noTE no. 56 ­ JunE 2010 GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure Water operators from emerging markets New players for public-private partnerships 56736 Philippe Marin, Ada Karina Izaguirre, and Alexander Danilenko I n the 1990s a few multinationals dominated about 100 million people served. Local private the market for public-private partnership operators were awarded more than 80 new PPP (PPP) contracts in water. Yet in recent years contracts for water utilities between 2001 and water operators from developing countries 2008 and have accounted for almost all market have won most of the new PPP contracts for growth since 2001 (figure 1). the management of water utilities in countries as diverse as Brazil, Cameroon, Chile, China, This trend was confirmed in 2008: six of the Colombia, India, Malaysia, and the Russian seven new PPPs awarded for water utilities went Federation. While the size of the market served to national private operators (in Brazil, China, by large foreign operators has remained stag- India, and the Russian Federation). Private water nant since 2001, the population served by private operators from developing countries now serve operators from developing countries grew from more than 70 million people through large PPP 15 million to more than 70 million--or 40 percent contracts.1 of the market--by 2008. This big shift opens new perspectives on using PPPs as a tool to First appearing in the late 1990s reform water utilities in the developing world. Governments involved in the development of water PPP contracts faced a typical "chicken and During the 1990s a few European operators domi- egg" challenge: they were often unwilling to let nated the management of water utilities under local investors without previous experience take public-private partnership (PPP) arrangements. over the management of their water utilities, yet Indeed, by 2001 just six accounted for 85 percent this prevented the development of new players. of the population served under PPP contracts in The door to local private sector involvement in developing countries. While this situation was the business of operating water utilities has been a natural consequence of private operation of opened gradually and in diverse ways. water utilities being a new phenomenon in most countries, it also raised concern that this was an The two Manila concessions were awarded in oligopolistic market. Recent years have seen a big 1996. Because Philippine law required that change, however, with growing participation by national investors own 60 percent of the shares new private operators from emerging-market and of the concessionaires, foreign operators had to developing countries. give majority control to local partners. While the PPIAF Approved Logo Usage Western concession was marred by difficult rela- A surge since 2001 A comprehensive review of water PPPs in the Logo - Black Philippe Marin is a senior water and sanitation specialist developing world found that the population in the World Bank's Middle East and North Africa Region. served by these new players steadily increased Ada Karina Izaguirre is an infrastructure specialist in the between 2002 and 2007, growing by an additional PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY Finance, Economics, and Urban Unit of the World Bank's 55 million people and to about 40 percent of the Sustainable Development Vice Presidency. Alexander market (Marin 2009). Meanwhile, the market Danilenko is a senior water and sanitation specialist in the for international operators remained stagnant, at Water and Sanitation Program. Logo - 1-color usage (PMS 2955) Helping to eliminate poverty and achieve sustainable development PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FAC ILITY through public-private partnerships in infrastructure 2 for municipal water utilities. In Chile during the FIGu Re 1 second wave of PPPs in 2002­04, local investors Private operators from developing countries are purchased all eight regional utilities on offer. Latin serving a rapidly growing share of the market Urban population served by private water operators in American investors kept increasing their market developing countries, by operators' country of origin, share in 2005­06 by taking over several existing 1991­2008 (millions) contracts from international operators leaving the 175 Developing countries region. And in Brazil in 2007­08, national private 150 Other international operators won all six new contracts awarded. Spain 125 United Kingdom 100 France Large groups in Russia and Asia 75 In other regions powerful private groups have 50 entered the market, often through directly 25 negotiated deals. In Russia private operation of water utilities started in 2003. Two big national 0 operators linked to powerful energy groups have 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 emerged, RCS and Rosvodokanal, and now serve 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20 Source: Marin 2009, updated with 2008 data. more than 7 million people (table 1). In Malaysia the two concessions for Johor state (2001) and Selangor state and Kuala Lumpur (2004) were sold to national groups. In India, Tata used its tionships between the foreign and local partners water utility operation in Jamshedpur (the birth- (leading to a temporary government takeover in place of its steel mill business in the 19th century) 2005), the partnership in the Eastern concession as a base for business expansion, and in 2008 won worked out well. The foreign operator transferred a management contract for the water utility of know-how, leading to the emergence of a compe- the city of Mysore. In the Philippines a consor- tent Philippine private water operator (Manila tium combining two major national construction Water). and property conglomerates took over the West- ern concession in Manila in 2006, following the In Latin America national investors started by bankruptcy of the former concessionaire and a taking on projects left aside by large foreign opera- short time under public management. tors. In Argentina, Thames Water sold control of Local private the Corrientes concession in 1995, and in ensu- China has become the fastest growing market for operators ing years Argentine investors won several tenders private water operators. After the ban on foreign have for provincial concessions (in Salta, Santiago del Estero, Formosa, and La Rioja). A similar investors' managing water utilities was dropped in 2002, many PPP contracts were signed between accounted phenomenon started in Colombia and Brazil in local authorities and private consortia made up for almost 1998­99. Construction companies were awarded of both an international operator and Chinese PPP contracts following tenders in which only local investors. These investors include big Hong Kong all market investors participated. In all these cases prequalifi- (China) firms as well as state-owned conglomerates growth cation criteria were eased to increase competition such as Beijing Capital and Shanghai Industrial. while various mechanisms were used to ensure China is now starting to see prominent deals since 2001 that the winning bidder would be able to operate involving Chinese investors only (such as Hong the water utility. In Colombia the winning bidders Kong & China Gas). contracted experienced technical staff from public utilities. In Argentina the investors that won the Consolidation and regional Salta concession signed a technical assistance expansion contract with an established public water utility (Sanepar, the state water utility of Paraná, Brazil). Over the years many private water operators from developing countries have consolidated their activities under several contracts to become signif- Gaining ground in Latin America icant players. Colombia now has seven national National private operators gained ground in Latin private water operators that each serve at least America after 2000 as the initial experiences with 250,000 people through a combination of munici- them proved encouraging and foreign operators pal contracts. One is Conhydra, which operates in were partially withdrawing from the developing 10 towns in the department of Antioquia, serving world. In Colombia in 2001­04, national inves- a population of about half a million. In Brazil, tors won almost all the PPP contracts awarded Aguas do Brasil has concentrated its development Water operators from emerging markets 3 TA B L e 1 Operators from developing countries with PPP contracts serving more than 250,000 people People served, 2008 Country Operator Start year Main areas under PPP contracts (estimated)a Argentina Roggio 2006 Córdoba 1,300,000 Latinaguas 1996­98 Corrientes and La Rioja provinces, Tumbes 1,200,000 (Peru) (lost Salta in 2009) Sagua (Southwater) 1995­97 Formosa and Santiago del Estero provinces 600,000 Many private Brazil Aguas do Brasil (Queiroz Galvão) 1999 Campos, niterói, Petrópolis, nova Friburgo, Resende, Araruama, and 2 other towns (Rio de 1,600,000 water Vega 2006 Janeiro state); Araçoiaba (São Paulo state) Manaus 1,400,000 operators Bertin-Equipav 2005 Campo Grande, Itu, Cabo Frio, Búzios, and 3 1,200,000 from emerging other towns (Prolagos) odebrecht 2003 Mauá (sewerage), Limeira, Rio Claro, Rio das 1,000,000 markets Saneatins 1999 ostras (sewerage), Itapemirim Tocantins state 900,000 have become Chile Fernandez Hurtado 2003 ESSCo regional utility (Coquimbo) 500,000 significant Luksic Hidrosan 2003 2003 ESSAn regional utility (Antofagasta) EMSSAT (Atacama) and EMSSA (Aycen) 500,000 300,000 players regional utilities China Hong Kong & China 2005 Wujiang, Wuhu, Suzhou 2,800,000 Gas China Water Affairs 2006 Xinyu, Jinzhou, Gaoan 2,300,000 Inter-China Holdings 2007 Hanzhong 300,000 China Water Industries 2007 Danzhou 250,000 Colombia Triple Ab 1997 Barranquilla, Santa Marta, Soledad, and 11 2,700,000 other towns (Atlantico department) Aguaskpital 2006 Cúcuta 700,000 Conhydra 1998 Buenaventura, Turbo, Marinilla, and 7 other 500,000 towns (Antioquia department) Grupo Sala 2003 Sincelejo, Corozal 250,000 Aguas de la Guajira 2002 Calarcá, El Banco, Ríohacha, Ponedera 250,000 Servaf 1997 Florencia and 6 other towns 250,000 uniaguas 2004 Sahagún, Cereté, and 2 other towns (Córdoba 250,000 department) India Tata Group 2008 Jamshedpur (since 19th century), Mysore 1,400,000 Indonesia PT Aetra Air (Acuatico) 2006 Jakarta Eastern zone, Tangerang area 3,200,000 Malaysia Puncak niaga 2004 Kuala Lumpur, Putrajaya, and Selangor state 6,500,000 Ranhill 2001 Johor state 3,000,000 Salcon 2004 Linyi (China) 1,000,000 Morocco onEPc and Delta 2007 Cameroon (national utility) 3,000,000 Holding Philippines DMCI­Metro Pacific 2006 Manila Western zone 6,000,000 Manila Water (Ayala) 1996 Manila Eastern zone 5,000,000 Russian Rosvodokanal (Alfa 2003 orenburg, Krasnodar, Tyumen, Kaluga, Barnaul, 5,000,000 Federation Group) omsk, Tver, Lugansk (ukraine) RCS 2003 Kirov, Perm, Tambov, Blagoveshtensk, 2,200,000 Petrozavodszk EWP (Evraziyskiy) 2005 omsk, Rostov, Sochi, Krasnodark 1,900,000 Singapore Asia Water Technology 2008 Huangpi and Wuhan (sewerage; China) 1,200,000 South Rand Water and Vitens 2005 Ghana (national utility) 5,000,000 Africa (netherlands)c WSSA 1992 Queenstown, Maluti 600,000 Source: World Bank and PPIAF, Private Participation in Infrastructure (PPI) Database; authors' calculations. Note: Excludes Russian water utilities operated under joint-stock ownership schemes with private investors. a. Estimated on the basis of the number of active connections. b. Triple A has a partnership with the Spanish public utility Canal Isabel II from Madrid but is run as a private Colombian entity. c. Utilities are publicly owned but operating under the PPP contracts as private entities outside their home country. 4 in the state of Rio de Janeiro, where it now serves panacea. Their performance in such countries as about 1.6 million people through six municipal China, Malaysia, and Russia remains to be evalu- concessions. ated. In Argentina the Salta concession operated by Latinaguas was terminated in 2009. And the Some of the new players are even taking a regional largest contract awarded so far to a national private view of the market. Argentine operator Latinaguas operator--the concession for Kuala Lumpur and won a water concession for the city of Tumbes, Selangor state in Malaysia--has lately been under Peru, in 2005. Rosvodokanal, the largest Russian threat of nationalization, with concern about lack water operator, signed a contract in 2008 to run of tariff transparency. the water utility in Lugansk, Ukraine. In Asia, Malaysian and Singapore firms have started to Looking forward: more competition expand in China, and Manila Water won a large Private water operators from developing countries performance-based contract in Ho Chi Minh City, are now found on all continents, and as many as Vietnam, in 2008. 36 serve at least 250,000 people each. All water PPPs in Brazil (serving 7 million people) are now In a parallel move a few publicly owned water run by national operators; so are those in Malaysia utilities from developing countries are expand- and Russia. Management of water utilities is now ing their activities through PPP contracts outside attracting emerging-market heavyweights such as their home country--contracts under which they construction giants Queiroz Galvão and Odebrecht operate as private entities.2 ONEP from Morocco (Brazil) and industrial conglomerate Tata (India). won a 10-year affermage contract to operate the national water utility of Cameroon in 2007, while The growing importance of local operators is Rand Water from South Africa (in partnership admittedly still an incipient trend, and it follows a with Vitens from the Netherlands) has been oper- different dynamic in each country. Moreover, the ating Ghana's national utility under a management nationality of private investors is not always easy contract since 2005. to track in a global economy. And local investors entering the water PPP business are a diverse mix. Performance record Several are involved with just one utility, and a Several of the private operators from developing few have exited the market (as occurred in Chile) countries have a good track record. In Colombia, or may do so in the future. Some are bound to Conhydra made remarkable progress in reducing fail or to lose contracts--a normal occurrence in a water rationing, starting from highly deteriorated market economy. It may be too early to see the full infrastructure. In Brazil, Aguas do Brasil and impact of the trend. Yet the momentum is there, Saneatins have together provided access to piped driven by governments' interest in finding ways water to more than a million people. In the Philip- to improve water services for their people and by pines, Manila Water has become a success story, the dynamism of the private sector in developing enabling more than 3 million people to gain access countries. to piped water, reestablishing continuous service, and reducing water losses from 52 percent to less Notes than 30 percent. 1. This figure is an underestimate because it does not include most PPPs for water utilities in China (based on mixed control by an international operator and local investors), several utilities in Russia One advantage of local private operators may with joint-stock ownership, or state utilities (such as Sabesp in be their ability to mitigate political risks Brazil) that have sold a large portion of their shares to private GRIDLINES PPIAF Approved Logo Usage because of their greater knowledge of investors. If these cases were added, the total population served would exceed 150 million. Gridlines share emerging knowledge local culture and needs. While the 2. These publicly owned companies operate outside their jurisdiction on public-private partnership and give an early termination overall rate of Logo - Black through local entities incorporated under private law, and act as the overview of a wide selection of projects from for water utility PPPs is 9 percent, private counterpart under a public-private contract. various regions of the world. Past notes can be the rate for those involving a Reference found at www.ppiaf.org/gridlines. Gridlines are a developing-countryU RoperatorFAis IT Y PUBLIC-PRIVATE IN F R A S T R U C T E A D V IS O RY C IL Marin, Philippe. 2009. Public-Private Partnerships for Urban Water publication of PPIAF (Public-Private Infrastructure Advisory Facility), a multidonor technical assistance less than 3 percent. Yet local Utilities: A Review of Experiences in Developing Countries. Trends and operators are not necessarily a Policy Options Series, no. 8. Washington, DC: PPIAF. facility. Through technical assistance and knowledge dissemination PPIAF supports the efforts of policy makers, nongovernmental organizations, research institutions, and others in designing and implementing Logo - 1-color usage (PMS 2955) strategies to tap the full potential of private involvement in c/o The World Bank, 1818 H St., N.W., Washington, DC 20433, USA infrastructure. The views are those of the authors and do PhOne (+1) 202 458 5588 FAX (+1) 202 522 7466 not necessarily reflect the views or the policy of PPIAF, GeneRAL eMAIL ppiaf@ppiaf.org WeB www.ppiaf.org PUBLIC-PRIVAT E INFRASTRUCTURE ADVISORY FACILITY the World Bank, or any other affiliated organization.