75627 May 2012 PPIAF Assistance in Guyana In the early 2000’s, Guyana’s economy had stagnated, exacerbated by a difficult security situation with a surge in crime and political tensions between the two major political parties. This further weakened investor confidence and accelerated migration of Guyana’s skilled manpower. To address the nation’s problems, the government committed itself to reorient its economic and social policies towards poverty reduction. A Poverty Reduction Strategy was approved in 2001 that prioritized the need to improve transparency and public sector accountability, expand access to basic services, support private sector 1 growth, and protect Guyana’s environmental assets. The context to PPIAF’s involvement in the country’s W ater and Sewerage Program was a history of under-investment in the Guyanese water sector, leaving only 36% of the population with reliable access to potable water in 2001. Since then, concerted efforts by all stakeholders have led to a stark increase in 2 service coverage, which reached 93% in 2011. Today Guyana ranks as a lower middle-income country with GNI per capita of US$1,300 in 2011. Technical Assistance for Guyana’s Water and Sewerage Sector For many years donors have participated in Guyana’s water sector, but with very poor results in terms of securing universal access to safe and affordable supplies within a financially sustainable framework. The results from previous interventions had been so poor that certain key donors were considering withdrawing from the sector. In late 1997 and early 1998, the UK’s Department for International Development (DFID) led an effort to undertake a comprehensive review of the Guyanese water and sewerage sector. Key recommendations included the establishment of a water and sanitation utility and the use of private sector participation, particularly to deliver a large investment program and improve operations. The Guyanese government thus requested PPIAF support in 2000 to review potential institutional changes including a range of options for private sector participation, and to recommend and support the preparation of a five-year performance-based management contract for the water utility Guyana Water Inc. PPIAF provided project-related assistance in the preparation of the public-private partnership contract and provided a human resources diagnostic, reviewing the remuneration expectations of the regulatory body staff, and made recommendations on how to strengthen the utility’s institutional capacity. Two consensus building stakeholder workshops on private sector participation and the modalities of the model management contract and bidding documents were also held. Following the findings of the PPIAF-funded activity, a five-year performance-based management contract that set targets to be met by a private operator was awarded, following an international tendering process, to Severn Trent Water International in 2002. DFID funded the management contract (valued at £3.6 million or US$5.1 million) as part of their £13 million Guyana Water Sector Program. The management contract began in January 2003 as a centerpiece of the government’s sector strategy to improve service levels, increase efficiency, and achieve financial sustainability. The implementation of the contract and of the accompanying reforms in the sector led to some notable improvements to access and levels of service, to the financial status of the organization, and to the 3 institutional framework for the water sector . Over the contract duration of five years, significant improvements were achieved in water quality, reductions in non-billed water from 61% to 44%, revenues almost doubled, and hours of water supplied rose by roughly 80%. However, as a whole, the management contract did not run smoothly, and yearly performance targets were not met. The 1 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/EXTLACPROJECTSRESULTS/0,,contentMD K:21821937~pagePK:51456561~piPK:51456127~theSitePK:3177341,00.html 2 http://www.doingbusiness.org/data/exploreeconomies/guyana/ 3 http://www.severntrentservices.com/News/STWI_Guyana_Statement_nwMFT_220.aspx 1 government of Guyana terminated its contract with Severn Trent Water International for the management of Guyana Water Inc. in January 2007. The underperformance was mainly due to lack of timely decision-making actions by the government of Guyana on key issues, external shocks such as the increase by 40% of energy costs (power amounts to 70% of Guyana Water Incorporated’s costs), and the effects of a disastrous flooding in 2005. Results of PPIAF’s Activities in Guyana’s Water and Sewerage Sector Category Outputs Enabling environment reform  Human resources diagnostic that reviewed the remuneration expectations of the regulatory body staff and made Analyses/assessments prepared recommendations on how to strengthen the institutional capacity of the utility Project cycle-related assistance  Preparation of performance-based management contract for Transaction support Guyana Water Inc., 2001 Capacity and awareness building  Two consensus building stakeholder workshops on private Workshops/seminars sector participation and the modalities of the model management contract and bidding documents, 2001 Category Outcomes Project cycle-related assistance  Five-year £3.6 million (US$5.1 million) performance-based management contract awarded to Severn Trent Water Transactions facilitated International in 2002 and funded by DFID as part of their £13 million Guyana Water Sector Program 2