Public-Private Partnership Stories Gabon: Société d’Energie et d’Eau Photo © Carlos Oliveira Reis/Flickr In 1997, Gabon privatized its electricity and water utility, Société d’Energie et d’Eau du Gabon (SEEG). The transaction was the continent’s first privatization of a water and electricity utility involving full commitment for future investment, and the first full concession in Sub-Saharan Africa under a contract that introduced coverage targets for expanding service to previously unconnected rural areas. IFC was the lead advisor to the government in this transaction. The winning bidder, a consortium of Companie Générale des Eaux of France (cur- rently Veolia AMI, an indirect subsidiary of the Veolia Environnement group) and ESB International of Ireland, became a majority shareholder with 51 percent of the capi- tal. The remaining 49 percent of the shares were offered to employees and the public in the first public offering in Gabon. The consortium pledged to more than triple connections over the 20-year concession period and to reduce tariffs by 17.5 percent. The 20-year concession contract covers the production, delivery, and supply of drink- ing water and electricity in the country, primarily in the three main cities of Libreville, Port-Gentil, and Franceville, which together are home to almost one million people. The transaction closed in July 1997. This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. A Japanese Trust Fund provided funding for specialized consultants IFC Advisory Services in Public-Private Partnerships in this transaction. 2121 Pennsylvania Ave. NW Washington D.C. 20433 ifc.org/ppp BACKGROUND reduction of tariffs proposed. All qualified bidders agreed to purchase In the mid-1990s, Gabon was the country with the highest per- all of SEEG’s shares, minus one, at a non-negotiable book value price capita income in Sub-Saharan Africa, yet only half the households of $3.4 million and to subscribe to a capital increase of $30 million. in the capital, Libreville, were directly connected to water, and only The concession contract transferred to the private sector exclusive 69 percent had electricity. The state-owned SEEG, was the exclusive responsibility for serving major population centers and 30 unserved provider of electricity (84,000 connections) and water (43,000 villages across the country. It was designed mainly as an output-driven connections) in Gabon. This represented services to 40 percent contract, defining the requirements for service quality and coverage. of the population for electricity and 66 percent for water services, The private operator was mandated to invest a minimum of $135 with most customers primarily located in urban areas. million in rehabilitation (60 percent in water). Incentive mechanisms Although SEEG’s overall performance was better than that of many were included to reward timely service expansion to more remote other African utilities, it faced significant challenges: accumulated regions and to poorly connected neighborhoods. financial losses exceeded US$100 million; the state—SEEG’s largest Gabonese participation was ensured by requiring the winning shareholder (64 percent)—was delinquent in paying its own utility bidder to organize an initial public offering (IPO) for 44 percent bills; technical and commercial losses were about 28 percent for of the company’s shares and offer five percent to employees. water and 17 percent for power; and the network required extensive The privatization resulted in the first sizable IPO in Gabon. rehabilitation. The privatization of SEEG followed a 10-year period of preparation in BIDDING which important reforms, such as the definition of a legal framework, Three of premier infrastructure firms were prequalified and an increase in tariffs to levels reflecting costs, and a reduction of staff, participated in the bidding: Compagnie Générale des Eaux (currently were implemented. The government sought to privatize SEEG to Veolia AMI, France) with ESB International (ESBI, Ireland); Elyo improve service quality, expand coverage at affordable rates, end fiscal (Lyonnaise des Eaux Group, France); and SAUR International burden and free up public resources. (France). The award was made solely on the basis of the largest tariff reduction. IFC’S ROLE In March 1997, the government selected the winning bidder: In 1996, IFC was retained by the government of Gabon as the lead Compagnie Générale des Eaux in association with ESB International, advisor for the preparation and implementation of the privatization which proposed a 17.5 percent reduction in tariffs, the best bid. The process. During the preparation phase, IFC conducted a technical and concessionaire also informally committed to investing another $130 strategic study of the power and water sectors, reviewed the existing million over the life of the contract to increase network density and legal framework, and proposed a financial restructuring plan for the expand service to new centers. company. The implementation phase consisted of: (i) developing the privatization strategy, financial model, regulatory guidelines and rate structures; (ii) identifying suitable investors, and preparing the tender POST-TENDER RESULTS documents and share purchase agreement; and (iii) assisting with the • More Gabonese have gained access to clean water bidding process. and electricity, at no cost to the government. Throughout implementation, IFC worked closely with the • Customers were more satisfied with the service than government to determine the best balance of objectives based on the prior to privatization.The company developed innova- company’s record, market prospects, and degree of investor interest. tive technologies, such as prepaid meters, to provide Generating competitive interest in the transaction was a major service in hard-to-reach areas. challenge, given the perception of high country risk, and SEEG’s historic association with a consortium of international water and • Financial performance improved and dividends rose electricity operators. from a contractually guaranteed 6.5 percent of the share price in the first year of operations to 20 TRANSACTION STRUCTURE percent in 2000. The project involved transferring the control and operations of • Five years into the concession, 80 percent of the SEEG to a private operator under a 20-year concession contract. contractually required investments had already This encouraged interest in the sale, and was considered preferable been made. to unbundling, as it allowed cost reductions through the sharing of resources as well as economies of scale and scope, particularly in rural This story was originally published in 1997, and updated on 10/2010 areas. To generate true competition, IFC advised the government that no two companies experienced in Gabon’s water and electricity sector could bid together. Also, to ensure transparency, bidding was organized around a single, indisputable criterion: the percentage