The determination of risk allocation for new entrants and the contracting authority (in most cases the contracting authority is the government-owned entity responsible for water) is an important element to a successful working relationship between the public and private sectors. According to the Public, Private Industry Advisory Facility and the World Bank (2006 pp.98-99) and WSAA (personal comment 2006) there are four main categories of business risk in the water sector related to the:
• responsibilities associated with managing a company
• responsibilities associated with operating existing assets and maintaining them to required standards,
• risks to the new entrant associated with changes to standards, regulations or pricing during the length of the contract, and
• responsibilities involved with expanding the asset base, including planning new investments, forecasting demand and capacity needs etc.
The degree to which risks are shared between the new entrant and contracting authority is a significant issue which can determine the success or otherwise of private sector involvement and the efficient management of the water supply and sewerage system. In a well structured risk strategy, risk allocation will go to the party that is best able to manage it with the added reward often being lower costs to the consumer (PPIAF & WB 2006).
Q12: | How can risks best be allocated between public and private sector participants in water and in wastewater services? Is this a significant barrier to private sector involvement in the water sector? |
Q13: | Are there any other significant barriers to private sector involvement in water and wastewater services? What could be done to reduce them? |