The key feature of management contracts is that the public entity engages a private partner to manage a range of activities for a relatively short duration (3 - 5 years). Management contracts are task specific and tend to focus on inputs rather than outputs. In such contracts, the ownership of assets and investment typically remain with the public entity, although some rehabilitation responsibilities can be transferred to the private partner. Variants include:
1. Basic management-for-fee contract. In this format, all volume and future value risk is retained by the public entity. For instance, the Karnataka Urban Water Supply Improvement Project discussed below is a classic case of a basic management-for-fee contract.
2. Management contract with performance incentives related to cost and quality. Some risk, such as volume risk, is retained by the contractor.
3. Management and finance contract with some rehabilitation and expansion. The contractor takes the financial and management risks for a volume incentive.
| PROJECT | Karnataka Urban Water Supply Improvement Project, India Public Entity: Urban Local Bodies (ULB) of Belgaum, Gulbarga and Hubli - Dharwad, Karnataka Urban Infrastructure Development Finance Company (KUIDFC) Private Partner: Veolia Water, France; Objective: To improve the distribution and to augment the bulk water supply Key Features and Benefits Project Structure: The private partner was entrusted to undertake rehabilitation/construction of the distribution network across the zones of the three cities. The funding was through a World Bank grant. The financing risk which included all project related costs was borne by the public entity whereas the management risk which included the operation of the infrastructure created was transferred to the private partner. In this case, the private partner was given a free hand to deploy its staff in management of infrastructure as it was difficult to expect the same level of technical expertise and efficiencies in service delivery from the staff of the public entity. Ownership of Assets: Ownership of the existing and rehabilitated assets including pipelines, valves etc., remains with ULBs O&M Responsibility: Private operator responsible for: 100% individual house service connections; supply treated water; ensure reduction in distribution losses; and generate and distribute bills. Commercial Agreement: Private operator received a fee including a 60 per cent fixed component and a 40 per cent variable component based on achieving performance targets. In addition, further incentives were provided for achievement of targets beyond a set level. Source: http://toolkit.pppinindia.com/ports/module3-rocs-kuwsip1.php?links=kuwsip1 |