recovering costs (metering / billingRecovering costs (metering / billing……))

00026

ONEP Main pipe

Valve

General meter (ONEP billing basis)

Extension with kiosks and house connections

ONEP (franchisor) management

Micro-enterprise (franchisee) management

It looks like a franchising agreement :It looks like a franchising agreement :

nn TheThe franchisorfranchisor (ONEP) :(ONEP) :

ØØ Provides bulk amount of water Provides bulk amount of water

ØØ Defines standards for service, tariffsDefines standards for service, tariffs

nn But ONEP undertakes all initial investment and But ONEP undertakes all initial investment and that is a big difference with most common that is a big difference with most common franchisingfranchising aggreementsaggreements

nn The franchisee (localThe franchisee (local entrepriseentreprise) :) :

ØØ Manages all relationships with customers Manages all relationships with customers

ØØ Uses the ONEP trade markUses the ONEP trade mark

ØØ Pays a fee (according to water consumption)Pays a fee (according to water consumption)

What is different with ONEP ? (Most water utilities What is different with ONEP ? (Most water utilities do not practice franchising in small towns)do not practice franchising in small towns)

nn Most national water utilities provides water to some Most national water utilities provides water to some dozen of medium sized towns and negotiated dozen of medium sized towns and negotiated contracts excluding very small townscontracts excluding very small towns

nn On the other hand, ONEP has been assigned a global On the other hand, ONEP has been assigned a global ambitious objective by Morocco government : 5,400 ambitious objective by Morocco government : 5,400 villages in year 2006 villages in year 2006 ……

nn ……and that makes the difference !and that makes the difference !

NB : SODECI is another water utility providing water to NB : SODECI is another water utility providing water to very small towns (545 towns in Cvery small towns (545 towns in Côôte dte d’’Ivoire)Ivoire)………….and .and it is also outsourcing daily management of the it is also outsourcing daily management of the systems to local subsystems to local sub--contractorscontractors

ONEP is mostly a bulk waterONEP is mostly a bulk water supplyersupplyer. Rural . Rural areas accounts for only 0.1 % of its turn over.areas accounts for only 0.1 % of its turn over.

ONEP deliverydirect distribution

in rural areas (PAGER)

3 private utilities

13 municipal.

pop > 30 000

pop < 30 000

1000 villages

population 6 000 000 1 000 000 1 100 000 900 000 500 000

sales (Mm3/year)

1,1

sales/capita (l/day) 6

turnover (M$US/year)

2,4

256 62

Production and bulk sales

management contract for 251

small towns

654

2 100

45

300

PAGER objectives in rural areas are very ambitious: PAGER objectives in rural areas are very ambitious: 80 % coverage in year 2010 (31 000 villages)80 % coverage in year 2010 (31 000 villages)

Coverage in rural areas

0%

20%

40%

60%

80%

100%

1980 1990 2000 2010 2020

PAGER

ONEP has been asked to cover a large part ONEP has been asked to cover a large part (> 50%) of PAGER scope.(> 50%) of PAGER scope.

Task sharing between ONEP and DGHTask sharing between ONEP and DGH

ONEP DGH

"territory" areas without local water sourcesareas with local water sources

water sourcessupply from remote dams

(regional schemes)on site boreholes

present management model

regular customer service + outsourcing

community management

promising management model

franchisingmanagement

contract

tariff settingnational (cross subsidy between

urban and rural areas)local (full cost

recovery)

The challenge for ONEP is :The challenge for ONEP is :

nn how to supply many thousands more how to supply many thousands more villages and small townsvillages and small towns……..

nn …….although the utility is already .although the utility is already loosing money in small towns and loosing money in small towns and villagesvillages……

nn ……and is supposed to stay financially and is supposed to stay financially autonomous (no subsidy) ?autonomous (no subsidy) ?

In order to reduce costs in small towns In order to reduce costs in small towns and villages, ONEP uses three main and villages, ONEP uses three main contracting arrangements :contracting arrangements :

(a) Outsourcing technical (a) Outsourcing technical functions to localfunctions to local entreprisesentreprises

(b) Outsourcing some retail sales (b) Outsourcing some retail sales ((standpostsstandposts))

(a) + (b) = (c) Franchising local (a) + (b) = (c) Franchising local smallsmall entreprisesentreprises for water for water distributiondistribution

ONEPONEP outsourcesoutsources manymany technical technical tasks totasks to entreprisesentreprises

nn Pumping station operationPumping station operation

nn Network inspectionNetwork inspection

nn Leakage detectionLeakage detection

nn Field water analysis and water sample Field water analysis and water sample collectioncollection

nn House connectionHouse connection…………..

(a) Outsourcing technical functions(a) Outsourcing technical functions

TypicalTypical entreprisesentreprises contracted by ONEPcontracted by ONEP

total (202)

age 0 to 7 years

staff size 2 to 10 people600 people (compared with

6000 for ONEP)

turnover10,000 to 50,000

US $/year5 M $/year (compared with

250 M$ for ONEP)

Typical micro-enterprises

(a) Outsourcing technical functions(a) Outsourcing technical functions

ONEP provides strong support to ONEP provides strong support to these localthese local entreprises entreprises

(a) Outsourcing technical tasks(a) Outsourcing technical tasks

total (202)

age 0 to 7 years

staff size 2 to 10 people600 people (compared with

6000 for ONEP)

turnover10,000 to 50,000

US $/year5 M $/year (compared with

250 M$ for ONEP)

Typical micro-entreprises

OutsourcingOutsourcing standpoststandpost management : it works, management : it works, but water sales atbut water sales at standpostsstandposts are very low in small are very low in small towns and villagestowns and villages

Sta

nd

po

sts

nu

mb

er

aver

age

del

iver

y

con

cern

ed

po

pu

lati

on

con

som

m./

in

hab

itan

t

m3/day.SP l/day.inhab

large towns 731 8,8 436 504 14,8

small towns and villages

1 312 2,2 512 880 5,5

total 2 043 4,5 949 384 9,8

Water delivery for all the ONEP standposts (year 1999)

(b) Outsourcing retail sales(b) Outsourcing retail sales

Standpost managers monthly incomes (US$/month) are very low in small towns

and villages

0%

20%

40%

60%<1

6

16 - 4

0

40 - 8

0

80 - 1

60 >160

(b) Outsourcing retail sales(b) Outsourcing retail sales

For ONEP, the challenge is to cut For ONEP, the challenge is to cut running costs for small towns, running costs for small towns, villages andvillages and scateredscatered customers :customers :

nn For the time being, small towns are highly For the time being, small towns are highly unprofitable (50 % financial losses)unprofitable (50 % financial losses)

nn In villages, perspective are worstIn villages, perspective are worst

ØØ Long pipes and few users (rising Long pipes and few users (rising maintenance costs)maintenance costs)

ØØ Remote villages (rising logistic costs)Remote villages (rising logistic costs)

ØØ Few customers per village (rising metering Few customers per village (rising metering / billing / recovery costs)/ billing / recovery costs)

Franchising is the most promising Franchising is the most promising solution to cut running costs in rural solution to cut running costs in rural areas :areas :

(a) Simple technical outsourcing is not(a) Simple technical outsourcing is not feasablefeasable(turnover in village is not enough to keep (turnover in village is not enough to keep alive a professionalalive a professional entrepriseentreprise))

(b) Outsourcing retail sales ((b) Outsourcing retail sales (standpoststandpost) do not ) do not meet the demand (users ask for connections) meet the demand (users ask for connections) and do not pay theand do not pay the standpoststandpost managermanager

(a)+(b)=(c) But a contract for all the local (a)+(b)=(c) But a contract for all the local operations is feasible : operating the system, operations is feasible : operating the system, managing themanaging the standpostsstandposts, installing house , installing house connection, managing customers (metering, connection, managing customers (metering, billing, recovering)billing, recovering)

The management option chosen by ONEP in The management option chosen by ONEP in rural areas is one step ahead of its rural areas is one step ahead of its management system in towns :management system in towns :

nn ONEP manages most of the investments and ONEP manages most of the investments and supplies bulk amount of water at the head of the supplies bulk amount of water at the head of the branch.branch.

nn The local microThe local micro--entrepriseentreprise manages all the functions, manages all the functions, downstream a bulk meterdownstream a bulk meter

ØØ Connecting new customersConnecting new customers

ØØ Running equipment (including booster stations)Running equipment (including booster stations)

ØØ Recovering costs (metering / billingRecovering costs (metering / billing……))

00026

ONEP Main pipe

Valve

General meter (ONEP billing basis)

Extension with kiosks and house connections

ONEP (franchisor) management

Micro-enterprise (franchisee) management

It looks like a franchising agreement :It looks like a franchising agreement :

nn TheThe franchisorfranchisor (ONEP) :(ONEP) :

ØØ Provides bulk amount of water Provides bulk amount of water

ØØ Defines standards for service, tariffsDefines standards for service, tariffs

nn But ONEP undertakes all initial investment and But ONEP undertakes all initial investment and that is a big difference with most common that is a big difference with most common franchisingfranchising aggreementsaggreements

nn The franchisee (localThe franchisee (local entrepriseentreprise) :) :

ØØ Manages all relationships with customers Manages all relationships with customers

ØØ Uses the ONEP trade markUses the ONEP trade mark

ØØ Pays a fee (according to water consumption)Pays a fee (according to water consumption)

What is different with ONEP ? (Most water utilities What is different with ONEP ? (Most water utilities do not practice franchising in small towns)do not practice franchising in small towns)

nn Most national water utilities provides water to some Most national water utilities provides water to some dozen of medium sized towns and negotiated dozen of medium sized towns and negotiated contracts excluding very small townscontracts excluding very small towns

nn On the other hand, ONEP has been assigned a global On the other hand, ONEP has been assigned a global ambitious objective by Morocco government : 5,400 ambitious objective by Morocco government : 5,400 villages in year 2006 villages in year 2006 ……

nn ……and that makes the difference !and that makes the difference !

NB : SODECI is another water utility providing water to NB : SODECI is another water utility providing water to very small towns (545 towns in Cvery small towns (545 towns in Côôte dte d’’Ivoire)Ivoire)………….and .and it is also outsourcing daily management of the it is also outsourcing daily management of the systems to local subsystems to local sub--contractorscontractors

Outsourcing andOutsourcing and franchisingfranchisingHow ONEP (How ONEP (MoroccoMorocco) ) mobilizes small mobilizes small scalescale local entreprises to local entreprises to cut cut down down running running costscosts

Bernard Bernard CollignonCollignonHydroconseilHydroconseil

Water and Sanitation Services in Small Water and Sanitation Services in Small Towns and MultiTowns and Multi--Village SchemesVillage Schemes

Addis Ababa June 11Addis Ababa June 11--15, 200215, 2002

Water and Sanitation ProgramWater and Sanitation ProgramThe World BankThe World Bank and the World Bank Instituteand the World Bank Institute