Tuesday, December 07, 2004

Design of private participation in water services

Source: World Bank

The World Bank is preparing a new toolkit on the design of private participation in water services with funding from the Public-Private Infrastructure Advisory Facility (PPIAF), the Bank-Netherlands Water Partnership, and its own resources. The toolkit aims to help developing countries design private participation arrangements to provide affordable water services. Please send in your comments to rru@worldbank.org

(Comments are encouraged on this fourth and final draft until December 24, 2004)


A decription of the toolkit outline is as follows:
Click here to download toolkit

Introduction Intro (PDF, 211KB)

1. Considering private participation Section 1 (PDF, 155KB)

This section considers what private participation can be expected to achieve. It reviews some of the underlying problems that afflict the provision of water services in many developing countries and ways that private participation might address those problems. The section also discusses some of the forms that private participation takes and the different ways each form addresses those problems.

2. Planning the process of introducing private participation Section 2 (PDF, 149KB)

The process of introducing private participation has two objectives: to develop the best arrangement for local needs and circumstances, and to find a suitable firm for this arrangement. The quality of the process can determine the success of the arrangement.

3. Involving stakeholders in the design of the arrangement Section 3 (PDF, 180KB)
In designing an arrangement, the government needs to consider the interests of different stakeholders, including customers, potential customers, workers, private operators and financiers, and taxpayers. The government will benefit from engaging with these groups early to ensure their views are understood and that they participate in the design of the arrangement.

4. Setting upstream policy Section 4 (PDF, 704KB)

This section examines topics that should be addressed upstream from the design of private participation arrangements including: identifying the level of government responsible for water service provision and the responsibilities of other levels of government; defining the appropriate market structure for the water sector; and establishing policies and rules governing competition in the sector.

5. Setting service standards, tariffs, subsidies, and financial arrangements Section 5 (PDF, 210KB)

In designing the arrangement, the government needs to balance the level of service with the level of tariffs. Better service generally costs more. This balance involves technical analysis to determine the cost of service, and consultation and social research, to determine what people are willing to pay for particular levels of service. When the cost of service is more than the government thinks is reasonable, it may provide subsidies to cover the difference between cost and the desired tariff.

6. Allocating responsibilities and risks Section 6 (PDF, 280KB)

This section discusses how to best allocate business responsibilities and risks among the parties of arrangements and how to design tariff adjustment and other rules to achieve the desired allocation. The basic process for allocating responsibilities and risks is as follows: identify the main areas of responsibility involved in delivering the services and the risks associated with each responsibility; allocate each area of responsibility and risk to the party best able to manage it; and design the arrangement to achieve this allocation of risks and responsibilities.

7. Developing institutions to manage the relationship Section 7 (PDF, 257KB)

Arrangements governing private participation include many rules to be interpreted, applied, and enforced. Designing an arrangement thus involves deciding which people, committees, organizations, and institutions will interpret, apply, and enforce the rules. This section considers the tasks that have to be performed over the course of an arrangement and the institutions that might best perform them.

8. Designing legal instruments for the arrangement Section 8 (PDF, 202KB)

This section outlines how the arrangement can be embodied in legally effective documents, such as laws, contracts, and licenses. It also describes how the government can retain the legal power to implement the arrangement, and check whether there are legal constraints on aspects of the arrangement (such as foreign ownership or labor force reduction). There are many ways to make an arrangement legally enforceable. The objective is to develop the mix of legal instruments that neatly embodies the intended arrangement, complies with the general law of the country, and is easy to understand and enforce.

9. Selecting an operator Section 9 (PDF, 274KB)

This section provides an overview of the key issues to be addressed and steps to be taken by a contracting authority in selecting an operator.


Examples(PDF, 432KB)

The Toolkit includes sixteen examples of arrangement designs in developed and developing countries. The examples follow a format similar to the text, highlighting design aspects such as allocation of risks and responsibilities and managing the relationship with institutions. The examples describe the initial arrangement design but do not attempt to assess the impact of the arrangements.

Policy simulation model(PDF, 193KB)(Excel, 1.2MB)

The policy simulation model illustrates some issues discussed in the Toolkit, suggests outputs that the government’s modelers might produce, and describes possible approaches to the modeling. In particular, it shows, in a simplified setting, how the analysis of three crucial policy issues can be integrated into standard financial modeling: balancing of tariffs, subsidies, and coverage targets; choosing the distribution of costs and benefits among stakeholders; and allocating risk. The model is not intended to be used to analyze any real-world arrangement. The pdf file contains an explanation of the model and the Excel file contains the model.

Glossary and References (PDF, 202KB)