There are various forms of private sector involvement in the water sector. These range from the provision of services by the private sector to water utilities which are paid for through fee-based arrangements, to the private sector owning and operating the infrastructure and collecting revenue from customers via divestiture arrangements. Table 3 has been adapted from the PPIAF and the WB 2006 Toolkit and demonstrate the diversity of arrangements for private sector participation around the world.
Table 3: Five arrangements for private sector involvement
Type of arrangement | Definition of operators duties | Selected responsibilities of the operator | Typical profit function for the operator | Risks typically shared by the operator | Ownership of operating assets | Ownership of infrastructure assets |
Management contract | Supplies management services to the utility in return for a fee | Provides management services to the utility | Fixed fee + bonus | Depends on the nature of performance bonus: very small | Contracting authority | Contracting authority |
Affermage4 Leases | Runs the business, retains a fee, but does not finance investment in infrastructure assets | Employing staff, operating & maintaining facility | (Affermage fee x volume of water sold) Operating & maintenance costs | Operating & commercial risks: significant | Operator | Contracting authority |
Lease | Runs the business, retains revenue from customer tariffs, pays a lease fee to the contracting authority, but does not finance investment in infrastructure assets | Employing staff, operating & maintaining facility | Revenue from customers, operating & maintenance costs, lease fee | Operating & commercial risks: significant | Operator | Contracting authority |
Concession5 | Runs the business and finances investments, but does not own the infrastructure assets | Employing staff, operating & maintaining facility. Financing & managing investment | Revenue from customers, operating & maintenance costs, finance costs, any concession fee | Operating, commercial & investment related risks: major | Operator | Contracting authority |
Divestiture | Runs the business, finances investments, and owns the infrastructure assets | Employing staff, operating & maintaining facility. Financing and managing investment | Revenue from customers, operating & maintenance costs, finance costs, any license fee | Operating, commercial & investment related risks: major | Operator | Operator |
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Adapted from: PPIAF and WB, 2006
4 The term 'affermage-lease' is a class of arrangement developed in France under which an operator is responsible for the operation and maintaining the business, but not for financing the investment. Under this arrangement the contracting authority is usually responsible for financing investment in infrastructure assets and coordinating its investment program with the operator.
5 *The concession definition is similar to some PPPs in Australia, particularly the Build Own Operate Transfer (BOOT) type arrangement. For example, in the case of a school where the private sector owns the built asset but not the land on which it is built. In general PPP's are a generic term that can cover most if not all the contractual arrangements