Public private partnership in water sector(PPP)

Drinking water is considered the most strategic goods in the universe, not for its financial value but for the importance and necessity of it, as one of three components of life, beside air and soil.Many countries have sought the involvement of the private sector to upgrade and develop their water and sanitation infrastructure and improve the efficiency of water systems. However, high capital intensity, large initial expenses, long pay-back periods, immobility of assets and low rates of return generate high risks. These factors, when combined with poor initial information and a weak investment environment, constitute important constraints on private sector participation in water and sanitation infrastructure.

A major challenge is to overcome the problem of over a billion people without access to drinking water and 2.6 billion lacking basic sanitation in the world,  and it develops the need for the relevant infrastructure constitutes and a huge capital investment.

Having the higher proportion of people without access to drinking water and sanitation by 2025 would require investments of around $72 billion per year. 

To meet these tremendous needs and expand the infrastructure in a context of tight budgetary constraints, but also to improve the efficiency of — often deficient — water systems, many developing and emerging countries have sought the involvement of the private sector. However, a few experiences involving the private sector since the 1990s have fallen short of expectations for all parties involved and led in some cases to highly politicized debates and international arbitration. In particular, the expected surge in the flows of private investment did not materialise.

The causes were often a poor understanding of the opportunities and risks involved by private sector participation in a complex sector such as water sector, as well as inadequate framework conditions. This contributed to catalysing public attention on the role for private sector participation in developing and managing water systems, as well as more generally on the conditions under which water services can be provided safely, affordably and sustainably. It also led to rapid changes in the forms of private sector involvement, towards less risky contracts (service, management contracts), the emergence of new actors (local and regional), and a growing recognition of alternative small-scale and very often informal private providers. Past difficulties have contributed to revealing the complexities of the water sector such as: High fixed costs coupled with long-term irreversible investments and relatively inelastic demand tends to make it a monopolistic sector in which competition is difficult to introduce and regulation plays a central role. Water is a basic need. Water quality and access have important externalities affecting health, gender equality and the environment. These justify a public policy interest. The responsibility for water and sanitation service provision often rests with local authorities. 

High risks in investing in water sector and optimising economies of scale requires an integrated approach to development and management of water infrastructure and service provisioning. The sector involves numerous stakeholders and suffers from segmentation of responsibilities – notably across government tiers and public agencies.  Investors in the water and sanitation sector are faced with commercial risk. contractual risk, foreign-exchange risk, sub-sovereign risk, arbitrary political interferences and complex pricing policies with multiple objectives, such as cost recovery, economic efficiency, environmental objectives, equity and affordability. Long-term relationships, limited competition and irreversibility of infrastructure and technology may expose the sector to risks, particularly of capture by vested interests.

People always accuse the governments for having Public Private Partnership (PPP) because they believe that will lead for sure the governments to lose their assets while the realty says different things. Therefore, the PPP has political and socioeconomic impacts.

The Public Private Partnership (PPP) consists of two major types - the privatisation and the Private Sector Participation (PSP). In the first type which include Build-Own-Operate (BOO) and Build- Operate-Transfer (BOT) and many others up to concessions which leads to lose temporarily or permanently the  assets and where people suspect the government’s procedures by corruptions, while in the second type the (PSP) the assets remains with the government’s hand such as service and management contracts.

Now and in addition to the benefit of solving the problem of lack of funds and tight budgetary constraints, the PPP a great vehicle to improve and enhance the efficiency and technology transfer in the Water and Sanitation services and also an important management tool in catalysing the private sector, and that will give more fruits by choosing the right PPP type, for example when involving the private investors in reading water meters and collection of revenue the micro PSP is the best option among both PPP types, while in construction or extension of a new Waste Water treatment plant BOT or BOOT would be the right decision which should be taken on state level not utility level since it will need change in laws in large number of cases.

Worth mentioning here that PSP or privatisation options need high level of governance and clear legal framework in addition to a tight contract conditions and terms, to guarantee the rights of all parties.

Although a very limited number of water and sanitation utilities in the third world countries shows an excellent performance but generally this is not the common case and the capital investment needed for all kind of water works is huge and PPP is highly needed toward reducing the volume if such investments, and privatisation in a very sensitive political issue but PSP with its national and social concern and impact still acceptable.

As a conclusion, new regulatory a legislative procedure need to be issued and applied in developed countries and in the Arab region to attract the private sector to invest in water and sanitation sectors for the explanation above and to eliminate lacking behind the world’s other regions in terms of PPP/PSP and privatisation. 

The writer is a water regulatory 

expert. [email protected]