NRWPerformanceBasedContrac3ng

WorldBankGroupBillKingdom

WhyisNRWreduc3onsoimportant?

•  ReducingNRWdeliversmul3plebenefits:1.  Improvescustomerservicelevels–higherpressuresand/orbeHer

con3nuityand/orexpandedcoverage2.  Enhancesassetlivesandu3litymanagement–ifNRWreduc3onleads

to24/73.  Improvesu3lityfinancialperformance(and/orreduceslocal

governmentsubsidies)byreducingcostsandincreasingrevenues4.  Makesci3esmorecompe33vewhenaccompaniedbyservice

improvement5.  Improvesclimateresiliencebyreducingdemandonscarcewater

resources6.  ReducesemissionofGHGs–lessenergy/m3delivered

Thisisnota“winwin”(W2)-itisa“winwinwinwinwinwin”(W6)

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U3li3esworldwideloseatotalof$1.4billion/yearinrevenuestonon-revenuewater

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Country U*lity Non-RevenueWater

Losses Appx.AnnualOpera*ngLoss

toNRW

Bahrain EWA 40% 25,000m3/day USD15million

Egypt Alexandria 31% 730,000m3/day USD34million

Jordan Miyahuna 35% 140,000m3/day USD29million

Yemen Aden 30% 28,000m3/day USD4million

Source: Author’s calculations based on IB-NET data

ComparatorsinMENA(2010)

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15%

29%

41%

65%

Currentlevelwithcashcostrecovery

>120%

Collec3onrateincreasedto100%

Non-laborcostreducedby15%

Withreduc3onofcurrentlevelofNRWto25%

Basedon690u3li3esreachingadesiredcashflowlevelof120%ofopera3ngcosts

Comparedtootherinterven3ons,NRWreduc3onrepresentslargestgainsinincreasedcashflows

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Failure to actively manage NRW is not an option in

many countries where water security is a key issue

Whyisthishappening?1.  Lackofhardbudgetconstraints?2.  Plentyofavailablewaterresource?3.  Lackofconsumeraccountability?4.  Newproduc3onfacili3eseasier,moreaHrac3ve,andmore

certain?5.  Weakstaffcapacityandlackofequipment?6.  Absenceofstaffincen3ves?7.  Alloftheaboveandmore…..BUTwithgrowingpushbackonelements1–4howcanweaddresselements5&6?

Solu3on?

AreinvigoratedpublicsectororTheprivatesector(skillsandequipment)+Performancebasedcontracts(incen3ves)

TheexpectedbenefitsofPBCs•  Fasterreduc3onofNRW=>fasterserviceandfinanceimprovements

•  Accessinglatesttechnology•  Tappingintohard-wonexperience•  Workingaroundsomepublicsectorconstraints•  Payingforresults–andnotforinputs

Ini3alDesignConsidera3ons–Whatismyproblem?•  Howmuchwaterislost?Where?Why?

Source: International Water Association

Ini3alDesignConsidera3ons–HowmightaPBChelpme?

1.   Func*onalScope:Isthecontractforphysicallossreduc3on?Commerciallossreduc3on?Both?

2.   PhysicalLossReduc*on–threebroadscenarioswhichcanbeop3mizedbasedonassessmentofEconomicLevelofLeakage:a.  Con3nuouswatersupplybuthighlevelsofleakage–PBCcanbeused

toreduceleakageclosertotheELLb.  IntermiHentsupplybutsufficientwaterproduc3on–PBCcanbeused

todelivercon3nuouswatersupplybyreducingleakagelevelsdowntoELL

c.  IntermiHentsupplyandwithinsufficientwaterproduc3on–standalonePBCcouldaggressivelyfindandfixleakstoimprovedura3onofsupplyORcouldbelinkedtoac3vi3estoenhanceproduc3onandtherebydelivercon3nuoussupply.

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Ini3alDesignConsidera3ons–Backlog,MaintenanceorBoth?Stage1:Non-revenuewatermanagement&leakagereduc*on(DealingwithBacklog)

CommercialLosses–  Surveystoiden3fymissingorunmeteredconnec3ons–  Repairingorrecalibra3ngmeters–  Improvingmeterreadinganddatatransfertocustomeraccoun3ngsystems–  Improvingcustomeraccoun3ngsystemsPhysicalLosses–  EstablishingDistrictMeteringAreas(DMAs),whichisolateswatersupplytoasmallsub-setofthe

u3lity’scustomers,improvingwaterinflowandpressuremeasurementandfacilita3ngleakagedetec3on

–  Leakagedetec3on;–  Pressuremanagement;–  Repairingleaks;–  Replacingserviceconnec3ons;–  Replacingleakingpipes,valves,hydrants,etc

Stage2:Maintenance(Maintaininglowerlevelsofleakage)–  Maintenanceofwatersavingsachievedforaperiodof3me;and–  Trainingofu3litystaff

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SomeTypicalApproachestothePBCDesign

1.  Bundlingeverythingtogetherinonepackage–  Advantages:Strongincen3vesandsinglepointresponsibility–  Disadvantages:Maximumrisktransferredtocontractor

2.  HaveonepackageforplanningandoverseeingNRWreduc3onstrategyandonepackagefortheconstruc3onwork–  Advantages:ReducesriskstotheNRWcontractorandensuresbest

valueforeachcomponent(designvs.implementa3on)–  Disadvantages:Morecomplextomanage,diffuseresponsibili3es

3.  HaveonepackagewiththeNRWcontractorwhichalsoactsasconstruc3onmanagertohireandsuperviseworkscontractors–  Advantages:Singlepointresponsibility,NRWcontractorrisksare

reducedcomparedtothebundledmodel(1)–  Disadvantages:HowtorewardNRWcontractorfor“intermediate”

levelofrisktransfer

Prepara3onofPBC:Overview

•  Determineprojectarea–  Ifnotwholesystemthenhydraulicallyseparable

•  Definecontracttype(bundled/unbundled)andscope(physical,commercial,both)

•  Preparebasicanalyses–  Ini3alwaterbalance,economiclevelofleakage,investmentes3mates

•  Determineperformancetargets–  Useappropriateoutputbasedindicators

•  Setoutperformanceverifica3onprotocol•  CollectdatafortheRFPdocuments

–  Enoughforcontractortodeterminestrategy

ExamplesofNRWPBCs

•  HoChiMinhCity,Vietnam•  NewProvidence,Bahamas

HoChiMinhCityPBCforleakagereduc3on

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Contract–  4yearleakage

reduc3on–  1yearmaintenance

Scopeofwork–  DMAestablishment–  Systemexpansion–  Leakdetec3on–  Leakrepair–  Training

Leakreduc3onresultsinHoChiMinhCity

DMAestablishmentresultsinHoChiMinhCity

SummaryResults-HCMC

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What:–  Servicepopula3onof~1millionpeople–  Numberofconnec3ons140,811–  Lengthofdistribu3onsystem662,063m

Result:–  Volumeofwatersaved=92,000m3/d(finalamount~100,000m3/d)–  Almosthalfthepre-projectamountofleakage–  Savedwatercouldserve500,000peopleinHCMC–  Savedpower(23,000kwh/d)couldserve2,500HHinHCMC

How:–  NumberofDMAscreated:114–  <1%ofdistribu3onsystemreplaced(3422m/662063m)–  8535connec3onsreplaced=6%–  12,000leaksfixedin662kmofpipe=oneevery50m–  Performancebasedpayment–fixed+variableperm3/dsaved

NewProvidence,BahamasNRWReduc3onProject

•  Over90%ofthewatercamefromdesalina3onandonceitenteredthewatersupplysystem,58%waslosttoNRW(31,000m3/din2012)

•  AveragepricetoconsumersinNewProvidence:$3.45perm3comparedto$1.74perm3intheU.S.(IB-Net,2016)

•  10Year;$83Mn;tenderedin2009andawardedtoMiyain2012•  Theprojectisdelivering:

–  Inexcessofperformancetargets–  AvoidingspiralintointermiHentsupplyopera3onin2013–  Reducedwaterpurchasecosts–  Increasedrevenue–  Reducedbreakrepairs–  Improvedcustomerservice–  Improvedinfrastructure–  SCADA/Netbase

NewProvidenceNRWReduc3on2013-15

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3.00

4.00

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MIGD

WaterSupplied

RevenueWater

NRW

2013AnnualAvg.Target

2014AnnualAvg.Target

2015AnnualAvg.Target

SummaryofresultsinNewProvidence

Jan-2013 Sept-2015

NRW(Ml/d) 31,2 12,5

NRW(%) 57.7% 32.2%

NRW(l/con/day) 758 300

Reallosses(l/con/day) 699 267

ILI 29.7 8.55

ServiceBreaks/1,000no./year 90 29

MainsBreaks/1,000km/yearReportedBreakRepairs2012ReportedBreakRepairs2014

485

3,912613

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Highlightsfromcasestudies

•  Essen3alstar3ngpointistounderstandwhatdriveslosses•  Defini3onofappropriatecontractobjec*ves•  Demonstra3onthatthirdparty(privatesector)partnershipcanbeaneffec3ve

wayofovercomingtechnicalandfinancialconstraintsandachievelossreduc3onobjec3ves

•  Awell-structuredperformancebasedcontractincen*vizestheprivatepartytoachievetargetsbutallowsflexibilityinimplementa*onstrategy

•  Trainingoftheu3litytomaintaintheresultsorallowprivatepartyamaintenanceperiod(Stage2)withappropriateincen3vesthatmaydifferfromtheearlymanagementperiod(Stage1)

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MaintaininglowlevelsofNRW

KeepingNRWlowisoyenachallenge.Somefactorsshouldalreadybeconsideredduringini3alcontractdesign.•  Inclusionof“maintenance”periodinthecontract

(shorterorlongerperiod)•  Comprehensivetrainingofu3litystafftoensurethat

NRWisproperlymanagedinallaspects–withspecialemphasistowardsendofcontractlife

•  Establishmentofsystemsandequipmentthatareserviceableathand-back

OR•  Designfollowon“maintenance”PBC

WBGProgramtoScaleUpNRWPBCs

•  AreNRWPBCsalwaysfeasibleoraretheresomepre-condi3onstobemet?Ifsowhatarethey?

•  FocushasbeenonNRWPBCtoaddressbacklogsofleaks–howcanweensurelongtermsustainabilityoflowerleakagelevels?

•  Howmuchriskshouldbetransferredtooperators–bundledversusunbundledcontracts,incen3vestructures?

•  Commercialorphysicallossesorboth?•  Canprepara3onofNRWPBCsbesimplifiedandspeededup?•  Marketcapacitytorespondtoscaleup?

Summary•  NRWmanagementisgoodprac3ce–moresoinwaterconstrainedenvironments•  NRWmanagementhasamul3tudeofbenefits(W6)•  Thecost-benefitanalysisdeterminestheeconomiclevelofNRW•  Soundop3onsanalysisneededtodefinemodel,scope,targetsandriskalloca3on•  Performancebasedcontractsgivestrongincen3vesbutallowcontractor

flexibilityonhowtodeliverresults•  Therearearangeofresourcesavailabletohelpinterestedgroups

ThankYou