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Banco Interamericano de Desarrollo

Financiacion de los servicios de agua y saneamiento :

Opciones y condicionantes

Experiencia de un operador privado

Charles Chaumin, SUEZ ENVIRONNEMENT

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CONTENT

. SUEZ Environnement in Latin America

. Major Features

. Assessment

. Where do we go from now ?

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1993–2003 : A « PIONEERING » DECADE

1993 Buenos Aires (Argentina)

1994 Mexico DF (Mexico), Bogota (Colombia)

1995 Limeira (Brasil)

1996 Santa Fe (Argentina)

1997 Cordoba (Argentina), La Paz (Bolivia)

1999 Santiago (Chile)

2000 Manaus (Brasil)

2001 Cancun (Mexico)

2002 Puerto Rico (PR)

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SUEZ ENVIRONNEMENT : A COMPLETE RANGE OF EXPERIENCES AND PSP MODELS IN LATIN

AMERICA/CARRIBEAN

- Service contracts : Mexico DF

- Long term operation / maintenance contracts : Puerto Rico

- Bot’s : Mexico, Bogota

- ‘’ Full ‘’ concessions : Buenos Aires, Santa Fe, La Paz

Manaus, Limeira, Cordoba, Cancun

- Privatization : Santiago

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CONTENT

. SUEZ Environnement in Latin America

. Major Features

. Assessment

. Where do we go from now ?

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MAJOR CHARACTERISTICS OF OUR PROJECTS IN LATIN AMERICA

. Dramatic needs for service improvement /expansion- Inexistent / poor mid or long term planning

- Poor/inaccurate baseline data

. Little / no experience of PSP in country / sector

- Lack of regulatory instruments / regulatory practice

- “bricks and mortar” philosophy versus output delivery philosophy.

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MAJOR CHARACTERISTICS OF OUR PROJECTS IN LATIN AMERICA (2)

. Abrupt shift from “all public financing” to “all private financing”

- Difficulties in understanding, accepting and applying full cost recovery principle and its implications

- Same with cost of capital

. Absence of or limitations on local financial markets- Reliance upon international debt / capital markets

- Cost-effectiveness and currency risk

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CONTENT

. SUEZ Environnement in Latin America

. Major Features

. Assessment

. Where do we go from now ?

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RESULTS

. Real delivery of service improvements and service expansion

- 4.2 million connected to water / sewerage,

- New waste water treatment capacity for 7 million

- 3 billion US $ CAPEX

. Accountability of results / monitoring

. Transparency of origin and allocation of costs and resources within operations and investment

. Emergence / build up of customer / community awareness

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Relación Ingresos / InversiónRelación Ingresos / InversiónOSN / Aguas ArgentinasOSN / Aguas Argentinas

Nota: La evolución tarifaria contiene el Suma. El cargo está tomado como si fuese un incremento tarifario y no una sustitución de conceptos (Cargo de Infraestructura y los costos diferenciales del PSI )

Evolución Tarifas e Inversiones

0

20

40

60

80

100

120

0

200

400

600

800

1000

1200

1400

Tarifa Real Promedio (1980 = 100) Inversión a Valores Constantes (2002 = 100)

TARIFA MEDIA OSN

INVERSIÓN MEDIA OSN

INICIO CONCESIÓN

TARIFA MEDIA AA

INVERSIÓN MEDIA AA

INDICE INVERSION

En base a los montos nominales anuales ajustados por IPM (Indice de Precios

Mayoristas)

INDICE TARIFARIO

En base a la tarifa nominal promedio ajustada por IPC

(Indice de Precios al Consumidor)

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CRISES

. Contract Design Crises

- Buenos Aires 97-98 (Cargo de infrastructura)

- Manaus (Baseline data, Planning)

. Tariff Freezes/Breach of Contract

- Limeira 1996-2000

- Argentina 2002 --- ?

. Legal System Interference with Contracts (“Judicializacion”) :

- Argentina

- Manaus

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MAJOR RISKS ENCOUNTERED

. Baseline data risk

. Currency risk

. Breach of contract by concedent

. Financial risks to concessionnaire and shareholders

- Performance bonds

- Loans

. Legal risks

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LEARNING FROM EXPERIENCE (1)

. Sustaining economic equilibrium of long term contracts is highly challenging :

- Economic shocks

- Change in political objectives

- Regulatory/ legal issues

. Risk allocation through contracts finds its limits in major change / shock situations

. Private operator’s obligations are enforceable, but public authority’s are not :

= Assymetry of obligations

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LEARNING FROM EXPERIENCE (2)

. It is key to win and keep a “license to operate” as private provider of a public service :

- customers loyalty

- community/stakeholders relations and recognition

. Private operation and service to the poor are fully compatible

. Adherence of labour to change management is achievable through constructive relations

. Attracting / empowering local partners to “emerging water business” proves complex

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CONTENT

. SUEZ Environnement in Latin America

. Major Features

. Assessment

. Where do we go from now ?

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PRINCIPLES FOR SUSTAINABLE PPP CONTRACTS

. Clear, stable and durable statement, understanding and sharing of project objectives/targets

. Sustainable cost recovery at manageable horizons

. Clear allocation of tasks / duties / responsabilities

. Thorough risk allocation

. Reciprocal enforceable commitments of parties

. Multistakeholders’ engagement

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PRACTICAL IMPLICATIONS (1)

. Build contracts with adjustment mechanisms to baseline data and with periodic reviews

. Control financing needs up-front

- Avoid up-front concession fees

- Capex programs to be profiled according to cash-flow streams

- Adjust to local market/local currency conditions

. Differentiate roles :

- Operator

- Investor

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PRACTICAL IMPLICATIONS (2)

. Control investor’s exposure :

- Projects bankable through project finance

- Equity protection on political risk

. Deploy and apply risk mitigation instruments available or to be made available by IFI’s, ECA’s and Bilateral’s

. Mix public funding with private funding :

- Revolving funds

- OBA’s

- Grants

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PRACTICAL IMPLICATIONS (3)

. Enable performance reporting to project owner and stakeholders

. Enable appropriate dispute prevention and dispute resolution mechanisms

. Instrument enforceability of both parties’ obligations and balanced termination clauses

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THANK YOU / MUCHAS GRACIAS