Public-Private Partnership Impact Stories Romania: Bucharest Water and Sanitation Photo © RGAB The Bucharest concession was Romania’s first public-private partnership in the water and sanitation sector and one of the first such transactions in the sector in Europe. IFC’s role in structuring and implementing the transaction provided assurances to international operators and the municipality about this pioneering transaction. The transaction was completed in March 2000. Vivendi of France (now Veolia) won the bid to operate and maintain the water and sanitation system for 25 years. As of 2010, the company had invested more than $250 million in upgrading and servicing the system, providing to the Bucharest metropolitan area’s 2.2 million one of the lowest water and sanitation tariffs in Europe. The concession has “massively improved water services, in Bucharest, lifting the city’s standard of services above other Romanian towns and toward western European levels” (as reported in a 2010 evaluation of the concession by Castalia Strategic Advisors). This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. Water quality has improved: in 2000, 69 percent of samples complied IFC Advisory Services in Public-Private Partnerships with the standard for residual free chlorine; in 2009, 100 percent of water 2121 Pennsylvania Ave. NW Washington D.C. 20433 samples met or exceeded Romanian and E.U. quality standards. ifc.org/ppp BACKGROUND additional incentive for the concessionaire to be efficient. The municipality of Bucharest was facing numerous problems in meeting the city’s water and sanitation needs. Because of BIDDING leaks in the distribution network and waste, water losses were Six major international companies were prequalified to participate very high, nearly 50 percent, which together with an inadequate in the bidding. The prequalified bidders submitted bids based metering system resulted in low revenues for the municipality. In on their proposed tariffs for years 1, 2, 3, 4, 6, 11, and 16 of the addition, some larger investments in sewerage, water storage and concession period, which were then discounted to a single net quality improvements were also required to meet EU standards. present value average tariff. Three of the prequalified bidders Furthermore, the complicated ownership structure of water submitted bids: France’s Vivendi (now Veolia) and Lyonnaise des infrastructure assets resulted in a lack of accountability and of Eaux, and the United Kingdom’s International Water. Vivendi incentives to improve efficiency. In addition, low tariffs meant won with an average net present value tariff of €0.17 per cubic that insufficient funds were available to invest in the necessary meter. Apa Nova Bucureşti, a subsidiary of Veolia is the operating improvements. entity. IFC’S ROLE POST-TENDER RESULTS The municipality hired IFC as transaction adviser to assess various • Water quality has improved: in 2000, 69 percent of options for private sector participation and to help structure and samples complied with the standard for residual implement a transaction for a private partner. The government’s objectives were to bring about efficiency gains so that consumer free chlorine; in 2009, 100 percent of water sam- service levels could improve with minimum tariff increases, to ples met or exceeded Romanian and E.U. quality transfer most of the investment responsibilities to the private standards. sector and make it as self-sufficient as possible, and to avoid the • Overall customer satisfaction increased from 46 dangers of a private monopoly. Based on a thorough review, percent in 2002 to 75 percent in 2009. IFC recommended a long-term concession whereby the private operator would be responsible for managing water and sanitation • Coverage is high (92 percent) in the service area services and for all capital investments. The municipality would, included in the concession contract, and access to however, retain ownership of the assets. After the municipal and quality of service improved in the entire city, council approved this approach, IFC: including in poor areas. • Conducted a prequalification process to ensure that • Water consumption decreased from total consump- potential bidders had the requisite technical experience tion of 516 liters per capita per day in 1999 to 239 and financial strength. liters per person per day in 2009, and is decreasing • Drafted a detailed concession contract that included at a compound annual rate of 8 percent due to a process and methodology for adjusting tariffs and reduced leakage. performance targets for service quality and expansion. • Apa Nova Bucuresti has reduced non-revenue water TRANSACTION STRUCTURE (including leakage and commercial losses due to Under the structure adopted by the municipality, a joint venture under-billing, theft etc.) from 350 cubic meters per concessionaire company was established to manage all water kilometer of network per day in 2002 to 176 cubic and sanitation services in metropolitan Bucharest under a 25- meters per kilometer per day in 2007. year concession contract. An international private operator took 80 percent of the shares of the concession company, while the • Apa Nova Bucuresti has invested $258.8 million. municipality retained 20 percent. • The combined water and sewerage tariff has been Because of the differences in costs and investment needs in various maintained below the average for other Romanian parts of the water and sanitation system, IFC helped structure cities. time-based performance targets for improvements to service quality and delivery. Obligations of the concessionaire were * Unless otherwise stated, monetary values are presented clearly defined in the concession contract. The concessionaire is in 2008 US dollars. Results are from a post-completion evaluation completed May 2010. responsible for all operations and investments. Service level targets exist across all categories with penalties for non-compliance. The This story was originally published in 2010, and updated on 08/2013 tariff structure and adjustment process are also set out in the contract. The lowest average tariff based on seven future bid tariffs formed the bid criterion. A tariff review is scheduled every 5, 10, and 15 years with readjustment in the event of project returns being above or beyond a predefined band. This band provides an