PPP’s IN NIGERIA: Prospects in the Water Sector

PATRICIA SIMON-HART

INTRODUCTION

Water and Sanitation Services are different from other infrastructure sectors!Many Governments are trying to figure out how to strike a balance between roles of the public and private sector in water

• PPP approaches successful elsewhere (transport, power, etc) cannot be replicated directly in the water sector• Direct Private Investment should not be the focus in the Water Sector• Combining efficient private operation with public/IDA financing is more appropriate PPP approach

THE NIGERIAN WATER SECTOR

URBAN WATER SUPPLY (20,000+)

SMALL TOWNS WATER SUPPLY (5,000 – 20,000)

RURAL WATER SUPPLY (UNDER 5,000)

INSTITUTIONS IN THE NIGERIAN WATER SECTOR THE FEDERAL MINISTRY OF WATER RESOURCES

STATE MINISTRY OF WATER RESOURCES

STATE URBAN WATER UTILITIES

SMALL TOWN WATER SUPPLY AGENCIES

RURAL WATER SUPPLY AGENCIES

WATER SERVICE REGULATORY BODIES

PPP’s IN WATERPromoting Public-Private Partnerships in the Water Sector requires striking the right balance between capabilities that public and private entities bring to the table.

1. Public SectorAbility to provide commercial frameworks for infrastructure acquisition, financing, licensing – as well as creating the enabling environment to assist private firms operate and achieve full cost recovery.

2. Private SectorAbility to invest and produce innovative, affordable products and reliable, efficient services based on profit motives.

3. PartnershipEnabled through the Public Sectors Ability to regulate and facilitate operations contracts to private firms while not burdening them.

WHY DO WE NEED PPP’s IN WATER

TO MOBILIZE PRIVATE FINANCE TO INCREASE THE EFFICIENCY OF CAPITAL INVESTMENT RESTRUCTURE GOVERNMENT ESTABLISHMENTS TO REDUCE POLITICAL INTERFERENCE IMPROVE THE QUALITY OF SERVICE OPTIMIZE THE USE OF EXISTING INFRASTRUCTURE IMPROVE COMMERCIAL ORIENTATION INTRODUCE TECHNICAL EXPERTISE IMPROVE OVERALL OPERATIONAL EFFICENCY REDUCE OPERATING COST ELIMINATE GOVERNEMENT INTERVENTION FOR O&M

PROFITABILITY IS LINKED TO SERVICE DELIVERY!

THE ENABLING ENVIRONMENT FOR PPP’s in Water• Political will for change• Sector Reforms - Policy and New Legislation• Performance based management • Utility reforms – Financial and Operational autonomy, Capacity Development

WATER GOVERNANCE

• State Water and Sanitation Regulation• Tariff policy and model • Strong enforcement• Clear Government Communications Strategy

REGULATION

• Access to affordable finance• Government guarantees• Government subsidies• Favorable investment climate

FINANCE

• Detailed PPP transaction modeling• Transparent Private sector engagement process• Transparent private sector players

EFFECTIE RISK MANAGEMENT

AREAS OF INTERVENTION IN THE VALUE CHAINWATER PRODUCTION

DISTRIBUTION & SUPPLY

SEWAGE AND SANITATION

OTHERS

oFresh/Ground Water collection

o Fresh/Ground Water Treatment

o Desalination Plants

oMunicipality/Household Supply

o Supply to Industries

o Supply to Unplanned Settlements Unplanned

o Waste Water Collection

o Waste Water Treatment & disposal

o Irrigation o Bottled Water

PPP OPTIONS

SERVICE/MANAGEMENT CONTRACTS

LEASE/AFFERMAGE

CONCESSION BOT FULL DIVESTITURE

TERM (YEARS) 1-5 8-15 20-30 20-30 NA

ASSET OWNERSHIP

Public public public Private then public

private

INVESTMENT FINANCE

public public private private private

COMMERCIAL RISK

public shared private Public/shared private

OPERATIONAL RISKS

Public/shared private private private private

GOVERNMENT REVENUES

Tariffs minus service fees, taxes

Tariff minus affermage operating price, taxes

Concession fee, taxes

Tariffs minus offtake

Sales private, taxes

PRIVATE REVENUES

Service fees Affermage operating price

Tariffs minus concession fee

Bulk water sales tariffs

CURRENT TRENDS IN THE NIGERIAN WATER SECOTR

URBAN WATER SUPPLY

CONCESSION

LEASE/ AFFERMAGE

MANAGEMENT CONTRACT

SERVICE CONTRACT

DBOO/ BOO

MANAGEMENT CONTRACT

SERVICE CONTRACT

SMALL TOWN WATER SUPPLY

COMMUNITY OWNERSHIP

RURAL WATER SUPPLY

ASSESSING YOUR RISK VS REWARDS

RISKLOW HIGH

REQUIRED INVESTMENTS

REWARDSRETURN ON

INVESTMENT

HIGH

LOW

ServiceContract

Lease/Operating

Contract

Design-Build-Operate(BOT) Concession

Divestiture

(Investor-Owned Utility)

ManagementContract

TYPICAL PPP PROCESS

KEY CHALLENGES OF WATER PPP’s

Access to Water is considered a Fundamental Human right. People still reluctant to pay Absence of proper Preparation of suitable PPP structure and viable Financial Models Governments need be willing to share the associated risks The Political economy Lack of access to affordable finance

THE WAY FORWARD…

RECOMMENDATIONS AND CONCLUSION As the Nigerian Water Sector continues to implement reforms new prospects and opportunities shall continue to emerge for Private Sector participation.

There has to be political will at State Level to reform and also to create the enabling environment for Private Sector participationSector Regulation at State Level must be in place and enforcement evidentThe must be detailed studies and financial modeling to determine Tariffs, Transfer and subsidiesState Governments must still be willing to invest in Infrastructure costs as and when requiredThe Private Sector should consider starting with Management contracts and gradually move ultimately to concessionsTariffs must be set for full recovery of O&M and any management feesUtilities should design networks to offer bulk water services to an area that can operate in isolationDevelopment funding should be structured to encourage the Private sector access at affordable rates for investment in the water and sanitation sector

In the water Sector one solution does not fit all. Understand your environment and structure the PPP to the unique environment.

Thank you for listening.WATER IS LIFE! SANITATION IS DIGNITY!!

LET’S BUILD PARTNERSHIPS!!!