The origins of the competitive market system for water services in France extend back to 1853 to the city of Lyon with further contracts awarded soon after in Paris and Nice. At this time the driver for private sector participation was the recognition that municipalities were financially starved and private sector investment was required to finance ambitious plans for urban expansion.
Under current arrangements in France, 37,000 municipalities or communes are responsible for water and wastewater services for setting prices and making decisions regarding the operation of the system insofar as it is not regulated at the national level. At the national level, the French Government is responsible for setting water quality standards, rules for tendering and competition laws and access rules.
This very high level of private involvement in the water sector, and over so many years, is remarkable given France's equally long tradition of a large government owned business sector. In the free enterprise United States on the other hand, the water sector is almost entirely government owned as it is in Australia.
There are three main types of contracts, plus a number of hybrid relationships that French municipalities use to manage private sector involvement in the water sector. The first is a lease contract 'affermage'. 'Affermage' are relatively short-term contracts of around 10-12 years in which private firms are contracted and take responsibility for operating a facility but the municipality is responsible for building and finance.
The second is a 'concession' contract which is a longer-term relationship in which the private firm not only operates a facility but is also involved in financing and building the facility. The 'concession' contract also specifies how prices are to be determined and what form of payment is to be provided to the private firm.
The third are management contracts which come in two kinds and are typically developed for a five-year period. The first of these 'gerance' is an operation and maintenance contract where the contractor provides the staff and expertise to run a system but is not required to provide working capital or investment. Under a 'gerance' the operator is paid a fixed fee with no productivity bonus or profit share.
The second of these management contracts 'regie interessee' entails a system where a part of the payment to the contractor is based on measurable results relating to productivity or profits. Under a 'regie interessee' the operator has responsibility for operating the network but has no role in planning or capital investments or renewals (Balance and Taylor 2005 pp.85-86).
Over time a series of hybrid intermediary forms of relationships have also developed in France (Renzetti and Dupont 2004 pp.15-16). The main difference between all of these contracts is the allocation of risks and responsibilities and the duration of the arrangements. All of these contracts allow a new entrant to manage but not own the assets. Some of the other unique elements to private sector involvement in France are:
• pricing for services in the water sector is not regulated
• a large number of small towns have combined their service area to improve efficiency and have collectively implemented private participation contracts
• there are no foreign operators operating in France, and
• the two largest private water businesses in the world were established and have their headquarters in France (Suez and Veolia Water).
This last point indicates that the long-term involvement of the private sector in water and wastewater provision can facilitate the development of substantial privately run and export orientated water industry. This is particularly important given that water management and technology is in rapidly growing demand around the world. Australia has great expertise in water management and science, however, government owned utilities are far less capable of exporting that expertise than private companies.
Privately owned French water industries tend to be export orientated and have extensive research and development programs which have provided innovative solutions to water and wastewater services to many developed and developing countries. For example, the French company Veolia Water has 100 cooperative agreements with research organisations worldwide and a portfolio of 2800 patents. Some of the recent innovations being used extensively around the world and developed by the French include:
• drinking water treatment, particularly through membrane technology
• purification technology, especially in the construction of compact plants
• distribution system management techniques, especially in metering and leakage control, and
• information technology, with particular emphasis on customer service and geographical information systems.