2012 Project List

2012 Project List

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Energy

PPP Transaction and Financial Advisory for US$517 million Hydropower Project, Burundi, Rwanda, Democratic Republic of Congo 2011-2012—Energie des Grands Lacs (EGL), the energy component of the Economic Community of the Great Lakes countries, was seeking advice to invite and manage bids for developing the 145MW Ruzizi III regional hydroelectric project through a Build-Operate-Transfer contract. A consortium led by Hunton & Williams, on which Castalia was the economic and financial advisor, was hired by EGL to help attract a private investor to this project. We helped EGL develop the tender process to find a preferred bidder (total cost approximately €400 million (US$517 million)). This included preparing the Request for Proposal documents, as well as conducting a pre-bid conference and site visits and finally helping evaluate the bids. The consortium then advised EGL throughout the negotiations with the private investor selected as the preferred bidder, up to the signing of final project agreements.

Jemena Productivity Commission Submission, Australia 2012—In a review of the electricity network regulatory framework, The Productivity Commission recommended an ex-post prudency review to ensure only efficient capital expenditure was added to the regulatory asset base. Castalia was engaged by Jemena, a major Australian electricity and gas network company, to critique the recommendations. Castalia analyzed both empirical and theoretical evidence put forward by the Productivity Commission, and found that the theoretical incentive claimed by the Commission only existed under implausible assumptions. Castalia also found that the evidence for an upward bias in the WACC was based on misleading comparisons of debt premiums of different tenors and at different times. Castalia’s overall conclusion was that ex-post reviews, as well as being unnecessary, would have a chilling effect on network investment with damaging consequences for reliability and service standards.

Study on Nationally Appropriate Mitigation Actions, Pacific Islands 2012—The World Bank engaged Castalia to explore which Pacific Island countries were ready to develop a framework for Nationally Appropriate Mitigation Actions (NAMAs). We evaluated the readiness of Pacific Island countries to implement sustainable development initiatives with mitigation co-benefits under a NAMA framework. We provided an overview of possible programs that could be supported in the Pacific including an enabling framework for renewable energy investments and a waste management program. Our report also described possible institutional arrangements and monitoring, reporting and verification frameworks that could support a regional NAMA framework. We also estimated the cost of preparing a NAMA for the Pacific Islands.

EWURA Technical Assistance, Tanzania 2011-2012—Castalia was engaged by the World Bank to provide technical assistance in developing two important components of the regulatory system for electricity in Tanzania. The involved developing processes and guidelines for the review of major power purchases, while the second component of the work involved setting up a regulatory monitoring system to report on the performance of licensees.

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Electricity Regulatory Roadmap, Rwanda 2012—The World Bank Group’s Investment Climate Business Line (ICBL) asked Castalia to review the progress of the electricity regulator (RURA) at operationalizing the 2011 Rwanda Electricity Law (“the Law”). The purpose of this review was to identify areas where further work was needed to operationalize the provisions in the Law, with a particular focus enabling private investment. Castalia assessed RURA’s progress to date, and interviewed a range of sector stakeholders. We then we produced a regulations roadmap report that identified three tiers of regulatory priorities and discussed how they should be implemented.

Reform of the Regulatory Framework for the Electricity Sector, the Turks and Caicos Islands, 2012—The Government of the Turks and Caicos Islands (‘the Government’) and FortisTCI (‘Fortis’), the vertically-integrated electricity provider of the Turks and Caicos Islands, entered into negotiations to reform the regulatory framework of the electricity sector in the Turks and Caicos Islands (‘the TCI’). Castalia was hired to advise the Government on these reforms, and to assist the Government in agreeing a reform package with Fortis. To do so, Castalia identified key weaknesses in the current regulatory framework, evaluated a proposal that Fortis submitted to the Government, drafted legal documents that served as a counter proposal, and assisted the Government during negotiations with Fortis. Following this round of negotiations, Castalia developed a roadmap to guide the Government’s effort to guide the reform of the regulatory framework.

NSW Treasury submission to Senate Select Committee on Electricity Prices 2012—NSW Treasury asked Castalia to prepare a submission to the Senate Select Committee on Electricity Prices. The purpose of the submission was to counter criticism that NSW Government ownership of the electricity distribution companies had been a major factor in recent price rises. The submission also put forward the positive actions taken by the Government to reduce upward pressure on electricity prices. The submission addressed myths surrounding Government ownership of the businesses—that they are simultaneously inefficient yet highly profitable with incentives to gold plate infrastructure and that payment of dividends to the Government increases prices that are set by an independent regulator.

Evaluation of Intervention Options for Sustainable Energy in the Caribbean 2012—The Department for International Development (DFID) contracted Castalia to identify which sustainable energy interventions, among various options, it should prioritize for a business case for the International Climate Fund (ICF). To achieve this objective, Castalia assessed various sustainable energy interventions that DFID could implement. Castalia estimated costs and potential benefits of selected interventions using DFID’s key performance and financial indicators. Castalia presented the selected interventions in the context of a theory of change, showing the flow of inputs, outputs, outcomes, and impacts; and assessed potential risks to interventions.

Indonesia Energy Scale Up, Indonesia 2012—Castalia was engaged by the World Bank to provide technical assistance to PLN (the Indonesia electricity utility) in planning and financing increased access to electricity in Eastern Indonesia. Electrification rates in the provinces of Nusa Tenggara Timur (NTT),

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Maluku and Maluku Utara are around 30%. The Government of Indonesia wants to increase the national electrification rate from the current 60% to 90% by 2020. To help meet these targets, Castalia worked with the Earth Institute to develop a geospatial least cost expansion plan. This expansion plan will include grid connected renewable energy generation to displace current diesel generators, network extensions and isolated hybrid mini-grid communal systems. We are also developing a financing plan for this least cost expansion plan, and presenting it in a high impact investment prospectus to attract donor funding for the project.

Cost of Service Study, Cayman Islands 2011-2012—The Electricity Regulatory Authority of the Cayman Islands (‘ERA’) contracted Castalia to carry out a cost of service study on the technical and financial operations of Caribbean Utilities Company, Ltd (‘CUC’), as an independent assessment to identify opportunities for increased efficiency and reductions in cost of service. Castalia built a complete financial and operational forward-looking model for CUC. Based on that model, Castalia assessed actual cost of service of CUC (CUC’s cost of service based on the utility’s internal financial and operational reporting), and compared it to the cost of service that CUC reports to the ERA to identify the cost that customers should actually be charged. Then, Castalia assessed what CUC’s reasonable cost of service would be. Finally, Castalia estimated projected cost of service for CUC, and calculated marginal cost of service to propose a tariff structure for CUC’s customers that would provide the right incentives to customers, cover cost of service, and send appropriate signals for capacity investments.

Response to Starting price Adjustment Decision 2012—As the second-largest electricity distribution business in New Zealand, Powerco is subject to price-quality regulation administered by the Commerce Commission. Following a period of change in how monopoly businesses are regulated, the Commission released a draft decision to reset the prices charged by 19 electricity distribution businesses, including Powerco. Castalia was engaged by Powerco to provide input to its submission on the draft decision. Particular issues of concern to Powerco were the timing assumptions used to provide depreciation and return on capital, and the calculation of tax in the building blocks model.

NSW Treasury COAG Energy Reform Paper, Australia 2012—Castalia was engaged by NSW Treasury to draft a paper for the COAG Energy Reform Task Force. The paper provided context and a framework to the numerous reviews and inquiries taking place in the electricity sector. The paper suggested that a stock take and gap analysis of the current reforms be undertaken to establish priorities for future activities. Other Governments were suggesting more radical actions. Castalia drafted the agenda paper, incorporated comments from other Governments and ensured that the key elements of the NSW position remained in the final paper.

Snowy Hydro Transmission Frameworks Review, Australia 2012—Castalia was engaged by Snowy Hydro to draft a public policy report to be submitted to the AEMC’s Transmission Frameworks Review. The AEMC Interim Report proposes (albeit as an option) a radical change to the electricity market that would see generators able to pay for firm access to the transmission system and be compensated if transmission constraints reduced their generation. Our Castalia report showed that the solution is out of scale with the problems that it purports to solve—the co-optimization of new generation and transmission investment.

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We will also show that the incentives it creates for generators and transmission businesses are likely to lead to inefficient over building of the network.

National Energy Policy for the Cayman Islands 2012—The National Energy Policy Committee of the Government of the Cayman Islands hired Castalia to draft a National Energy Policy (NEP). The NEP’s objectives should be to reduce energy costs, enhance local and global environmental sustainability, improve energy security, and lead to economic development in the Cayman Island’s energy sector. Castalia was hired to: (i) carry out an economic analysis of potential policies proposed for the NEP, assessing their costs and benefits as well as their consistency with the Government’s objectives; (ii) compile a draft NEP drawing on the economic analysis; (iii) consult with the NEP Committee and finalize a draft NEP to be submitted to Cabinet for approval; and (iv) prepare an implementation strategy and plan specifying responsibilities and timeline to implement the NEP’s actions, and setting measurable goals to assess implementation and effectiveness.

South Island Reserves Investigation, New Zealand 2012—The Electricity Authority decided to conduct a market performance review to investigate the behavior of Meridian Energy in offering reserves into the wholesale market. The Authority was concerned that an agreement reached between Meridian Energy and Rio Tinto (the owner of an aluminum smelter in the South Island) may have led to undesirable market outcomes. Castalia was engaged by Genesis Energy to review the investigation. Castalia provided comments on the report, and engaged with the Authority to help it understand the implications of contracts to combine reserve energy offers into a single bidding strategy.

Regulatory Treatment of Price Variations, New Zealand 2012—Transpower, the New Zealand transmission system owner and operator is subject to a regulatory regime where expenditure on major capital projects is approved by the regulator—the Commerce Commission—prior to project commencement. At project completion the approved cost forecast is escalated and compared with actual costs to assess prudency. The principle is efficient risk allocation—that Transpower should not be exposed to the risk of cost escalation on these projects that it cannot control—that are changes in input prices. Castalia prepared a submission to the Commerce Commission on behalf of Transpower. The submission analyzed the performance of the escalation process against the objective of efficient risk management.

Building the Legal Framework for Geothermal Development in Grenada 2012—Castalia was part of a team led by Legal and Drafting Services Ltd. (LDS), hired by the Organization of American States (OAS), to assist the Government of Grenada in drafting and negotiating a Heads of Terms (HOT) for the build-up of the legal framework for geothermal energy in Grenada. Castalia was contracted to: (i) identify the key terms to include in a future Geothermal Resource Development Agreement through pre-negotiation support to the Government and the electric utility, GRENLEC; (ii) draft a HOT based on the results of the pre-negotiation consultations; (iii) discuss and finalize the HOT by first supporting the Government to negotiate the HOT with GRENLEC, and then preparing a final HOT with the key commercial terms that the parties agreed should be included; and (iv) provide follow-up support on an as-needed basis, such as proposing additional legal language for amending the draft Geothermal

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Bill and Environmental Regulations, and providing a Roadmap with next steps toward concluding a Geothermal Resource Development Agreement.

Development of a Geothermal Site Inventory, Latin America and the Caribbean 2012—The World Bank engaged Castalia to conduct the initial analysis of all sites in Latin America and the Caribbean where geothermal energy resources can be developed for power production. The goal of the analysis was to determine whether or not there are enough geothermal sites in the LAC region to justify the creation of a US$200-300 million fund for mitigating the risks of geothermal exploration. Castalia compiled into a database all publicly available information on over 300 existing and potential geothermal sites in Latin America and the Caribbean. The database contains all publicly available site specifications necessary to get a profile of the quality of each geothermal resource and the stage of development of each site. Castalia also developed a screening methodology to screen all geothermal sites in the LAC region in order to identify a pipeline of client sites for a potential fund. Castalia’s work aimed to help the World Bank assess the feasibility of a fund, and evaluate options for its design.

IFC Scoping for Energy Investments, India and Pakistan 2012—The World Bank Group's Investment Climate Department (CIC) supports governments of developing countries in reforming their business environments. CIC provides leadership and support to IFCs Investment Climate Business Line. ICBL recently expanded its industry focus and currently also addresses sector-specific constraints in infrastructure. The ICBL engaged Castalia to identify the critical policy and regulatory bottlenecks for increased private investments in the infrastructure sector, and identify concrete recommendations for follow-on ICBL to assist in removing these barriers.

ElectraNet Regulatory Due Diligence, Australia 2012—Castalia was engaged by Hastings Fund Management provide regulatory advice on the current and likely future regulatory environment affecting ElectraNet, an electricity transmission business operating in South Australia. As an existing shareholder, Hastings was evaluating the purchase of additional equity in the company. The analysis includes advice on the risks posed by the regulatory framework and the likely future ranges of regulated returns allowed by the regulator. Castalia provided a due diligence report that analyzed the regulatory framework providing context for the large number of reviews and rule change proposals applying to the sector. We analyzed the likely effect of all of the review and rule change proposals. We reviewed ElectraNet’s previous performance in previous regulatory determinations in terms of their proposals, the allowances determined by the regulator and their actual performance against those allowances. We undertook and extensive analysis of the rate of return framework and suggested the likely parameters of future decisions.

Review of Regulatory and Financial Modeling, New Zealand 2012—As the largest electricity distribution business in New Zealand, Vector is subject to price-quality regulation administered by the Commerce Commission. Following a period of change in how monopoly businesses are regulated, the Commission released a draft decision to reset the prices charged by 19 electricity distribution businesses, including Vector. Castalia was engaged to assist Vector with its submission on the draft decision. We prepared an expert report on the decision that analyzed the following key points—Econometrics, Cash flow timing

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Regulatory process.

Renewable Energy Storage and Clean Energy Development in Latin America and the Caribbean, 2012—The Inter-American Development Bank (IDB) contracted a senior member of Castalia’s staff to: (i) assess the cost-effectiveness, potential, barriers, and opportunities for renewable energy (RE) storage in Latin America and the Caribbean; (ii) developing rapid energy sector assessments for Grenada and one other country of the Organization of the Eastern Caribbean States (OECS) to support their participation of in the Sustainable Energy for All (SE4ALL) initiative led by the United Nations; and (iii) develop a technical, analytical, and editorial input of opportunities and challenges in the energy sector in the OECS, with a detailed analysis of the energy sector in six countries (Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines), to assist in shaping the future work of the IDB’s Energy Division in the Caribbean region, and present the results of this analysis at the IDB.

Review of Net Pivotal Offer Behavior, New Zealand 2012—The Electricity Authority conducted a market performance review looking at the issue of “net pivotal generation”. The Authority was concerned that it will be profitable for a net pivotal supplier to increase its offer prices because the additional revenue earned will exceed the additional cost of supplying its load and meeting its hedge contract commitments, and there is limited competitive constraint on higher prices. Castalia was engaged by Genesis Energy to review the Electricity Authority’s market performance review, and to help understand the scale of any problem associated with net pivotal positions in the New Zealand wholesale electricity market.

Transpower Regulatory Strategy, New Zealand 2012—Transpower is New Zealand’s monopoly provider of electricity transmission and system operation services. In preforming these roles, Transpower subject to price-quality regulation by the Commerce Commission, as well as electricity market regulation by the Electricity Authority. Castalia attended a Transpower workshop on regulatory strategy, and gave a presentation on lessons from overseas on engaging with different regulators. This presentation drew on direct experience with direct regulatory styles and approaches, and helped to inform Transpower’s strategy for presenting its views to regulatory agencies on important issues.

Energy Road Map Development, Vanuatu 2011-2012—Castalia helped develop an Energy Road Map that will clearly signal to sector investors and consumers how the sector will be governed and developed over the next 5-10 years. Castalia identified options for achieving the government’s energy sector priorities and helping build a consensus around the best option.

Nationally Appropriate Mitigation Actions in the Eastern Caribbean, 2012—The World Bank hired Castalia to recommend what Nationally Appropriate Mitigation Actions (NAMAs) it could pursue in the Organization of Eastern Caribbean States (OECS), and to estimate how much doing so would cost. Castalia was hired to: (i) screen potential participants based on their readiness to participate in an initiative to develop NAMAs; (ii) identify potential NAMA types, approaches, and activities that the World Bank could support; and ( iii) estimate the costs of preparing a regional and national NAMA for countries

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in the Organization of Eastern Caribbean States. Castalia recommended three activities for a regional NAMA: performance-based energy efficiency retrofits in public and private facilities; standard offer contracts for distributed renewable generation; and waste-based electricity generation.

Evidence on the Impacts of Regulatory Incentives to Improve Efficiency and Service Quality, New Zealand 2012—The Commerce Commission was finalizing the input methodologies to define the price-quality path for electricity distribution businesses and gas pipelines in New Zealand. Vector, an electricity distributor, engaged Castalia to evaluate the available evidence on how the model of price-quality regulation being implemented by the Commission can create incentives for regulated suppliers to improve performance. The purpose of this work was to encourage the Commerce Commission to adopt an approach to assessing the regulated returns of regulated companies that reflects the different levels of performance in areas such as service quality and efficiency.

Origin Energy Vertical Integration Study, Australia 2012—Castalia was engaged by Origin Energy to report on the impact of vertical integration in the Australia Electricity market. This was in response to concerns by the Competition regulator about the level of vertical integration and the impacts. The ACCC suggested that vertical integration was anti-competitive as it enhanced market power problems and through its negative impact on liquidity in the contract it was a barrier to new entrants. Our report showed that when properly measured the level of vertical integration was less than asserted by the ACCC.

Output-Based Subsidy for Electricity Access, Vanuatu 2012—The World Bank and the Government of Vanuatu engaged Castalia to design an Output-Based Aid (OBA) approach to increase electricity access for low-income households in Vanuatu, using up to US$4 million funding from the Global Partnership for Output-Based Aid. Castalia designed a subsidy scheme to connect more than 5000 households in four existing concession areas, and in some areas close to the existing concessions where a grid connection is considered to be least cost. The OBA approach provides the subsidy to the utilities after a pre-specified output is completed. To determine the most appropriate subsidy level, Castalia evaluated the viability gap between households’ willingness-to-pay for electricity connections and the on-going tariffs, and the utilities’ cost of installing household connections and supplying electricity. To do this, we developed a financial model to explore the effects of changing the subsidy level, in addition to proposing a financing scheme to make the large connection costs affordable to a larger number of low income households over time.

Gas Industry Retailer Insolvency, New Zealand 2012—The regulator of gas production and supply in New Zealand engaged Castalia to advise on what regulatory arrangements should be in place to protect consumers and market participants when a gas retailer becomes insolvent. Castalia evaluated whether retailer insolvencies in the gas market warranted a regulatory response, and considered how regulatory interventions might be designed to improve outcomes in the gas industry by targeting underlying problems. A discussion paper prepared by Castalia was released to the industry for consultation, and the regulator reviewed submissions to inform future work on this issue.

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Anguilla Renewable Energy Integration, Anguilla 2012—The Government of Anguilla and the Climate & Development Knowledge Network (CDKN) hired Castalia (with funding from the UK’s Department for International Development, DFID) to recommend how to improve the legal and regulatory framework to enable integrating renewable energy in the country. Castalia was hired to: (i) assess Anguilla’s renewable energy potential, identifying technically, commercially, and economically viable options as compared to conventional generation; (ii) identify barriers to implementing the country’s viable renewable energy potential, focusing on legal and regulatory matters; (iii) recommend legal and regulatory amendments for realizing Anguilla’s viable potential, overcoming barriers identified; (iv) conduct several public consultations to obtain stakeholder feedback and ensure buy-in of proposed measures; and (v) prepare a report for the Government, and an explanatory narrative for the general public, with the analysis of renewable energy potential, the recommendations for overcoming identified barriers , and a roadmap for implementing the recommendations.

Review of Distribution Pricing Methodology, New Zealand 2012—New Zealand electricity distribution companies must ensure that any pricing methodologies adopted are consistent with the Electricity Authority (the regulator)’s Pricing Principles—a set of economic guidelines that promote competition and efficiency. Distribution companies are required to publish their pricing methodology annually. Powerco, a large electricity distributor, engaged Castalia to conduct a review of its pricing methodology against the Pricing Principles. The purpose of the review was to help identify and address any outstanding issues prior to the publication of Powerco’s 2012 pricing methodology in April.

CTF Energy Efficiency Program Design, the Philippines 2012—Castalia was engaged to recommend and develop a facility, funded by the Clean Technology Fund (CTF) and International Bank for Reconstruction and Development (IBRD), to improve supply side energy efficiency for Electric Cooperatives (EC). We assessed the financing environment for ECs, reviewed current EC financing programs, and developed options to provide financing for system loss reduction. We then detailed the design of the preferred option

Strengthening the Processes and Regulations for Setting Regulated Tariffs, Montenegro 2011-2012—The Energy Regulatory Authority of Montenegro (ERAM) needed support for implementing a Revenue Cap Methodology for establishing electricity tariffs in Montenegro. Castalia offered suggestions on how to improve the existing methodologies and provided training materials for implementing the improved methodologies. Our work included preparing the final draft of the permanent tariff setting methodologies.

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Water

Regulatory Due Diligence for the AUD$2.3 Billion Sydney Desalination Plant, Australia 2011-2012—The Sydney Desalination Plant was owned and operated by Sydney Desalination Plant Pty. Ltd. (SDP) until the company was declared a monopoly supplier of bulk water. Castalia was hired by a consortium of Hastings Fund Management and the Ontario Teachers’ Pension Plan in this privatisation of a government owned desalination plant to provide regulatory advice on the current and future regulatory environment and issues for a buyer of the plant. Castalia made presentations to the banking syndicate providing the debt finance and rating agencies. The consortium bid was successful and they acquired the plant for AUD$2.3 billion in June 2012.

Water and Sanitation Policy Note, Belize 2012—The Government of Belize and the Inter-American Development Bank (‘the IDB’) are working to develop a country strategy for the period 2013-2017. Castalia has been hired by IDB to help guide these efforts by developing a Policy Note on Water, Sanitation, and Solid Waste in Belize. This policy note will update the 2009 Strategic Sector Plan for water and sanitation sector in Belize that Castalia developed and will expand the Strategic Sector Plan’s scope to include solid waste. The policy note will provide an overview of the performance of the sector, will identify the development challenges facing the sector, and will make short-term and medium-term recommendations for improving the sector’s performance.

Evaluation of WSS PPP Options, India 2011-2012—India faces several concurrent challenges in the water sector, making its situation unique. There is potential for greater private investment in the sector, however, given these challenges an innovative PPP model will likely be needed. The objective of this assignment is to develop and market-test a new PPP approach for India’s water sector. For this assignment, Castalia analyzed the current context in India’s water sector and engaged with key international players involved in water PPPs, created international water PPP case studies relevant to India’s and drawing important lessons learned, designed options for innovative PPP models that fit the context in India based on data gathered from second tier cities, and carried out market sounding with key stakeholders and possible private operators in the sector to test the innovative models.

Organizational Restructuring for the Water and Sewerage Corporation (WSC), the Bahamas 2011-2012—In 2009, Castalia helped the WSC prepare a Corporate Business Plan to improve its operational and financial performance. Included in this plan was a significant organizational restructuring of the WSC. More recently, Castalia advised the WSC on the implementation of this organizational restructuring. Our work included carrying out departmental, personnel policy, and skill gap analyses.

Training on the Water Sector Investment Plan of Malawi, Malawi 2012—The Ministry of Agriculture, Irrigation and Water Development retained Castalia to provide key staff members with training on the Water Sector Investment Plan of Malawi. In 2011, the World Bank and the Agriculture, Irrigation and Water Development to develop an investment plan for Malawi’s water sector for the

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next twenty years. During this four-day training, Castalia provided staff members with training on key inputs used to develop the Water Sector Investment Plan. These included benefit cost analysis, the investment expenditure and financing model, and the project database. Following this training, the staff members were able to update and carry out analysis using the model.

Ruataniwha Plains Irrigation Scheme Demand Study, New Zealand 2012—An assessment of the demand for irrigation water in the Ruataniwha Plains from the planned Water storage project Phase 1 and 2. An analytical demand estimation based on returns to land uses after irrigation is available in a steady state. A survey of 260 farmers in Post and online in the region to test their sentiments around making the conversion, selling, investing or handing over their farm to a family member. A survey of a farmer test panel from outside the region to gauge appetite to invest in the region and convert land uses once irrigation water is available. A presentation of draft results, feedback and a final paper delivered to HBRC and BNZ Advisory.

Karnataka Water Council and Oversight Arrangements, India 2012—In 2003, the Karnataka Urban Water Sector Improvement Project (KUWASIP—funded by the World Bank) included a proposal to create a Water Council, which would provide a source of independent and informed advice on matters such as water tariffs, services standards, and capital funding. Despite the successful implementation of other aspects of KUWASIP, the Water Council remained a proposal only. In 2012, the Government of Karnataka revisited the idea of a Water Council. Castalia was engaged to determine if the most recent design of the Water Council was still appropriate and if not, how it should be altered to fit the current needs of the urban water sector in Karnataka. Castalia reviewed the organization of the urban water sector in Karnataka, considered recent developments in the sector, consulted with experts in the sector, and provided a final series of recommendations for the Water Council. Castalia also provided some options for PPP models for the Karnataka Urban Water Modernization project in Belgaum, Gulbarga, and Hubli-Dhawad.

Appraisal of US$100 Million Bandar Lampung Bulk Water Supply Project, Indonesia 2012—Castalia was engaged by the Indonesia Infrastructure Guarantee Fund (IIGF) to prepare project appraisals and monitoring reports for the projects it guarantees. In this case, Castalia advised on a PPP transaction for the Bandar Lampung Bulk Water Supply Project. The aim of the contract is for the PPP contractor to operate the network, while building capacity of the water utility so that it can gradually take over the operations of the network as it reaches performance targets. If successful, the US$100 million transaction will be Indonesia’s first PPP in the water sector.

PPP Options for the US$190 Million Karnataka Urban Water Modernization Project, India 2012—Following the success of the Karnataka Urban Water Sector Improvement Project (KUWASIP), interest in PPPs to expand water services in India increased greatly. The Government of Karnataka (GoK), through the Government of India (GoI), requested Bank support for a proposed US$190 million investment project to improve service delivery. Castalia was engaged to contribute to the development of PPP options that will improve the WSS services in the Karnataka cities of Belgaum, Gulbarga and Hubli-Dhawad. The objective is to help the GoK develop PPP options that will deliver

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24/7 water services, while being sustainable, both financially and institutionally. Castalia reviewed all relevant WSS material and provided comments on interim PPP proposals. We also led a workshop for the client and presented stakeholders with PPP options for the WSS sector.

Valuation of a US$9.81 Million Majority Share in a Water Utility, Turks and Caicos Islands 2012—The government of the Turks and Caicos Islands wanted to determine a fair value at which it could sell its shareholding in the Provo Water Company Limited. Castalia used the discounted cash flow method to value the Government’s share of the utility at US$9.81 million.

Water Sector Investment Program, Malawi 2011-2012—As part of the National Water Development Program (NWDP), the Government of Malawi (the Government) wants to prepare a strategy for developing a Water Sector Improvement Program (WSIP) that will ensure it is selecting water projects that are achieving the most benefits for Malawi. The World Bank engaged Castalia to help the Ministry of Irrigation and Water Development (MoIWD), and the Government more generally, to prioritize and make more effective investments in the water sector. Castalia evaluated what investments the Government could make, arranging these investments in a priority order to understand which ones the Government should make, and putting these into a strategy in which projects fit together and are complementary.

Business Plan for Durres Water Utility, Albania 2012—Castalia was hired for a World Bank funded project to prepare a business plan for the Duress Water Utility. This project involved defining the strategic goals of the utility, performance improvement targets, specific actions necessary to achieve the goals, and capital investments and expenditures associated with the action plans. The Castalia team carried out a performance diagnosis to identify operational and financial areas for improvement. Subsequently, a financial model was created, forecasting the expected impact of various capital investment scenarios on the operational and financial performance of the utility. A set of capital investment plans were recommended for both the water and waste water treatment plants. In addition, specific actions were recommended to improve the areas in which the utility was poorly performing. We also identified possible risks to a successful implementation of the plan and recommended ways to mitigate these risks.

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Transport

Regulatory Due Diligence of NSW Ports, Australia 2012—Port Botany and Port Kembla were the first port assets to be privatized by the New South Wales Government. The Government is auctioning 99 year-year leases that are expected to raise more than US$2 billion. Castalia was engaged by a consortium bidding for these assets. Castalia provided regulatory advice on the current and likely future regulatory environment for a buyer of the ports, and identified the key regulatory risks and opportunities with private ownership of the ports.

Prioritization of a Pipeline of Toll Road Projects in Indonesia 2011-2012—The Indonesian Infrastructure Guarantee Fund (IIGF) intend to sign a Cooperation Agreement with the Indonesian Toll Road Authority to develop a preliminary pipeline of toll road projects to serve as model projects to rekindle private sector interest in the sector. Castalia is assisting the IIGF in developing this pipeline. Castalia staff collected data on routes, traffic flows, likely quantum and mode of government support and digested this into a prioritization note and also produced a paper on bundling criteria for toll roads.

Rapid Needs Assessment, Guatemala 2012—Castalia was engaged by the PPIAF to join an IDB mission to Guatemala. The objective of the mission was to help the Ministry of Finance devise a way to leverage private sector investment in road infrastructure without charging tariffs to users. In addition, the government wanted to begin construction on all identified projects by 2013. Castalia carried out a review of applicable legislation, an assessment of the pipeline of road projects, and an analysis of infrastructure projects involving the private sector in Guatemala. The team met the Ministry of Finance, Ministry of Public Works, Ministry of Energy and Mines, the National Planning Secretariat, local law firms, and the private sector. Castalia tested various innovative private participation schemes in these meetings.

Economic Advice on Airport Regulation 2012—The Civil Aviation Authority of Singapore (CAAS) recently appointed Castalia to its panel of external advisors. Castalia is contracted to provide a range of services in a number of areas: (i) policy and regulation, regulatory impact analysis, and analysis of infrastructure investment and capital financing; (ii) benchmarking, market studies and trend analysis; (iii) pricing and price regulation frameworks; (iv) competition and enforcement, including access to facilities, investigations into allegations of anti-competitive agreements, abuse of dominance, and merger and acquisitions.

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Telecommunications

Price Regulation of Wholesale Copper Services in a Market Transitioning to Fibre, New Zealand 2012—The Commerce Commission (“the Commission”) proposed to set prices for unbundled copper local loop service (UCLL) and unbundled bitstream access (UBA) using forward-looking cost benchmarks. Chorus, the largest local fibre company in New Zealand, was concerned that the Commission’s proposals impact on its investment incentives in the transition to fibre-to-the-home (FTTH). Chorus asked Castalia to review the Commission’s benchmarking proposals and prepare a report covering: (i) Analysis of why tight pricing coordination between fibre and copper is necessary and the evidence from other countries; (ii) How the Commission should adjust its benchmarks to reflect the transition to a fibre network.

Analysis of Pricing Behaviour in Wholesale ADSL Services, Australia 2012—The ACCC alleged that, as the dominant supplier of both wholesale and retail ADSL services, Telstra had the ability and incentive to restrict competition in relevant markets, including through price discrimination and leveraging conduct. Castalia was commissioned by Telstra to prepare a report on whether the alleged price behavior was occurring.

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Competition & Litigation

Standard Chartered Bank (Hong Kong) Ltd. v. Tanzania Electric Supply Company Ltd. (ICSID ARB/10/20), Tanzania 2012—Hunton & Williams and Mkono & Co., the legal team for the Tanzania Electric Supply Company (TANESCO), engaged David Ehrhardt as an expert witness in the arbitration case between TANESCO and Standard Charted Bank (Hong Kong) Limited (SCBHK). The dispute was in regards to outstanding invoices that TANESCO was alleged to owe Independent Power Tanzania Ltd (IPTL) under a Power Purchase Agreement (PPA) related to a 100MW generation plant, and the amounts that SCBHK can in turn claim from the outstanding invoices. Mr. Ehrhardt led the preparation of the financial analysis and helped draft the expert witness statement.

Standard Chartered Bank v. The Government of Tanzania (ICSID ARB/10/12), Tanzania 2012—Castalia’s Chief Executive David Ehrhardt was engaged as an expert witness in the arbitration case between The Government of Tanzania (GOT) and Standard Charted Bank (SCB). The GOT was in dispute with Independent Power Tanzania Ltd (IPTL) over outstanding invoices and excessive charges by IPTL to the Tanzania Electric Supply Company (TANESCO). Mr. Ehrhardt provided expert advice on the amount of the outstanding invoices and how this amount changes if the debt/equity structure of IPTL is altered. He also estimated the overpayment of TANESCO to IPTL under the PPA by creating a financial model to estimate the amount of the outstanding invoices and the interests accrued to date.

Review of Plain Packaging of Tobacco Products, New Zealand 2012—Philip Morris Limited engaged Castalia to review the regulatory proposals and impact analysis intended to restrict the use of branded packaging of cigarettes and tobacco. We evaluated the regulatory impact statement, analyzed the problem as defined, and looked at the potential for the policy to achieve the Government’s objectives to eliminate smoking in New Zealand by 2025. We found that the problem was not linked clearly to the objective, and had the potential, in the absence of brand competition, to perversely increase smoking by leading to price competition in the tobacco market.

Confidential Client

Geographic Market Definition, Australia 2012—A major supermarket chain proposed the acquisition of hotels and takeaway liquor stores in New South Wales. In considering the application for the merger, the ACCC raised concerns about the reduction in competition in retail markets for the sale of liquor for on-site and off-site consumption. Castalia was commissioned by the supermarket to examine whether the stylized facts identified by the ACCC, as well as other available evidence, support the regulator’s approach to geographic market definition.

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The Effect of Wages on Australian Port Costs and their Competitiveness in an International Context, Australia 2012—Castalia was approached by Ports Australia to evaluate the extent to which port wage costs were impacting on Australian port competitiveness. This involved both benchmarking Australian wage costs and productivity internationally and looking at productivity changes within the sector over time. Castalia undertook an analysis of port labour factor productivity by collected data on stevedoring wage costs and port productivity five major ports in Australia and analysing trends over time. To put this productivity in an international context, Castalia staff collected and analysed data on wages in absolute and in cost per container handled in a range of comparable countries. The output of this task was a report that gained media attention in Australia.

Advice on Overseas Investment Requirements, New Zealand 2012— Castalia was engaged to review the High Court decision and advise on the impacts for a proposed acquisition of New Zealand farmland. The High Court released a decision clarifying the tests to be applied by the Overseas Investment Office (OIO) when granting approval for foreign investment in New Zealand. The tests applied a more rigorous examination of the counterfactual to an investment by a foreign investor than had previously been used by the OIO, potentially raising the threshold for considering foreign investment to be in the interests of New Zealand.

Confidential Client

Investigation into Petrol Information Sharing Arrangements and Discount Schemes, Australia 2012—The Australian Competition and Consumer Commission (ACCC) was investigating how petroleum price information sharing arrangements and, separately, fuel savings offers have the potential to reduce price competition. A major supermarket chain received separate notices from the ACCC to furnish information and produce documents. For each notice, Castalia was commissioned by the supermarket to examine the theories of harm that the ACCC is likely to consider in its investigation, possible rationales for the timing of the investigation, and what the ACCC may be expecting to see in the information provided.

NZ Treasury Review of Regulatory Impact Statements, New Zealand 2012—The New Zealand Government has developed clear standards for analyzing and communicating proposals to change regulation. These standards aim to ensure that all regulatory proposals are well-considered, and solve any identified problems. Castalia was engaged to review the quality assessment of 50 different RISs arising from legislative proposals considered by Cabinet ministers and prepared by different government departments.

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Multi-Sector

IFC Demonstration Effects Study, Global 2012—The IFC was looking to adjust its strategy to increase its development impact by focusing on the types of interventions, sectors, and contexts in which it is more likely to have demonstration effects. IFC engaged Castalia to help identify when, and where demonstration effects are greater and/or more likely, to propose ex-ante steps that will make demonstration effects more likely, and then design ways to capture these demonstration effects. To do so, Castalia developed a series of hypotheses that it tested using a three-pronged analytic approach: a comparative database analysis, ten case studies about IFC projects with demonstration effects, and five “matching” cases—that is, IFC projects that share many characteristics with the projects that had demonstration effects, but that didn´t have demonstration effects. The results of the study will be used in the 2013 IFC Strategy Meetings.

Development of PPP Agenda, Trinidad and Tobago 2011-2012—Castalia was hired by the IFC to assist Trinidad and Tobago’s Ministry of Finance to promote private sector participation in various sectors of the economy. For this assignment Castalia developed strategies to reduce the high level of government ownership in the economy, developed policy and institutional frameworks for managing PPPs in infrastructure, reviewed and identified a pipeline of projects that were suitable for PPPs and developed a support plan for the next steps on the PPP and Public Offerings programs, identifying necessary tasks and the support needed to complete those tasks.

Rapid Needs Assessments, Global 2011-2012—Castalia has been engaged by PPIAF under an ongoing contract, to undertake a series of short-term assignments supporting governments in developing and implementing PPP programs. To date, Castalia has undertaken a rapid assessment of institutional reform options in the Ghana water sector—including opportunities to introduce private participation. Castalia advised a World Bank mission to Ghana on options for reform, drawing on international experience.

Rapid Needs Assessment, Zimbabwe 2012—Public-Private Infrastructure Advisory Facility (PPIAF) engaged Castalia to carry out a Rapid Needs Assessment of the Zimbabwean PPP Program and propose a series of Technical Assistance actions to help jump-start the program. We advised on what changes would be necessary to the policy, institutional, and legal framework. We also advised on what projects could be prioritized as pilot PPP transactions.

Rapid Needs Assessment, Jamaica 2012—Under the above mentioned PPIAF contract in Jamaica, Castalia analyzed a list of infrastructure projects to assess each project’s suitability for implementation through PPP. Based on this, Castalia recommended a list of priority projects for which a detailed implementation timeline was developed. Castalia will also develop a resourcing plan for funding capacity building measures and procurement of transaction advisory assistance.

Rapid Needs Assessment, El Salvador 2012—Castalia was engaged by PPIAF to support PROESA—the exports and investment promotion agency of El Salvador—in prioritizing PPP projects in the pipeline, and designing road maps to take these projects to market once the country’s PPP Bill passes. At the end of

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the process we prioritized four projects: a concession of the El Salvador International Airport, the Metapán wind farm project, and two highway projects. For each project, the Castalia team carried out a preliminary financial analysis, developed a preliminary structure, and a created a road map to take these projects to market. As part of the road maps, our team identified interventions that could be carried out with the support of the PPIAF. In addition, the team evaluated the PPP Bill and made presentation to the President of the Government Agency in charge of the International Airport about international experiences with private sector participation in the airport sector.

Developing the Public Private Partnership (PPP) Program, Trinidad and Tobago 2012—The Government of the Republic of Trinidad and Tobago is embarking on a program of PPPs to improve the quality, responsiveness, and value for money of infrastructure services. Castalia was engaged by the IFC to work with the Minister of Finance and the Economy (MFE) and the PPP Unit within the MFE to help develop the PPP program. The Castalia team prepared a draft PPP Policy, and helped build consensus on that policy with relevant ministries, prior to presenting the policy for Cabinet approval. The team also liaised with relevant ministries to develop a pipeline of PPP projects to be implemented under the program in the short term.

Background Paper on Infrastructure, Latin America and the Caribbean 2011-2012—The Inter-American Bank hired Castalia to develop a background paper on Infrastructure in Latin-America and the Caribbean. The paper included a benchmark of the performance of infrastructure sectors in IDB borrowing member countries against one another, and against comparator Asian countries, a review of the infrastructure strategies and policies of other Multilateral Development Institutions, a proposal of the niche areas for IDB intervention, and a proposal of an outline for an infrastructure strategy for each sector. The sectors reviewed included water and sanitation, electricity, and transport.

Assessment and Implementation of Business Climate Reforms, Jamaica 2011-2012—Castalia was engaged by the Inter-American Development Bank to assist the Government of Jamaica in establishing a national program for PPPs. Our work included analyzing Jamaica’s history with PPPs and the existing legal, regulatory and institutional frameworks. We also conducted case studies of past high profile PPP and privatization transactions. Castalia then worked with the Government to develop a PPP and Privatization policy, design a new institutional framework for the implementation of the PPP program, and conduct a pre-implementation capacity building workshop. We created a comprehensive procedures manual on the identification, development, evaluation, implementation, and management of PPP projects.

Infrastructure Opportunities and Challenges Panel, Colombia 2012—Castalia was invited to attend a roundtable organized by Stanford University in Cartagena, Colombia on the challenges and opportunities for infrastructure investment in Colombia. Castalia presented on how and why the government can support private investments in infrastructure in Colombia. In particular, Castalia led a discussion on how the Colombian government can get more value out of the subsidies it provides, and presented options such as a dedicated subsidy funds

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and minimum revenue guarantees. We also discussed the question of whether the Colombian government should differentiate between solicited and unsolicited proposals when deciding which projects receive financial support.

Policy Paper and Guidelines for Results-Based Financing, Global 2012—The Asian Development Bank (ADB) was exploring ways it could increase the effectiveness of the financing it provides to member countries. Specifically, the ADB wanted to expand the success seen in output-based aid and performance contracting not only with grants but also with project lending. The objective of this assignment was to mainstream and increase the use of result-based financing at the project level by assisting project lending officers and other ADB staff to understand why and where a results-based approach is likely to improve development funding effectiveness. Castalia provided practical guidance on how to apply these results-based approaches when designing projects.

PPP Sourcebook, Global 2011-2012—The PPP Sourcebook is a joint initiative of the World Bank Institute, the Asian Development Bank, and FOMIN/MIF of the Inter-American Development Bank Group, with funding and strategic support from the Public Private Infrastructure Advisory Facility (PPIAF). The objective is to effectively share knowledge with PPP practitioners in developing countries, and build their capacity, by providing a reference covering all aspects of planning and implementing PPP infrastructure projects and programs. Castalia reviewed existing PPP literature and drafted the Sourcebook’s three modules. These modules are titled “PPP Basics—What and Why”, “Setting up a PPP Program”, and “Implementing PPP Projects.”

Presentation on SOE Oversight, Ecuador 2012—The Government of Ecuador is working to improve the oversight of its state-owned enterprises (SOEs). The Government, with the assistance of the World Bank, presented the seminar “National Strategies for SOEs”. This seminar was attended by participants from the region and focused the topic of national strategies for SOE oversight and management and the topic of sectorial strategies for strategic sectors. Castalia was hired to present and lead a discussion on the oversight of SOEs. Castalia’s presentation included best practices for SOE oversight, case studies illustrating best practices, and strategies for mitigating fiscal risk.

World Bank Institute (WBI) Water and Sanitation E-Learning Courses, Global 2012—The World Bank was developing a core learning program (CLP) called “Designing and Implementing Successful Utility Reform in Water Supply and Sanitation”. The World Bank wished to use an e-learning program because it would allow them to reach a broad audience, including the Arab Water Academy. Castalia was engaged to develop material for the CLP on public private partnerships (PPPs) in water supply. Castalia helped to prepare content for modules 6 and 7, which covered the following topics, respectively: developing systems for comprehensive asset management and non-revenue water (NRW) reduction, and developing a water safety plan. The final deliverables for the assignment included multi-media presentations, course notes, simulation exercises, case studies, and readings for the course.

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Other

Autostop Group

PPP Decision Framework for Johnsonville Library, New Zealand 2012—The current public library in the suburb of Johnsonville is too small to meet the needs of the growing population. The Wellington City Council (WCC) is looking at four options for procuring a larger library. Three options involve financing and owning the library building, and contracting out for the design and construction contract. The fourth option is to lease space for the library from property developer, Autostop, who has proposed to build one floor of their planned central Johnsonville development to accommodate a library. Autostop Group engaged Castalia to write a think piece for the WCC Finance Group that systematically compared the costs and benefits of the self-build option versus the lease option.

New Zealand Professional Firefighters’ Union Economic Impact Assessment, New Zealand 2011-2012—The New Zealand Professional Firefighters’ Union (NZPFU) has been in a pay dispute with their employer, the New Zealand Fire Service, since the expiry of their Collective Employment Agreement in December 2010. NZPFU engaged Castalia to conduct an economic impact assessment of professional firefighting services in New Zealand. We analyzed the labour market for fire-fighting services and identified market failures. We calculated the economic value of fire-fighting services and researched the appropriate funding model for these services.