OECD Conference
Public-Private-Partnership for Infrastructure Financing
PPP in the MENA Water Sector
Challenges and Opportunities
Istanbul, Turkey
November 8, 2006
The MENA region is one of the driest regions in the world, with
most countries falling below the water scarcity level
Renewable Water Resources
(2005) (m3/capita/year)
Turkey
Iraq
Iran
2,022
1,426
Syria
Lebanon
1,150
Morocco
886
Egypt
752
Tunisia
496
440
Algeria
333
Oman
Israel
271
Palestine
213
Yemen
198
Jordan
156
Bahrain
145
Qatar
116
Libya
104
KSA
91
Water scarcity
UAE
78
1,000 m3/person
Kuwait 0
3,292
2,892
1
However, some of the MENA region countries have relatively high
water consumption rates
Urban Water Consumption and GDP per Capita
Consumption per Capita (l/capita/day)
900
800
Canada
Inefficient
distribution
700
Lifestyle drivers
600
Armenia
500
400
300
200
100
0
United States
UAE
Venezuela
Australia
Mexico
Japan
Qatar
Georgia
Lebanon
Sweden
Argentina
Chile
England & Wales
Saudi Arabia
Austria
Cyprus Germany
Switzerla
Finland
nd
Jordan
Morocco
Oman
Netherlands
China
Indonesia
Yemen
Tight
Senegal
0
supply
10,000
20,000
Norway
Environmental
concerns
30,000
40,000
GDP Per-Capita Adjusted by Purchasing Power Parity (USD)
2
The water sectors in the region are facing a number of serious
challenges across the whole value chain
Sourcing
 Fast depletion
of nonrenewable
reserves
 Ineffective
supply
management
policies and
plans (e.g.,
desalination vs.
ground and
surface water,
reuse water)
Treatment
 Issues with
quality of water
supplied
 Environmental
challenges in
desalination
and ground
water reserves
Transmissi
on &
Distribution
 Water
distribution
coverage rates
well below
international
average
Customer
Service
Usage
Sewage
Collection &
Treatment
 Lack of service
continuity
 Lack of effective  Limited
demand
collection
management
network
 Long response
(consumer
coverage
time
awareness of
 Very low
 Tariffs below
water scarcity;
capacity for
cost recovery
conservation
 High level of
wastewater
level
policies
and
unaccounted for
treatment

High
rate
of
unplans)
water compared
 Operational
metered water
to international
efficiency
and technical
best practices
issues
problems with
 High water
meters
delivery costs
 Very low
revenue
collection rates
3
Water and especially wastewater coverage is limited
Network Coverage (2005)
Potable Water
Bahrain
Jordan
Iran
Turkey
Morocco
Palestine
KSA
Algeria
Egypt
Kuwait
UAE
Lebanon
Qatar
Oman
Tunisia
Syria
Libya
Yemen
Iraq
100%
98%
96%
93%
90%
90%
85%
80%
80%
80%
80%
79%
70%
65%
65%
60%
40%
30%
20%
MENA
Average
75%
Wastewater
Algeria
Turkey
Bahrain
Morocco
Kuwait
Jordan
UAE
Qatar
Tunisia
Egypt
KSA
Syria
Palestine
Lebanon
Libya
Iran
Oman
Yemen
Iraq
85%
75%
70%
70%
65%
60%
60%
60%
55%
50%
40%
40%
35%
35%
20%
16%
15%
5%
2%
MENA
Average
48%
4
Unit costs are relatively high and tariffs cover less than 20% of
delivery cost
Tariff to Cost Ratio vs. Water Delivery Cost
1.2
Oman
UK
1
Cost Recovery
(Tariff/Cost)
Finland
Sweden
0.8
Denmark
Europe Average
Netherlands(1)
Australia
0.6
0.4
Lebanon
0.2
0
0
Tunisia
Iran Egypt Morocco Jordan Iraq
Algeria
Syria
Libya
0.5
1
Bahrain
1.5
Saudi Arabia
2
Water Delivery Cost
($ per m3)
5
Delivery is burdened by low productivity in the water sector
Water and Wastewater Staffing Efficiency
(Number of Staff per 1000 Water and Wastewater Connections)
19.9 19.7
MENA Countries
11.6
9.9
7.6
7.0 7.0
6.4
5.7 5.6
5.3 4.9
4.6 4.4 4.3
Best Practice
Average = 2.5-3
3.5
UK
Scotland
Seoul
Kuala Lampur
Japan
Western Australia
Belgium
Hunter Water Aus.
Argentina
Ho Chi Min City
Honolulu
Manilla
Bursa
Dakar
Jakarta
San Francisco
Shanghai
Karachi
Tunisia
Casablanca
Sri Lanka
Riyadh
Bangladesh
Nigeria
Delhi
1.9 1.8 1.8 1.7 1.7
1.4 1.4 1.4 1.0
6
MENA governments plan to spend around USD 100 billion by 2015
to meet the growing demand
Expected Investments by 2015 in MENA Water and Wastewater Sectors
(USD Billion)
24.5
5%
18.7
22%
13.2
6%
8.2
95%
78%
12%
94%
88%
A
KS
E
pt
y
g
U
AE
Ira
n
K
4.6 5.7
5%
31%
95%
69%
ai
w
u
t
T
ke
ur
y
3.9
10%
90%
a
by
Li
3.4 2.8 2.3
2.5
7%
93%
ria
e
g
Al
10%
90%
Ira
q
o
M
9%
91%
o
cc
o
r
Water
ra
Is
21%
79%
el
at
Q
1.9 1.3 1.4
1.1
8%
6%
19%
94%
81%
92%
ar
m
O
an
ria
y
S
B
ra
ah
in
T
0.8
isi
n
u
0.8
0.7 0.3 0.2
n
n
e
en
no
tin
da
m
r
s
a
b
le
Jo
Ye
a
Le
P
a
Wastewater
7
While PPP is likely to be one of the main enablers of future sector
development, it should be supported by a holistic reform approach
Sector Reform and Privatization Approach
Select and implement
suitable PPP
approach
Introduce private sector to increase efficiency, improve service and
ensure continuous and universal access to quality water
Review water sector
policies
Review policies related to water usage and resources, tariffs, water
quality and environment, and investment climate
Redefine Institutional
Setting
Review role of existing institutions and restructure/reorganize as
required, and establish new institutions to support PPP and reform
initiatives
8
MENA countries should explore different PPP approaches and
tailor them to the water sector maturity and local environment
PPP Participation vs. Sector Maturity
Full cost
recovery
Divestiture /
BOO
Concession /
BOT
Water
Sector
Maturity
Lease
Management
Contract
Service
Contract
Low cost
recovery
Responsibility of
No asset
Private Sector
ownership;
with
operational
responsibilities
Key Considerations
 Service contracts are at best a cost-effective way to meet special
technical needs, but their benefits are limited
 Management contracts are a good first step, and are most likely
to be useful where the main objective is to rapidly enhance a utility’s
technical capacity and its efficiency in performing specific tasks, or
to prepare for greater private involvement
 Leases are an efficient way to pass on commercial risk and are
most appropriate where there is scope for big gains in operating
efficiency but only limited need or scope for new investments
 Concessions have advantages in that they pass full responsibility
for operations and investment to the private sector and so bring
to bear incentives for efficiency in all the utility’s activities
 Build-operate-transfer (BOT) or variations resemble concessions
for providing bulk services but are normally used for greenfield
Asset ownership
projects, such as a water or wastewater treatment plant
with operational
and commercial
responsibility
9
PPP initiatives should be driven by clear objectives and targets and
monitored by a set of evolving KPIs
PPP – Key Performance Indicators
Develop BestIn-Class
Water
Operations
Focus of
KPIs
Meet Basic
Needs
• Asset utilization
• Productivity levels
• Water re-use
• Customer service
• Revenue collection
• Wastewater
treatment rate
Fix
Infrastructure
• Unaccounted
for
water
• Water / wastewater
network coverage
KPIs Success Factors
 Easily measurable
(uncontested measures)
 Reasonable targets
(balance cost and benefit)
 Aligned with government
objectives
 Evolving with sector
maturity
 Limited in number
Sector Maturity
10
In parallel, governments should develop comprehensive water
resources and usage policies …
Policies/Initiatives Focus
Water Resources Policies/Initiatives
 Balancing desalination and
groundwater resources
(balancing cost, national
interest and availability)
Water Usage Policies/Initiatives
 Water conservation
technologies for urban,
agriculture and industrial usage
 Driving other water resources
including treated water, surface
water, etc.
 Coordinated awareness
campaigns among various
ministries (e.g., industry,
agriculture, etc)
 Monitoring legal usage of water
resources (mainly for ground
water)
 Technical standards for high
water consuming
equipment/machines
11
… and should carefully manage tariff changes and their impact on
the privatization process
Tariff Changes – Approach and Requirements
Key Success Factors
Manage
demand
Tariff Differentiation
End Use
Based
 Alignment of redesigned
tariffs with affordability
indicators
Approach
full cost
recovery
Customer
Based
 Decoupling of tariff
increase from privatization
initiatives
 Phasing of tariff increases
with noticeable service
improvements
Volume
Based
Current
State
Increase
cost
recovery
Low Cost
Recovery
 Setting effective control
systems for illegal water
use
Full cost
Recovery
Degree of Cost Recovery
12
MENA governments should also review their institutional setting,
focusing involvement more on policy as opposed to operations
Water Sector – Change in Institutional Roles
Current
Regulation
WRM
Planning Policy Setting
Government/
Ministry
Target Setting
Government/
Ministry
National Utility
Company
Independent
Regulator
Private Operator
(PSP)
Setting Long-term Water Sector
Policy
Developing and Implementing
PPP Schemes
Setting Tariffs
Planning and Managing Demand
Planning Long-term
Infrastructure Requirements
Promoting Water Conservation
Allocating Inter-regional Water
Resources
Monitoring Economic
Performance
Settling Disputes
Operations
Enforcing Quality Standards
Coordinating Operations
Developing, Operating and
Maintaining Water Systems
13
As they restructure and create new institutions, governments
should effectively plan for employee transition
PPP – Employee Transition Challenges and Strategies
Challenges
Strategies
 May require some lay-offs
 Training of employees
 Induce uncertainty that may
impact efficiency
 Effective redeployment plan
 Time to prepare/perform
 Face push-back from political
figures
 Effective change
management
 Create lack of motivation
 Assurances/guarantees
14
Finally, governments should think through the best approach to
adopt when restructuring the water sector
Alternative Approaches for Restructuring
Evaluation Criteria
High
Privatized
Utlitiy
 Higher price for privatized
assets
 Acceptance of stakeholders
 Number of potential investors
Degree of
Privatization
 Staying independent form
strategic investors
A
 Improved exit options
Public
Water
Utility
Today
 Speed of transformation /
privatization
C
 Access to management /
technical expertise
Low
Low
Restructuring/
Value Creation
High
15
UAE – Abu Dhabi’s experience
Sourcing
Select and
implement
suitable PPP
approach
Review water
sector
policies
Redefine
Institutional
Setting
Treatment
•ADWEA introduces private
sector participation in water
and power through IWPPs
Transmission
&
Distribution
Customer
Service
Usage
Sewage
Collection &
Treatment
•ADWEA seeks an 8-year operation and maintenance
contract in ADDC & AADC
•ADWEA is responsible for implementing policy towards
the water sector, including its privatization
•ADWEA and ERWDA
organizes Water and Energy
Conservation Campaign
•Abu Dhabi Government establishes an independent regulator (the Regulation and Supervision Bureau) to
regulate all companies operating in the water and electricity sectors
•ADWEA established TAQA
as holder of its shares in
IWPPS
•ADWEA creates Transco a state-owned company
responsible for transmission of water and electricity
•ADWEA establishes ADDC & AADC state-owned
companies responsible for water and electricity distribution
16
Saudi Arabia’s experience
Sourcing
Select and
implement
suitable PPP
approach
Review water
sector
policies
Redefine
Institutional
Setting
Treatment
•SEC approves 4 IWPPs
(3 are already awarded)
Transmission
&
Distribution
Customer
Service
Usage
•MOWE seeks Management Contracts for main
cities
•SWCC develops
privatization strategy
•MOWE undertaking
national water
resources study
•SWCC launches restructuring
and unbundling of Desalination
and Transmission
Sewage
Collection &
Treatment
•MOWE seeks BOT for
Jeddah and Riyadh
wastewater treatment
•MOWE develops strategic transformation plan
•MOWE launches
national water
conservation campaign
•SEC approves set up of
National Water Company
(NWC)
•MOWE launches restructuring
of sector into regional utilities
17
Oman’s experience
Sourcing
Select and
implement
suitable PPP
approach
Review water
sector
policies
Redefine
Institutional
Setting
Transmission
&
Distribution
Treatment
Customer
Service
Usage
•MHEW introduces
private sector
participation in billing
and collection –
contracts awarded to
two companies
•MNE approves
Barka and Sohar
IWPPs and is in the
process of
privatizing Ghubra
Sewage
Collection &
Treatment
•MNE seeks to review
the concession
agreement awarded
and to involve the
private sector in the
state owned companies
•MNE is developing a water and wastewater sector privatization strategy
•MNE seeks to draft a water sector law
•MNE seeks to redefine the water and wastewater
sector structure and institutional setting and to
introduce new legal and regulatory requirements
•MNE forms two state-owned
companies OWSC and
SSDSC, which operate as a
concession, to develop
sewage network and STPs in
Muscat and Salalah
18
OECD Conference
Public-Private-Partnership for Infrastructure Financing
PPP in the MENA Water Sector
Challenges and Opportunities
Istanbul, Turkey
November 8, 2006
19