PUBLIC-PRIVATE PARTNERSHIPS BRIEFS Honduras: PROMOSAS Water Overview In 2007, the World Bank committed to provide financing to support the modernization of the water sector in Honduras and promote decentralization of water services, through a project called PROMOSAS. The Tegucigalpa Performance Based Contract—to address non-revenue water—was created under this project to help the city’s water public utility to manage twin problems of a deficient water network and severe water deficit. Not only did the World Bank provide funding assistance it also assisted the city in project structuring and executing the tender process. In 2011, the contract was awarded to a winning bidder and since then the city has seen an increase in metered consumption and an improvement in continuity of service. This series showcases how the World Bank Group supports the development and implementation of public-private partnerships. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. PUBLIC-PRIVATE PARTNERSHIPS - MAY 2016 Background leakage reduction, and an optimization of key elements of the network’s structure and operation. By 2007, heavy internal migration had produced a dramatic rise in the population of Tegucigalpa—the capital of Honduras However, due to Honduras’ unclear water sector institutional —which increased from 400,000 in 1980 to 1,300,000 in situation and in part because of the lack of information on 2008. This growth was not matched by an expansion in urban the baseline situation in the city, the PBC was designed as a infrastructure services and the city suffered from a severe water hybrid model where the performance-based remuneration deficit and a deficient water network. As a result, there was would only be a relatively small part of overall remuneration no continuous water service in any part of the city, and the (15 percent). situation was worse in the outskirts, where water was supplied Because of the limited funding available (around $6.5 million) by private and public tanker trucks. Non-revenue water and innovative nature of the PBC contract, it was decided (NRW) was estimated to amount to around 60 percent. to focus the contract on a pilot area in Tegucigalpa covering Although a number of performance-based contracts had around 40,000 connections. The area represented a diversity of been implemented to control water losses, they merited socio-economical and service level conditions. The 30 month redesigning to address the water supply system for the city of contract was divided in to three phases: Tegucigalpa and the main public water services provider, the • Engineering Services (6 months): Contractor expected National Autonomous Water and Sewerage Service (SANAA). to develop a technical and commercial diagnostic of the A hurricane in 1998 had also caused severe damage to the project area. existing water infrastructure in the city. To further compound • Implementation Services (18 months): After approval problems, SANAA had been operating under an unclear of the diagnostic plan, the Contractor implements the legal framework. A 2003 framework law had envisioned the improvements. transformation of SANAA to a technical agency and the • Maintenance Services: Contractor begins to withdraw its team devolution of its operational powers to local municipalities by but is expected to focus intensely on capacity building and 2008 and then eventually postponed to 2013. However, the knowledge transfer to ensure the utility can continue provid- political support for this devolution was not consistent. ing the higher level of services after the PBC. Thus, in 2007, the World Bank committed to provide The 15 percent PBC payments would be triggered by financing to support the modernization of the water sector demonstrated improvement in service continuity and in Honduras and promote decentralization of water services, improvement in metered water consumption. through a project called PROMOSAS. Because of the high visibility and complexity of the decentralization in the case of World Bank Group Role Tegucigalpa, it was agreed that support to Tegucigalpa would be limited to efficiency and service quality improvement Apart from providing a $6.5 million line of credit for the activities in a pilot area, and would not directly address Tegucigalpa PBC, the World Bank also led the competitive, institutional issues. Based on the successful experience of past transparent tendering process. The tender process took performance-based contracts, the World Bank team suggested around 13 months from the publication of first call that activities under PROMOSAS be implemented in the for prequalification, to the award of the contract. The form of a performance-based contract, with payments directly procurement of the contract was conducted under World Bank linked with results, and the Government of Honduras (GoH) rules as the contract was largely funded out of PROMOSAS. and SANAA agreed to explore the concept. The World Bank pre-qualified six Joint Ventures and Companies based on international standards. Eventually three bids were submitted and the contract was finally awarded and Project Description signed in June 2011. Fundamentally, the Tegucigalpa Performance Based Contract (PBC) objective was to demonstrate that quick, visible Outcomes improvements in service continuity and NRW management could be achieved even in a challenging situation such as • 100 percent of water connections in the targeted area Tegucigalpa. Those improvements would be achieved by the with metered consumption (against a 30 percent target). contractor through better demand management (metering), • Increased continuity of service of five hours per day. Photo Credits Front: Gerardo Pesantez/World Bank Group worldbank.org/ppp @WBG_PPP scribd.com/wbg_ppp