Public-Private Partnership Stories Benin: Piped Water Supply Systems in Rural and Small Towns In 2010, the performance of privately-run piped water systems in rural and small towns in Benin was assessed by the World Bank’s Water and Sanitation Program (WSP), which uncovered several shortcomings in the sector. In 2012, IFC was retained by the Government of Benin to help address these challenges, as part of the World Bank’s larger project to help improve water supply and distribution services in rural and small towns. The project also complemented the on-going sector support being provided by WSP in Benin. Ten pilot sites, covering 41,000 people, were selected in three different municipali- ties (the “Communes”). The pilot sites were grouped into four clusters, each of which was tendered as a separate transaction by the respective Communes. Private operators bid for the 8-year concession agreements for the design, partial financing, rehabilitation, extension and operation of the ten rural water systems. The bidding process led to the selection of three winning local bidders for the four clusters (two consortia and one firm). The four concession agreements were signed in August and September 2014. This series provides an overview of public-private partnership stories in various infrastructure sectors, The project was implemented with the financial support of DevCo, a multi-donor facility affiliated with the where IFC was the lead advisor. Private Infrastructure Development Group. DevCo provides critical financial support for important infra- IFC Advisory Services in structure transactions in the poorest countries, helping boost economic growth and combat poverty. DevCo Public-Private Partnerships is funded by the UK’s Department for International Development (DFID), the Austrian Development 2121 Pennsylvania Ave. NW Agency, the Dutch Ministry of Foreign Affairs, the Swedish International Development Agency, and IFC. Washington D.C. 20433 ifc.org/ppp BACKGROUND BIDDING In Benin, rural water systems had historically been operated The bidding process led to the selection of three winning bidders by local communities, with varying degree of success. In 2006, (two consortia and one firm) for the four clusters. The project the Government of Benin began to transfer the management of is expected to mobilize approximately $1 million in capital these water systems to private operators, under a lease/affermage expenditures, of which $277,000 will be financed by the private arrangement. In 2010, the World Bank Water and Sanitation operators. The balance will be provided by the public budget Program (WSP) commissioned an assessment of the performance through a grant from the Dutch Cooperation. of the privately-run water systems which uncovered a number In addition to the advisory support provided to the Government, of shortcomings including the lack of capacity on the part of potential bidders were consulted and trained to ensure a clear the local private operators, weak and short-term contracting understanding of the proposed structure, and a sustainable risk arrangements, and challenges for all parties in fulfilling their allocation. contractual obligations. To address these problems and strengthen the contractual framework, the Government of Benin solicited the The project was implemented as a pilot for broader sector reform. assistance of the World Bank Group and the Dutch Cooperation Scaling-up of this approach is envisaged as a next step to include (Netherlands Embassy in Benin) allocated up to $1 Million in more rural water supply schemes across the country and to enable grant funding to the project. a larger number of people to benefit from improved access to water. The population currently supplied through piped water IFC’S ROLE systems is estimated at 1.7 million people in Benin. Through this The Government of Benin hired IFC as its lead transaction advisor pilot project, the local commercial banks are more familiar with to structure, tender, and implement a public-private partnership the risk profile of rural water supply and are committed to support (PPP) for ten pilot sites. IFC’s unique experience with PPPs the private operators. added to the strategic partnership with the Water and Sanitation Program (WSP), which played a pivotal role in fulfilling the government’s objective of leveraging the private sector’s capacity EXPECTED POST-TENDER RESULTS to improve the quality and sustainability of water supply in • $277,000 of the project total cost will be mobilized rural areas. IFC’s mandate included helping to select private through private operator’s debt and equity operators for the selected piped water supply schemes through financing. a transparent and competitive bidding process. Together with WSP, IFC provided strategic recommendations on an appropriate • $760,000 FCFA public subsidies provided by the institutional framework, the range of activities to be transferred to Dutch Cooperation. the private sector, and a tender and regulatory framework. • Rehabilitation of 10 existing piped water systems which will improve the water service delivery. TRANSACTION STRUCTURE • Approximately 32 km of additional water network IFC proposed a transaction structure based on an 8-year pipes to install. concession agreement for the design, partial financing, rehabilitation, extension and operation of four clusters comprising • 1,071 new household water private connections to of two to three rural water systems each. install. The project design required the private operators to design, • Overall, approximately 48,500 people are expected engineer, rehabilitate, operate and maintain systems, without to have access to improved water services within increasing the price of water. This included rehabilitating two years of the commencement of the concessions. equipment, extending the network, installing private water connections, and partially financing these activities. The 05/2015 concession arrangements provided a robust contractual framework and a better risk allocation among the parties. For the first time in Benin, local commercial banks have committed to support the sector by providing debt, equity, and various financing instruments to the concessionaires. The financial burden on the public finances will be reduced, as historically the State has fully financed capital investment.