Public-Public Partnership Model in Local Infrastructure Services a Case Study in the Water Sector

Public-Public Partnership Model in Local Infrastructure Services A Case Study in the Water Sector

Francisco Maria Ribeiro da Costa Silva Pinto

Thesis to obtain the Master of Science Degree in Civil Engineering

Examination Committee

Chairperson: Professor Albano Lu´ıs Rebelo da Silva das Neves e Sousa Supervisor: Professor Rui Domingos Ribeiro da Cunha Marques Member of the Committee: Professor Carlos Paulo Oliveira da Silva Cruz

January 2013

iii

Acknowledgements

First, I would like to show my gratitude to my supervisor, Professor Rui Cunha Marques, for providing me with the opportunity of working on this dissertation, without him it would have never been possible. I am particularly grateful for his unconditional sympathy and friendship, in broad teachings, prompt assistance and the demonstrations of concern regardless time and date. To Nuno Cruz, a PhD. student from Instituto Superior Técnicowhom I had the opportunity to meet while working on this dissertation, I am deeply thankful for all his guidance, support and motivation. Also, David Alves and Gisela Robalo from ERSAR, for the information given and, basically, the effort spent helping me developing the present dissertation. To all the Professors of Instituto Superior Técnicowith whom I crossed, somehow, my academic path, it is a pleasure to thank for the honour of learning from them. To my friends and colleagues, who helped me during the writing of this dissertation, I am grateful for their friendship and valuable help and advice. In this field, I highlight the help provided by Gon¸caloCarvalho, JoséTuna and Gabriel Lopes. Bearing the possibility of being too vague, I would like to thank all my friends, who were close to me during the writing of this dissertation, I am forever grateful for their friendship. To Ana, who had, has and hopefully will have, an important role in my life, I am eternally indebted for all the support, help, stimulus and understanding. Above all, I would like to show my deepest gratitude to my family, highlighting my parents, sisters, twin brother and brother-in-law. Specifically, my twin brother, who helped me with valuable economic insights. To them I dedicate this dissertation, for the encouragement during the writing of the present document and the unconditional support during my entire academic route and life. Finally, I am sorry for not specifying other important people who crossed my personal and academic life, I will never forget them. Indeed, I am grateful to all who endured me during my life, to all those who are unfortunately dead and those thankfully alive, I hope to be able to manifest my gratitude accordingly, on a daily basis. So help me God.

Abstract

The current research discusses the organisational and institutional model of PuP companies in the provision of local infrastructure services in Portugal. Since the PEAASAR II (strategic plan for water supply and wastewater) came into force, this model is being more sought to deliver local infrastructure services, as it is in the water and waste sectors that this model has wider arguments. Accordingly, this matter is assuming an up to date and relevant status, following the significant impact of such model in those sectors, hence the pursuance of this model’s advantages and disadvantages take a significant meaning. It is first analysed an European context of infrastructure service delivery, including Austria, Italy, Spain and Sweden. For all those countries a light was shed in order to understand where this model is enforced or could be developed. Afterwards, a complete analysis of the Portuguese framework was made, along a complete characterization of the Portuguese operators, allowing to assess the Portuguese status quo in service delivery. A SWOT analysis was also developed to understand the real differences in advantages and disadvantages between all the significant possibilities for service provision. Lastly a case study is analysed, from the “contract documents and reports” perspective. This way, a comprehensive study of such an entity was developed, paying close attention to the contracts signed and additional documents, as: the partnership and management contracts, the statutes of the firm and extra reports; to highlight key issues (e.g. shareholders participation, accountability, transparency, control, tariff setting and risk management); in order to assess main accomplishments achieved on service delivery. Additionally, a “concession type” entity, as one of the most relevant competitor models, was compared in those same issues. Finally, some conclusions were drafted, highlighting the PuP’s ability to provide a commendable implementation of good governance practices and sector interests, however it enjoys an inadequate efficiency promotion and risk management structure.

Keywords: Public-Public Partnerships, SWOT analysis, utility governance, risk management, contract analysis, local business sector, local administration, services of general interest, viability.

vii

Resumo

O presente documento discute o modelo organizativo e institucional das empresas de Parcerias Público- Públicasna presta¸cãode servi¸cos públicos de infra-estruturas locais em Portugal. Com a entrada do Peaasar ii (plano estratégicode abastecimento de águae de saneamento de águasresiduais), a difusão destas parcerias para os servi¸coslocais come¸caa ser mais significativa, visto ser no sector das águase res´ıduos que a sua presen¸camais se evidencia. Assim, este assunto assume um significado relevante, procurando-se analisar as vantagens e desvantagens deste modelo que tem vindo a desenvolver um impacto considerável nestes sectores. De maneira a compreender a difusãonum contexto mais generalizado, o uso destas parcerias foi analisado num contexto Europeu, com o objectivo de atingir um conhecimento mais sustentado de práticascomuns e hipótesesde aplica¸cão. O status da presta¸cãode servi¸cosde infra-estruturas em pa´ısescomo a Itália,a Espanha, a Austria´ e a Suécia,foi consequentemente efectuado. Uma análisecompleta da realidade Portuguesa foi posteriormente considerada, com uma ampla caracteriza¸cãodo estado dos operadores. Desta forma, o status quo Portuguêsfoi compreendido e analisado. Devido àexistênciade diversos modelos poss´ıveis, uma análiseSWOT foi introduzida com o objectivo de diferenciar os respectivos modelos, podendo-se assim inferir sobre as vantagens e desvantagens de cada um. Por fim, uma empresa PuP foi analisada do ponto de vista contractual e posteriores relatórios,com o objectivo de conseguir analisar a participa¸cãodos accionistas, a transparênciainerente ao servi¸coe a responsabiliza¸cãodos parceiros. A gestãodo risco aliada àcomposi¸cãode tarifas foi igualmente analisada. De seguida, uma entidade concessionária,como poss´ıvel modelo alternativo, foi estudada sobre esses mesmos parâmetros. Deste modo, conclui-se que este modelo (PuPs) pode contribuir significativamente para a difusãode boas práticasinternas e interesses sectoriais, mas que em contrapartida nãoapresenta uma estrutura de gestão de risco, e tambémde promo¸cãode eficiência,àaltura.

Palavras-chave: Parcerias Público-Públicas;análiseSWOT; análisecontractual; sector empresarial local; servi¸code interesse geral; viabilidade; administra¸cãolocal; gestãode risco.

Contents

Acknowledgements ...... iii Abstract ...... v Resumo ...... vii List of Tables ...... xiii List of Figures ...... xvii List of Acronyms ...... xix

1 Introduction 1 1.1 Overview ...... 1 1.2 Objectives ...... 2 1.3 Public-Public Partnerships ...... 2 1.4 Local Infrastructure Services ...... 3 1.5 Powers and responsibilities, management and ﬁnances of local IS ...... 3 1.6 Organization of the document ...... 4

2 State of the art concerning utility governance 5 2.1 Overview ...... 5 2.2 Local administration features ...... 5 2.3 Administrative and legal framework ...... 7 2.4 Services of General Interest and Infrastructure Services (IS) ...... 11 2.5 Models of service provision ...... 14 2.6 Variants in service provision of EU selected countries ...... 18 2.7 The regulatory systems ...... 26

3 The Portuguese experience 29 3.1 Overview ...... 29 3.2 The Portuguese environment ...... 29 3.3 Variants in service provision operating in Portugal ...... 30 3.3.1 The universe of service provision ...... 32 3.3.2 Characterization of the Portuguese universe ...... 33 3.4 Regulatory framework employed in Portugal ...... 39 3.5 SWOT analysis covering the most signiﬁcant governance models ...... 40 x

3.5.1 Objective ...... 41 3.5.2 External and internal analysis ...... 41 3.5.3 SWOT matrices and conclusions ...... 42

4 Public-Public Partnerships 51 4.1 Overview ...... 51 4.2 Theoretical remarks ...... 51 4.3 Case study ...... 54 4.3.1 Market structure ...... 55 4.3.2 Entity’s description ...... 58 4.3.3 The uniﬁed/ single system, SARA ...... 60 4.3.4 Who does what ...... 62 4.3.5 Accountability ...... 64 4.3.6 Financial conditions ...... 67 4.3.7 Stakeholder analysis ...... 70 4.3.8 Risk analysis ...... 73 4.4 Comparison case - A private concession model ...... 77 4.4.1 Contractual relationship ...... 77 4.4.2 Financial conditions ...... 78 4.4.3 Accountability ...... 79 4.4.4 Risk analysis ...... 80

5 Concluding remarks and future developments 81 5.1 General conclusions ...... 81 5.1.1 SWOT/ comparison analysis ...... 81 5.1.2 Case study: The PuP model analysis ...... 82 5.1.3 Comparison case: The cPPP model analysis ...... 83 5.2 Future developments ...... 84

Bibliography 85

A Sources of national law on Infrastructure services (updated as of 2010) 95

B Sources of Community law on Infrastructure services (mainly updated as of 2010) 101

C Social tariﬀs/prices & General contributions attributed to SGIs per country 103

D Sector characteristics and trends 105

E Detailed data on service contribution per country 107

F Austrian service provision data 109

G Spanish service provision data 111 xi

H Italian service provision data 113

I Authorities responsible for setting pricing and/or tariﬀ policies per country 115

J Regulatory authorities data 117

K Law 159/99 of September 14th - Framework establishing the scope of local authorities (competencies) 119

L Sources of Portuguese national law on Infrastructure services (mainly updated as of 2010) 121

M Listing of governance models in the Portuguese universe, listed by model 123

N Listing of Public-Public Partnerships (PuPs) with dominant state participation 137

O ERSAR’s regulatory model, as declared in ERSAR (2010d) 139

P AdRA’s predicted investments in ﬁxed capital over the management contract lifetime and the analysis period (APer.) 141

Q AdRA’s management contract main features 143

R Risk treatment measures developed in AdRA 145

S AdVouga’s concession contract main features 147

T Sunshine regulation indicators and energy eﬃciency procedures 149

xiii

List of Tables

2.1 National geographies and politico-administrative structures (adapted from Dexia, 2008, Europa.eu [1]) 8

2.2 Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in AT (adapted

from Bauby & Similie, 2010; Klien & Loser, 2009; Klien, 2009; Zatti, 2011) ...... 9

2.3 Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in ES (adapted

from Bauby & Similie, 2010; Urbano et al., 2010; Menéndez& Cañete,2010; Cañete& Menéndez,2009) . . . . . 10

2.4 Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in IT (adapted from

Bauby & Similie, 2010; Massarutto, 2010; Baedelli & Robotti, 2009; Argento et al., 2010) ...... 10

2.5 Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in SE (adapted

from Bauby & Similie, 2010; Mattisson & Thomasson, 2010 and AvfallSverige, 2009) ...... 11

2.6 Key characteristics of selected network sectors (educated guess adapted from Markard, 2011) ...... 13

2.7 Typology of general PuPs according to types of partners (adapted from Hall et al., 2005) ...... 17

2.8 Governance models trends (AT) (adapted from Bauby & Similie, 2010) ...... 20

2.9 Status of IS markets (AT) (adapted from Bauby & Similie, 2010) ...... 21

2.10 Governance models trends (ES) (adapted from Bauby & Similie, 2010) ...... 22

2.11 Status of IS markets (ES) (adapted from Bauby & Similie, 2010) ...... 22

2.12 Governance models trends (IT) (adapted from Bauby & Similie, 2010) ...... 24

2.13 Status of IS markets (IT) (adapted from Bauby & Similie, 2010) ...... 24

2.14 Governance models trends (SE) (adapted from Bauby & Similie, 2010) ...... 25

2.15 Status of IS markets (SE) (adapted from Bauby & Similie, 2010) ...... 26 2.16 Independent regulatory authorities ...... 27

3.1 Competences of definition and organization of IS in PT (adapted from Bauby & Similie, 2010; Cruz & Marques, 2012) ...... 30 3.2 Main models regulated by Law 53-F/2006 of December 29th ...... 31 3.3 Governance models covered by each data source ...... 33 3.4 General information of the main governance models at the local level ...... 34 3.5 Sector “groups / clusters” of activity ...... 34 3.6 SWOT analysis for different ownership and governance models in Portugal ...... 43 3.7 Governance models comparison, based on specific features ...... 49

4.1 Portuguese water and wastewater sectors market structure, adapted from ERSAR (2010c) . . . . 56

4.2 AdRA’s system general info (updated as of 2011) ...... 60 xiv

4.3 Bulk water providers and water provided (adapted from AdRA, 2012) ...... 61 4.4 AdRA’s external accountability ...... 64

4.5 AdRA - quality of service indicators and standards (targets), (adapted from AdRA, 2009b) ...... 65 4.6 AdRA’s internal accountability ...... 66 4.7 Municipalities’ share in the return based on the infrastructure and equipment transfer ...... 69 4.8 AdRA’s tariﬀ analysis for the analysis period (2011) ...... 72 4.9 AdVouga - Concession ﬁnancial details (respectively in 2010/ 2011/ 2011 prices) ...... 79

A.1 Austria (AT) - Legal sources (adapted from Bauby & Similie, 2010) ...... 95

A.2 Spain (ES) - Legal sources (adapted from Bauby & Similie, 2010) ...... 96

A.3 Italy (IT).1 - Legal sources (adapted from Bauby & Similie, 2010) ...... 97

A.4 Italy (IT).2 - Legal sources (adapted from Bauby & Similie, 2010) ...... 98

A.5 Sweden (SE) - Legal sources (adapted from Bauby & Similie, 2010) ...... 99

B.1 Europe (EU) - Legal sources (adapted from Bauby & Similie, 2010) ...... 101

C.1 Sectors covered by Social tariﬀs/prices & General contributions (adapted from Bauby & Similie, 2010) 103

D.1 Comparison of telecommunications, electricity and water (adpt. from Bauby & Similie, 2010) . . . . . 105

E.1 Service contribution to GDP/ Workforce employment (adpt. from Bauby & Similie, 2010) ...... 107

F.1 Major players in the Austrian electricity sector (adpt. from Hofbauer, 2006) ...... 109

F.2 Numbers of diﬀerent types of institutions in water supply and wastewater treatment (adapted from

KPC, 2009) ...... 110

F.3 Responsibility for waste collection and treatment (adapted from Segalla, 2006) ...... 110

H.1 Distribution of municipal expenses and municipal societies (adpt. from Vallesp´ın& Gianfelici, 2011) . 113

H.2 Evolution of management forms in municipal waste management (adapted from Utilitatis, 2008) . . . 113

H.3 The most typical transactions in the waste management market (adpt. from Massarutto, 2010) . . . . 114

I.1 Authorities responsible for setting pricing and/or tariﬀ policies (adpt. from Bauby & Similie, 2010) . . 115

J.1 Independent decision-making - which competencies does the regulator exercise (adpt. from Larsen

et al., 2010) ...... 117

J.2 Objectives of the electricity sector IRAs (adpt. from Johannsen et al., 2004 in Larsen et al., 2010) . . . . 117

L.1 Portugal (PT) - Legal sources ...... 121

M.1 Entities belonging to local enterprise sector- Municipal company model ...... 123 M.2 Entities belonging to local enterprise sector- Intermunicipal company model ...... 128 M.3 Entities belonging to local enterprise sector- Municipal enterprise model ...... 128 M.4 Entities belonging to local enterprise sector- Intermunicipal enterprise model ...... 132 M.5 Entities belonging to local enterprise sector- Indirectly controlled ...... 132 xv

M.6 Entities belonging to the “in-house” sector- Municipal service w/ Autonomy ...... 132 M.7 Entities possibly belonging to local enterprise sector- Cooperative model ...... 133 M.8 Entities possibly belonging to local enterprise sector- CI (40%

N.1 Entities belonging to PuPs with dominant state participation ...... 137

xvii

List of Figures

2.1 An institutionalist model of the relationship linking social and political factors to law and cor-

porate governance (adapted from Fligstein & Choo, 2005) ...... 6

2.2 Interdependencies between major infrastructure sector characteristics (adapted from Markard, 2009) . 14

2.3 Most relevant governance models (adapted from Cruz et al., 2011; Cruz & Marques, 2012) ...... 16

2.4 Range of signiﬁcant private sector options (adapted from Guislain & Kerf, 1996) ...... 17

3.1 Relevant governance models in the local Portuguese framework (adapted from Cruz, 2010) ...... 31 3.2 Distribution by sector of SEL entities ...... 35 3.3 Distribution by sector of possible SEL entities ...... 35 3.4 Distribution by sector of entities holding minor municipal participation ...... 36 3.5 Population density and municipal participation in SEL entities (mainland Portugal) ...... 37 3.6 Municipal participation in further PuPs and possible SEL entities (mainland Portugal) ...... 38

4.1 Main drivers/ purposes to foster Public-Public Partnerships - PuPs (adapted from Hall et al., 2005) . 52 4.2 Partnership - AdRA’s management model ...... 58 4.3 Composition of AdRA shareholders at December 31, 2011 ...... 59 4.4 AdRA’s contract management timeline ...... 60

4.5 SARA - uniﬁed/ single system - and characterization of providers (updated as of 2011) ...... 61 4.6 AdRA’s connection with the main stakeholders ...... 71 4.7 Risk related concepts interaction, adapted from Cruz (2011); DCLG (2006) ...... 74 4.8 Steps in risk analysis and evaluation, adapted from Marques & Berg (2011b); ODPM (2004) . . 74 4.9 Risk categories (for AdRA), in accordance with COSO framework ...... 74 4.10 AdVouga’s concession type institutional model ...... 77

4.11 Allocation of risks as established in the regulatory contract (adapted from Marques & Berg, 2011b) . . 80

G.1 Supply Management systems by size of population 2004 (In % of municipalities, adpt. from AEAS, 2006) . . 111

P.1 Fixed investments plan, as declared in the economic and ﬁnancial viability studies before the 10th municipality’s entrance ...... 141 P.2 Fixed investments plan, as declared in the economic and ﬁnancial viability studies after the 10th municipality’s entrance ...... 141 xviii

T.1 Indicators related to protection of user interests, operator sustainability, and environmental sus-

tainability (adapted from ERSAR, 2010d) ...... 149

T.2 Evolution of bulk water supply services quality indicators over time (adapted from ERSAR, 2010a) . . 149 xix

List of Acronyms

ABB - Alexandre Barbosa Borges, SGPS, SA AdP - Aguas´ de Portugal, SGPS, SA AdRA - Aguas´ da Regiãode Aveiro, SA AdSA - Aguas´ de Santo André,SA AdVouga - Aguas´ do Vouga, SA AMCV - Associa¸cãode Munic´ıpiosdo Carvoeiro - Vouga AT - Austria BP - Banco de Portugal, Portuguese central Bank BSC - Balanced Scorecard CAE - Classifica¸cãode Actividades Económicas(CAE-Rev.3), Classification of Economic Activities CI - Controlled Indirectly CP - Capital Participation DGAL - DireçcãoGeral das Autarquias Locais, Directorate-General for Local Authorities DL - Decreto-Lei, Decree-Law dst - domingos ds silva teixeira, SGPS, SA EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization EC - European Commission EEIM - Entidade Empresarial Local Intermunicipal, Intermunicipal Enterprise EEM - Entidade Empresarial Local Municipal, Municipal Enterprise EEMT - Entidade Empresarial Local Metropolitana, Metropolitan Enterprise EIB - Banco Europeu do Investimento (BEI), European Investment Bank EIM - Empresa Intermunicipal, Intermunicipal Company EM - Empresa Municipal, Municipal Company EMT - Empresa Metropolitana, Metropolitan Company EPAL - Empresa Portuguesa de Aguas´ Livres, SA ERSAR - Entidade Reguladora dos Servi¸cosde Aguas´ e Res´ıduos,Water and Waste Services Regulatory Authority ES - Spain EU - European Union FPI - Factor Productivity Index GDP - Gross Domestic Product xx

GVA - Gross Value Added HR - Human Resources HICP - Harmonised Index of Consumer Prices IRA - Independent regulatory authority IRAR - Instituto Regulador de Aguas´ e Res´ıduos,Institute for the Regulation of Water and Waste IRR - Shareholders’ Internal Rate of Return - Represents a return on equity based on the amounts paid as equity capital and supplementary capital contributions. IS - Infrastructure Services IT - Italy MC - Monitoring Commission NACE - Statistical Classification of Economic Activities in the European Community (NACE-Rev.2) NPM - New Public Management NSRF - Quadro de ReferênciaEstratégicoNacional (QREN), National Strategic Reference Framework PEAASAR - Plano Estratégicode Abastecimento de Agua´ e Saneamento de Aguas´ Residuais, Strategic Plan for Water Supply and Sewerage Services PERSU - Plano Estratégicodos Res´ıduosSólidose Urbanos, Strategic Plan for Urban Waste Management Services PC - Partnership’s Comission PPP - Public-Private Partnership PT - Portugal PuP - Public-Public Partnership QMS - Sistema de Gestãode Qualidade, Quality Management System SARA - Sistema de Aguas´ da Regiãode Aveiro, AdRA’s unified system SE - Sweden SEE - Sector Empresarial do Estado, state’s enterprise sector SEL - Sector Empresarial Local, local enterprise sector SGEI - Services of General Economic Interest SGI - Services of General Interest SWOT - Strengths, Weaknesses, Opportunities and Threats WS - Abastecimento de Aguas´ (AA), Water Supply WW - Recolha de Aguas´ Residuais (AR), Wastewater Collection 1

Chapter 1

Introduction

1.1 Overview

All over the world, there is a range of fundamental long-term trends that stand as a menace to the perseverance of social, economic and territorial cohesion, by ravaging population needs. Indeed, to achieve a sustainable development in terms of employment, social inclusion, economic growth and environmental quality in our daily life, there are some services that take a major, even vital, role. Infrastructure services are some of those. And demographic developments characterized by ageing populations, population growth or decline, urbanisation trends, and population movements to rural and coastal areas; followed by increasing constraints on public finances due to ageing populations and security concerns; are a few of such trends that strike, in a fierceness way, developed countries. Additionally, further environmental factors, such as climate change and rising quality standards; technological progress; trends towards decentralisation, and growing local public involvement; the growing importance of maintenance, upgrading and rehabilitation of existing infrastructures hinder sustainability. Failure to make significant progress towards countering that situation, could prove costly in terms of congestion, unreliable supply lines, blunted competitiveness, and growing environmental problems, with all the implications for living standards and quality of life (Stevens & Schieb, 2007). Undoubtedly, there is a need to define appropriate policies and measures, since reality is not static; it evolves rapidly in all countries and sectors with technological, economic, social and organisational changes. In Portugal those hurdles are also present, triggering replies in order to diversify service delivery. One of those replies was the promotion of Public-Public Partnerships in the water and waste sectors, entailing authorities from different levels, so as to enable the possibility to prosecute public interest attaining improved value for money. Those partnerships started with wholesale sector segments, to stimulate intermunicipal cooperation, but then started also to cover retail segments, to follow the implementation of sector trends (Peaasar-ii, 2007). The adaption of such models, being a recent evolution, turns to be an interesting case study in order to assess their suitability in delivering a service close to the end-user. Since there are not much studies concerning those entities, the prospective to appraise their dissemination and under which objectives and purposes they were approved as being a solid alternative, is of utmost significance. Also, as each country has defined and developed in its history, its own way of organising and regulating different services as part of the construction of each national government, in relation to its traditions, organization, institutions, and culture. Every sector has their specific technical and economic characteristics. Nevertheless they also evolve over time, depending on the needs of economies and societies, and on ideological 2

and political choices. In essence, the models of services delivery change over time, space and sectors, in order to meet the changing needs of users, citizens and society (Marcou & Wollman, 2008). But co-existing with this diversity, there is a profound unity in all European countries, being interesting to compare between those countries the choices undertaken.

1.2 Objectives

This document discusses the benefits and pitfalls related to the Public-Public Partnership (PuP) model in local infrastructure service delivery. Therefore, being a relatively recent concept there are not many studies comprising this model and its distribution over other developed countries, a broad study is to be achieved, analysing the Austrian, Italian, Spanish and Swedish legal frameworks, concerning infrastructure services’ management models chosen due to their specificities or similarities to the Portuguese case. To fulfil that analysis the Portuguese state of affairs will be scrutinized, both “rules” and “players of the game”. Being aware of the limits of this exercise, this document reflects the disparities of knowledge inherent to the methodological choices made. Variations in the accuracy of data and information on the different service categories are therefore inevitable, given the magnitude of what is meant to accomplish. Furthermore, a SWOT analysis is to be carried out, in order to have a clear understanding on the advantages and disadvantages of this model when compared to other possibilities. The SWOT analysis allows to attain a valuable basis for a more in-depth analysis, allowing to distinguish key issues. Thus, a final objective is to be achieved which is perhaps the most important one. The mentioned objective, is to study a PuP company in the provision of local infrastructure services, attempting to highlight crucial topics gathering relevant information to gather good practices and key obstacles for their success. Hence, the partnership and management contracts, the statutes of the firm, annual reports and other documents are to be used to reach that goal, so as to analyse: shareholders participation, accountability, transparency, control, tariff setting and risk management. In order to complete this endeavor, a comparison with a relevant competitive institutional model (concession type) bearing in mind the previous key issues, is presented as a significant objective.

1.3 Public-Public Partnerships

The need to diversify service delivery made the municipalities opt for diﬀerent institutional models instead of the in-house department model of service provision. That range of models might be extensive depending on the administrative/ legal framework in place. In the Portuguese case, the creation of such entities has been more widely fostered in the water and waste sectors, being promoted in the water sector by its strategic national plan (Peaasar-ii, 2007), as a tool to achieve speciﬁc ends. First, this model was used so as to enable municipalities, jointly with a higher administrative level (state), to contribute to an improved service provision by creating a company to manage a mainly national system (mainly wholesale water services) under a concession contract. Later, that same strategic plan fostered the use of the same concept (mixed local/ national company 3

model) to improve the management of local services (mainly retail water services). However, since the “systems” are municipally owned some details need to be taken into account. Therefore the municipalities and the state sign first a partnership contract, creating a single system and transferring the municipalities retail competencies on behalf of the state, setting the basis for the delegation established by a management contract with the entity created for that purpose. Those partnerships are institutionalized by a specific legislative framework (D.L. n.90/2009 of April 9th). Finally, it is important to highlight that in this mixed local/ national model, as a rule, the national counterpart holds dominant influence.

1.4 Local Infrastructure Services

Generally, local infrastructure services (IS) are connected with the retail segments of those sectors and the wholesale the other way (national/ regional). This differentiation leads to the pragmatic situation in which the state should deal with issues that individual people or social groups cannot solve themselves, with the responsibility to transfer to lower levels as many affairs as possible. Considering that it is at the local level that the right of citizens to participate in the conduct of public affairs can be most directly exercised, the transfer of tasks, assets and essentially responsibility to those levels is essential (Regulski, 2010). The conventional infrastructure services that hold general economic interest, in accordance with COM (2003, 270 final), are the sectors involving energy (electricity and gas), transport, waste management, water and sanitation, telecommunications, heating, broadcasting and post. These services encompass numerous activities that can be classified into different ways. Usually for statistical interventions the activities are grouped following specific directives like NACE, however they can also be classified according to the basic functions they fulfill in service provision, i.e. the “wholesale” and “retail” market segments. The former including utility service activities like water intake, treatment and transportation, wastewater treatment, urban waste transportation and disposal/ treatment, and electricity generation, and the last containing those activities that are directly connected with end-users as water and electric “retail” services, urban waste and transportation (e.g. bus) services.

1.5 Powers and responsibilities, management and ﬁnances of local IS

In theory, the scope of local IS depends on the broader powers and responsibilities delegated/ granted which determine the level of resources necessary to cover the corresponding costs, characterizing local governments (Marcou, 2007). The challenges to be met enclose how to finance local budgets through functional independence, needing discretion not only in allocating and committing its expenditures, but also in managing and adapting its resources, to obtain a desired level of financial responsibility. In practice, local finances are the product of each nation’s complex history of public finance, as well as its particular administrative background and general restraining tendencies of public debt1. More than any others, these factors explain the various characteristics of local finance, as well as the size, in budgetary

1The power of the Government to conduct and control through the extension of its supervision and administrative control can lead to the rejection of budgets, investments, tariffs, markets and to divert their surpluses in order to reduce public deficits or to financially separate some from others, particularly in transport. 4

terms, of local powers and responsibilities, having a great influence on how the services’ provision is organized (Marcou & Wollman, 2008). As an important challenge, human resources (HR) management shapes, dramatically, service provision. Staff skills and qualifications are important factors affecting the quality of local public services, mainly when clarifying economic activities employment structure. Best practices, in particular the recruitment based on merit and the dismissal of idle individuals, deliver impartiality to the public service. But even if there are many ways to achieve objectives of fairness and compensation, local authorities can fail to achieve them (e.g. due to prohibition), namely because of an inappropriate employment system, lacking efforts focused on training qualified staff and preventing corruption. In the employment structures, two main types of systems can be identified (Bourgon, 2008): • a career employment structure governed by public law, essentially characterized by a system of appointment and job security; • a contract-based employment structure with private law as the reference; the employment structure is related to service provision according to the adopted organizational forms’ legal status, concerning those to performance objectives possibly needed. The major criticisms of employment structures, based on the career status, are the lack of recognition for good performance by the remuneration system and that promotion tends to be heavily based on length of service and seniority. The aim of policies, intended to move from career employment structures to a contract-based system, was the introduction of internal competition elements and a system of incentive based remuneration, allowing to recruit more qualified workforce in the labor market, increasing performance. However, a move towards incentive-based remuneration can be attained within career structures as well (Marcou & Wollman, 2008).

1.6 Organization of the document

After this brief introduction, chapter 2 describes the state of the art concerning utility governance, by highlighting local administration features, Services of General Interest (SGI) and Infrastructure Services (IS), powers and responsibilities, management and finances, human resources, models of service provision and their variants in the four European countries chosen to enhance the analysis, regulatory systems are also described. Chapter 3 highlights the Portuguese SGI experience, by describing the Portuguese framework and its variants in service provision. For that aim a characterization of the universe of service provision was developed, and a SWOT analysis produced specifically for IS, comparing relevant alternatives. Finally, in chapter 4 the PuP concept is further broke down, followed by a description of the water market structure in Portugal to frame the companies examined. First, a PuP company was analysed, by, mainly, contractual and annual reports analysis, allowing to understand the participation of shareholders, their accountability and financial conditions, alongside a risk perception. Secondly, a “concession type” entity, as one of the most relevant competitor models, was compared in those same issues. At last, in chapter 5, the most significant conclusions and possible future developments were considered. 5

Chapter 2

State of the art concerning utility governance

2.1 Overview

Utility governance is a highly complex subject, raising issues of: law, economics and political science, accounting, finance and engineering; and involving a vast amount of different actors (Cruz et al., 2011). In an attempt to specify and clarify the situation, to better appreciate the reasoning of municipal authorities in aligning incentives and creating governance structures that fit their needs, one has to understand the political economy of local government as part of the public sector (perceived as the rules of the game in Marques, 2005). In this section is discussed the basis of local administration framework and the features of utility governance, giving special emphasis to some European countries, chosen due to their specificities or similarities to the Portuguese case. Accounting to the diversity of systems and practices, specific definitions regarding concepts as local authority and its details, as the services entailed by this essay and the management models available to deliver them, are then required. This top-down approach will be used not only, to perceive the rules of the game mentioned above, but also to shed a light on the Austrian, Italian, Spanish and Swedish legal frameworks, concerning infrastructure services’ management models, for future comparisons.

2.2 Local administration features

Considering the public sector as the set of activities, of any nature, carried out by public entities of any level, regardless of being based on representativity and decentralization or efficiency gains (Franco, 1987), local administration emerges as the link between the public sector and the citizens (European Charter1). Being a subdivision, in the public sector’s internal structure, of public administration (state s.l.), local administration covers all the organs and administrative areas, in which the power of decision and activities are differentiated from central administration on behalf of local population´s interests (Maldonado, 2003). This differentiation leads to the pragmatic situation in which central administration should deal with issues that individual people or social groups cannot solve themselves, with the responsibility to transfer to lower levels (decentralize) as many affairs as possible. Considering that it is at the local level that the right of citizens to participate in the conduct of public affairs can be most directly exercised (European Charter), the transfer of tasks, assets and mainly responsibility to those levels is essential (Regulski, 2010). As common characteristics belonging to each country, in accordance with (Marcou & Wollman, 2008)

1European Charter of Local Self-Government 1985 and explanatory report 2010, www.coe.int/t/congress/sessions/18/. 6

two main features can be found. Those being, on the one hand that every local territory is administered by a municipal government and on the other hand that all of these states recognize a discrete set of fundamental principles on which local democratic governments are based (López, 2007). These features enable a political, and not solely administrative, dimension of municipal institutions to be recognized. Hence, local authorities are regarded as a foundation of a democratic regime, being important that they bear real responsibilities to provide an administration which is both effective and close to the citizens. The ways and means by which those responsibilities are exercised and the resources required for their fulfillment are considered of utmost importance, since they adjust the actors involved in service delivery. Thus, it is important to guarantee the political, administrative and financial independence of local au-

1 Jun 2005 17:19 AR AR258-LS01-04.tex XMLPublishSM(2004/02/24) P1: KUV thorities, which are generally ruled by freely electedAR REVIEWS members. IN ADVANCE10.1146/annurev.lawsocsci.1.041604.115944 It is then necessary the establishment of a principle that leads to the mentioned transfer of competences and needed resources to local communities. This principle, known as the principle of subsidiarity alongside with the principles of diﬀerentiation and

68 FLIGSTEIN CHOO appropriateness, allows Europe’s democratic conscience and the defence of human rights to be kept, assuring an efficient satisfaction overfor public local order needs (Evans 1995, (Marcou, Evans & 2007).Rauch 1999, However, Wade 1990, if Weiss a large 1998). In degree of independence for other words, it seems less important that specific sets of laws or specific solutions local self-government createsto societal conditions problems for like class the struggle effective be implemented management to create economic of development, growth at the same time it than that stable societal conditions exist more generally. facilitates the abuse of power. It is important then, to find appropriate compromises between the degree of freedom and the degreeA ofCONCEPTUAL control. APPROACH TO POLITICS, SOCIETY, CULTURE, LAW, AND CORPORATE GOVERNANCE

Nonetheless, behind thisTo broadexplore agreementmore fully the tensions on basic produced principles, by these different due scholarly to differences positions, in history and culture, we now turn to Figure 1. Institutionalists in economics, sociology, and political lies a striking variety of institutionsscience all agree and that practices, societal conditions and quitegive rise distinctive to governance structures national of firms exigencies. In a general way (defined as corporate law, financial market regulation, and labor law). They identify there are more broad, contextuala number factors of societal of institutions politics as and potentially culture important. that shape and produce the legal institutions First, the political system of a particular society (i.e., democracy versus dic- of corporate governance in atatorship) given and society the existence and, of by the ruleimplication, of law are important firmpractices. preconditions for Thus, the importance of a understanding corporate governance structures. The cultural tradition of the legal wider knowledge, is significantsystems, inorder such as whether to achieve they have an civil overall or common societal law legal economic systems, is part performance of (Figure 2.1).

Figure 1 An institutionalist model of the relationship linking social and political factors Figure 2.1: An institutionalistto law and corporate model governance. of the relationship linking social and political factors to law and corporate governance (adapted from Fligstein & Choo, 2005)

Despite this diversity and with the EU law’s need of compliance, the states have developed a number of identiﬁable trends. Territorial organization is such a trend, in essence is the strengthening of the municipal and inter-municipal frameworks, the tendency towards regionalization, and the problematic organization of urban areas. Depending on the territorial policies adopted, a number of solutions have arisen in order to solve 7

problems that are local, or neither strictly local nor national, introducing changes in the models adopted for service provision (Marcou & Wollman, 2008). However the municipal, inter-municipal and regional solutions manifest themselves in different forms depending on the framework of each state (Table 2.1). However, the assumption that only government intervention could provide for the needs of the public, gave way to the contrary idea according to which it is the market that is best able to meet these needs, even if its failures must be corrected (Marcou & Wollman, 2008). In a technical sense, regarding the “responsibilities” at local level, they have been influenced by sector- specific developments as well as more general ones, increasing the tendency among local authorities to change the method of public services delivery. Indeed, during the 1990s, new public management reformers and good governance enthusiasts have claimed that the era of centralised, hierarchical, bureaucratic and rulebound administration was over. Concepts such as “decentralisation”, “deregulation”, “devolution”, “outsourcing”, “delegation”, “privatization”, “public-private” and other “partnerships”, “responsibilisation”, “networks”, and “individualisation” became popular (Dexia, 2004; Torres & Pina, 2002). This way, the reform of public administration and management became almost a fashion often claiming a transformation of public administration from an old paradigm to a new one, a “New Public Management” (Lynn, 2001). Commonly, the old paradigm was dismissed as being too hierarchical, inflexible, hostile to discretion, closed and lacking transparency, not focused on efficiency and obstructing (organisational as well as individual) performance. Because of the popularity of the “new paradigm”, many countries started reform processes to increase efficiency of public action as: performance management often linked to a budgetary factor; evaluation of public action by the results and not just by means; reflection on the scope of public management, on what should be directly provided and on what could be delegated; customer involvement in the modes of direct management, and; reforms of civil service and staff management systems (Demmke et al., 2006).

2.3 Administrative and legal framework

Local authorities in a state are usually organized into two levels - a local council and a higher level covering a more or less vast constituency. Powers and responsibilities are usually divided between those levels according to functional criteria (Norton, 1993). Local self-governments should be organized aiming to establish minimal or optimal sizes to match the powers and responsibilities to be exercised, several driven by a concern for economies of scale. Since their role is to both execute public authority, and oversee management of the assets and resources belonging to local communities, when deciding upon the nature of the local self-government, a decision regarding its size is being made. The choice between smaller or bigger units is faced with, the opportunities given to citizen participation “versus” the resolution of economic obstacles and the construction of their own technical infrastructures. There is no answer as to which of the two approaches is better, since it depends upon local traditions and existing administrative divisions (Regulski, 2010). Therefore the reforms of recent years have actually been driven more by functional concerns, and can take more forms than the simple merging of municipalities; although they also try to cover the civic and democratic dimension of municipal organization, rather than being concerned with just technical and management issues. Integrated forms of inter-municipal cooperation have then appeared as an alternative. 8

There are situations where the territorial design of municipalities, illustrates countries with a highly fragmented municipal pattern (Austria, Spain and Italy) compared with countries that established larger units (Sweden and Portugal), and countries with a uniform status of municipalities (Sweden) compared with countries operating a distinct status for metropolis (Austria). These standings conducted to diﬀerent exigencies in service delivery and actors required (Marcou & Wollman, 2008).

Table 2.1: National geographies and politico-administrative structures (adapted from Dexia, 2008, Europa.eu [1])

Country Pop. Area Density Capital Administrative structure (106inhabs) (103km2) (inhab/km2) Region/Federal Local government Austria 8.2 83.9 99 Vienna 9 Federal States 2358 Municipalities (AT) (L¨ander/Province) (Gemeinden) 107 Provinces Italy 58.6 301.3 197 Rome 20 Regions 8103 Municipalities (IT) (Regioni) (Comuni) 17 Regions 50 Provinces Spain 43.4 506.0 83 Madrid Comunidades 8106 Municipalities (ES) Autonomas (Comuni) 308 Municipalities Portugal 10.6 92.2 114 Lisbon (Municipios) (PT) 4261 Parishes (Freguesias) 20 Counties Sweden 9.0 450.0 22 Stockholm (Landstigs) (SE) 209 municipalities (Kommun)

The densities, outlined in Table 2.1, play a major role in organizing SGIs, as their function to meet the needs of inhabitants and societies led them to be deeply rooted in the territories and populations. In the same table, it is also shown that the countries covered go, in a broader legislative perspective, from a federal state (Austria), to quasi-federal (Spain and Italy) or more unitary states (Portugal and Sweden). Concerning the administrative levels some countries might differ in some special cases to the specified standards; however, for the objectives purposed, they are not sufficiently relevant to be mentioned2. The different forms of national organization, in each country, led to very different fields of responsibilities between levels and across sectors. Even if all European countries have “municipalities” or local councils, since their number, size and responsibilities are so different across countries, it is almost abusive to use the same term to describe them. This geopolitical atmosphere has a deep influence in the legal framework affecting the SGIs governance in each country, which is “per se” complex and continuously changing (Argento, 2008), even if in some countries it might be stable (Sweden) (Argento et al., 2010). In the 5 selected countries, the existent legal framework requires consideration of European Union legislation (normally incorporated in national legislation), national “horizontal legislation” (e.g. local government act, civil code, company act), national sector laws (e.g. energy, water, waste and transportation). However depending on each country’s legislative structure, one might have to consider further regional/ Landërlaws, depending on the legal empowerment in these sub-levels. An overview of the sources found to shape the SGEIs legal framework can be seen in Appendix A.

2Many countries admit particular situations where is enjoyed a diﬀerent politico-administrative structure (e.g. some Island regions in PT and SE, for a complete description see Marcou & Wollman, 2008, p. 135). 9

The power setting in Austria is quite centralized, even if legislative and administrative competences (including residual power and constitutional autonomy) are conferred to the Landër; laws have mainly federal origin, although being sometimes administered by the previous ones. From the legislative point of view, the Austrian municipalities need to take into account their own Landërlegal framework, covering own local government acts alongside sectoral implementation and organizational laws. Therefore the definition of public service obligations along with the decision of SGEIs’ organization modes are usually crafted at central level, as can be seen in Table 2.2.

Table 2.2: Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in AT (adapted from Bauby & Similie, 2010; Klien & Loser, 2009; Klien, 2009; Zatti, 2011)

Federation L¨ander Local Telecommunications Production of electricity Regional and local Broadcasting Transport-distribution of electricity transport of passengers Production of electricity Regional and local Transport-distribution of electricity transport of passengers Marketing of electricity Heating Postal services Non - hazardous waste Railway transport of passengers Inland water transport Freight rail transport Inland water transport Inland water transport Air transport Maritime transport Hazardous waste Heating Water Wastewater

Pragmatically, even if the federal levels regulate most functions of sub-national administration, municipalities are provided (by the central or Ländergovernment) with the right to govern their local affairs, under their own responsibilities (local self-administration within the limits set by the law and guaranteed by the constitution), as establishing effective administrations for various services (public utilities and waste disposal systems) setting their own criteria, according to a strong local autonomy principle. Regarding task implementation there is no principle favoring a private over a public solution, however almost all provincial laws (except in Carinthia) have restricted public activity to tasks which are in public interest (Klien, 2009). The legal framework in Spain requires the local authorities to account regional sector laws (after constitutional reform in 1978) as well, in addition to the specified general ones. The autonomous communities are usually involved in the legislation of the SGEIs, in fact, their laws are frequently against the local autonomy principle that inspires some service’s management (e.g. in water and wind energy see, respectively, Cañete & Menéndez,2009; Iglesias et al., 2011). On the other hand, as shown in Table 2.3, the definition of SGI obligations along their organization mode’s decision are spread through the various administrative levels. The Law on basic regulation of local authorities of 1985 defines the framework of the division of competences between different levels of administration and establishes the services that must be provided by the municipalities (Article 25), taking into account that municipalities are highly fragmented and heterogeneous. Concerning the nature (public/ private) of SGEIs management, the Municipal Services Act of 1955 regulates it, although only as a legal possibility and not as a political program or preference (Pina & Torres, 2001). Albeit the idea that public provision seems (to a certain extent) consensual, there is a broad integration of private participation (Bauby & Similie, 2010). In Italy local governments must also consider regional sector laws (after constitutional reform in 2001), 10

Table 2.3: Competences of definition and organisation (definition of possible modes) of IS in ES (adapted from Bauby & Similie, 2010; Urbano et al., 2010; Menéndez& Cañete,2010; Cañete& Menéndez,2009)

Central government Regional government Local government Production of electricity Regional transport of passengers1 Local transports of passengers Electricity networks Broadcasting Water Marketing of electricity Wastewater Gas transport-distribution Heating Marketing of gas Broadcasting2 Railway transport of passengers Waste Freight rail transport Maritime transport Telecommunications Postal services 1- With the exception of the railway transport services, managed until now by the state-owned company RENFE. The commuting railway services are reclaimed by some regions. 2- These are not compulsory local services; although municipalities can decide to deliver them in order to complement the insuﬃciencies of some services.

which granted widespread competences in the field of local services to regions, as in the fields of waste management and water distribution. Since the introduction of the Financial Act of 2004, a distinction has been made between “services of economic relevance” and “services without economic relevance”. This orientation expressed in 2003 in the Green Paper on Public Services by the European Commission, had important consequences in the Italian legal framework where the SGEIs’ management is tailored to meet the specified orientations. However, the definition of public service obligations along with the decision (limited) power on SGEIs’ organization modes are spread through the administrative levels, as seen in Table 2.4.

Table 2.4: Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in IT (adapted from Bauby & Similie, 2010; Massarutto, 2010; Baedelli & Robotti, 2009; Argento et al., 2010)

Central government Regional government Local government Production of electricity Production of electricity Local transport of passengers Electricity network Regional railway transports Water (transport-distribution) of passengers Wastewater Marketing of electricity Regional maritime transport Waste Gas transport-distribution Waste Marketing of gas Water Railway transport of passengers Wastewater Freight rail transport Inland water transport Air transport Maritime transport Regional transport of passengers Telecommunications Postal services

The national legal framework is then characterized by uncertainty as a result of continuous discussions on local public service delivery. Currently, the main issue concerns restricting the use of direct management and mixed ownership companies for the management of services with economic relevance in order to support the competitive selection of service providers through public tender (Argento et al., 2010; Dexia, 2004). The Swedish municipalities have also to consider the previous general legislation and possess a very clear distribution of powers and competences among the different levels. Even though geographical area and compulsory tasks differ, the same basic legislative framework in administrative matters is applicable to both municipalities and county councils. These bodies have large powers of self-determination. They are by law and tradition reasonably autonomous from the central government, the definition of public service obligations along with the decision of SGEIs’ organization modes are distributed as can be seen in Table 2.5. 11

Table 2.5: Competences of deﬁnition and organisation (deﬁnition of possible modes) of IS in SE (adapted from Bauby & Similie, 2010; Mattisson & Thomasson, 2010 and AvfallSverige, 2009)

Central government County councils Municipalities Gas transport-distribution Regional transport Local transport of passengers Railway transport of passengers of passengers Water Freight rail transport Wastewater Telecommunications Postal services Heating Production of electricity Electricity networks Waste management

Local autonomy is prescribed in the Municipality Act (Kommunallagen) which, among other things, deals with issues concerning legal competence, organizational structures and budgeting. The legislation is explicit for each field of activity irrespective of the organizational model adopted for the service provision, stipulating the municipal obligations and the rights of inhabitants. If there is no specific legislation, municipalities have general authority to decide on “issues of general public interest”, however when doing so, the municipalities and their associated organizations have to consider the provisions in the Municipality Act, being not allowed to support individual persons or private companies. Those provisions include the key principles: “cost price principle”, meaning that there is a prohibition on making a profit (with some exceptions in specific legislation concerning, for example, electricity production); “equality principle” which holds that municipalities must treat all citizens equally unless there is an objective reason for doing otherwise; and the “publicly open principle” that all documents are open to be read by everyone. These principles are also of guidance in the previous countries though not so intrinsically (Argento et al., 2010).

2.4 Services of General Interest and Infrastructure Services (IS)

In order to ensure social, economic and territorial cohesion in a country (even in wider perspectives as the European Union) and to obtain sustainable development in terms of higher levels of employment, social inclusion, economic growth and environmental quality in the daily life of citizens and enterprises, there are some services that take a major, even vital, role. However, the concept that describe them as public services is quite complex, since the term itself can have different meanings and can therefore lead to confusion. The term may refer to the fact that a service is offered to the general public, it sometimes highlights that a service has been assigned a specific role/ mission in the public interest, and it can even refer to the ownership or status of the entity providing the service. Those services since they cover a broad range of activities, from network industries such as energy and water related, to education, health and social services, noticeably affect the whole community shaping its model; then to simplify further interpretations they are called Services of General Interest, based on their functional conception. Moreover according to Protocol No 26, published on official Journal C115, even if their scope and organization vary significantly according to histories and cultures of state intervention, they can be defined as the services, both economic and non-economic, which the public authorities classify as being of general interest and subject to specific public service obligations. Following the European treaties, these services are committed to the principles of transparency, non- discrimination and proportionality; but when presented with economic interest they are also ruled by the principles of quality, safety and affordability, equal treatment, the promotion of universal access and of 12

user rights, independently of geographical, social or cultural situations. The general European Community law affecting SGIs, which possess a legally binding character, can be found in Appendix B; further specific legislation does exist, focusing mainly on internal market and quality standards characteristics. Still in accordance with the same law, which has a decisive influence on how the management of public services evolves and develops, all services that can be classified as SGEI or having the character of a revenue- producing monopoly (as defined under article 106.2 of the Treaty on the Function of European Union3) are subject to the rules mentioned in the treaties, namely the rules on competition. In so far as the application of such rules does not obstruct the performance, in law or in fact, of the tasks assigned to them. However due to the objectives set for this study, clarifying infrastructure public services (IS) is of primary importance, therefore they hold general economic interest and are mainly financed based on the principles of “polluter-payer” and “user-payer” as participation constraint4 (Marques, 2005). Those payment principles induced EU countries to introduce particular tariffs or subsidies, at national and/or local level, so as to allow access of each inhabitant to those services. For the countries under study, the services included in these measures are distinguished in Appendix C. These services can be balanced based on the relation between the obligations they must fulfill, the quality offered and the price/ value for money associated, in order to attain a social and economic cohesion. IS operate in a natural monopoly basis, containing a few monopolistic components, featuring relevant economies of scale, scope and density5. They also require huge investments characterized for being long- lived and usually sunk; present asymmetric information and entail quasi-public goods. IS present as well, meaningful positive and negative externalities6 and a management conditioned by exogenous factors. Those characteristics can be more or less applicable being nonetheless relevant, usually inflicting a huge resistance to entrants (Marques, 2005). The attributes specified jointly with the obligations inherent to these services, and the aim to achieve the desired cohesion, require specific regulation in accordance to particular national structures. Thus, regulation appears as the creation of remedies to market failures (in the economic, social, environmental, territorial sphere, or taking into account the long term). The conventional infrastructure services with economic interest, in accordance with COM (2003, 270 final), are the sectors involving energy (electricity and gas), transport, waste management, water and sanitation, telecommunications, heating, broadcasting and post. These services encompass numerous activities that can be classified in different ways. Usually for statistical interventions the activities are grouped following some statistical directives like NACE (chapter 3 for further developments on this issue), however they can also be classified according to the basic functions they fulfill in the service provision, i.e. the “wholesale” and the “retail” market segments. The former including utility service activities like water intake, treatment and transportation, wastewater treatment, urban waste transportation and disposal/treatment, and electricity

3To check the harmonization of articles relating the European Union treaties see: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:306:0202:0229:EN:PDF 4Albeit in certain situations due to specific conjunctures, subsidization might be required. Governmental or crossed subsi- dizations are considered an option, given that it has to be cautiously implemented. 5In situations where the production costs are inferior when you have one producer for a certain demand range, natural monopolies tend to emerge/exist. Phenomena as a decrease in unitary costs of production for an increase of demand (economies of scale), relevant synergies when accumulating functions in a single entity (economies of scope) and a strong presence of fixed costs (sometimes resulting in growing economies of density) are frequent in natural monopolies. 6E.g. fast and efficient transport and communications networks, secure and affordable energy and water supply. 13

generation and the last containing those activities that are directly connected with end-users as water and electric “retail” services, urban waste and transportation (e.g. bus) services (Cruz & Marques, 2012). When trying to craft the optimal governance structures, the physical elements and the nature of the technologies upon which infrastructures are based (techno-economic characteristics), bear great influence, changing the actors and their role not only in service provision management (organizational dimension) but also in the interplay (institutional features) between every actor (Carlsson & Stankiewicz, 1991; Malerba, 2002). As it is not possible to apply the same rules in a uniform manner, it led to diversified trends resulting in different legal norms and liberalization processes. The challenges of the future (jointly with the concept’s evolution over time) accounting to the needs of economies and societies, to ideological and political choices, are certainly not the same across all sectors. In essence, the models of “public services” change over time, space and sectors, in order to meet the changing needs of users, citizens and society (Markard, 2009). If today, electricity and telecommunications markets are opened to competition and most of the historical operators have been subject to opening their capital and to privatization, the water sector, where organization models are, in almost all European countries, the responsibility of municipalities, has a different approach not based on the internal market. Due to its “nature”, it is established upon the development of ambitious and binding quality standards on the legal basis of environmental protection and public health. Local authorities can then decide the management of water services, without any legal obligation being imposed by the Community (Andrieu, 2007). For the purpose of analyzing and identifying the sectoral particularities, the analytic dimensions have to be generic, i.e., techno-economic (TE), organizational (O), and institutional (I) aspects need to be included. The key characteristics of those sectors, taking into consideration the average situation in developed countries, are highlighted in an educated guess (Table2.6), as enforced by the authors, due to being based in combined knowledge and not in a more systematic analysis as a comparative survey of different countries.

Table 2.6: Key characteristics of selected network sectors (educated guess adapted from Markard, 2011)

Electricity Gas Water Sanitation Railway Road Telecom supply supply transport transporta Asset durability (TE) 2 2 3 3 2 3 2 Capital intensity (TE) 3 2 3 3 2 3 2 Regulation intensity (I) 2 2 3 3 2 2 2 Systemization 3 2 2 2 3 1 3 Public organizations (O) 2 2 3 3 3 3 1 Competition intensity (I) 2 1 0 0 0 0 3 Negative environmental 3 2 1 0 1 1 0 impacts (T) Note: 3 = very high; 2 = high; 1 = medium; 0 = low. Interpretation: Asset durability is very high when the lifetime of physical assets is around 5 decades or above. It will be high if lifetime is around 2 decades. Capital intensity is very high if the share of ﬁxed costs is above 60% and high if it’s around 30%. Regulation intensity is very high under the circumstances in which several aspects, including service price, quality, grid access, safety and environmental issues, are regulated. It’s high when many issues are regulated but not service price. It’s low when primarily competition (antitrust) regulation is relevant in a sector. Systemness is higher if technological, institutional and organizational issues are closely intertwined and critical functions exist. The degree of public organizations is higher when most or all suppliers are public utilities, and it’s lower when public organizations play no role. If there are multiple suppliers to choose from and customers actively compare prices and switch, then competition intensity will be higher. It’s lower in regulated monopolies. Negative environmental impacts are higher when the related costs make up a signiﬁcant share of the overall service costs. aProvision and ownership of road infrastructure (does not include transportation services) . 14

5.4 Synthesis A more detailed description, for the telecommunication, electricity and water sectors, is outlined in The sector characteristics introduced above as well as the internal drivers of change all Appendix D. Furthermore,play a role with most regard IS to encompass the transformation important potential sector of infrastructure characteristics sectors. that In the need to be taken into account alongsidefollowing the interdependenciespicture, we sketch mutual they dependencies hold; in Figure as well 2.2 as those the interrelateddifferent impacts features on are emphasized. innovation and change.

Socio-techical Nature of paradigm the service

determine

Fundamental Environmental Physical network Competition? importance impacts?

Environmental Competion related General objectives objectives objectives

Regulation Public Local interests intensity organizations Capital intensity

Massive investment needs? Innovation & Sector potential drivers for barriers to transformation Asset durability change change

Definitory System character characteristics Derived characteristics Potential characteristics

Figure 2.2: InterdependenciesFigure 1: Interdependencies between majorbetween infrastructure major infrastructure sector sector characteristics characteristics (adapted from Markard, 2009)

6 Summary All in All, the sectors of infrastructure networks, according to Bauby & Similie (2010), contribute to 4.8%, Network based infrastructure sectors provide essential services to society. The underlying on average, to EUtechnical, GDP, organizational aligned with and a contribution institutional structures of 3.4% have on the co-developed workforce over employment long time and requiring 6.4% of total investments,spans and when are combinednow highly intertwined, with the positivewhich means externalities that they exhibit associated, a highly translatesystemic the importance of character. As a consequence, infrastructure systems show a considerable degree of these services forinertia the when whole it economycomes to transformation and society. processes. In Appendix They E,rather it is undergo presented processes the detailed of information on the speciﬁed countries,incremental since than theradical investments change. in a sector can vary widely from one year to another depending on the projectsIn implemented, this paper, we have they explored are not a series included. of network sector characteristics and their impact on the propensity of sectoral change. A high degree of capital intensity calls for often

2.5 Models of service provision 14

Over the last decades, the management of the abovementioned services has engaged institutional and managerial reforms (inspired in NPM) in order to evolve to more suitable models of service delivery; this restructuring has spread private sector managerial tools and principles. Performance culture has then advanced and spread, as has its peculiar lexicon: defining objectives, indicators for evaluating results and benchmarking tools with the objective of obtaining greater levels of effectiveness, efficiency and economy in the public sector (Hood, 1995; Hughes, 2003). The idea that areas of organizational activity will resemble other areas that face the same set of environmental conditions, as affected by various political, economic, social and cultural factors, stimulated the need to create more business-like organizations (e.g. by corporatization) with degrees of autonomy from local governments (DiMaggio & Powell, 1983). These innovations in the public sector led ultimately to the 15

promotion of private sector involvement and to the market as a supplier based on the grounds that public authorities should be restricted to an enabling function, and should attempt to contract out on a competitive basis (Lorrain & Stoker, 1997). The EC supported this approach in order to promote the EU objectives of free movement, which concern persons, goods, services and capital (Savary, 2005). Although precepts of the “new public management” have been differently received among European countries, depending on individual public service traditions, the increase in responsibilities and the accompanying rationing of resources intensified pressure on local authorities to find ways to rationalize their management in order to give themselves maneuvering room (Marcou, 2007). New institutional solutions have consequently been created for the provision of local public services, resulting in the diversification of organizational forms and ownership structures (Wettenhall, 2003). Even if the impact of NPM was occasionally rather limited and reached an unfashionable status (Christensen & Lægreid., 2007), it did lead to a diversification of “suppliers” (Hermann & Verhoest, 2007). The status in many countries for quite a few infrastructure services are former national monopolistic companies, known as “historic”, that continue today having dominant market shares and to play a structural role in their States of origin. These operators play a key role in the alliances that have been developed and which created the conditions for an oligopolistic competition at EU level. Since each country continues to defend its national interests and its “national champions”, when combined with the promotion of Community interest, might lead to partially contradictory objectives being held (Marcou & Wollman, 2008). In the utility industry, as highlighted in Cruz et al. (2011), organizations have come to play an important role (Menard, 1996), and governance structures must arise for some reasons (Arrow, 1999). Consequently, to address these requirements it is important that local political leaders make thoughtful choices regarding the appropriate governance models for the utilities, covering classic problems as in: i. whether to keep production entirely in-house (direct provision) or to allocate service-provision to a separate entity (indirect provision), and; ii. whether to have public or private production. Designing a scheme aiming to strike the right balance among the interests of investors, consumers, and public authorities, fitting the conditions of both sector and country concerned, is pivotal. This drafting plays a considerable importance in solving sources of tension between utility managers/ city officials, and in at- testing the existence of a structure capable to detach managerial decision-making from political interference. The influence of European Community law is decisive on how the management of public services evolves and develops (Appendix B). Even if local authorities are normally free to organize their administration and choose their method for managing the SGEIs within their remit which must be provided to the population, there are exceptions as the Italian state of affairs where law supports competitive selection (Marcou, 2007). If a municipality chooses to produce the services itself, it can establish a simple municipal department or it can create a structure with some degree of financial and administrative autonomy; the former being managed and controlled by the executive and deliberative body respectively, although the last explores the service in a industrialized way. In theory, neither of these two models involve a corporate entity (the municipality is solely liable in the event of a problem), however the latter has separate accounting. On the other hand a municipality can choose to deliver the service through an autonomous entity, extending the range of options, as can be seen in Figure 2.3, where it is displayed the most common 16

alternatives of local governance. These externalization arrangements include corporatization, public-public collaboration and privatization. Indeed, externalized forms of management involve respectively, ﬁrst the transformation of units within local governments - direct provision - into more autonomous organizations with (in theory) their own private law legal status and with considerable managerial freedom - indirect provision (Argento et al., 2010). Including secondly, inter-municipal arrangements and other public partnerships (e.g. PuPs) of joint service delivery, along with the establishment of institutional (iPPPs) or contractual public- private-partnerships (cPPPs), and other forms further rooted in privatization such as the total transfer of ownership and/or certain functions and services to private companies, under terms and conditions speciﬁed in a contract or license (Reichard, 2006; Wettenhall, 2001).

Figure 2.3: Most relevant governance models (adapted from Cruz et al., 2011; Cruz & Marques, 2012)

The declared collaboration between public entities encompasses numerous situations, the most significant being the cooperation between municipal authorities and between authorities of different administrative levels. The former can be covered by several types of partnerships where the municipalities gather in an entity to reach common goals, the most significant ones are public and private law associations, cooperatives, and corporate models in which the municipalities are equity owners (e.g. limited and joint stock companies). In the latter sort of collaboration the most significant form addressed is the mixed company model, where the “different level” public authorities are equity owners (mixed company PuP model); although there is the possibility to create a partnership contract for service provision between the authority in charge and a public company from a different administrative level, further reflection on chapter 4.2. The idea of PuPs, although there is a sparce literature consistency on its usage, appears to have been originated as a response to the PPPs concept, possessing its meaning broad possibilities depending on the context in which it is used (Table 2.7, Hall et al., 2005). However bearing in mind the scope of this chapter (objectives, efficiency and institutional differences in adequate partnerships for infrastructure services delivery), the concept will be restricted to the cooperation between public authorities of different levels either due to an already covered status (the inter-municipal model is still municipal) or their nearly non-significant relevance. 17

Table 2.7: Typology of general PuPs according to types of partners (adapted from Hall et al., 2005)

Type Sub-type Public authority-public authority (Same level) e.g. Inter-municipal (Diﬀerent levels) e.g. Central-municipal Public authority-community Public authority-community Public authority-NGO Public authority-trade union Development partnerships authority “High-income” - “low-income” country public authorities International PuPs Public authorities from diﬀerent countries Public authorities from neighbouring countries

The transition from public provision (direct or indirect) to indirect private provision defined as privatization, can assume a variety of forms, being a flexible instrument suitable for different needs. The iPPP type is a hybrid mode of provision where the public and private partners are equity owners, generally being the municipalities the retainers of the dominant influence over the company; the contractual type is an investor-owned enterprise. The private partners covered, can be major national or international groups, local small- and medium-sized business firms and even private individuals (Grossi, 2007). Never- theless, the private participation/ involvement can differ according to several aspects, such as ownership/ ownership of assets, responsibility for investments, assumption of risks, duration of contract and the payment structure. Figure 2.4 reveals a range of private sector options, growing in duration and commitment.

Figure 2.4: Range of signiﬁcant private sector options (adapted from Guislain & Kerf, 1996)

In the left, the first option shows a private contractor that is not directly responsible for providing the service, only performing specified tasks, followed by management contracts where the operational control of a number of managerial functions is being held in exchange of a fee. The Leasing and Affermage models add some commercial risk sharing, operational responsibility and infrastructure maintenance to the partnership, being in concessions as Build-Operate-Transfer (BOT) that the liability for building and financing new investments is ensured by the private party with the respective transfer of assets at the end of the contract. The full divestiture involves a transfer to the private sector of the ownership of existing assets and the responsibility for future expansion and upkeep, this way it is not considered a cPPP (Marques & Berg, 2010; Guasch, 2004; Guislain & Kerf, 1996). The growing use of external providers, at the local level, creates a need for steering and controlling of municipal corporations, in such cases local decision makers might decide upon the creation of a municipal corporate group. This group is a holding structure formed by the core administration of a municipality and a set of corporations totally or partly owned by the respective municipality (Grossi, 2004; Linhos, 2006). As above shown there are many models for utility service provision, though there is little consensus among practitioners and academics on what specific model is optimal for particular situations (and what 18

criteria might be used to evaluate those models), for the water sector see Abbott & Cohen (2009). But even if the environment where the utilities operate changes, modifying perhaps which are the most advantageous models, there is always the possibility to categorize governance patterns that contribute to good performance (related to containing costs, meeting service quality standards, and promoting access to essential services). Comparing the mentioned trends, while the benefits and drawbacks of privatization continue to be debated (Abbott & Cohen, 2009), the empirical evidence on the effects of corporatization is also ambivalent. Indeed, despite some reports stating that the corporatization of services can result in higher cost-efficiency and an increase in output, revenues, and employee productivity (Bilodeau et al., 2007), there is also evidence that moving from municipal services with autonomy to municipal companies may result in a lower productivity (Cruz, 2008). Cruz et al. (2011) points out that the corporatization of utility services is also related to municipal interventionism; theoretically, the higher the degree of corporatization (moving from left to right in Figure 2.3), the lower the involvement of local governments in the utilities’ management. At least in formal terms, the governance structures should be crafted in this fashion, since a more entrepreneurial approach towards utility management (higher efficiency, flexibility and accountability) requires a different relationship to elected officials (a notion of a freer market, with more rules). The relationship between municipalities and utilities can be further examined through the lens of contract (Williamson, 2010). Indeed, the bond linking utilities and municipalities depends on the sense of trust established between the parties; the relationship can be characterized by a more transactional (discrete) or relational (cooperative) type of contract (Diathesopoulos, 2010). However, the utilities industry usually reflects uncertainty, a high degree of asset specificity and frequent transactions; which might support a switch towards relational contracting (Macneil, 1978). Each mode of governance (bureaus, firms, hybrids and markets) has its strengths and weaknesses (Williamson, 2002). Briefly, one can say that markets are bounded by stronger incentives for efficiency, but hierarchies respond better when there is a need for coordinated adaptations (Williamson, 1975). Hence, as asset specificity deepens (and uncertainty increases), vertical integration could become more attractive. If some empirical results demonstrate the presence of economies of vertical integration in the utilities industry (e.g., in the electricity sector, see Fetz & Filipinni, 2010, and in the water sector, see Urakami, 2007), others display antagonistic positions in specific situations (e.g. in the water sector, see Garcia et al., 2007 and, in the energy sector, see Ropenus & Jensen, 2009). Additionally, the multi-utility strategy characterizes several municipalities in developed countries (Section 2.6). Specific studies find economies of scope in the utilities industry (Piacenza & Vannoni, 2004); however, other studies find the opposite (Stone and Webster Consultants, 2004). Further, combining several services within the same operating unit poses important challenges to the measurement of those services’ performance (Farsi & Filippini, 2009). Indubitably, these are severely complex issues where, since scale economies are finite (Marques & Witte, 2010), the size of the firms also plays a role. However, due to the complex roles played by territorial demography, geography and history, a case by case approach makes the best sense.

2.6 Variants in service provision of EU selected countries

The frequent externalization of public service provision made local governments to take on a different role. They had to find proper means to regulate and control the activities carried out by the different types of 19

external local public service providers in order to combine managerial interests with political responsibility. The aim is supposedly to guarantee the development of more efficient and competitive public service sectors while protecting the customers (Riccaboni, 2003), namely fulfilling the link between obligations related to these kind of services’ quality and price. On the other hand, this trend has also resulted in complex networks which require proper forms of coordination and cooperation between the various stakeholders involved. Thus, local governments have had to establish network relationships with other actors as bearers of distinct interests - sometimes through regulation and control, or as a partner, or to help the social and economic growth of an area in order to solve common problems and to achieve desired results (Goldsmith & Eggers, 2004). The externalization initiatives in the provision of local public services have been extensive and diverse along the 5 countries with specific features enabling the achievement of interesting conclusions. These initiatives have included committee and corporate arrangements, along with collaborative ventures, PPPs, contracting-out and other forms previously analyzed. The attractive issues rely on the characteristics of the models adopted by each country and how they coordinated the new challenges. As mentioned, the verified increase in autonomy from upper levels has allowed local governments to diversify the ways in which they provided local public services. Thus, the institutional landscape now includes a diversified set of organizational models. The forthcoming analysis possesses particular data regarding service providers, which cannot be claimed with complete scientific precision, or sectoral and national homogeneity and reflect the complexities of the statistical classification used. The data must be taken into account as reference points, part of the whole picture; however the heterogeneity of methods and sources used, sometimes limit even further this approach. The Austrian history of SGEIs management is based on a comprehensive nationalization, in order to correspond to the reconstruction needs after World War II and ideological/ political environment. However, following the European initiative, what first started to be local initiatives of privatization and corporati- zation7, became as a result of EU commission directives a wider trend covering all public administration levels8 affecting the respective SGEIs (Bauby & Similie, 2010). Most infrastructure services had then national operators that were corporatized and privatized (most partly), following not only the liberalization principles, but also the financial and market specifications imposed. In the majority of cases, ownership changed from one public agent to another. Either keeping them central government property, or the companies’ shares being bought mainly by other public companies and local governments, as in electrical sector companies (e.g. production and transportation). Still, the Austrian government kept substantial shares of some enterprises. In 2004, considering all three administrative levels and including all public utilities, the federal government owned 62%, the city or province of Vienna 13%, the other provinces 14%, and the communes 11% (Belke & Schneider, 2004). Pragmatically, the efforts specified led to an increased use of corporatized forms (e.g. public companies), accounting for more than 1450 namely in infrastructure services (Dexia, 2004), which compelled the need for the steering and controlling of those corporations. The creation of holding companies arose as a solution, in certain situations being the municipality the sole shareholder (e.g. Graz) and in others existing joint equity

7In order to solve poor economic performance, or involvement in corruption scandals, or to take into account the interests of the promoters, or to surpass inflexible financial either managerial routines imposed by central directives. 8Imposed downsizing programmes due to excessive tax ratios and other programmes imposed by the Maastricht budgetary criteria, which favored off-budget practices. 20

effort between different administrative levels as municipalities and Länder(e.g. Salzburg). These holding companies can either manage the service provision by own divisions or affiliated companies, depending on the actors involved; thus, these numerous new holdings entail a de facto continuing strong vertical and horizontal integration of the companies (E.Control, 2004), being involved in electricity and natural gas fields, water and district heating, waste and telecommunications fields (E.Control, 2006).

In the one hand sectors as electricity, where utilities belong to public companies operating as “regional” monopoly holders, due to difficulties in access to new entrants, the market is dominated by the previous ones (outlined in Appendix F.1) that have expanded their reach in the electricity value creation chains and their operational locations. As a result, the state of affairs consists in several subsidiaries created to deal with the transport-distribution and marketing defined by a dynamic of mutual cross-holdings and interweaving of the previously mentioned electricity companies and in some cases with a few indirect “foreign/ new” suppliers, so as to handle with “requirements/ threats” that were “imposed/ faced”. This industry is closely associated with the gas industry; usually their owners have subsidiaries that manage those sectors (Hofbauer, 2006).

In the other hand the water supply and sewage systems, which fall mainly under municipal administrative custody, are mainly provided by public (private law) companies or some direct public administration. The majority of municipalities offer the whole package of water supply related services (60% both wholesale and retail features) and wastewater disposal (local sewers and billing), the remaining outsource some of them to other players, such as associations or other municipalities (Klien, 2009). In addition, these associations bear great influence in trying to meet the citizens’ needs more cost-effectively (avg. small municipalities), they enjoy a significant influence in the extraction and transport of water, but as seen in Appendix F.2 they are vital in wastewater services (mainly plants and sewer systems) providing a significant amount of inhabitants (WIFO, 2002). As also verified in the previous appendix, there are just a few PPPs - as in pilot programmes and companies where higher administrative levels have a major share - and a few special forms in sparsely populated areas that play an important role and represent the backbone of the system in those places (KPC, 2009). The waste management is less organized (origin of the provision), with a delegation of competences being imposed mainly on municipalities (disposal) and associations (treatment, see Appendix F.3), which organize the delivery mainly with company models either public or with private mixed/ full ownership, undergoing a sharp establishment of energy providers in the market (Klien & Loser, 2009).

The sectoral organization and trends relating the status of the operators are resumed in Table 2.8.

Table 2.8: Governance models trends (AT) (adapted from Bauby & Similie, 2010)

National National mix Subnational Mix providers (Fed. and L¨an.) providers (major pub. providers PPP (major Private providers pub. provider public shares) priv. shares) Broadcasting electricity (P) electricity (P)[L] Water Telecom Telecom Gas (T/D) Wastewater Gas (T/D) Postal services (R/L)transport(Pa) Heating Air transport (R/L)transport(Pa) Water Heating Air transport Wastewater Heating Heating Broadcasting Interpretation: (P)- Production, [L]- Ownership of the L¨ander, (T/D)- Transport and distribution,(R/L)- Regional and local, (Pa)- Passengers 21

The trends concerning the status of the operators, when compared with the respective market (Table 2.9), reveals the SGEIs’ situation.

Table 2.9: Status of IS markets (AT) (adapted from Bauby & Similie, 2010)

Liberalised market Liberalised market Public monopoly Liberalised market and competition pub. operat. dominant priv. operat. dominant Telecommunications Water Postal services Telecommunications Postal services (partial ) Wastewater Railway transport(Pa) Postal services Inland water transport Broadcasting (radio) Freight rail transport Production of electricity Package waste Electric networks (T/D) gas (M) electricity (M) gas Air transport Broadcasting (R/L)transport(Pa) Heating Interpretation: (R/L)- Regional and local, (Pa)- Passengers, (M)- Marketing, (T/D)- Transport and distribution.

In Spain the concept of public service was based on in-house management and major national public enterprises, those principles attained their apex in the Franco era, mainly with services enjoying monopolistic features as in infrastructure network services. However since the 1980s, following the European Community impulse most of those services went over an extended period of privatization - the main exceptions could be found in postal services, electric transmission network, broadcasting and the fields of rail and air transport (Bauby & Similie, 2010). Alongside with the privatization process, was the autonomy growth enjoyed by municipalities (and later the autonomous regions), nowadays, depending on the municipalities size, they have a different and vast sort of public service responsibilities (e.g. water, wastewater, waste and local transport related services - Article 86 of the Law of 1985, see Appendix A.2). In order to accomplish them, since the competent public body may politically decide the service provision model, the municipalities crafted a long tradition of delivering local public services jointly with private sector initiatives, specially regulated under contract. With the opening of many areas to competition, the model of delegated management is now more widely used. Even if Vallesp´ın& Gianfelici (2011) reveal that near 80% of all locally operating companies are exclusively municipal and almost 95% are 100% public, jointly with other public actors potentially from diversified levels, in the infrastructure services the private participation is substantially higher and significant. Especially at local level, concessions and mixed capital companies are the most frequently used delegation forms in the area of economic public services. Private participation therefore is widely used, Cañete& Menéndez(2009) state that it accounts for more than 85% of population served in the total market (supplied and treated water in 2008). For the same year Menéndez& Cañete(2010) estimate that 76% of the waste collection services and 79% of the treatment and disposal services were provided by indirect management by private companies in the form of temporary licences under international public tender. Warner & Bel (2008) verify that service markets for both water and waste are heavily concentrated. In solid waste collection, three holdings (Fomento de Construcciones y Contratas, Ferrovial-CESPA and ACS-Urbaser) control two-thirds of the contracts. In water, two holdings (Aguas de Barcelona and Fomento de Construcciones y Contratas) control three quarters of the contracts. Public firms are the organizational form used in many large cities for solid waste collection (e.g. Seville) and water distribution (for example, Madrid and Seville), as well as in 22

many medium size cities. Most mixed firms are under the effective control of local governments, since they usually hold half, or more than half, of the shares. In some cases, local governments hold a small fraction of shares in the mixed firm (an important case is the water service in the city of Valencia). In waste services, although there is significant existence of other organizational forms, subcontracting (to private or to mixed companies) characterizes the Spanish landscape (Menéndez& Cañete,2010). The population size affects the main methods adopted, which are per se several (for water see Appendix G.1 and for local transports check Urbano et al., 2010), then the diversity and flexibility of organizational arrangements are a central feature in the Spanish experience. The landscape also exhibits an heterogeneous sector of publicly owned corporations accounting 1024 municipally owned and 828 regionally owned (total of 2381), with different participation rates in relevant cases of cooperation between administrative levels and private partners (IGAE, 2009). To sum up, this trend has widely spread through the infrastructure sectors. The sectoral organization and trends relating the status of the operators are resumed in Table 2.10.

Table 2.10: Governance models trends (ES) (adapted from Bauby & Similie, 2010)

National pub. providers Subnational pub. providers Private providers PPP Postal services (R/L) transport (Pa) Telecommunications (R/L) transport (Pa) Electricity networks Water (T/D) and marketing of gas Water Freight rail transports Wastewater Production of electricity Wastewater Broadcasting Heating Marketing of electricity Heating Broadcasting Railway transport (Pa) 1 (R/L) transport (Pa) Maritime transport Air transport Heating Postal services Water Broadcasting Wastewater 1 Railway transport of passengers and railway freight services are managed by the state-owned company RENFE. Liberalisation is foreseen, but not implemented already. Interpretation: (R/L)- Regional and local, (Pa)- of passengers and (T/D)- Transport and distribution.

The trends concerning the status of the operators, when compared with the respective market (Table 2.11), reveals the SGEIs’ situation.

Table 2.11: Status of IS markets (ES) (adapted from Bauby & Similie, 2010)

Liberalised market Liberalised market dominated by: Monopoly and competition Pub. operat. Priv. operator Public Private Telecom Postal serv.s Telecom Electricity networks (R/L)transport(Pa)1 Air transport Production of electricity Freight rail transport Maritime transport Broadcasting Marketing of electricity (R/L)transport(Pa) Water (T/D) of gas Water Heating Marketing of gas Heating Railway transport (Pa) 1 Liberalised market for regional bus lines. Private operators are dominant Interpretation: (R/L)- Regional and local, (Pa)- of passengers and (T/D)- Transport and distribution

The Italian history of SGEIs management pursued the nationalization trend due to the fascist-corporatist regime economic interventions, followed by reforms on the state’s organization at the end of the 20th century. Those reforms were required as a consequence of an economic and ﬁnancial crisis of State intervention, 23

the impact of the EC law and the demand for more local autonomy. That context led to an increased administrative role of lower government levels and to the mentioned legal enforcement of competitive selection of service providers through public tender, those features remodeled the IS organizational landscape.

The reorganization of infrastructure sector national providers, developed generally in a formal way, including corporatization and privatization processes (either partially or fully), alongside with an increase in public (mainly regional and local) and private providers due to market opening to competition. A study performed by Corte dei Conti 2006 in 2008 with the UnionCamere database help, detected a total of 1834 municipal participations (and 1533 by provinces) in 1791 corporatized organizations amongst a multi service ratio higher than 20% and wide presence in infrastructure services (more than 28%). Pragmatically, it fostered “liberalized markets”, where public operators are dominant and compete between themselves (railway transport of passengers, energy) and private companies (broadcasting) for market shares (Table 2.13).

At the local level, due to the legal framework, the services provision is under numerous initiatives, including corporatization, collaborative arrangements and PPPs. Some of those initiatives led to the creation of dominant players, as with the multiutilities companies that operate in the home market of owner municipalities and on the open market through the participation in PPPs with other municipalities, Massarutto (2010) highlights the situation in the waste sector with energy multiutility operators. Regarding corporatization, municipalities (depending on their size) directly and indirectly own numerous companies concerned with various infrastructure services: energy, water, waste disposal and public transport (Grossi, 2007). There are also the collaborative arrangements, which have become an issue in recent years, since local governments and their utilities have decided on mergers, resulting in the establishment of consortiums or other forms of joint ventures (especially in small and medium local governments), these inter-municipal associations are important in sectors like waste disposal and transport. PPPs are one signiﬁcant institutional trend at the local level. Approximately 25% of municipalities are already involved in “territorial pacts” in the form of agreements between local governments and private associations aimed at improving the economy at the local level, in accordance to Confservizi (2006) nearly 30% of all municipal companies are iPPPs, especially in the energy and water sectors. Although in the water related services the Galli Law is trying to set a new organizational structure called ATO (Area Territori Optimali), to improve the eﬃciency regrouping a fragmented sector, set upon the service techno economic characteristics supporting a delegated management. For a more complete sketch see (Marques, 2005; Baedelli & Robotti, 2009). Indeed many of the public law organizations, as the special undertakings and the inter-municipal associations that were usually created in order to provide economic services (public transport, public car parks, management of assets) and public works (water services, waste collection and disposal, road maintenance, parks and gardens), are currently being transformed into joint stock companies when economic, social and geographical features make it feasible (Argento et al., 2010). Of the joint stock companies and limited companies used in local public service provision, the majority are totally owned by local governments. Few of the joint stock companies have a private majority shareholding, unlike the limited companies whose private majority shareholding is increasing (Valotti, 2006). Since joint stock companies and limited companies are now dominating the organizational landscape (Confservizi, 2006), the trend towards the creation of holding companies is also becoming characteristic (Vallesp´ın& Gianfelici, 2011), although the same authors warn about the regional disparities in the 24

Italian “ﬁeld” as can be seen in Appendix H.1. All the speciﬁed trends had an important impact through each sector value chain, increasing its complexity and actors involved (for the waste sector see Appendices H.2 and H.3). The sectoral organization and trends relating the operators’ status are resumed in Table 2.12.

Table 2.12: Governance models trends (IT) (adapted from Bauby & Similie, 2010)

National Mix providers Subnational Subnational mix Mix providers pub. provider national (major pub. providers providers (major (major Private providers pub. shares) pub. shares) priv. shares) Postal services electricity(P) electricity(P) Gas (T/D) Gas (T/D) Broadcasting (F)rail trans. Elect. net.(T/D) (R/L)trans.(Pa) Gas (M) Gas (M) Electricity(P) Broadcasting Electricity(M) Inl. water trans. Electricity(P) Electricity(P) Electricity(M) Maritime trans. Gas (T/D) Water Elect. net.(T/D) Electricity(M) Inl. water trans. Rail. trans.(Pa) Gas (M) Waste water Heating Maritime trans. (R/L)trans.(Pa) (F)rail trans. (R/L)trans.(Pa) Air trans. Gas(T) Heating Gas(D) Telecom Gas(M) Interpretation: (F)- Freight, trans.- transport, (Pa)- of passengers, (P)- Production, (T/D)- Transport and distribution, (M)- Marketing, (R/L)- Regional & local and Inl.- Inland

The trends concerning the status of the operators, when compared with the respective market (Table 2.13), reveals the SGEIs’ situation.

Table 2.13: Status of IS markets (IT) (adapted from Bauby & Similie, 2010)

Liberalised market dominated by: Public monopoly public operators private operators (R/L) transport (Pa) Water Broadcasting3 Electricity networks Postal services Wastewater Inland water transport Railway transports (Pa) (P) electricity1 (M) electricity Maritime transport Freight rail transport (M) gas Telecommunications Gas transport and distribution2 Air transport 1 The main producers are: Enel group, Edison group, Edipower, Endesa Italia, Eni group, Tirreno Power, ERG group, Saras group, Aem Milano, Electrabel/Acea. 2 This activity is based on a concession that local authorities hold. The operators are about 560 distribution companies including Italgas SpA (Eni group) and Enel Gas Distribuzione (Enel group). The sale to customers of gas bought from wholesalers or imported is a free activity. There are about 400 operating companies, including Eni Gas&Power (Eni group) and Enel Gas (Enel group). 3 The broadcasting system is a duopoly: the public operator Rai, public funded, and the private one Mediaset, share the market almost equally. Interpretation:(R/L)- Regional and local, (P)- Production of, (M)- Marketing of, (Pa)- of passengers.

The development of a large Welfare State while keeping most services provided by local communities is an important feature in Sweden. Nonetheless national public enterprises were the first to be established in the sectors of energy, telecommunications9 and postal services and in some sectors (postal services and rail transport10) they still have a dominant position or are the major actors (energy). Since the introduction of a new and more flexible legal framework, the municipal sector has been characterized by experiments with different organizational models and market reforms being adopted. Hence, from

9TeliaSonera is an interesting telecom company due to their mixed public capital, since the Swedish state owns about 37% of the shares and the Finnish state about 13%. (http://www.teliasonera.com/en/investors/share/shareholdings/2012/1/9535/) 10The railway sector has gone through extensive organizational reforms, increasing economic eﬃciency by introducing or strengthening the market mechanism appears to be the main objective of those reforms. 25

an organizational point of view, the situation in the local government sector has changed. While previously known as a rather homogenous sector with only minor diﬀerences in organizational structure, the sector is now characterized by a variety of organizational forms and local adjustments (Mattisson et al., 2003). An important feature developed is the cooperation between municipalities, in infrastructure services it developed mainly in company form, although joint committees and municipal federations are also used. In contrast, in those services there is a limited tradition on the contracting-out of their provision, although it is considerably adopted in waste collection and local public transportation. In the last sector the contracts are awarded, through competitive tendering, by co operations between municipal and regional actors as private law companies “PuPs” that own the main infrastructures and essential facilities (Zatti, 2011). The legal and institutional context aroused the municipalities to own the facilities and to be responsible for running them. In the water and sewage services which are usually conducted by the same organizational entity, in-house solutions or municipally owned corporations are the most common solution for organizing the services provision, though increasingly in intermunicipal co-op form of jointly owned limited corporation or local government federations (Mattisson & Thomasson, 2010). Publicly owned entities are engaged (competencies) in various policy sectors, with electricity, gas, water, waste disposal, public transport and housing being the most frequent areas of corporate activity. According to SCB (2010), the municipalities own a total of 1622 enterprises, of which 25% are engaged with energy and water related activities (NACE: D+E) and nearly 10% engaged with transport and communication services (NACE: H+J). Hence this situation led to an entrepreneurial concentration in the main cities compelling the creation of Holding companies, which is now a popular concept connecting an important amount of inhabitants (SCB, 2008). Even though limited companies are used for a variety of activities, there is dominance within certain sectors: for example, there are 107 companies responsible for steam power and water supply, and 97 companies are involved in energy distribution (SCB, 2007b). Among the 290 municipalities, a majority (281) has at least one wholly owned company and 288 own at least 10% of a limited company (SCB, 2007a). None of the municipal companies is listed on any stock exchange. Most of the municipal companies which manage local public services are wholly owned by municipalities. If a municipality does not own dominant inﬂuence in a company, it is not allowed to purchase goods or services from that company, unless the company has competed for and won the relevant public procurement opportunity. Private initiatives are common in Sweden but rarely in several IS (Argento et al., 2010). The sectoral organization and trends relating the status of the operators are resumed in table 2.14.

Table 2.14: Governance models trends (SE) (adapted from Bauby & Similie, 2010)

National Subnational Mixed providers Private providers public provider public providers (major priv. shares) Postal services (R/L) transport (Pa) Telecom Electricity (D) Electricity networks(T) Inland water transport Electricity (D) Inland water transport Broadcasting Heating Air transport Railway transport (Pa) Railway transport (Pa) (P) electricity Maritime transport Air transport Electricity (D) (R/L)transport(Pa) Water Broadcasting Broadcasting Heating Wastewater Water Postal services Telecom Interpretation: (T)- Transport, (Pa)- of Passengers, (D)- Distribution, (R/L)- Regional and local, (P)- Production. 26

The trends concerning the status of the operators, when compared with the respective market (highlighted in Table 2.15), reveals the SGEIs’ situation.

Table 2.15: Status of IS markets (SE) (adapted from Bauby & Similie, 2010)

Liberalised market Liberalised market and competition Public monopoly public operators dominant Telecommunications (P) electricity Water Heating Broadcasting Air transport Wastewater Water (R/L) transport of passengers Postal services Interpretation: (R/L)- Regional and local, (P)- Production of.

2.7 The regulatory systems

To understand the added value of regulation and its duty in these specific SGEIs environment, it is important to understand what a regulatory activity encloses. As referred by Marques (2005) regulation is, “among many acceptable meanings, the establishment and implementation of a whole set of specific rules, needed to attain balance in a certain sector’s performance, bearing in mind the public interest” . Being aware that the services involved are SGEIs, the regulation takes an economic form with important objectives to be achieved, optimizing social well-being mainly by enforcing the production of what is desired in optimal: prices, quantities and quality levels. Depending on the nature of the services and the existing structure, the regulatory activity required might change. Since IS have several characteristics that can lead to situations where a specific market can only attain a single operator, preventing the existence of competition in the market in those sectors or activities, auto regulation is restrained. Although even if you implement competition “for the field” (as in per contract) when “in the field” is not possible (Chadwick, 1859), the regulatory activity is still desired. Therefore, following Marques (2005), the regulatory entities must foster measures to counter prevailing market failures, asymmetric information circumstances, negative externalities and other flaws or deficits. In order to achieve that, and to control prices/ tariffs in addition to quality levels, the following objectives should be pursued: • promotion of efficiency; • protection of consumers’ rights (or clients, citizens) concerning SGEI obligations; • assure whenever possible, a financially self-sustaining service operation; • follow up policies set for the sector; • a stable and sustainable service. In order to achieve these objectives, regulatory agencies should, when appropriate (Bauby & Similie, 2010): • monitor the competition and its effectiveness; • seek to introduce competition in a sector; • check that the introduction of competition does not cause adverse effects (as the lack of incentives to invest, increasing numbers of negative externalities, territorial concentrations); • focus on non-discrimination and equal opportunity between different operators11; • ensure an evolutionary balance between goals involving contradictory aspects, especially between competition and objectives of general interest

11E.g. access of diﬀerent operators to an infrastructure. 27

The most employed institutions are the government (ministries or executive departments), agencies (autonomous but presenting reduced governmental independence), independent regulatory authorities (IRAs) and even courts according to each country sectoral targets and organizational forms adopted for service delivery12 (Larsen et al., 2010). Following the latest trends, since public authorities’ direct intervention is being reduced aiming to involve regulated market economies jointly with public service obligations, arise the need for a “refined” regulation in a professional, impartial, apolitical and technical way (Marques, 2005). Such conduced to an increased use of independent authorities so as to isolate commercial interests from ministerial administration. Still, there are quite notable disparities across regulatory agencies or bodies, which are responsible for their establishment. Therefore, their organization, competencies and powers differ, according to national traditions and sector policies adopted (Bauby & Similie, 2010). The legal and administrative traditions, which are relevant for regulation, are therefore different being reflected in their IS industry. The relationship between the municipality and the entity in charge of services delivery is such an example, which in particular instances are regulated by specific “service contracts” and have to respect national (if apl. regional) and sector legislation (Italy, Spain and Portugal), or like in Sweden where those relationships are regulated only by law because no special service contracts are needed (due to an extensive regulatory framework) (Argento et al., 2010). Such differences should be expected to have significant influence on the formal design of regulators, their practice and the market outcome as well. Even for more singular features, as the authorities responsible for the setting of price/ tariff policies, there is a considerable effect, as displayed in Appendix I. Nevertheless, the regulatory activity goes beyond price/tariff setting policies, in a broader perspective it is significant to know the existence of regulatory agencies and their scope. Table 2.16 shows that in the countries studied there are authorities for the supervision of competition, which intervene in IS. There are also specific authorities, usually sector related, for communications (often post and telecommunications), energy (electricity, gas), transport (especially rail), broadcasting and sometimes for water. Frequently, these institutional frameworks are complemented by authorities in charge of consumer protection.

Table 2.16: Independent regulatory authorities

Austria (AT) Anti-trust Authority, Speciﬁc Authorities for Telecommunications, Electricity, Gas, Railway transport, Air transport, Broadcasting (More non-IS agencies) Spain (ES) For Telecommunications, Energy (electricity and hydrocarbons) Italy (IT) For Telecom and broadcasting, Energy, Maritime transport, Antitrust Authority Portugal (PT) For Communications, Energy, Broadcasting, Water, Waste water, Air transport, Railway transport and the Authority for competition (More non-IS agencies) Sweden (SE) For Post and Telecom (More non-IS agencies)

In order to understand the reality of these agencies, it is important to identify the scope of activities that they possess. Therefore in the energy sector (mostly for electricity), with an “ostensibly” liberalized service industry, Larsen et al. (2010) state that a few of those regulators mainly perform advisory functions whereas most can make their own decisions (Appendix J.1). Some regulators have broad competencies including monopoly regulation, competition regulation, consumer complaints, and wider energy policy issues whereas

12Depending on the state’s intervention, the regulatory activity can be direct (government), indirect (agencies/public institutions) or independent (IRAs) (for more see Marques, 2005). 28

others are mainly confined to regulating access conditions and network tariffs (Appendix J.2). The members of the first group of countries are often those with a tradition of state-owned national monopolies (Portugal and Italy). The countries in the second group have a more decentralized utility structure and they prefer a much more pragmatic approach including a regulator with a narrow agenda and an extended division of labor with other public authorities such as the competition and consumer agencies (Sweden), since they enjoy an effective cross sector regulation with inherent benchmarking processes (Austria and Sweden). In Sweden, the electricity regulator is part of the energy agency, which has broad policy obligations. In Austria for telecom services, there is a commission in charge of regulating competition, frequency allocation procedures, approval of general business terms and conditions, as well as monitoring the fees charged. Regulation has developed from sector-specific regulation towards general competition law. In order to enable competition, between alternative service providers and companies with significant market power on the relevant markets, emerged the need to provide universal access to telecommunications networks and to unbundled parts thereof, on the basis of a market analysis procedure. There are also regulatory agencies for railway and air transportation; they deal especially with safety, insurance matters and interoperability. In Spain, regarding the evaluation process, there is no formal system for SGIs. The control of SGIs operation is made by Parliament and the media. Some services have special characteristics of performance, as maximum tariffs (as telecommunications and energy). This control is enhanced by independent authorities that regulate different markets combined with a financial control in tariffs that usually falls within the competence of the public administration level responsible for service provision, although it might differ (Cañete& Menéndez, 2009). The service providers, being directly controlled by the accountable actor, give the impression of being subject to a greater degree of political influence with adverse efficiency and effectiveness outcomes (Vallesp´ın& Gianfelici, 2011). Finally, the existence of a supervisory agency CNC (National Commission of Competence), in charge to avoid anti-competition behaviors, needs to be mentioned. In Italy, independent authorities, when instituted, or different services providers identify the criteria and indicators used for the evaluation of their service. Providers have the duty to check and control the quality and the efficiency of services through a specific relation that they must show and publish. The independent regulatory authorities generally enjoy broad powers, performing their assignments effectively, being influenced by the “British model”, with the notable exceptions of water, waste and transportation sectors where the municipalities are the real regulators (Argento et al., 2010). In telecommunications and broadcasting sectors, the competent authority has functions concerning regulation, control and security of: communications services, telecommunications, and publishing. In Sweden, the regulatory activities are pursued accordingly to the identified process in energy sector. Alongside the vast regulatory framework13 are numerous “governing” agencies both national and local, as the central authorities who carry out evaluations of public services on a regular basis. The aim of such audit offices is to promote the optimum use of resources and efficient administration, ensuring democratic transparency . However the Post and Telecom Authority has broader competencies, working with consumer and competition issues, efficient allocation of resources and securing communications. In the abovementioned Appendix A, further sources with legal references and web sites are highlighted.

13E.g. pricing in water, waste and electricity distribution (Argento et al., 2010). 29

Chapter 3

The Portuguese experience

3.1 Overview

In order to achieve a clear understanding of the Portuguese environment in the provision of local IS, covering actors and its speciﬁc rules (of the “game”), and to acquire a comparative basis for the case studies further analyzed, a profuse study is developed in this chapter. In a ﬁrst stage is examined the legal framework covering the local infrastructure services and the organizational models available for their delivery. Afterwards a compilation from several databases is presented to obtain the status of the operators delivering local SGEIs in Portugal. Finally, a SWOT analysis is used to attain a clear distinction on the Strengths, Weaknesses/Limitations, Opportunities and Threats involved with those governance models. The objective is to achieve a comparable and consummate environment to understand the performance of the case studies later scrutinized.

3.2 The Portuguese environment

The IS delivery and possible delegation, in Portugal, is assigned to particular administrative authorities, specified in the national legal framework (Law n.159/99 of September 14th on the functions of local authorities, mainly in article 13th - as seen in Appendix K). In Table 2.1 is highlighted the national geography and politico-administrative structure, which combined with the existing legislation shape important features of service provision. Those features include the means available, to the competent authorities, to fulfill the responsibilities bestowed and the pursuance of the associated public interest. Therefore the definition of public service obligations along with the decision of local ISs organization modes are usually crafted in conformity with national legislation (mainly highlighted in this chapter and in Appendix L for ISs’ law) and are emphasized in Table 3.1. The Portuguese status, in many SGEIs, dates back to the nationalizations made in the 1970s (mainly after the April 25th Revolution in 1974, which led to a massive expansion of the national public enterprise sector (Rodrigues, 2004). Those nationalizations covered important infrastructure networks (e.g. transports, telecommunications and energy), the major industrial companies (e.g. steel, metallurgy and chemistry) and also all financial institutions. According to the same author, in the 1980s, several ideological-economic motives expressed in a complex change in political consensus and the country’s accession to the EU, made privatisation appear on the government agenda1.

1The objectives to be achieved were the promotion of: competition, dynamic capital markets, reinforced national productive sectors, ﬁnancing situation of public enterprises, decrease of public debt and the defence of national interests (Rodrigues, 2004) 30

Table 3.1: Competences of deﬁnition and organization of IS in PT (adapted from Bauby & Similie, 2010; Cruz & Marques, 2012)

Central government Local government Telecommunications Regional and local transport of passengers Postal services Water Production of electricity Waste water Electricity networks (transport-distribution) Local roads network Marketing of electricity Waste Gas transport-distribution Schools Marketing of gas Sport infrastructures Railway transport of passengers Freight rail transport National roads Air transport Maritime transport Broadcasting

In fact, poor performance, irrational pricing and wage practices collusive with high permeability to party and bureaucratic logic were allegedly present in the (vast) state’s enterprise sector (SEE). Consequently, in that period Portugal constituted one of the most important instances of denationalization programmes in Europe (OECD, 1994, p.64). The privatisation programme included, as stated in Clifton et al. (2003, pp.70,71), the financial sector (e.g. banks and insurance companies), telecommunication, energy and other sectors (v.g. shipyards, cement and paper). However, in Portugal, the remnant of those public companies continue to play an important role for the provision of many SGIs. In infrastructure, the services related to postal services, railway services (transport of passengers and freight), electricity, air transport and broadcasting can be highlighted, even if undergoing different stages in distinct governance mechanisms (hierarchical, market and network). Inter alia, the previous events shaped the governance models framework at national level, inducing the basis for the actual local enterprise sector legal framework. Actually, the significant increase in importance of the local authorities’ role in service provision (v.g. planning, management, investment and licensing), the financial difficulties, jointly with the publishing of Law n.58/982 and the eligibility for additional national/ community funds intensified the entrepreneurial activity at local level, as mentioned in Portugal (2011) - translated as: white paper of the local enterprise sector (SEL). Nevertheless, since the new local enterprise sector (SEL) legal framework (Law n.53-F/2006) and its amendments took effect and distinct eligibility criteria for funds were selected, the entrepreneurial activity growth decreased (ISEG, 2011).

3.3 Variants in service provision operating in Portugal

The Portuguese municipalities can organize local IS delivery in numerous ways, in line with present legislation. The most significant models, in the scope of local government, are the in-house models, the associative endeavors and the corporatized arrangements as shown in Figure 3.1. The in-house models are both mainly regulated by Law n.2/2007 of January 15th, which concerns local finance. As for the municipal associativism, it is classified in two types that are established in specific ways,

2Law n.58/98 of August 18thwas the 1stlaw allowing the creation of local public enterprises, which has already been revoked. 31

Figure 3.1: Relevant governance models in the local Portuguese framework (adapted from Cruz, 2010) enjoying different legal status. Those two kinds are the associations with multiple ends (CIMs) and the associations with a single purpose (AMFEs) both regulated by Law n.45/2008 of August 27th. If in the former they are created by municipalities depending on their statistical territorial unit (NUTS III)3, and hold public law legal status; in the later, they are created upon their single mutual purpose, supposedly carrying a private law legal status. However exceptions can be found, in the multi-purpose associations, the territorial units that belong to the two metropolitan areas are ruled by a particular document - Law n.46/2008 of August 27th; in the AMFEs, the associations created previously to the enforcement of the current law may retain a public law legal status when applicable. The corporatized arrangements lead to a wide spectrum of options that differ on the influence that municipalities enjoy in each structure. Therefore if the municipality retain the dominant influence4 (usually associated with the ownership of equity shares), the corporatized model falls under the scope of Law n.53-F/2006 of December 29th that establishes the local enterprise sector (SEL). Those models when owned solely by local public entities can enjoy either public or private law legal status, being designated accordingly to both their ownership and legal status, as seen in Table 3.2, nonetheless private law models are allowed to have minority private partners.

Table 3.2: Main models regulated by Law 53-F/2006 of December 29th

Legal status Ownership/ dominant inﬂuence Partnership allowance Municipal Intermunicipal Metropolitan Private law legal status Private entrepreneurs allowed EM EIM EMT Public law legal status No private entrepreneurs allowed EEM EEIM EEMT

However municipalities can hold participations outside the scope of both municipal associativism and

3The Portuguese territorial units for statistical ends are deﬁned in a proper decree (D.L. n.244/2002 of November 5th). 4The dominant inﬂuence can be achieved by owning either more than 50% of the shares/capital participation (CP), the majority of voting rights or the right to select the majority of board/supervisory board members. 32

corporatized legal frameworks. Those entities are mainly nonprofit municipal associations, created under the Portuguese Civil Code, alongside foundations and cooperatives (corporate entities). Furthermore local authorities can use additional corporatized arrangements where the local authorities do not enjoy dominant influence, including on the one hand partnerships with higher government levels (PuPs with local CP<50%), and on the other hand partnerships with private entrepreneurs (generally iPPPs with local CP<50% and cPPPs). To those models, D.L. n.86/2003 of April 26th (amended by D.L. n.141/2006 of July 27th) is of great importance, since it defines general norms concerning PPPs and situations where the non-public partner is, inter alia, a public enterprise. In the first case there are several types of partnerships available (as seen in Section 4.2), however the most relevant are the mixed equity partnerships where the higher level of government owns dominant influence, therefore the enterprise falls under the state’s enterprise sector which is driven by D.L. n.558/99 of December 17th (republished by D.L. n.300/2007 of August 23rd). Still, legislation may specify the sectors themselves, as in the water, wastewater and urban waste management related local services, where D.L. n.194/2009 of August 20th establishes the general legal framework; or it may regulate a specific governance model when needed, as D.L. n.90/2009 of April 9th that regulates the PuP governance model in those specific sectors. For those partnerships with private entrepreneurs, the mentioned iPPPs balance, loans and, to some extent, human resources complete the details regulated by Law 53-F/2006 (amended as declared in Appendix L), furthermore from a more general point of view, the governance models highlighted in Figure 3.1 are, when relevant, also ruled by: D.L. n.76-A/2006 of March 29th republishing the commercial societies Act and D.L. n.18/2008 of January 29th regulating public contracts. Thus, for iPPPs bearing private dominant influence and cPPPs, those particular decrees are notably significant.

3.3.1 The universe of service provision

Each model, covered by the legal framework, has distinctive characteristics becoming more suitable to certain situations, so as to achieve the desired objectives. In order to understand how the municipalities evaluate their options, shaping service provision, a detailed list was compiled taking into account numerous databases. The data found, was used on a complementary basis adding each database point of view, towards a complete outcome of the Portuguese universe. The most relevant sources considered, were5: • Portuguese Directorate-General for Local Authorities’ (DGAL) report concerning local authorities’ participated entities (DGAL, 2010); • Portuguese court of auditors’ database, searching for each participation held by municipalities; • technical report made by a Portuguese university (ISEG - Instituto Superior de Economia e Gest˜ao) for the local enterprise sector (SEL) white paper, which includes the following sources (ISEG, 2011): – DGAL’s information on entities that comprise the SEL; – Portuguese System of National Accounts (SCN) information on municipal controlled entities in 2006, available at the Simpliﬁed Business Information (IES), the national registry of collective entities (RNPC), the Statistics Portugal (INE) and the central Bank (Banco de Portugal - BP);

5The sources used have diﬀerent time spans, being nonetheless complementary, in those, the ﬁrst 3 sources are related respectively to: 31/12/2009, 20/05/2011 and 31/12/2009; unless stated otherwise. 33

– own made survey covering all the municipalities; • finally the entities’ statutes (articles of association) and additional information needed, found on their Internet sites, or in the related municipalities’ management reports or national publications including the official gazette (Diárioda República)and BP’s lists holding entities for statistical purpose. However, if the actual legal framework clearly defines governance models nature and typology, the identification process in the mentioned sources was quite complex, since there is little synchronization between framework, sources and sources themselves, resulting in a recurrent lack or divergence of information on needed features. Another obstacle to the objective proposed, is related to the difficulty in accessing information on governance models (providing local service), where local authorities have no participation, since there is no structure clearly pointing out their existence. Hence, even if those purely contractual partnership models (cPPPs) bear considerable importance, they are only going to be considered when drafting specific sector market structures. Furthermore, the main sources assessed ensure a cross data process covering most municipal options for service delivery, as shown in Table 3.3.

Table 3.3: Governance models covered by each data source

Municipal services Municipal Other local public Contractual Sources SEL w/ autonomy associations participations Partnerships DGAL (2010) X X X X — PT-Court of Auditors — X X X — ISEG (2011) X X — X1 — Complementary data2 — — — — X3 1 - Only other possible SEL entities are considered, e.g. cooperatives and other corporatized entities where local authorities hold, by means of other entities, between 40% and 50% of capital participation. 2 - This data was gathered, from Cruz & Marques (2012) and ERSAR (2010c), for a consummate analysis. 3 - Solely Water and Wastewater related services were considered for further analysis in chapter 4.

The models covered by “Other local public participations” are, all those where municipalities enjoy a minor “paticipation” and/ or are not included in the other characterization “clusters”. The entities found in each source, are displayed in Appendix M where they are listed by model. In a general way, the basic information of each governance model is summarized in Table 3.4. Although the data presented is reliable, the actual situation of some entities is not, indeed due to the current economic environment, a considerable share of those entities are facing liquidation or merger procedures. The cooperatives are divided between: those which had information revealing municipal control and the ones which it could not be verified (Other cooperatives). Additionally to the cooperatives, the minor participation iPPPs, nonprofit municipal associations and foundations are difficult to find the prevailing quantity and information needed, however the ones found, shade a light on the subject. For the Public- Public Partnerships, almost every entity has minor local participation, although a few present local dominant participation being covered by the EM model (e.g. VISEU NOVO, SRU - Sociedade de Reabilita¸cãoUrbana de Viseu, SA and Metropolitano Ligeiro de Mirandela, SA).

3.3.2 Characterization of the Portuguese universe

Once deﬁned the “local governance models” sample, it is paramount to characterize them, this way both by sector and territorial distributions were ﬁrst analysed. In order to determine a coherent distribution by 34

Table 3.4: General information of the main governance models at the local level

Municipal inﬂuence Governance models # of entities In-house Municipal Service w/ autonomy 31 Municipal enterprise - EEM 119 Dominant Intermunicipal enterprise - EEIM 3 participation Municipal company - EM 190 363 (SEL entities) Intermunicipal company - EIM 32 Controlled indirectly 19 Possible Cooperatives 20 SEL entities Controlled indirectly (40%

Table 3.5: Sector “groups / clusters” of activity

Main associated CAE-Rev.3 Group Description municipal competences / traits 1st level Water supply; sewerage and waste Environment and basic drainage / A E management activities sewage B Transportation and storage Transports and communication H Education C Social services Health P, Q Social Welfare Public administration and other Development’s promotion D M, N, O, S service activities Consultancy and administration Real estate activities, spatial Housing E F, L planning and urban design Spatial planning and urban design Culture, arts and heritage F Culture and leisure R Leisure and sports Energy A, C, D, G, G Other economic activities Etc. I, J

Therefore, those sector “clusters” preserve the main characteristics of the products or services produced, allowing to understand “where” and “how” did municipalities acknowledged there was a need to externalize service provision, since the in-house municipal department was insuﬃcient (e.g. did not meet the required standards of service delivery or was not able to gather the ﬁnance needed to further extend infrastructure). Firstly in Figure 3.2, the distribution of SEL entities through the sector “clusters” is highlighted. 35

Figure 3.2: Distribution by sector of SEL entities

The activity developed by the previously mentioned entities cover almost all municipalities’ areas of responsibility. Furthermore, ISEG (2011) states that, while 50% of the surveyed SEL entities carry activities in one municipal cluster of responsibility, nearly 19% carry respectively in 4 or more. For what has been perceived the same happens, although not in such extent, in other entities outside the SEL framework. Further, this setting led Cruz (2008) to declare that occasionally some entities hold so many activities in such a wide range of municipal competencies, that to a certain extent they replace the municipality itself. Also, concerning the activities developed, they can recurrently stray away from the assigned CAE. Either way, to check the diﬀerence between the areas of activity carried out by SEL entities and those by “similar” entities, Figure 3.3 focus the sectoral distribution of the later ones.

Figure 3.3: Distribution by sector of possible SEL entities

Finally, so as to grasp the extent of municipal participation in corporatized entities, Figure 3.4 shows the distribution by sector for those entities being held by minor municipal participation. The entities that belong to group A, carry out the responsibility to deliver, separately or taken together: water supply, wastewater and municipal waste management. However, each of those activities can still have diﬀerent operators in their bulk or retail subdivision (see chapter 2.4 for further details on the SGEIs 36

Figure 3.4: Distribution by sector of entities holding minor municipal participation

division). The management models used differ precisely depending on that subdivision, the retail and bulk sections. The former range from the municipal services with autonomy alongside some EEMs, in a provision scenario still dominated by municipal departments (ERSAR, 2010c). As for the later, due to the national strategic plans (PEAASAR for water and wastewater, jointly with PERSU for waste management), are mainly provided by minor participation PuPs. The EIM and EM also play an important role in a complementary or replacement basis, mainly opting to combine services (further analysis in ERSAR, 2010c). As for group B, those entities are mainly devoted to the local transport of passengers and the management of related infrastructures (e.g. car parks). The local land transport on the one hand if it is by rail, the provider is most likely a PuP, on the other hand if it is by road, the provider is probably a municipal service with autonomy or an EM. Water transport is also present but in a reduced scale, concerning the operation of infrastructure service activities related to land transport, there is a great incidence of EEM entities providing such activities. The entities enjoying group C classification, have prevalent areas of activity connected to vocational education and the management/ operation of thermal baths (spas). A trend to opt for EMs, in the provision of this kind of activities, can be easily deduced, indeed, the EMs account for more than 50% of each of those activities providers. Furthermore, in all “deemed” cooperatives, 45% are related to this sectoral cluster. The providers falling under group D activities cluster, are connected to other clusters, since they cover administration and other service activities. Nonetheless, they usually cooperate in development’s promotion, consultancy and support service activities. There is also a homogeneous trend among each management models universe, to provide such activities. The entities that provide group E related activities, cover real estate activities and construction usually in the development of building projects. Therefore, the later might reach other clusters, as in the sole construction of transport infrastructures. The models commonly chosen are the EM and EEM in the SEL framework (even if not surpassing respectively 18% and 15% of those models total entities), and the minor participation iPPPs outside it. However, the entities where municipalities control indirectly 40% to 50%, are definitely mostly used with such objectives (reaching 37%). In group F, the entities provide cultural and entertainment activities, operating cultural, sports and arts municipal facilities like theatre halls, museums, stadiums, arenas and others. From this wide range of social objectives, the most likely thing in common are the high operational and maintenance costs linked with comparably scarce revenues. Nevertheless, the creation of such entities partially dominates the EM, EEM 37

and the possible SEL entities landscape (even if contributing differently to the total number of group F providers). The grounds for those choices might have been to escape from bureaucracies or to control costs in a more efficient and effective way. Finally group G covers all other economic activities. The main municipal management models delivering this cluster activities are the EM and both indirectly controlled groups. The former entities range from tourism endeavours to wholesale/ retail trade and slaughter houses. As for the later, they are mainly “clean” electricity producers. There is also the minor participation iPPP cases, which are substantially devoted in providing this cluster activities (36% of the their total), they cover most of the previous and some gas production and distribution, jointly with other economic activities. The later may even raise market distortions and unreasonable social objectives being pursued, leading to a misallocation of public budget. In terms of territorial distribution, it is interesting to analyse both the number of entities per municipality and their dissemination throughout the whole country, bearing in mind each municipality’s population. Thus, in Figure 3.5 is highlighted both, population density and participation in SEL entities, held by municipalities either directly or indirectly, throughout mainland Portugal.

Figure 3.5: Population density and municipal participation in SEL entities (mainland Portugal)

Furthermore, so as to seize the extent of municipal participation in corporatized entities outside SEL framework, whilst keeping a credible “public dominance”, Figure 3.6 shows the territorial distribution for those entities. 38

Figure 3.6: Municipal participation in further PuPs and possible SEL entities (mainland Portugal)

The population density underlined in Figure 3.5, brieﬂy reveals a high average population density and an asymmetric nature of Portuguese municipalities, pointing out the subsistence of a gap in either: municipalities’ size, population or both. This asymmetry is proven by the diﬀerence in population density ceiling values and average, being respectively (in inhab/km2): 7.358,6 (Amadora), 5,1 (Alcoutim) and 114,66 (average); followed by the distribution of municipalities covered by each interval, which are shown in parenthesis (INE, 2011, Census). Hence, a clear trend towards rural migration to urban/ suburban zones, usually implying a shift from inland to coastal areas, is displayed. The territorial distribution of municipal participation in corporatized entities, missing the minor iPPPs, are illustrated in Figure 3.5 and 3.6. The municipalities hold equity in numerous entities, being appropriately spread throughout the territory. Besides, there is a slight trend for their existence to be supported on a complementary basis, meaning that the nonexistence of some, support the existence of others; which is clear when searching for the non-occurrence of municipal participation in minor local equity PuPs, there is a considerable municipal presence in SEL entities. From the seldom gathering of a high level municipal participation observed, there is a particular case covering Boticas, Chaves, Montalegre, Ribeira da Pena, Valpa¸cos and Vila Pouca de Aguiar municipalities.

6The Portugal’s population density average is 114,6 inhab/km2, however for Portugal mainland alone it stands on 112,8 inhab/km2 (INE, 2011). 39

Due to their ownership of renewable energy production related services provider - EHATB, Empreendimentos Hidroel´ectricosdo Alto Tˆamegae Barroso, EIM - that holds several subsidiaries and shares in other entities, those municipalities enjoy a misleading high level of “presences” in corporatized entities, since they are virtually all related to energy production.

3.4 Regulatory framework employed in Portugal

In this section, the Portuguese regulatory framework and the political environment will be further analysed. Generally, the entities providing SGEIs are ruled by the national Court of Auditors and also by a sector-specific regulator, those sectors enjoying such regulators are highlighted in Table 2.16. Fur- thermore, their creation does not follow a specific reform programme or model (even if many followed the guidelines of the European Community and international influence), but, rather, is the result of individual ministerial initiatives (Rocha & Araújo,2006). The opening to competition of electricity and gas markets is intimately connected with the creation and evolution of the independent regulatory agency ERSE (Endidade Reguladora dos Servi¸cosEnergéticos). Hence, ERSE is responsible for the regulation of those markets, the protection of the rights and interests of consumers (price issues), services and the quality of services, monitoring compliance with public service obligations, to implement liberalisation in the energy sectors and other legal obligations as seen in chapter 2.7. The activity of the Portuguese independent regulatory agency for telecommunications and postal services, ANACOM (Autoridade Nacional de Comunica¸cões),is associated firstly with the structural reform of the postal sector, and then with the separation of regulatory and operational functions. ANACOM’s main key functions and powers are, monitoring the provision of universal service, including quality of service standards and price control, issue of licences and ensuring compliance with their requirements. ERSAR (Entidade Reguladora dos Servi¸cosde Aguas´ e Res´ıduos)is the national regulatory agency in charge of regulating the services related to water supply, wastewater and waste management. This IRA (previously known as IRAR) developed from a recent reform in both its statutes and regulatory model, turning it into a stronger regulator (although still bearing a modest coercive power), upholding its status as an innovative step in Europe, due to its wide intervention in the sector structural regulation, the regulation of operators’ behaviour and other additional regulatory activities, further described in Appendix O (ERSAR, 2010d). The supervision of quality, in addition to the economic regulation, brought undoubtedly great improvements; that quality supervision is based on performance indicators for each operator, on its comparison and on the public display of such results (sunshine regulation). This approach has led to good outcomes by fostering the improvement of performance in the whole sector, by imposing a poor performance “embarrass- ment” into the operators ensuing them to take efforts in correcting those deviations (Marques & Simões, 2008). Thus, this process seeks to consolidate a true culture of concise, reliable and easily interpretable information for all. Finally, there are other national sectoral regulatory agencies (e.g. air transport, railway transport, roads, construction, health and broadcasting), however AdC (Autoridade da Concorrência)which is the independent and financially autonomous competition authority needs to be highlighted. AdC enjoys powers on competition over all sectors of the Portuguese economy, including the regulated sectors, the latter in 40

coordination with the relevant sector regulators. Its mission is to ensure in Portugal, the compliance with national and EU competition laws, efficient working of the markets for all products and services, a high level of technical progress and the pursuance of the greatest benefit for consumers. However, even if the regulatory framework seems to assist externalization in some sectors (by assuring a reliable delivery), the national financial situation might impose some obstacles, however, so far those obstacles led to multiple needed renegotiation procedures (as the EP - Estradas de Portugal - situation with roadways concessions - [3], 2012) enabling further incentives to consolidate the entrepreneurial public sector. Portugal requested financial assistance on the 7th of April 2011. The programme for the period 2011-2014 - formally endorsed by the Commission on the 10th of May 2011 - contains measures to promote growth and jobs, fiscal measures to reduce the public debt and deficit, and measures to ensure the stability of the country’s financial sector. The agreement has been finally adopted on the 17th of May 2011 at the Eurogroup/ ECOFIN meeting in Brussels. The Memorandum of Understanding and the Loan Agreement have been signed thereafter - covering the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB) - (DG-ECFIN, 2011). Here on, this situation will be addressed as the “Union financial assistance”. The abovementioned information on regulators and their attachment to legal references, was mainly found on their web sites, as shown in Appendix L.

3.5 SWOT analysis covering the most signiﬁcant governance models

Since the governance models landscape has been characterized, it is important to shape a scenario analysis at strategic level, evaluating significant features so as to understand the viability of those models in providing local infrastructure services. Thus, the SWOT analysis, due to its plainness and flexibility in organizing the information from a logical point of view, is a useful tool to understand, exhibit, discuss and support decision making. Inter alia, this mnemonic in accordance to the Law of Incompatibility enlightens complex situations and goes beyond a simple pros and cons analysis (Emblemsv˚ag& Kjølstad, 2002). The SWOT methodology identifies the fundamental elements to an organizations’ management (Houben et al., 1999) by relating components, both external and internal, fundamental to the organization (Freire, 2004), distinguishing between its intrinsic characteristics, and the ones of the market or the surrounding environment (Taleai et al., 2009). The influential factors are identified and organized in a matrix, making a clear distinction between those internal - strengths and weaknesses - and external to the organization - threats and opportunities. This matrix also points out the factors that can either benefit or harm the organizations’ objectives. A predominant number of negative elements reflect the inviability of the organization or its incapability of achieving objectives, a predominant number of positive factors implies the opposite. One must add that an organization should be able to convert situations that seem adverse into opportunities, “Threats are always potential Opportunities” (Freire, 2004, p.143). The recognition of an organization’s strengths and weaknesses supports the identification of components that give an advantage over its competitors and should sustain its strategy, or be placed as disadvantages and should, in that case, be improved. Regarding threats and opportunities, one must identify the ones 41

capable of aﬀecting the business, by analyzing competitors’ behavior and the market evolution in order to recognize both threats and major situations of risk or, on the other hand, favorable situations and unmissable opportunities (Strategor, 1995).

One must also point out the fact that this should be a permanent and constant analysis in order to beneﬁt the most, or be the less penalized, by anticipating mutation situations.

3.5.1 Objective

In a SWOT analysis is paramount to clearly identify the objective, since it shapes the process and allows to determine the purpose of such evaluation and its implications.

Nevertheless, as mentioned by Cruz & Marques (2010) each enterprise or governance model itself will have its own SWOT matrix, that is, the mission and the objectives of every single entity constrain the analysis to be made, as conclusions depend on assumptions prescribed. As an example, a speciﬁc feature, can be either a weakness to a particular objective and a strength to a distinct one. Hence, to cope with this adverse situation of dissimilar entities providing in diversiﬁed sectors, the analysis will focus on the institutional models, highlighting general aspects and cross-cutting factors, although when appropriate, particular amendments will be made mainly in local IS since they are the proxy of this analysis.

The objective is therefore to “identify the key advantages and disadvantages, creating a comparison perspective, of these institutional governance models”, allowing the decision makers to obtain strategic decision support.

3.5.2 External and internal analysis

In an external analysis, Cruz & Marques (2010) point out the need to identify the opportunities and threats outbreaks that the surrounding environment provides, along the strengths and the weaknesses that those institutional models bear (internal environment) so as to cope with those external environment appeals, defining the entity itself on that given moment. In previous chapters, that mentioned scenario was explained to elucidate how the delivery of such services can be differently established to achieve the desired requirements, bearing in mind that different organization models require distinct types of intervention from diversified “players” to reach the aimed objectives. This means that all the models must abide by some constraints, that range from organizational design to the activity itself, being the institutional environment usually characterized by little entrepreneurial competitiveness. Furthermore, due to some actors interplay, specific sectors are regulated (although regulation and monitoring depend on the environment itself). Hence, the external environment might, at the same time, favor some models and induce them great behavior restrictions (undoubtedly in different ways to each model).

Conventionally, this kind of analysis is built upon several external factors. The economic and demographic ones exert an influence on all entities (even if on a different grade, GDP and inflation rate fluctuations, birth/ mortality/ migration rates and demographic aspects) are, in Portugal, generally worse to entities located on the countryside, as seen in chapter 3.3.2. This asymmetric reality in several Portuguese municipalities (v.g. size and population), might demand distinct means to provide the same service. Rural migration is, naturally, a threat to the entities established in such places. Still, a developed “SGI network” could be a weapon to fight this trend. Likewise, technological factors (e.g. skilled workforce and accessibility to new 42

technologies) follow the same trend as the economic and demographic ones, nevertheless these rural markets7 (related to those areas) can be seen as an opportunity to certain models, instead of a threat. Politico-legal and socio-cultural factors (such as, the social objective boundaries, management rules, supervision and regulation, liquidation and purpose thereof) are generally provided in the national law, above mentioned in chapter 3.2, which compels those entities into a diﬃcult equilibrium between entrepreneurial vision, social concerns and public-service obligations. The new public sector trends, in performance assessment, should be acknowledged as a continuous improvement opportunity for all entities, regardless the inherent entity’s model. Indeed, facing an escalating scarcity of resources, the required performance must be in line with full cost recovery, related to service production and delivery (Stumm, 1997). This possibility to entail new public procurement models, might ensure better response mechanisms to public markets, achieving quicker and more transparent systems. However, Rodrigues et al. (2009) underline “the resistance of Portuguese local governments to implement NPM reforms as a fad”, and when they do, the same essay indicates that “service characteristics are the dominant factors in externalization decisions”. Additionally, the external environment faces potential changes (e.g. new markets, performance assessments), which due to several complex interdependencies highlighted in Figure 2.2 and rationalized in Table 2.6, might draw out the urge to diversify in order to improve resources (e.g. capital and human resources). Those demands point out the need to be aware if those governance models enjoy the required features (internal environment) to handle those “shifts”, facing threats and taking advantage of the opportunities. Hence, is becoming clearly evident that both external and internal environment require a continuous monitoring. It is precisely over the governance models inherent characteristics that this analysis lies, taking into consideration speciﬁc structural and functional details.

3.5.3 SWOT matrices and conclusions

In this step, the main distinguishing characteristics of the mentioned models are presented, being split in accordance with the SWOT analysis method, and are proceeded by a comparison between those models. It is also important to highlight that those matrices were not built exclusively from either the managers, owners or investors point of view. The goal is to consider the situation as a whole, from the society point of view, in the management of public budget. Therefore, the features presented in Table 3.6, epitomize “the key factors for success” (Freire, 2004, p.143). The presented items hold a different range in their application, meaning that depending on the formatting set, the item can define various models or just the one where it remains; such rules are: 1. the “usual” font type means that the item identically describes the next model, unless those models are split by a line; 2. the underlined features only describe the model where they are filled in; 3. and the “sanserif” font type jointly with a * at the beginning, render all the models below with that same characteristic. Furthermore, some points will be explained and conclusions will be drafted. These models carry intrinsic characteristics as described in chapter 2.5, being interesting to stress out the existing “trade-offs”. At the end of that chapter some of those features are outlined, connoting that 7The emerging rural markets (e.g. organic farming, rural tourism and renewable energies) will require the ability to innovate and exploit these clusters. 43

Table 3.6: SWOT analysis for diﬀerent ownership and governance models in Portugal

Strengths Weaknesses Opportunities Threats Lack of incentives for continuous improvement Bigger size municipalities Limitations to innovate Increase in competencies Poor info management Social concerns (justice, Instability due to High political inﬂuence Smaller size equity and public electoral cycles Municipal Bureaucratic obstacles municipalities interest) Budgetary constraints in dept. and legal restrictions Synergies between Municipal resources - the municipalities Accountability/ Mixed municipal services synergies Trend to liberalize/ cost management marketize some sectors Resources and budget Competitive environment allocation Staﬀ management

Municipal Financial and *Culture in performance autonms. administrative autonomy Human resources costs evaluation service Know how (expertise)

Incentives for continuous Reputation facing public Know How (expertise) improvement *Managerial discretion in opinion Economic sustainability Competitive environment administrative decisions Dependency from *Increase in competencies *Flexible financial and Instability due to municipal subsidies *Directives towards electoral cycles personnel management Ability to innovate regulation/ monitoring Municipal EU initiatives/ policies *Business - like culture Organizational *Need to change the enterprise Entrapment between principles redundancy/ duplication “status quo” (EEM) Information management competition and public Political influence *Emerging markets service Social concerns Financial constraints Hostility against pure Ease in the contractual *National trend due to inferring qualified staff capitalist cultures financial assistance arrangement recruitment Possibility to review or Budgetary constraints in Undefined labor the municipalities terminate the contract contracts

*Budgetary constraints in the municipalities Shareholders profit Avoid public expenditure Municipal Capability to “redeem” and legal limitations Market effects/ company Flexible society control assets and services Trend towards imperfections (EM + Incentives for Probable renegotiation privatization Local political resistance possible performance standards Contract preparation Trend to liberalize/ Bid evaluation process private *Capacity to innovate costs marketize some sectors *Adopted as financial tool partner) Agent opportunism Risk sharing concept Risk allocation *Infrastructure investments needs Social concerns Stakeholders security Know How Financial costs due to Hostility against pure Reputation as a (e.g. corporate expertise) higher loan taxes capitalist cultures cPPPs governance model Economic performance Lack of transparency and Public management Political freedom Mechanism flexibility asymmetric information models efficiency Contract monitoring costs Social concerns Information management Organizational Need to improve the New management model Know how (expertise) redundancy/ duplication intermunicipal model without clear outcomes PuPs Ease in the contractual Economic sustainability Need to foster active Strong trend towards arrangement Efficiency promotion co-operation privatization Possibility to review or Risk allocation Fund allocation Competitive environment terminate the contract

the structure of utility industry should: be consistent with underlying economic theory; be informed by relevant econometric studies; and be consistent with the evidence available from actual reform in that industry and other closely related sectors. The current situation, as mentioned in chapter 3.4, due to the Loan Agreement preceded by its Memorandum of Understanding, is proﬁled by a restrain at the national 44

level in resorting to external providers for service delivery. Besides, it is worsened in few cases by a poor reputation among the citizens on account of information revealed in Portugal (2011) and the average lack of competitive environment facing those entities. Despite that setting, the municipalities are sill facing higher budget restrictions, raises in municipal attributions, the worldwide trend to liberalize/marketize some sectors jointly with increasing regulation and monitoring directives, might favor externalization. Hence, one may wonder whether current business models are up to the challenges they face. Those range from the massive flows of additional finance needed to further extend infrastructure (to reach new segments of population, or to achieve more stringent health and environment standards), to the enhancement of existing assets maintenance and the ability to gather alternative technologies that may generate innovative approaches (Andrieu, 2007). Another important regard is that the comparative analysis of financial costs of capital invested, personnel, and property costs (production costs) is not enough to justify the choice for one of the alternatives to deliver public services (Tavares & Camões,2005). The costs associated with negotiating, monitoring, and enforcing contracts must also be considered, as transaction costs, in the analysis of alternative forms of production (Brown & Potoski, 2003). Additionally, these transaction costs result from bounded rationality and agent opportunism8 and, in accordance with chapter 2.5, vary according to asset specificity, service measurability, and the frequency of transactions (Williamson, 2010); which are significant in infrastructure services. The municipal department’s most important strengths are related to the stable and secure ownership by the municipality, good knowledge of day-to-day operations, and knowledge related to local politics and residents’ concerns, obtaining a strong social performance. Other strengths lie in possible synergies with other municipal departments, mainly in saves with “general” staff. The weaknesses include bureaucracy, lengthy and poor decision making, political interference9, contracts with direct labor workforce or external suppliers arise limited flexibility to change the traditional systems (characterized by lack of innovation “no drivers for change” and growth “inability to innovate”) that were established and a general lack of understanding of, and limited use of, asset management tools. In addition, there is a lack of transparency and accountability that may endanger sustainable development and maintenance of infrastructure networks and services, since cost management and accountability remain important traits for underlying economic theory needed features. The municipalities have the opportunity to create synergies, entailing some local attributions, as in maintenance of public parks and graveyards, the control of pollution or road works are examples of services the market fails to produce in efficient quantities and, therefore, become local government responsibility. Also, in small municipalities where the complexity of internal organization is “restricted”, the municipal department might be a reasonable solution in service delivery (e.g. in unbundled sectors as retail providers, however doubtful). The main threats are the continued municipal backlogs, insufficient annual budgets sharpened by higher budgetary constraints and increasing local competencies (leading to underinvestment10), short-sighted and

8Possible principal-agent relationship theory, between council and administrative ranks or external providers might exist; e.g. for a discretionary budget, on the former, or contract renegotiation features, on the later (Tavares & Cam˜oes,2005). 9The mayor is politically and directly responsible for the eﬀective satisfaction of citizen needs which might incur in over- zealous authorities and/ or personal interest situations. 10Underinvestment undermines the network’s robustness and makes it more vulnerable to future disruptions (Andrieu, 2007). 45

slow (bureaucratic) political decision making jointly with an inability to respond timely to societal changes being always subservient to the electoral cycles and not the needed infrastructure life cycle approach. Fur- thermore, a municipal growth in size and therefore in hierarchical organization complexity, turns this model a potentially problematic one.

The municipal autonomous service model is quite similar to the municipal department, however regarding its strengths, it enjoys diﬀerent accountability and bill management “leading” to a better allocation of costs and revenues. Also the deployment of distinctive human resources allow for a specialization of expertise, introducing a fresh administrative and accountability independence, however it poses some weaknesses by leading to added costs.

The opportunities cover possible efficiency gains due to a new culture in performance evaluation (as the system developed by ERSAR, which is fulfilling a notable endeavor in its respective sectors). Other opportunities and main threats resemble those of the previous model, although theoretically, the trade- off between extra human resources for a relative increase in transparency and accountability add better possibilities to exploit the identical opportunities and to counter the similar threats.

The municipal enterprise model (EEM and EEIM) offers business entrepreneurial practices into the public ownership structure by means of a corporatized entity, although still abiding by a public law legal status. This model offers, in theory, better management accountability, cost accountability, efficiency, better practices in management and administration, improved transparency and know-how while keeping a strong social performance in justice, equity and public interest. Being this model, usually, an evolution from a precedent provider (e.g. in-house) or a holder of staff previously connected to those activities, jointly with its easier procedures to recruit new qualified workforce, supply this model with the possibility to get enhanced expertise. In addition, since the municipality is both the entity’s owner and the “principal”, there is a swift contractual arrangement, review and termination to counteract performance or conjuncture changes.

Regarding the weaknesses, the first is intimately attached to the mentioned human resources management since they, usually, employ both: ex-municipal workers that kept their labor contracts (e.g. benefits mainly awarded based on seniority and not on performance), jointly with employees holding a different remuneration system (e.g. “private law” based), which might lead to unfair situations and lack of motivation, worsened by the transfer disproportionated costs. Additionally, the recruitment of needed qualified staff is restricted when the entity goes through financial problems.

This model still enjoys relevant political influence (local government superintendence powers allow them a control similar to the one obtained with “autonomous” in-house providers) that grows bigger with a weak financial situation, blurring the boundary between both models (Tavares & Camões,2005). Furthermore, these entities and the municipalities, consistently share many competences/ duties, being this model usually used as a tool to reach certain objectives, as those related with the fulfilment of electoral programmes and municipalities’ plan of activities, resulting in organizational redundancy or duplication. Other weaknesses are the lack of innovation (and ability to), sustainability of revenues and economic profitability, which are highlighted in ISEG (2011) stating that 42,8% and 31% of all local enterprise sector entities, present respectively, negative GVA and EBITDA. Additionally, the same report shows the existence of a strong dependency from operating subsidies granted by the municipalities; and a strong weight of supplies, services 46

from third parties and staﬀ in the cost structure (73%). However, the weak economic performance, in these circumstances (local IS), might not really be connected to the balance sheets’ consistency, since those entities can be proﬁtable as they are SGEIs (e.g. water supply); but with a negative “variation of productivity” and a provision of “productivity results” below those of other models, as concessionary companies and municipal autonomous services (Cruz, 2008).

The main opportunities for this model arise from the hostility against pure capitalist cultures, emerging markets and the need to improve most of the actual in-house providers, in order to exploit intermunicipal partnerships, economies of scale and scope, to boost competitiveness and overall economic performance reaching more efficient and effective systems (in order to change the “status quo”). Likewise, the new culture in performance evaluation, that may lead to increased efficiency, and cited features that favor externalization, stand as opportunities.

The particular (not mentioned yet) threats facing this model, are the entrapment in the process between competition and public service, also as mentioned in chapter 3.4, due to the Union ﬁnancial assistance, the national trend in the adoption of these models has restrained, being nonetheless an opportunity to consolidate the entrepreneurial sector. It should be highlighted that originally many believed that this model could be sustainable over a long period, but the EU initiatives have foiled that approach and can be now considered as an intermittent, although valuable phase to increase eﬃciency prior to being restructured as a private law legal status company.

The municipal company model (EM and EIM) is, essentially, the business entrepreneurial model that can be truly competitive by inferring practices similar to private companies, conveying the “need” (when applicable) to be self sufficient from revenues. This model can entail several, business entities, organizational forms (e.g. limited liability - sociedade por quotas - and joint stock - sociedada anónima- companies), which allow a flexible society control, being therefore possible adjustable partnerships to achieve the desired economic objectives while keeping a suitable social performance (inherent to IS obligations). Such inception from the business model and market oriented approach, renders a flexibility and freedom of decision making to pursue optimum management, administration, operational efficiency, transparency and financial responsibility. This includes a knowledgeable staff (existence of adequate expertise) and managing the organization like a business and not as a bureaucracy. The former is achieved by a higher flexibility in, both recruiting more qualified workforce and general staff management, being related to a private law legal status commitment in an appropriate employment system to local IS workers; e.g. working time from 35 to 40 or 42,5 hours/ week with possible performance benefits (Portugal, 2011).

The weaknesses are associated with those of the public law legal status version as, the organizational redundancy or duplication, a poor economic sustainability (for better insight into economic performance ratios see ISEG, 2011). Additionally, the same report also shows the existence of a strong dependency from operating subsidies and a strong weight of supplies, services from third parties and staﬀ in the cost structure. Nonetheless, strictly speaking on local IS providers, as well as in the previous model, it might be concerned with a negative “variation of productivity” instead of proﬁtability, as they are SGEIs (e.g. water supply).

Several of this model opportunities are related to its freedom to operate in the markets, expand business when advantageous, purchase/ sell companies and assets or portions of the business activity, and customer 47

market orientation. It is also possible to exploit partnerships and joint ventures (with public and private partners) taking reasonable risks, provided they are approved by the board.

This model main threats are also linked with the national ﬁnancial assistance, bestowing the same national trend leading to a restrain in the adoption of these models, being nevertheless an opportunity to consolidate the entrepreneurial sector. In accordance with Rodrigues et al. (2009), depending on local government’s stability, a higher political resistance might develop, being also considered as a threat.

For those possible partnerships between public and private partners. The private partner participation is, usually, justified by a desirable efficiency increase in public resources usefulness jointly with qualitative and quantitative improvements. These objectives are achievable due to high requirements of financial, technical and resource management expertise, along with the maintenance of general sustainability conditions during the contract life cycle, trying to think broadly, import new ideas, to raise funding from external sources, and to innovate. Thus, it allows to optimize processes, operations and management, granting a feasible opportunity to explore economies of scale and scope. The weaknesses this partnership entails are the contract preparation costs along possible agent opportunism, further contract renegotiation or termination, difficult risk allocation and possible shareholders profit-seeking attitude.

This model, when connected with a private partner, entails a possibility to the existing municipal budgetary constraints allowing to avoid public expenditure and to support infrastructure needed investments. Therefore, there is a worldwide trend supporting further private participation, which can improve with additional risk sharing knowledge in attempting to assign the respective risk to the contractual party that is best able to mitigate or to bear it (Andrieu, 2007; Marques & Berg, 2011b). Besides, due to the contract nature, the growth in relationship between actors will be reﬂected in savings from public tenders. However, for these partnerships to ﬂourish, their launch (e.g. bid evaluation) and contract need to foresee a clear setting of objectives and desired outcomes allowing for an adequate share of responsibilities, as well as the development of comparison studies that outshine the prevailing advantages to other possible models, presenting to the private partners an adequate remuneration in accordance to the investments done and risk incurred.

Per contra, reality deems it different, since usually there is an agent opportunism with alarming consequences in negotiating, monitoring, and enforcing contracts; also the financing and needed investments are subjective sometimes revealing a permeability to nepotism. There are also the social resistance to private intervention in some sectors and latent market imperfections, namely the number of bidders and possible dominance of the market, raising the probability of collusive behavior. The fact that this models can be utilised more as a financial tool than as a form of public procurement, might harm their performance (Mar- ques & Berg, 2011a). Therefore, as Vining & Boardman (2008) state, companies that are jointly owned by private and public (governments) shareholders can lead to the worst of both worlds, achieving neither high profitability nor worthwhile social goals.

Although, when the municipality does not hold dominant inﬂuence, the private strengths and weaknesses are extended, being the relationship with external environment modiﬁed. Even if the strong trend towards privatization (due to liberalization and marketization in some sectors) and the intrasociety control, relating the “activity” development (direct regulation) and management decisions that can be achieved in concessions or transitory acts, due to the existence of a minority share belonging to a public entity; the threats it faces 48

are considerable. Those go from a weak reputation in public opinion, to the point that public minority participations must be, either exceptional or transitory, in light with the subsidiary principle, the prosecution of the public interest and the private initiative freedom (Rodrigues, 2004). In the concessionary company model the situation is similar to the previous one, however the gain from the mechanism flexibility, which emerges due to the possibility to make an agreement as specific as required11, leads to numerous weaknesses. Those are the specificity of the contract features, as in quality standards leading to an usual anemic social performance; higher monitoring costs due to a greater incidence of asymmetric information inherent to the actors dissociation (for a consummate study of these PPP contract approaches - iPPP and cPPP - see Marques & Berg, 2011a). The opportunities particularly related to this model are the political freedom to prosecute service provision and the reputation it enjoys among stakeholders. As for the threats, there is the hostility against pure capitalist cultures in some sectors and the increase in public management models efficiency, that jointly with possible contract issues in design and incompleteness, may lead to reduced usage. In the Public-Public Partnerships model (PuPs) the strengths are the proper joint venture/ partnership between central/ local authorities and the contract itself. That partnership translates a possible way to improve sector policies follow up, to gather specialized expertise (e.g. partnership with national champions) which might also standardize service delivery quality (assisting existing regulators). The information management and inherent transparency are valuable strengths to this model. The weaknesses inherent to this model depend on the partnership between players, with the premise that to seize the desired economies of scale and scope it is not required actors with different public nature, and that it may create organizational redundancy/ duplication. Further weaknesses may be connected either with the lack of incentives in HR employment structure leading to an adverse efficiency promotion, or with a gross misallocation of risk acquired due to tariff policies used (when applicable). It is nonetheless relevant to analyse such entities as performed in chapter 4.3, to clearly understand the extent of those entities in achieving desired results. The existing opportunities are again related to the relationship between the different levels of government, actually Stevens & Schieb (2007) highlight the urge for governments to take the lead in fostering active co-operation and constructive interaction among national, regional and local governments in infrastructure planning and operation. That same interaction is required in the design and implementation of projects to improve the reliability of infrastructures which depends to a large extent on their geographical interconnectedness. Furthermore, the requirement to prosecute sector trends and policies, is strengthened by the need to develop mechanisms to allow lower levels of government to tap into funds, at national and community level, to finance local infrastructure projects. The threats are related to the actual need to perform an entrepreneurial entity to achieve those ends, which is endorsed by the lack of knowledge, in some sectors, in their suitability to reach them. The “Parque

11This ﬂexibility renders the concession model suitable to situations in which more general and vaguely deﬁned regulatory approaches would deter investors. And they can be tailored to allocate risks in a variety of ways to give investors the comfort they need to venture their capital (Guislain & Kerf, 1996). 49

EXPO 98, S.A.” was one of such cases, where the mentioned entity exceeded its objectives starting to produce, not only, a considerable debt, but also, a probable organizational redundancy and duplication inherent to the transfer of municipal duties - e.g. garden cleansing and waste complementary services ([2], 2011). In addition, connected with the previous entity were the Polis programme embryonic “partnerships”, which in their urban renewal objectives, raised programme’s design and coverage issues, along real estate development problems (Queirós& Vale, 2005). Nevertheless, the entities with clear objectives and purpose (as local IS providers) are not really prone to such ends. The probable national privatizations promoted in the MoU cited in chapter 3.4, convey a threatening environment to the conceived (or conceivable) partnerships. Further threats are the fact that this model is still not sufficiently analyzed, and its usage significantly recent without clear outcomes when compared with other models. Finally, being the various governance models analysed, it is relevant to compare them according to some specific features in order to easily identify the ones that stand out the most. In Table 3.7 such comparison is developed using a qualitative signal range to address those classifications.

Table 3.7: Governance models comparison, based on speciﬁc features

Municipal Features EEMs EMs mixed EMs (PPPs) Concessionary PuPs autonomous services companies Know-how ++ ++ ++ ++ ++ ++ Economic performance – – – – ++ + Social concerns + + + + – + Information management – ++ ++ ++ + ++ Freedom regarding local –– – – + ++ + political parties Business-like operations – + + + ++ + Public Perception + – – – + – Security to stakeholders + + + + – + Ability to innovate – – – + + + Ease in the contractual ++ ++ ++ – –– + arrangement

Ability to redeem assets ++ ++ ++ – –– + and services Low attractiveness to + – – – + + corrupt/ illicit behavior

Ability to avoid – + + ++ ++ ++ underinvestment Staﬀ management –– – + ++ ++ + Low attractiveness to ++ –– – + + – duplication/ redundancy Interpretation: (– –)- Very weak; (–)- Weak; (+)- Strong and (++)- Very Strong.

This way, the models’ characteristics are highlighted, so as to allow decision makers to easily perceive which model has the “right” features to endorse their objectives, since those characteristics do not present the same weight to each local decision maker. Nonetheless, depending on business size and nature, demography and geography, among other factors, the most adequate model might change. Indeed, it would be foolish to apply the same model and approach 50

to services as distinct as these. While each model faces different maturity challenges, they are required to be appropriate to the context and conditions of each service. If a municipal autonomous service reacts sufficiently to a service demands, the adoption of a concession company model (for example) could end in overdesign. Therefore, even provided that a, whole scenario, strategic analysis presents boundless relevance, each case needs to be addressed in detail where every possibility should be covered. Thus, as seen with this SWOT analysis, one can argue that some major problems of local utilities are neither technical nor solved by developments in science and engineering. But accordingly to Marques & Berg (2011b) rather, when applicable: contract design, institutional incentives, interagency collaboration, benchmarking, and management information systems. Those represent the high payoff areas for those seeking to improve specific utility sector performance and they can be differently pursued in accordance to the chosen governance model. 51

Chapter 4

Public-Public Partnerships

4.1 Overview

In this chapter, given the previous chapters contribution in bestowing a clear understanding of Public- Public Partnerships environment and their overlay in local infrastructure service delivery, these partnerships will be addressed in detail. Thus, being mainly in the water, wastewater and waste sectors that these partnerships are established, those markets structure will be outlined, so as to perceive and identify key issues associated with this type of models. Hence, and since the concept might be considered vague, a detailed description will be presented to circumvent the cases covered, employing the Portuguese state of the art to attain such objectives. Furthermore, a comprehensive study of such an entity will be developed, paying close attention to contracts and additional documents, such as: partnership and management contracts, statutes of the firm and annual reports (e.g. accountability and sustainability) identified as AdRA (2009a,b,c, 2010, 2011a,b, 2012) and AdP (2012a,b). So as to highlight key issues (e.g. shareholders participation, accountability, transparency, control, tariff setting and risk management) in order to assess main accomplishments and good practices achieved on service delivery. In the end, a “concession type” entity, as one of the most relevant competitor models, will be compared in those same issues, resorting to the same type of data displayed as AdVouga (1996, 2009, 2011a,b,c, 2012).

4.2 Theoretical remarks

The provision of local infrastructure services is inherently related to the continuous appeals to be efficient and innovative; the continuous growth and development of societies in general, together with more and more delivery demands (e.g. better performance and reduced overheads) require the ultimate technological means and more robust management models. Those features stirred, as mentioned in chapter 2, decision makers to diversify service delivery. Furthermore, DCLG (2006) quotes the Rt Hon John Prescott MP: “In recent years, many local authorities have been taking a lead role in creating partnerships which are delivering lasting change. But we all recognise that central and local government - and all our partners - still have more to do in order to overcome disadvantage and improve people’s quality of life. This means finding new ways to work together so that we can deliver even more efficient and effective public services.” The need for continuous improvement, is mutatis mutandis applicable to the Portuguese case. Besides, the existence of pressures linked to achieving greater efficiency, with a continuous emphasis on the use of 52

resources and improved approaches to value for money, ensure that authorities need to look more widely to deliver broader local and national priorities. Meaning that, further impetus into collaboration with partners at local and national levels, bearing the eﬀort required, needs to be taken into account as in the promotion of shared services, to provide the opportunity to reduce waste and ineﬃciency by re-using assets, by sharing investments, by sharing management overheads and other costly resources. Indeed, these partnerships can be built upon multiple purposes (as highlighted in Figure 4.1) and as the concept itself (which may entail several possibilities as seen in Table 2.7) they require a clear description, so as to avoid the pitfall of comparing incomparable entities.

Figure 4.1: Main drivers/ purposes to foster Public-Public Partnerships - PuPs (adapted from Hall et al., 2005)

However, bearing in mind the scope of this research, in which the corporatized collaboration between partners, belonging to different levels, in local IS delivery is the main premise, both the type of partnerships and the purposes are then bounded. Also those purposes, aligned with the object itself, shall be determinant when choosing the partnership’s structure, when there is room for one. Since it should not be assumed that merely because a group of authorities are within the same geographical area (although in local IS that is one of the main drivers) or within the public sector that their aims and objectives will be identical. It is necessary for each of the potential partners to recognise their own needs and priorities, to share them, so as to reach a way of working together that recognises diversity at both the micro and macro level. Although, as advanced elsewhere (chapters: 2.5 and 3.5.3), there are some trends developed to foster those drivers. Indeed, the work that has been undertaken to date does suggest some general characteristics in these industries, usually related to measures to improve productivity and efficiency performance, as: economies of scale and scope, vertical integration and ownership/ role in service provision. Despite not being always consensual, some features can be highlighted. First, there are significant economies of scale in these industries but there is also evidence that at some point these are exhausted and not always possible.1

1Diseconomies of scale are also possible. That is why some water systems are horizontally fragmented. For example, sewer systems in flat terrain are often smaller in area than in sloping terrain because it is more difficult to move water over large distances when the terrain is flat. Discharge to natural watercourses at many rather than a few locations makes more sense, and administrative boundaries tend to impose their boundaries to those of the underground pipe system. Also, small management units may have administrative cost advantages over larger units, especially when systems are simple, neighbours are relatively far away, or they have different management priorities and objectives (Palaniappan et al., 2007). 53

As well, there is some evidence that there are economies of scope between some industries (e.g. water supply and wastewater disposal), but again these vary with the institution’s size. Vertical integration in speciﬁc industries, as in water supply segments, also involves economies that might diﬀer according to size.

Hence, the importance of geographical interconnectedness (across administrative and jurisdictional boundaries) for these services is evident as is the inherent purposes to create these partnerships, namely in expand- ing the scope for pooling and networking of infrastructure resources. In water systems for example, there might be a need to consider broader options as watersheds and river basins. Since watershed management is better suited to water resource planning, security, demand management, infrastructure development and ﬁnancing (Stevens & Schieb, 2007).

A PuP can also be used as a capacity-building instrument, most notably where an established public authority at national level, may help public authorities at local level to improve its staﬀ and its service delivery, by disseminating good practices gathered. The Portuguese national company AdP-Aguas´ de Por- tugal, being the major shareholder in all PuP entities related with cluster A in Figure 3.4, convey into those partnerships important working codes that also cover this purpose (AdP, 2012b). Notwithstanding that the creation of those entities was purportedly driven by further, above mentioned, purposes covered in law decrees, as pragmatically, these entities are a feasible way to the embodiment of sector trends and policies, along an easier access to EU and national funds.

Foster accountability and removing service delivery from direct political control is a consummate trend in IS sectors (Andrieu, 2007). Improving public involvement and transparency in decision making are key drivers in IS, experience has identiﬁed the key role that public involvement and transparency play in the success and sustainability of utility sector projects. In decades of working on global problems, development professionals have learned that social, economic, and political factors are just as important as technological factors and must be considered since the beginning of any potential project (Stevens & Schieb, 2007).

When decisions in IS sectors are not adequately disclosed or publicly voted, controversy can develop around the resulting projects. Palaniappan et al. (2007) state that when the public does not have access to documents, information or decisions being made about the resources (e.g. water) upon which they depend, they may perceive that these decisions are not in their best interests, that government or the respective partners are hiding potential problems or flaws in a project, or that these decisions are the result of corruption or bribery. In fact, both theoretical and empirical evidence points to the fact that transparency and external accountability in the workings of government can reduce bribery and corruption (Kaufmann, 2002). Additionally, affordability is an important dimension of the policy discussion that is different than willingness-to-pay. While cost recovery via rate increases may be crucial for the sustainable operation of infrastructure utilities, it can force the poor to pay more than they can afford for essential services. An economic willingness to pay does not imply that the payment is affordable or socially desirable.

Those drivers of accountability and participation may include a range of more speciﬁc objectives, such as: better utilisation of knowledge and skills; a greater sense of ownership of services; greater accountability of managers and politicians; improved responsiveness to community and labour needs; overcoming resistance to reforms; greater inclusion of community voice and priorities in decision making; strengthened leadership, planning and co-ordination in service provision; greater trust between providers, clients, communities and 54

financers of services, and; strengthened capacities for public interest regulation. A PuP may have additional objectives, therefore, any analysis and evaluation of PuPs needs to refer to the objectives of different interest groups, and not necessarily restrict itself to the stated objectives of the initiator. PuPs may also be used to advance business expansion more generally, for example through PPPs, or as part of private-sector-oriented economic development, in order to leverage specific projects (e.g. joint procurement procedures). Much depends on the political forces operating at the time. Indeed, PuPs may pave the way for wider scale privatisation or may in themselves be an important alternative (DCLG, 2006). In Portugal, these “leverage drivers” may be connected with some transport sector PuPs, featured by cluster B in Figure 3.4, one of such, is the entity accountable for the Porto’s metropolitan tram, called “Metro do Porto, S.A.”. As the partnership was built to leverage the creation of procurement procedures, those concession projects are established for operation management purposes, having already been created a number of them ([6], 2011). Furthermore, for a complete listing of PuP entities, see Appendix N.

4.3 Case study

In this section, a PuP entity delivering local IS was chosen to be studied in order to fulfil the desired analysis. Thus, due to the importance of this model (PuPS) in the Portuguese water sector, and the attempt to apply it to infrastructures owned by local authorities, the company Aguas´ da Regiãode Aveiro, SA (AdRA) arises as the best opportunity, by being the first PuP company to be created to deliver retail local IS, being still in an “embryonic stage” of implementation. This study will be developed under the lens of: written contracts and further statutes of the firm/ articles of association, accountability documents and further plans and reports developed; in order to establish good practices and identify key issues associated with these models in local IS delivery, by focusing both on outputs and outcomes. Nevertheless, prior to the entity’s analysis, the water sector players landscape will be outlined. However, as developed elsewhere (chapter 2.4), the nature of the service might restrict sweeping conclusions. Indeed, the water and wastewater sectors entail “goods” with stronger public characteristics (e.g. social, health and environmental) than those of other sectors. This justifies extensive public scrutiny, not only at the local level, but also at broader “administrative” levels. Additionally, chronic underinvestment may prevail in the water sector, because rates have been kept too low for too long (Palaniappan et al., 2007). The same authors state that, more generally, water management is grossly inefficient. First, some activities (e.g. agriculture) consume far too much water when compared to their contribution to GDP. Moreover, in urban areas a share of available water is wasted because of leaky pipes or is stolen. Furthermore, at the watershed level, water is often polluted upstream with little regard for the need of users downstream2. Finally, the price of water varies considerably across users, suggesting gross misallocations of resources (for further insight check ERSAR, 2010b). Indeed, this is sporadically the case of some Portuguese municipalities3 where in the wastewater sectors (the water supply systems enjoy a different status), the retail systems are - ceteris paribus - grossly inefficient,

2Untreated wastewater is still regularly dumped today in rivers when it rains because in several systems the storm and sanitary sewers share the same pipes. 3The national situation encompasses a diverse set of realities, with diﬀerent management models and scales, at diﬀerent development stages and with very distinct levels of service (ERSAR, 2010c). 55

suffering from underfinancing and holding low levels of infrastructure network coverage (Marques, 2008). Nevertheless, in Portugal, the overview of those sectors shows a positive evolution (ERSAR, 2010d). Bearing those developments, municipalities need to consider them carefully, since too high ambitions may cause overly high costs, that might be misunderstood, with an incomplete public debate, on necessity and added value of the project. These are key bottlenecks in infrastructure decision making, and should no longer come as a surprise (Stevens & Schieb, 2007). In these partnerships, different levels of authorities are jointly accountable for service delivery (even if in different parameters), and since the duration of these management contracts are usually long (e.g. often 30 years or, as in the case analysed, it may even reach 50 years), the partners general relationship (in the entity itself and further in the partnership) should grow, on a cooperative basis. Therefore, procedures must be taken so that phases in development do not overlap, and processes do not become opaque. This opaqueness in process can be a weakness if it means that disciplines of good practice are overlooked. Experience has shown that projects do drift when such practices are not in place (DCLG, 2006). Finally, it is important for PuPs that they enjoy characteristics of high performance organisations, and those are: effective staffing, consistently sufficient funding, detailed asset management systems, performance measurements and incentives aligned to organisational objectives, decision processes that are transparent and open to the public, and using an effective planning process that identifies and assesses problems before arriving at solutions. Hence, these characteristics will also be considered in the analysis ahead.

4.3.1 Market structure

Prior to 1993 in Portugal, the water utilities were almost wholly vertically integrated, were managed in an unsustainable way and had difficulties answering the new challenges/ demands that followed the entry to the EU. The Portuguese Government reorganized the sector in 1993 in order to ensure, in a more effectively fashion, universal access to continuous services, guarantee a high quality of service (e.g. water quality), ensure affordable prices and promote environmental sustainability. Hence, some reforms took place with important goals. One of such goals, was to assign the responsibility for water distribution and wastewater management to the municipalities, assigning to the central Government further investments in bulk activities through the creation of multimunicipal systems to be managed by a business model. Indeed, those models jointly with the establishment of conditions for shared management between municipalities, the state and possible minor private partners, promoted the development of PuP entities upon the creation of a national champion public company, Aguas´ de Portugal - AdP SGPS, SA. Furthermore, indirect management of “municipal” systems (municipally owned), through concessions to private enterprises was also covered (ERSAR, 2010d). The main purpose of the multimunicipal systems creation, was to ensure the implementation of integrated solutions involving several municipalities, especially when the required investments exceeded the technical, financial and management capacity of those municipalities, given the complexity of the environmental situations that needed to be addressed at the “bulk” level. The aim was to exploit economies of scale, covering both investments and operation, reaching positive outcomes in tariffs (Peaasar-ii, 2007). The strategic plan for water and wastewater services (PEAASAR) settled for 2000-2006, fulfilled an essential role in restructuring water supply and wastewater management services, particularly at the systems’ territorial integration level. However, some paramount issues needed to be improved and required a different 56

approach. Therefore, a second plan was published, PEAASAR II, settled for the 2007-2013 period. The strategy outlined entails optimization of environmental performance in the sector, enlightenment of private actors’ role, and a sound framework for sustainable entrepreneurial activity adjusted to the Portuguese reality. The aim is to minimize system inefficiencies and the costs directly supported by the general public. The plan defines a tariff policy reformulation and a revision of the legal and regulatory framework in order to promote efficiency in the sector (Peaasar-ii, 2007). Partnership proposals between the state and municipalities envisage the integration of municipal and multimunicipal systems, with specific regulation for the management of municipal systems (fostering the use of PuPs at the local level), advocating a wider range of institutional solutions available. In addition, it is expected that the multimunicipal concessions’ reorganization, through mergers with neighbouring systems, will allow further economies of scale and scope alongside environmental gains (ERSAR, 2010c). PEAASAR II is primarily focused on those situations arising from the retail systems’ organization, with a particular emphasis on investments concerning the improvement of bulk and retail systems connection, as well as in reducing water losses in the supply system (Peaasar-ii, 2007). Those reforms shaped the environment of water and wastewater sectors, which is now quite complex. Table 4.1 illustrates that reality, highlighting the PuP providers in water and wastewater sectors.

Table 4.1: Portuguese water and wastewater sectors market structure, adapted from ERSAR (2010c)

Services provided System’s Management model Entity Shareholder Water supply Wastewater ownership (s) Bulk Retail Bulk Retail AdSA AdP X X X — AdTMAD PuP X — X — AdAlgarve PuP X — X — AdCentro PuP X — X — AdCA PuP X — X — AdDP PuP X — — — AdMondego PuP X — X — AdNoroeste PuP X — X — Multimunicipal AdNA PuP X — X — State Concessionaire AdOeste PuP X — X — AdZC PuP X — X — Epal (p.h.v.) AdP X X — — Sanest PuP — — X — Simarsul PuP — — X — SimDouro PuP — — X — SimLis PuP — — X — SimRia PuP — — X — SimTejo PuP — — X — Total 30 12 2 16 0 Continued on next page 57

Table 4.1 – PT water and wastewater sectors market structure – Continued from previous page Services provided System’s Management model Entity Shareholder Water supply Wastewater ownership (s) Bulk Retail Bulk Retail Municipal Concessionaire Municipalities AdVouga Aquapor X — — — Total 31 20 26 15 21 EMs and EIMs Municipalities 36 9 23 8 23 Partnership state/ AdRA PuP X X X X Municipalities municipalities AgdA PuP X — X — Total 2 2 1 2 1 Municipal department Municipalities 254 59 188 44 199 Municipal autonomous service Municipalities 24 8 22 4 20

Table 4.1 outlines the number of providers from each model in the water and wastewater sectors, displaying their role in the supply chain, however only the entities covered by the PuP model (or similar) in the water and wastewater sectors were highlighted. From that analysis is clear that, bearing their numbers, the municipal departments are the most appealed models, however paying attention to the population covered, in bulk water services the multimunicipal concessionaires hold a share around 72%. In the retail water services, municipal departments still hold a major quota.

Briefly, Epal although being grouped in the multimunicipal concessionaires, due to historical reasons is a delegation since it is a state-owned company with no concession contract, being directly controlled by the state. As for the others, the systems creation and concession is established by the state under a Decree-Law followed by a concession contract for a maximum period of 50 years, being regulated by D.L. n.195/2009 of August 20th republishing previous decrees. That concession is generally awarded to a PuP company, as seen in Table 4.1. The partnership state/ municipalities goes under distinct principles, as since the “systems” are municipally owned some details need to be taken into account. Therefore the municipalities and the state sign first a partnership contract, creating a single system and transferring the municipalities retail competencies on behalf of the state, setting the basis for the delegation established by a management contract with an entity created for that purpose. Those partnerships are institutionalized by D.L. n.90/2009 of April 9th. From a general point of view, Correia & Marques (2011) state that in horizontal terms many utilities have a reduced degree of integration, and ERSAR (2010c) states that in water supply sector near 38% are vertically integrated (although there are only 28% vertically integrated utilities in the wastewater sector). Concerning the services delivered, the utilities almost always provide water and wastewater services together. They often include urban solid waste services and, less frequently, other activities like transportation. At municipal level, there are a limited number of operators that provide water and wastewater services individually, but in a few multimunicipal concessions, as in wastewater sector, that is probable. Today, almost the entire Portuguese population has access to these services. However, the national situation encompasses a diverse set of realities, with different management models and scales, at different development stages and with very distinct levels of service. Despite the extraordinary evolution in recent years, the current situation regarding the management of water and waste services continues to show some shortcomings in terms of capacity building in this area, in qualified human resources, in tradition and in the search for effectiveness and efficiency (ERSAR, 2010d). These asymmetries are, as above mentioned, one of the main purposes for the creation of PuPs at the local level, being of utmost importance to analyse their performance. 58

4.3.2 Entity’s description

The PuP entity analysed, hereafter addressed as AdRA (Aguas´ da Regiãode Aveiro), was created under a partnership contract, between the central government and several municipalities, signed/ effective as of 29th of July, 2009. These municipalities delegate their local water supply and urban wastewater retail competencies on behalf of the state. That same contract, also assumes the creation of a system consisting on the aggregation of all municipalities’ water supply and urban wastewater previous systems, plus infrastructure and further equipment to be built, into one (designated as SARA the unified system). Those water supply and urban wastewater services are to be managed and operated by AdRA, which is a mixed central/ local joint stock company. The aims of each contract that built this partnership, are illustrated in Figure 4.2.

Figure 4.2: Partnership - AdRA’s management model

Furthermore, that company belongs to the state’s enterprise sector (SEE), since as highlighted in Figure 4.3, the state’s representative AdP - Aguas´ de Portugal - holds dominant influence. Therefore, this partnership and the company in charge of the system’s management (AdRA) enclose eleven partners/ shareholders, consisting on the state (or its representative) and ten municipalities (in 2009 signed nine municipalities, the remainder only signed the contracts nearly one year later). This system’s enlargement triggered a review of the viability studies, in which, namely, the company’s equity was to be raised to 17.5 million euros and the investments plan were also modified, as seen in Appendix P. Briefly, AdRA was created under the scope of D.L. n.90/2009 of April 9th. This way the model:

• by enabling a territorial integration tries to explore economies of scale;

• by enabling water supply and wastewater services integration jointly with their vertical integration (wholesale+retail segments although not everywhere) tries to explore economies of scope;

• by being driven by public interest missions, assures quality, continuity and efficiency of those services; proceeds towards public welfare protection, sectoral financial/ economic sustainability and territorial development. The partnership contract further implies the creation of a partnership commission (PC) that is in charge to defend the inherent shareholders rights. Therefore, this commission is composed of three members, being the first and the second members appointed by the state and the local partners (municipalities) respectively, the third is to be appointed by the previously elected members, or in case of disagreement, by the specific sector IRA - ERSAR. 59

Figure 4.3: Composition of AdRA shareholders at December 31, 2011

As for AdRA’s bodies, the statutes of the ﬁrm/ articles of association (here on, statutes) are the documents that regulate the respective bodies, namely:

• general meetings and respectively elected board, which is composed of a chairman, a vice-chairman and a secretary, being the ﬁrst elected by the local partners;

• board of directors, which is composed of ﬁve members being one considered as the chairman, the chairman and the remainder members of the board are all elected by general meeting4 appointment;

• and a sole supervisor, which is composed of either a chartered accountant or a chartered accountancy ﬁrm, and are also chosen in a general meeting.5

Finally, it is important to mention that the partnership’s lifetime is of 50 years, starting on the management contract’s signature date (23rd of September, 2009). Figure 4.4 highlights the management contract timeline and the period in which this analysis was undertaken (2011, the 1st full operational year), with reference to tariff periods and shareholders’ investments rate of return criteria. They are structured with 2 different periods each and are further examined in chapter 4.3.6. But if the “first” periods have a static turning point, the later does not, since it only changes when the initial investment period is covered (although with a ten year limit), after which the returns are based on a significant updated value of tangible and intangible non-current assets to a given depreciation rate and respective subsidies. Briefly, the management contract, signed after the partnership contract (nearly 2 months), has its foundations set on the later, which also establishes the risks to be borne by partners and the creation of the entity in charge to manage the partnership. Therefore, the management contract is an agreement signed by the partners and AdRA, that contains: the partnership management details; specific objectives to be achieved, for the 1st tariff period those are further shown in Table 4.5; to specify execution deadlines for the main strategic initiatives amongst other objectives

4The statutes include a detail covering special rules of election, applicable when there is a minority against it: a. if that minority accounts for at least 10% of equity shares, they can elect 1 member, and; b. if it reaches 49%, they are able to elect 2. 5The dismissal/ substitution of elected bodies depends on the respective “elector” will, unless by criminal/ civil liabilities incurred against the society. In case of dismissal without just cause, all the costs are duly paid by the picker. 60

Figure 4.4: AdRA’s contract management timeline

specified in Appendix Q. Furthermore, the partnership contract is preceded and justified by economic and financial viability studies. Thus, those studies legitimize the partnership by revealing the advantages of such integration at local and national level. At the end of each tariff period/ subperiod, those studies are reviewed, however it does not require, per se, both partnership and management contracts review. Management contract changes, if significant, can only operate under changes in the partnership contract. Also, whenever the management and operation of the partnership’s system cover other systems (or parts thereof), those municipalities upon their interest can join the partnership. The municipalities are then required (by the partnership contract) to integrate AdRA and as a consequence the SARA system, and to sign both partnership and management contracts addenda. The experience with Ovar highlights the future partners/ shareholders interest in the partnerships enlargement to be considered, and to the awareness of Peaasar ii and D.L. n.90/2009 of April 9th objectives in doing so. Those include the perception to create the most appropriate integration of municipal systems, in order to maximize economies of scale and scope. Upon the contract management’s deadline, the partnership will expire. The transmission of all assets will take place in due conditions, after residual, not yet reinstated, investments have been paid.

4.3.3 The uniﬁed/ single system, SARA

Table 4.1 identifies AdRA as an entity in charge of both retail and bulk services in water and wastewater services, however (mainly in wastewater) the bulk services are largely delivered by a different entity. Briefly, AdRA manages all the retail services and some (where needed, due to the previous situation) bulk services. Therefore in the partnership´s system there are a few providers responsible for water services delivery, as can be seen in Figure 4.5. However, from those municipalities covered by AMCV only 2 are exclusively provided, the others are also supplied by AdRA. The systems general info is outlined in Table 4.2.

Table 4.2: AdRA’s system general info (updated as of 2011)

Description Values Units Description Values Units Water supply Wastewater Total pipe length 3.787 km Total pipe length 1.775 km Groundwater sources 78 nr Wastewater treatment plants 7 nr Surface water sources 5 nr Septic tanks 6 nr Pumping stations for supply 54 nr Syphons 0 nr Water treatment plants 55 nr Pumping stations for sewage 359 nr Reservoirs 89 nr Submarine pipelines 0 nr Water main Connections 112.567 nr Sewer main Connections 80.712 nr Water supply, Wastewater Employees 272 nr Total geographical area 1.455 km2 61

Figure 4.5: SARA - uniﬁed/ single system - and characterization of providers (updated as of 2011)

The bulk water supply systems delivering to the retail systems owned by AdRA are mostly AMCV (Associa¸c˜ao de Munic´ıpiosdo Carvoeiro e Vouga), which is managed under concession by AdVouga - Aguas´ do Vouga - (cPPP), and themselves by own abstraction. Since 2011 with the addition of Ovar, AdDP (Aguas´ do Douro e Paiva) also supplies the SARA retail systems, although bearing a residual amount. Table 4.3 identiﬁes the amounts provided.

Table 4.3: Bulk water providers and water provided (adapted from AdRA, 2012)

2011 2010 Water supplied m3 % m3 % Own abstraction 9.434.759 41,9 6.848.763 52,5 Associa¸c˜aoMunic´ıpiosdo Carvoeiro e Vouga (AMCV) 9.655.419 42,8 6.193.240 47,5 Aguas´ do Douro e Paiva (AdDP) 3.449.694 15,3 0 0,0 Total 22.539.872 — 13.042.003 — Notes: In 2010 there were only 9 municipalities and since it was the ﬁrst operational year, it only accounted for 8 months.

The water distribution services (retail) highlight some important problems. First, the knowledge of the systems themselves is sometimes limited (and borne by municipal employees), as are the system registries. Thus, AdRA is improving the situation by developing a complete geographic information system (GIS) to achieve more eﬃcient networks. Secondly, is the high number of system malfunctions, in 2011, 4555 pipe incidents were repaired, attaining an average of 120 repairs for each 100 km of network. And third, the problem of non revenue water is signiﬁcantly harmful, however AdRA is installing some measurement and control zones to avoid such occurrences. Further, in 2011 AdRA fostered 1234 maintenance interventions, in which 939 were corrective interventions and 62

109 were preventive. Additionally, 186 interventions for improvements, related to inter alia equipment replacement. In the wastewater sytems there are also the knowledge/ registries problem, being relevant to outline the continuous improvement fostered by AdRA. The management of the almost 400 pumping stations is also considered as a demanding situation, requiring an impressive amount of human resources, nonetheless the future establishment of a maintenance management software will improve efficiency. To keep the pipes clean and clear during 2011, took a great effort from AdRA and external entities, as in 1774 km of network, 2061 clearances had to be made. Another problem was the high rate of inflow/ infiltration through improper connections, contributing to the total amount of water delivered to SimRia (only 2% of a total 19.189.000 m3/year of wastewater was treated in plants managed by AdRA) and discharges made due to overflow occurrences. Further, in 2011 AdRA fostered 1995 maintenance interventions, in which 1502 were corrective interventions and 339 were preventive. Additionally, 154 interventions for improvements, related to inter alia equipment replacement.

4.3.4 Who does what

The partnership contract establishes that the water supply and wastewater services are to be delivered by AdRA, in a specified territory, under exclusive environment. Hereby covering conception, project, construction, extension, repair, renewal, maintenance, acquisition of needed infrastructure and equipment (being accountable for those to AdP), operation and provision of those water services. It can provide directly or grant, by means of public procurement, concession contracts covering the management and operation of particular system sections (as defined in the management contract). Although conveying both, the above cited features and the contractual position (held by municipalities) in conception, construction, financing, management, supply and collection contracts related to the management and operation of the system (both retail and bulk services); the gathering of prior debt, related to those contractual situations or possible litigation procedures, was not assumed by AdRA (as declared in contract). In order to perceive AdRA’s management, its bodies are next scrutinized. The general meeting is responsible to:

i. approve the annual report and ﬁnancial statements;

ii. approve the proposed allocation of the company results;

iii. appraise the management and supervision of the company in general;

iv. approve quinquennial ﬁnancial and activity plans, along possible changes;

v. elect the corporate bodies previously speciﬁed;

vi. approve the issue of bonds;

vii. approve the raise of equity;

viii. appoint the corporate bodies remuneration or delegate it to a commission elected6 for that purpose.

Following the trend, the board of directors enjoy the management powers committed by law, the statutes and shareholders resolve. They have to meet, at least, once a month; and the non-executive members have to ﬁle a report notifying the executive members performance. The sole supervisor is responsible for the society’s supervision, which include the following competencies:

i. supervise the management of the company;

ii. monitor compliance with the law and with the company articles of association;

iii. verify the accuracy of books, accounting records and supporting documentation;

6This remuneration commission has 3 members, being 1 elected by the local partners and the others (including the chairman of the commission) by AdP. 63

iv. verify the accuracy of accounting documents;

v. fulﬁll any other duties allocated by law or the company articles of association.

As a rule, whenever the law or more than 5% of the shareholders or the additional bodies require the general meetings will occur. In the 1st meeting, the resolutions are only passed if the shareholders present hold the majority of shares, otherwise a 2nd meeting will have to occur. The situation above mentioned, covering the corporate bodies, might raise problems. Since evidently all the general meetings resolutions, and consequently the board of directors resolutions will be conceived by the partner/s holding the majority of shares, which is in a peerless way, the state’s representative. Hence, the municipalities are left with a residual internal power, based on the relationship’s cooperativeness, that provides guaranteed awareness but little preponderance on those matters. Indeed, from an internal point of view, all the decision making/ resolutions are pragmatically passed based on the AdP choices. However, regarding AdRA’s external control, the partners/ shareholders have a perceived equality in the PC opinions, since the appointment of its members is equally conceived. First, the PC, enforcing the shareholders rights, is responsible for monitoring and supervising AdRA’s activities, checking its compliance with the management contract, enjoying powers of7: supervision, direction, authorization, approval and suspension over AdRA’s activities, being allowed to issue directives and binding instructions jointly with compliance procedures for that purpose. Furthermore, AdRA is obliged to send periodically, or when required, for awareness and pronunciation purposes:

I. infrastructure construction and amendment plans;

II. operation, investment and ﬁnancial annual budgets properly audited by an independent entity;

III. annual reports and accounts properly audited by an independent entity;

IV. updates on the economic and ﬁnancial viability studies;

V. service concessions (e.g. particular system sections) to be awarded (approval is needed);

VI. tariﬀ deviations, when occurring, included in the accounting documents;

VII. quinquennial ﬁnancial, activity and investment plans;

VIII. quinquennial tariﬀ projects;

IX. projects concerning the restoration of economic and ﬁnancial equilibrium of the management contract, identifying the events accountable for it, jointly with evidence supporting it.

The previous requirements do not exclude AdRA from other information liabilities foreseen in the contracts (e.g. information required to check contract compliance and updates on quality of service indicators/ standards). Most of PC’s resolutions are also produced by majority, nonetheless in the worst case scenario the partners have equal powers, being the third member the one who makes the difference; the later is also the chairman of the commission. The only resolutions that require full conformity (unanimity) are the resolutions regarding number V. and service type regulations. Regarding the local partners (municipalities) resolutions, the rule for their definition should be based on consensus, when such definition is not achievable, it shall be accomplished on a voting basis, bearing in mind that each

2 municipality counts for one vote and it is required a 3 majority. The emission of such requirements by AdRA, have diﬀerent deadlines, however they usually have to be sent 30 days beforehand, except type VII. and VIII. requiring 60 days and type IX. requiring 90 days. On the other hand,

7Those powers are enforced without prejudice over those of the respective regulatory entity. 64

if the PC’s answer does not arrive 30 days after its reception, it can be assumed as not required, this is however not applicable to type V. and VI.. Also, AdRA may encumber assets (e.g. infrastructures belonging to the system), if authorized by the PC and accepted by the targeted municipality, which may decide where to apply such earnings (e.g. investments).

4.3.5 Accountability

IPPR (2001) states that accountability is a pre-condition for the legitimate use of public authority. It is the basis on which citizens are willing to delegate power to others to act on their behalf. It underpins government based on consent. Without proper accountability mechanisms organisations delivering services are not subject to democratic oversight and control, the rights of the citizens are uncertain and services are unlikely to reﬂect the needs of service users. Accountability is, therefore, an end as well as means. Indeed, this is accurate for all partnerships, since the governance of partnerships should promote good internal accountability between partners and better external accountability to service users. The fundamentals of establishing eﬀective governance and accountability are to ensure that partners have clarity about partnership roles and responsibilities and have corporate governance arrangements to support partnerships (DCLG, 2006). From a general point of view, accountability encompasses the pressures or factors that impact materially on decision-making. AuditCommission (2005) describes this in terms of three ways:

i. being held to account (compliance), e.g. annual reports, communication strategies or open executive meetings;

ii. giving an account (transparency), e.g. scrutiny, performance appraisal, internal audit and public meetings;

iii. taking account (responsiveness), e.g. research and consultation.

Taking appropriate care of complaints is paramount as an accountability procedure. In order to commensurate AdRA’s accountability, some indicators were used to measure it both externally and internally. Therefore Table 4.4 identiﬁes important characteristics and key indicators that might confer, or not, a positive trend towards external accountability, Table 4.6 uses the same procedure towards internal accountability. Those characteristics were chosen and adapted from Baietti et al. (2006).

Table 4.4: AdRA’s external accountability

Secured financing from The utility is subject Annual report audited commercial banks or Performance targets set to an independent by an external auditor private investors on own regulatory office credentials, ability Yes Yes Yes Independent Key Indicators on External Accountability for Results Does the utility have a customer charter that speci- The rights and duties of customers are provided for fies performance targets, and are there any financial in the management contract but no penalties are ad- penalties for nonperformance? dressed Does the utility have to meet specified performance Yes, those targets are specified in the management targets set by or agreed upon with the owners? contract Are external groups represented in advisory or man- No, however in the PC, ERSAR may have a repre- agement oversight bodies of AdRA? sentative Does the utility participate in some form of credit- No rating scheme? Do lenders impose financial covenants on AdRA? No, at least not mentioned

External stakeholders fulﬁll a number of important functions in the planning and operation of a utility. Baietti et al. (2006) state that these include policy making, which guides the management of the utility, its service delivery 65

objectives, and quality standards. Further those authors consider, ownership, which sets performance targets and financial objectives to maximize the value and efficiency of the assets alongside regulation or authority to monitor compliance with the legal and contractual obligations and service standards placed upon operators, determining tariff levels, and resolving conflict between regulated companies and their customers to be important features. Finally, demand for service or entitlement to receive services provided by the utility that are commensurate with tariffs paid and acceptable quality, and financing or authority to secure financing in both debt and equity complete the roll of valuable functions. Indeed, AdRA is subject to performance targets mentioned in the management contract, for the first tariff period (updated every tariff period/ subperiod) those include the ones mentioned in Table 4.5.

Table 4.5: AdRA - quality of service indicators and standards (targets), (adapted from AdRA, 2009b)

Framework Water supply Wastewater Notes/ source User accessibility Service coverage - 98% Service coverage - 82% Technical model Supply failures - 1 per 1000 branch lines/year Flood occurrences - 0.5 per Compliance with IRA’s Quality of service Quality of supplied water - 100 km pipe/year 98% Replies to written reclaims - performance standards Replies to written reclaims - 95% 95% Operating costs coverage AdRA’s economic and Operating costs coverage ratio - 1 Technical model ﬁnancial sustainability ratio - 1 Non revenue water - 28% Environmental Ineﬃcient use of water Compliance with discharge Technical model/ standards sustainability resources - 20% parameters - 85%

Also, the existence of ERSAR which enforces sunshine regulation procedures and the endeavor to adopt a quality management system in accordance to NP EN ISO 9001:2008, renders a significant step into the promotion of quality and efficiency. The implementation of a management tool called Balanced Scorecard (BSC), allows the company to assess its activity, by creating milestones and checking their compliance, from the company’s strategic core values point of view. Those are: i. efficiency; ii. social responsibility; iii. customer orientation/ focus, and; iv. proximity. Further, the BSC management tool allows to adapt strategic objectives to identified challenges, from different viewpoints:

i. financial, e.g. assure economic and financial sustainability, improve the water invoiced and system efficiency;

ii. customers, e.g. increase the number of clients and overall customer satisfaction, decrease waiting periods;

iii. internal procedures, e.g. improve: invoice procedures and customer interface, leakage and losses situations;

iv. learning and knowledge, e.g. improve: employee training, development, internal communication and a continuous improvement corporate culture.

Additional strategic objectives, defined under specific indicators, are also covered. As a result, this tool enabled the company to highlight the need to consolidate commercial procedures, and the aim to reduce leakage and losses situations in operational activities, as key priorities during the analysis period. The use of external auditors to enhance fiduciary responsibilities is almost universal Baietti et al. (2006). Further, this company may enjoy, due to AdP shareholding, in-house type collaborations with other AdP subsidiaries (upon AdP consent), as with - AdP, servi¸cos,SA- which was an important piece during AdRA’s establishment/ deployment process. In fact, the AdP might assume the liability to secure finance to its subsidiaries, as with the cohesion funds and EIB (European Investment Bank) applications. The purposes of such liability are, purportedly to keep: a finance structure equilibrium for the group, and; a coherent and cohesive management of the subsidiaries financial needs, while keeping a reduced impact on their activities. 66

Although, AdRA developed several management tools, as: the mentioned BSC, a methodology establishing symbiotic relationships8 and the compliance with good governance principles (established in Resolution of the Council of Ministers n. 49/2007, of march 28th - RCM), there is no representation of external groups in AdRA’s advisory or management oversight bodies. The tools and frameworks previously mentioned, also consider the internal environment ant therefore foster internal accountability.

Table 4.6: AdRA’s internal accountability

Rewards/ penalties How often are the Staﬀ subject to an- Rewards/ penalties Average hours of to directors for board of directors nual performance to staﬀ for inducing training (annual) achieving perfor- meetings? evaluation performance? per employee mance targets At least monthly No To be set No 11,4

Internal accountability looks at how management and staff are held accountable for effectiveness (the degree to which the utility realizes its goals) and efficiency (the cost effectiveness of resources used to produce its water services). As highlighted elsewhere, some studies show that where accountability and autonomy within the utility are enhanced, this is often seen as a key ingredient for improving performance (Baietti et al., 2006). Therefore, the employment contract used may provide the conditions to foster (or not) internal accountability (in accordance to the criteria highlighted in chapter 1.5). In AdRA the labor contractual relations are bound by the previous status of municipal employees working in those prior municipal “in-house” systems. Thus, the most widely employed, are the public interest assignments, in which, there has been an adequate adjustment to the remuneration and contractual context to a private status labor relation. Although decreasing in 2010 to 2011, from 81% to 76%. The public interest assignments, where the employees remained with the previous status, feature a residual amount of 5% in 2011 (decreased from 6% in 2010). Additionally, in those years the quantity of fixed-term contracts have arisen from 5% to 11%, alongside indefinite contracts from 7% to 8%. Other indicators highlighting internal accountability in a utility include responsiveness of the board of directors; whether performance targets are well defined and provide incentives, sanctions, or both; whether staff are subject to annual performance evaluations; whether they are also subject to incentives for achieving performance targets; and whether staff are trained to perform well. Indeed, the resolution on principles of good governance mentioned, by inducing the SEE companies to be liable to certain features allow to propagate those principles, covering:

i. the company’s mission, objectives and general principles of conduct, e.g. transparency, stakeholders relationships and business conduct and ethics;

ii. supervisory and management structures, e.g. their existence and relevant scope of work, reports being audited by external auditors;

iii. remunerations and other rights, e.g. to reveal them in annual reports;

iv. conﬂict of interests (prevention), e.g. procedures to prevent conﬂicts of interest.

Also, the symbiotic relationships are framed based on positive and negative impacts, properly contextualized and speciﬁc to AdRA’s activities, driving the commitments to be made along the procedures to be taken to accomplish the desired outcomes, granting a sound basis to improve overall performance.

8This symbiotic relationships cover the environment, shareholders, employees and community. They were deﬁned by AdP sustainability report inducing a good basis for benchmark. 67

However, a potential misunderstanding between unreasonable indicators compliance and the ones that might confer true gains (e.g. productivity), may introduce dysfunctional incentives, potentially perverse, distorting the objectives that quality indicators promote. In longer-term operational arrangements, governance and accountability approaches are important to settle partnership disputes. Hence, enabling sound internal accountability between partners, as the foundation to required external accountability, is highly important in local IS. More and better accountability is therefore expected to yield improved value for money decisions (Reeves, 2011). Lastly, all the tools and frameworks mentioned in this section (chapter 4.3.5), are described in the AdRA’s annual reports and other documents, usually displayed on their website. The establishment of these frameworks will induce AdRA (when applicable) to be held responsible for the outcomes, potentially enabling the partnership to be successful.

4.3.6 Financial conditions

Tariffs are a paramount issue in service provision, in order to ensure a proper balance between the demand and the supply of infrastructure services, the price of services should be set as close as possible to cost recovery levels (taking into account externalities caused by the production and consumption of the service). In the face of shrinking public budgets, greater attention must be given in the design of business models to the need to ensure the longer term financial viability of the infrastructure. Andrieu (2007) states that this attention should focus on efforts to reduce the scope for inappropriate interventions by opportunistic politicians, as well as efforts to make infrastructures more self financing by appropriate increases in the fees charged for the use of the infrastructure. Since tariff levels are, usually, kept too low for too long and are an important source of funding; underinvestment and inefficiency are common characteristics of many IS systems. That is, due to tariffs being so scarcely allowed to rise over time in line with rising costs, gradually, the system becomes increasingly run down as maintenance is increasingly neglected, causing declines in consumption that, in turn, further reduce the ability of the operator to finance maintenance (Crozet, 2007). However, high tariffs possibly set by AdRA for users, jointly with inadequate disclosure or public participation, will lead to complaints. Those complaints may lead to an uneasy partnership, even more when there were already municipal pressures to hold tariffs down (e.g. because they used to be); a context of tariff transparency is then of highest preponderance. In addition, that importance is underlined by the role displayed by tariffs as a way to secure finance, although one of many options, they involve different allocations of risks between the main actors, with possible “unpleasant” settings for users. Therefore, as defined in AdRA’s economic/ financial viability studies, the main financing instruments are:

i. AdRA´s equity, amounting to 17,5 million euros;

ii. ﬁnancial contributions and subsidies allocated to AdRA;

iii. revenues from tariﬀs charged;

iv. revenues from rents paid by the concessionaires to operate speciﬁc predeﬁned sections, if applicable, and;

v. other sources, namely loans.

The subsidies allocated from the National Strategic Reference Framework (NSRF), match to 51,2 million euros, amounting to 50% of the eligible investment, to finance mainly the initial investment. Medium and long term bank loans amounting to 77,5 million euros, through the EIB (48 till 2014 and 29,5 onwards till 2018), to finance mainly the initial investments; and 45,5 million, via commercial banks (35 in 2010 and 10,5 in 2012), to finance the initial payments of the infrastructures’ return. 68

Both loans have a maturity date of 20 years and a initial “deferment” of 5 years. In the viability studies are also considered short-term loans, as a pledged current account, possibly amounting to a maximum of 43 million euros. The planned ﬁxed investment program (detailed in Appendix P), aggregates (in 2009 prices):

i. initial investment (till 2015) of 121 million euros, in which 12,4/ 67,8/ 19,8(%) to water supply/ wastewater/ joint investments;

ii. renovation investment of 234 million euros, in which 58,3/ 41,7(%) to water supply/ wastewater, yearly average;

iii. replacement investment of 107 million euros, in which 32,5/ 42,0/ 25,5(%) to water supply/ wastewater/ other investments, mainly in 2028, 2038 and 2048.

The tariff model to be charged during the management contract match the tariffs needed to fully recover costs related to the main activities, assuring namely: timeless quality; economic and financial equilibrium; efficient management, and; access to any user. The tariffs will be subject to a steady criterion and will comprise several tariff periods; the first has the objective to converge all the previous tariff levels into one, with different development procedures along the municipalities but with the same end (to reach an even level). They are two-part tariffs consisting of a fixed charge plus a variable charge reflecting water consumption, the first has the objective to recover the access costs and the later, depending on the usage degree, to recover the remaining part not included in the fixed one. The related costs that the tariffs are supposed to cover, are namely to:

a. assure during the contract’s lifetime, the initial investment’s depreciation (excluding reimbursements and non- repayable subsidies), and in the same terms should cover the depreciation of renewal, rehabilitation and replacement investments;

b. maintenance, repair and renewal of related equipment and assets;

c. assure the depreciation required for system expansion and improvements speciﬁed in the investment plans, in the terms speciﬁed in - a.;

d. costs related with tariﬀs or minimum values established with “bulk” entities;

e. assure a municipalities’ return on the transfer of infrastructures and equipments as speciﬁed in SARA’s creation;

f. operating and management costs, namely the required by law and applicable regulations, and technical assistance, administration and management;

g. assure an eﬀective annual shareholder return in the following terms:

i. during the initial investment period (no longer than 10 years), by applying the following rate - PT Treasury Bonds interest rates over 10 years + 3 p.p. - to equity, starting on its establishment; ii. during the following period of the management contract, by applying the following rate - PT Treasury Bonds interest rates over 10 years + 3 p.p. - to a signiﬁcant updated value of tangible and intangible non-current assets to a given depreciation rate and respective subsidies;

h. assure the ﬁnancial costs incurred during the initial investment period - g.i.;

i. costs related with expropriations made and corporate income taxes.

Therefore, there are two types of returns; the ﬁrst - e. - is updated to Euribor (6 months) plus a spread of 2%, and amounts to 98 million euros (2009 prices) in the projected years. However, given the municipalities’ eﬀort on infrastructure, it assumed a initial payment of 66.55%, paid in 2009 (13 million euros), 2010 (32 million euros) and 2012 (20 million euros). The municipalities are then debtors to AdRA, until the rent rightfully paid to the municipalities based on AdRA’s turnover cover that “loan”. Further, this return is based under the application of 69

specific rates to the annual turnover related to system’s operation and management, those rates are highlighted in Table 4.7. The resulting amount is then shared within the partners, that incur on this return (municipalities), by taking into account the benefits produced by the respective infrastructures/ equipment and the investments incurred, which for the 1st tariff period are shown in Table 4.7.

Table 4.7: Municipalities’ share in the return based on the infrastructure and equipment transfer

Rates applied to turnover Municipalities’ share for the 1st tariﬀ period Period % Municipality % Municipality % 2010 - 2012 2 Agueda´ 1,0 Murtosa 0,0 Albergaria-a-Velha 13,0 Oliveira do Bairro 6,00 2013 - 2020 5 Aveiro 35,5 Sever do Vouga 0,0 Estarreja 10.5 Ovar 17,0 2021 - 2059 7,263 ´Ilhavo 17,0 Vagos 0,0

The second type - g. - is a shareholder return based on “equity” (g.i.) or on a significant updated value of tangible and intangible non-current assets to a given depreciation rate and respective subsidies (g.ii.), and on the application of a risk-free interest rate plus a risk premium of 3 p.p.. Thus, allowing to cover market volatility, and stimulate a preferable investment than those on financial markets. The dividends are to be delivered to the shareholders, if not possible, they will remain as debt, capitalized with their respective rates. The mentioned convergence of tariff levels, to the highest levels enforced in the region before the partnership’s creation, raises the need for compliance and, perhaps, public awareness. Since it may lead to public contestation, if operating costs are lower than the ones in perspective, due to delays in construction procurement procedures or non-execution of budgeted activities, being the setbacks on investment plans duly criticized when neglected the respective lowering in tariffs, as published in [4] (2012), mentioning one of such cases. Still related to the above stated tariff setting, the tariff set for the 1st period (as mentioned in the economic and financial viability studies) is to be yearly updated in accordance to the Harmonised Index of Consumer Prices (HICP). After the 1st tariff period, a mandatory review of the economic and financial viability studies and its assumptions will take place. Those reviews will support the next tariff levels, to be enforced in the respective tariff periods/ subperiods. The reviews will continue to be made on a five year basis. In the whole 2nd tariff period the tariff levels will be updated in accordance with a Factor Productivity Index (FPI or IPF in Portuguese), that considers the mentioned HICP, the tariff variations of bulk segments (TAA for water supply and TSA for wastewater) and energy (E), the variation of personnel costs (P) and financing costs (based on financial cost and debt - CMF). The FPI factors might be evaluated and adapted during the viability studies review in each quinquennial period. Thus, the annual tariff Tn+1 is given by

Tn+1 = Tn × FPI (4.1)

FPI is then described by

FPI = 0, 1 × T AA + 0.25 × TSA + 0, 05 × E + 0, 1 × P + 0, 025 × CMF + 0, 475 × HICP (4.2) where T otal personnel costs−T otal corporate bodies personnel costs avg. nr. of workers excluding corporate bodies P = n+1 (4.3) T otal personnel costs−T otal corporate bodies personnel costs avg. nr. of workers excluding corporate bodies n and F inancial costs (Bank debt+Shareholders support)Dec+(Bank debt+Shareholders support)Jan 2 n+1 CMF = (4.4) F inancial costs (Bank debt+Shareholders support)Dec+(Bank debt+Shareholders support)Jan 2 n 70

Further, it is mandatory to deduce directly into costs, the estimated income not arising from tariffs themselves, including any supplementary income, operating subsidies and financial income. The restoration of economic and financial equilibrium related to the 1st tariff period deadline, assumes a deviation between assumptions made and costs incurred, preventing full cost recovery (including taxes and shareholders returns) to be achieved. The 2nd tariff period reviews may also give place to a restoration if the previous conditions are confirmed. The restoration of economic and financial equilibrium may be settled via:

i. tariﬀ review;

ii. extension of the management contract deadline;

iii. direct compensation provided by the municipalities at fault;

iv. revision of municipalities’ remuneration;

v. any combination of the previous.

Tariff deviations are to be notified to the PC, and fully recovered by integration in the next tariff period/s. The tariff deviation that results from the convergence period (1st tariff period) can be recovered in the subsequent 2 subperiods of the 2nd tariff period. The proposed tariffs account for the minimum level from which it is possible to cover the activities’ commitments and dividends owed to shareholders. Therefore, whenever AdRA achieves a cash-flow surplus, the entity will pay dividends in arrears; and when there are none, the excess net profit will be accrued to retained earnings, in order to be used for the benefit of future tariffs. Thus, it is not to be included in any calculation to the shareholders net financial benefit. The investments to be made, as specified in the investment plan, suffered a major setback in their physical and financial execution, allegedly due to debt limits imposed on the SEE by regulations issued in 2011, that led the AdP group to develop new alternatives. Those debt limits will, therefore, continue to hinder the investments set and scheduled for the first quinquennial period, as at the end of the 2011, 10 projects related to 32 million euros were, already, awaiting ministerial authorization. However, for the period itself, the investments accounted for 7,4 million euros, in which 0,96/ 2,17/ 4,25 million euros were allocated in structure/ water supply/ wastewater sections. Those values highlight the investments required in wastewater systems due to their previous conditions, also the status of some water subsystems required urgent rehabilitation measures (not predicted) to ensure their reliability, as in Sever do Vouga, where serious deficiencies in its water supply system had to be addressed. Thus, the compliance rate with the predicted investment plans for 2011, fell short of expectations and the 2010-2012 planned investments will slide considerably from their time frame (Appendix P).

4.3.7 Stakeholder analysis

AdRA - Aguas´ da Regiãode Aveiro, S.A., as the entity accountable for a public interest service, focus in its customers satisfaction, leading its activity to reach that goal, alongside population needs ensuring public health. In addition AdRA, not only promotes the rational use of water and the prevention of water consumption illegal practices, but also fulfils all its legal and statutory obligations concerning information reporting to all its stakeholders universe. The main ones enclosing that universe are highlighted in Figure 4.6. As previously mentioned, the relationship between AdRA and the partners is established in the contracts, being specially relevant the PC’s role. Further, each partner’s contribution to the company needs to be specified. AdP as the major shareholder, holder of relevant know-how and experience acquired in the sector, exhibits a key role in AdRA’s strategic management. The local partners have an important role in the pursuance of public interest. From AdP’s point of view, the accomplishment of Peaasar-ii (2007) objectives is the main purpose. Additionally, the importance of AdP’s contribution, as major shareholder, is relevant to enable the use of commercial banks finance 71

Figure 4.6: AdRA’s connection with the main stakeholders

that otherwise would not be possible, assuring all the bank guarantees needed. For the municipalities, it is an opportunity to entail important investment plans, with clear benefits for the consumers in quality, mainly in small municipalities where otherwise would not be possible to perform such investments, and general cost savings. Those investments are also an opportunity to create local employment and to boost local economy. However, all those investments/ improvements are only achievable with NSRF subsidies and will therefore have greater or lesser impacts in tariffs charged. Indeed, in some municipalities the tariffs charged were kept low due to generous operating subsidies, committing the municipalities to further invest and renew the system’s networks. Sever do Vouga and Vagos were such cases, where the wastewater systems did not cover 30%, although the systems’ average was 70% (97% for water supply) and due to significant investments has been increasing. Table 4.8 highlights the previous situation, where asymmetries in tariffs charged are evident, so even if the targeted value is close to the highest one already practiced, in some municipalities the rise will be significant, independently of those being the municipalities that need to improve the coverage area and system’s quality. Indeed, [4] (2012); [5] (2012) both highlight contestation incidents, being the first internal (municipality) and the later external (customers). Table 4.8 was built under the information revealed in the economic and financial viability studies and ERSAR (2011), the later being a study revealing the total costs for the end-users9. When the municipalities were measuring all this information to decide, whether or not, they would enter the partnership, the political weight of this matter emerged. Thus, some were committed to advance enjoying its dynamism, while others were waiting to see what would happen, Ovar was one municipality that (during local elections) waited and only joined later, displaying perhaps symptoms of political leverage. Regarding providers, AdRA favors transparency and ethical relationships through public procurement to ensure the best technical, commercial and financial solution for the company. The role of ERSAR is perceived by AdRA as paramount and irreplaceable, assuring a trusting environment that benefits all the players. Further, as highlighted in Appendix O, ERSAR has different powers of regulation, some include according to law a coercive power, others are based on advice. The quality of water is in the former, the tariffs set for each subperiod, in the later. The partners agreed that the tariff proposals are to be sent until May of the year precedent to that tariff subperiod. From a different standpoint those interfaces may lead to disputes resulting in a deadlock with multiple results, one of such may compel the municipality to purchase shares under the call option, which is unacceptably costly in

9ERSAR (2011) is a study that reveals the costs of water services, based on 60, 120 and 180 m3 provided in each municipality. 72

Table 4.8: AdRA’s tariﬀ analysis for the analysis period (2011)

AdRA WS (euros/m3) WW (euros/m3) Total (euros/m3) Aveiro 1,308 1,156 2,464 ´Ilhavo 0,956 0,793 1,749 Ovar 1,088 1,162 2,250 Albergaria-a-Velha 1,280 1,257 2,538 Estarreja 1,057 0,847 1,904 Oliveira do Bairro 1,124 0,777 1,901 Agueda´ 0,919 0,741 1,661 Murtosa 0,902 0,771 1,674 Sever do Vouga 0,839 0,773 1,613 Vagos 0,641 0,673 1,314 National avg. 1,034 0,600 1,635 Proposed value 1,248 1,773 2,507 Needed 1,212 1,878 — Targeted value 1,280 2,087 2,820 Needed 1,309 2,072 — Interpretation: WS - Water Supply; WW - WasteWater. The “proposed value” is the estimation based on viability studies for the analysis period (2011) and respective above mentioned values. The “targeted” is the value to be achieved at the end of convergence period (2014).

economic terms. Indeed, there is the problem of contract’s unilateral termination, otherwise termination by mutual agreement will proceed as deﬁned in the termination agreement. Unilateral termination may take place when:

• management contract’s objective is being deﬂected;

• denial to conserve, repair or replace infrastructures or equipments;

• compliance with tariﬀ convergence rules (viability studies), appliance of the required tariﬀs;

• declared opposition to the shareholders ﬁscal powers, failure to follow directives, binding instructions and also laws and regulations;

• payment’s cessation or declared bankruptcy;

• no supervision of, deﬁned system sections, concession contract compliance, and;

• serious breach of management contract clauses.

However, it will not take place due to force majeure and other causes acceptable by PC. Unilateral termination from AdP or the local shareholders side, requires a calling option from the municipalities of AdP equity shares by the prices set under Formula 4.5. That formula covers: equity reimbursements (Ct); supplementary contributions reimbursements (Pt); interest reimbursements (St); equity return payments (RCt); supplementary contributions return payments (PCt); interest return payments (RSt); other cash flows due to the shareholders, and; a compensation covering 10% of turnover (Indt) - all values provided in the updated economic and financial viability studies for a given year t. In Formula 4.5, rt stands for the simple arithmetic average of inflation rates as foreseen in the same updated viability studies for a given year x and year n. Those years symbolize the years when the unilateral termination occurred (year x) and the deadline for the management contract (year n).

n+1 X Ct + Pt + St + RCt + RPt + RSt + CFt + Indt (t−x) (4.5) t=x (1 + rt) 73

To the value given by Formula 4.5, will be added the accrued amounts of those features mentioned, with a payable compensation until transmission takes place. For dividends, the rate mentioned in item - g. - will be applied. The termination of contract by either AdP or the local shareholders determines the partnership extinction, otherwise a reduction of scope will be applied. That same reduction implies a compensation to AdRA covering the not yet reinstated investments and the damages inflicted by that change in the system’s configuration. Afterwards, the transmission of those assets/ infrastructures will take place. When a unilateral termination of contract might take place, the service’s management and operation may be taken over by the PC, upon previous notification. The AdRA’s reinstatement will take place, when a regular basis is achieved and upon previous notification. All the incurring costs are covered by AdRA. The only causes that may lead to contract expiration are the contract deadline and serious breaches to infrastructure construction obligations, seriously jeopardizing the management contract’s sustainability. That termination implies a compensation to AdRA covering the not yet reinstated investments, and infrastructure/ equipments/ legal relationships possession will take place upon an “ad perpetuam rei memoriam” survey. An inventory list needs to be filled stating their status. Another situation covered by contract and usually revealing risk incidence are disagreement and dispute cases. In case of disagreement or dispute concerning contract’s interpretation or execution, the parties shall endeavor to reach, by mutual agreement, an appropriate and equitable solution. Thus revealing the needed cooperative stand as a basis for the partnership’s success. In case it is not possible, an arbitration tribunal will be composed by the respective parties in accordance to Law n.31/86, of August 29th. The arbitrator is to be elected by the parties, if not possible, 3 arbitrators will be elected, one by each party and the later in mutual agreement, as last resource the last arbitrator will be the president of the respective court of appeal.

4.3.8 Risk analysis

Risk analysis has been a widely discussed topic, which with ISO (2009)’s publication got standardized, this way principles and generic guidelines on risk management were provided. Indeed, that publication stresses that objectives traced are influenced by internal and external factors which create uncertainty in achieving those objectives. The effect of this uncertainty is “risk” to the objectives, thus, “risk management” is the coordinated activities to direct and control a “project” with regard to that risk. And, importantly, allows for multiple risk responses dependent upon evaluation and analysis made. Further, the design and implementation of risk management plans and frameworks will need to take into account, inter alia, the varying needs of a specific organization/ partnership, its particular objectives, context, structure, operations and processes. From the standpoint of project management, Marques & Berg (2011b) cited PMI (2008) in order to state that risk relates to an uncertain event that, if it occurs, may have an impact on at least one project outcome. Despite the negative connotation, risk is not necessarily harmful, since it reflects the underlying uncertainty of developing and operating projects, risk presents both threats and opportunities (Froud, 2003). Usually, to manage and share risk is a well understood principle in PPPs (in both contractual and institutional) although often mismanaged (Marques & Berg, 2011b). In the public sphere, those concepts are relatively immature, since risk management might be developed but its allocation is frequently inefficient. Therefore in this section, a light will be shed on how these concepts were taken into consideration in this partnership, thus the contracts and annual reports are the main source to evaluate how “risk” was/ is managed during the partnership lifetime. Figure 4.7 highlights the main concepts interactions, being easily understandable the extent of a credible risk management through the ex-ante and contract management period (ex-post). For a risk analysis to be successful, there are important steps that should be entailed, as seen in Figure 4.8. (Subcontract powers)The EGP enjoy broad powers to subcontract, as in infrastructure construction and maintenance. The EGP can also participate in related activities upon an economic-financial projection and CP's permission. (Clause 3) %Contratos de prestação de serviços de valor inferior a 125.000 euros não precisam de ser adjudicados.

%Although EGP is responsible to assure public interest missions (clause 4 -C.P.) there are no risk measures to assure it...

74 %Comparar tarifas aí algures, e levantar o caldo!

A instrução dos processos de contra-ordenação por incumprimento da obrigação de ligação das redes prediais às infra-estruturas do Sistema, nos termos dispostos nos regulamentos de serviços referidos na Cláusula 7.a do presente Contrato, é atribuída à EGP.

Convergence period deviations to be covered in the next 2 subperiods (check).

Figure 4.7: Risk related concepts interaction, adapted from Cruz (2011); DCLG (2006)

Classification Identification Probability Quantification Measures for Document and allocation Monitor risks of risks analysis of their impact risk treatment lessons learnt of risks

Figure 4.8: Steps in risk analysis and evaluation, adapted from Marques & Berg (2011b); ODPM (2004)

From this diversified list, there is one that reveals immediate interest, that is risk allocation. Even if the most common studies usually assess risk management in the PPPs point of view, those procedures are, mutatis mutandis, applicable to PuPs. Hence adapting from Asenova (2010), there is evidence that the issue of risk allocation is critical for, at least, the major reasons below: i. improved risk allocation reduces economic costs; ii. it provides incentives for sound management of the partnership, and; iii. it reduces the need to enter a review process and public contestation. In order to evaluate how risk management is accomplished in AdRA, the previous list needs to be assessed. Since 2010, AdP established an integrated risk assessment alongside a systematic process for risk management, so as to create a common model across all the AdP group companies, in risk classification and delineation of measures for risk treatment and monitoring by each company. The risks are classified in accordance with the COSO (Committee of Sponsoring Organizations of the Treadway Commission) methodology, and are highlighted in Figure 4.9.

Figure 4.9: Risk categories (for AdRA), in accordance with COSO framework

Risk is then quantiﬁed as the probability of a particular event occurring multiplied by its corresponding impact level, being further evaluated considering the respective inherent and residual risk. For the probability of occurrence, 75

several fields are taken into account, namely: the existence and effectiveness of controls; prior occurrence; risk complexity, and; the capacity established for risk management (e.g. processes, systems, personnel). As for the impact level, those factors are: financial; reputation; legal or regulatory, and; the alignment with business objectives. The identification of risks related to the activities of the whole AdP group, execution of internal audits, setting of key elements for control in order to mitigate and minimize risks, alongside testing compliance level of results, are assured by an audit department. That department reports directly to AdP board of directors, keeping a degree of autonomy in their activities optimizing human resources and avoiding organizational redundancy/ duplication. The risks related to “governance”, “strategy and planning”, “compliance” and “reporting” profiles are treated and monitored by AdRA, being periodically assessed by AdP (as major shareholder). As for the “operational/ infrastructure” profile, as well as being assured by AdRA and respective governing bodies, it is also controlled and monitored by centralized “structures”, which are accountable to identify and manage the main risks. Generally, the critical risks to which AdRA is exposed are:

i. political, economical and ﬁnancial environment;

ii. changes in legislation and regulation;

iii. relationship with the municipalities;

iv. business continuity;

v. billing accuracy and services demand, and;

vi. credit and ﬁnancial instruments.

Thus, AdRA developed some risk treatment measures for particular risks. For the operational risks, those include the “quality standards (service interruptions)” and “respective tariffs”, “assets and their maintenance” and “climate changes”. For the financial risks, the main sub-risks are “market (e.g. interest rates)”, “credit” and “liquidity” risks. And finally the regulatory risk. The measures taken into consideration are described in Appendix R. Furthermore, the risk involving the partners/ shareholders relationship arise, mainly, from political and ethical difficulties that may generate controversy, as the national interest might not be the same as the local, and the same between local partners (as highlighted in an interview with an AdP director [7], 2009). The time horizons of elected officials do not necessarily coincide with the long-term implications of pricing and investment decisions, leading to contestation in cases where, for example, the investments designed are not following the respective raise in tariffs. The AdRA board of directors periodically engage monitoring activities over those critical risks to keep track of their evolution and control. In addition, AdRA also applies a risk analysis and management procedure to the prevention against corruption and related issues. To reach this purpose they developed an analysis on 3 areas; those are: procurement processes, acquisition of goods and services, and public assistance programs (grants, donations and sponsorships). This analysis includes on the one hand, identification and classification of risks, and on the other hand those risks are built under a matrix jointly with mitigation strategies. This way, and taking into consideration AdRA’s organizational structure, a clear understanding can be achieved. However, for a clear understanding on the risk management process, the concept of risk allocation needs to be further analysed, so as to discern where those risks fall ultimately. In AdRA there are two different situations with important backlashes on risk allocation, the first is related to the transfer of infrastructures and equipments from the municipalities to AdRA and the second is linked to activity itself, or else the system’s operation and management. The first is settled upon the need to unify the systems, leaving, however, residual ownership to the municipalities. To reimburse for the transfer, the municipalities receive the mentioned return based on annual turnover bearing however some risks, those are: 76

i. any environmental liability raised due to infrastructures incorporated in AdRA’s investment plans, with origin in situations that date back to a date prior to their investments’ deadlines written in the management contract;

ii. civil liabilities conceived dating back to a date prior to their assignment into the management contract;

iii. any ﬁnancial liability associated with the condition of infrastructures and equipments when their condition mismatch the information provided by each municipality (local partners) when forming the partnership.

Additionally, new taxes (e.g. diﬀerent municipal taxes) or a considerable increase on those thereof, related to AdRA’s main activities, are to be deduced from the respective issuer amount, excluding the ones covered by n.1, art.34 of DL.n. 97/2008 of June 11th.10 Those amounts depend also on the eﬀort made by each municipality as behold in the viability studies, with the possibility of being reduced perhaps reaching a null value when applicable, but if they do not, they will be settled in 2 yearly payments.

As for the second, related to system’s operation and management, it comprises a set of “rules” as previously mentioned, whose application leads to a “cost-plus” economic regulation, assuring that the return on shareholders’ equity will result, in an identical value, to the equivalent annualized return rates applied over the management contract life period, regardless the company’s performance. Indeed, the shareholders’ return rate was made into a “guaranteed” return rate, that only varies according to the risk-free return rate index, over the contract life period. Thus, as stated by Morgan (2007), the cost-plus approaches which involved network owners passing through to customers all costs considered reasonable and approved by the regulator as well as a profit margin, guarantees a return on investment and, therefore, the long-term financial stability of the network owner. But it provides little incentive for efficient operation or investment.

Naturally this leads to, on the one hand, a poor performance on a given financial year will only burden future tariffs without financial penalties to the shareholders, as the shareholders’ return will be on debt to be payed in future years, being only postponed. On the other hand, a good performance on a given financial year will also only influence future tariffs design, without financial benefits to the shareholders.

Briefly and strictly speaking from the efficiency incentives point of view, there are no requirements (meaning that there are no incentives) to avoid conservative budgets (underestimate income/ overestimate costs). Also the shareholders don’t have any penalty over their returns due to mediocre budgetary implementations. There is no sharing over results, since they always influence tariffs only; and might be difficult in some cases to preserve the service’s quality, as there are no penalties for low quality levels either.

Therefore, the risk is almost always transferred to the customers. Although mitigated, the residual risks are allocated on them. Moreover, the tariffs are the “guiding stick” in accordance to the assumptions made in the economic and financial viability studies. The tariff changes according to these values in the respective quinquennial tariff reviews and to annual updates.

Thus, the contracts clarify these circumstances by establishing the conditions in which a tariff deviation is recovered in the next tariff reviews, and as a consequence allocating the residual risk on customers. Thus, inappropriate assumptions in the economic and financial viability studies that precede and justify the contract’s signature, also updated in tariff reviews, features a risk clearly hold by the customers, always guaranteeing the partners/ shareholders rate of return and other indicators.

In the end, customers bear the risk, and costs can drift upward, leading to the conclusion that the public interest might be harmed by poor contract design in this instance (as mentioned in Marques & Berg (2011a) for PPPs).

10The n.1, art.34 of DL.n. 97/2008 of June 11th refers to the power that municipalities hold in levying taxes to the use of water, due to public ownership of water resources. These taxes are to be based on those taxes rightfully ruled by this decree. 77

4.4 Comparison case - A private concession model

The cPPP entity analysed, hereafter addressed as AdVouga (Aguas´ do Vouga), presents several points of interest. Since, as highlighted in Table 4.1, AdVouga is a municipal concessionaire (the water supply system is municipally owned), and as seen in chapter 4.3.3, it provides a significant number of municipalities in the SARA system. Further- more, AdVouga was created in 1996, to manage the bulk water supply system of AMCV under a public procurement procedure. Hence, this partnership is ruled, in decreasing hierarchical importance, by the concession contract and its amendment (hereafter addressed as amendment), the procurement proposal and the public tender documents. The AdVouga system’s expansion, fostered since 2003 by several studies and initiatives, was established by a contractual amendment signed/ effective as of June 2012, enclosing two more municipalities (Vagos and Oliveira do Bairro), to improve the bulk water supply system by facing its limitations following the Peaasar objectives. Thus, the amendment is preceded and justified by economic and financial viability studies, that legitimize costs required and the value to be attained, related to the system’s reinforcement and extension. That solution covers a 30,4 million euros investment that triggered a tariff review and extended the contract’s duration until October 2026. AdVouga is a private company since 2009, when its sole shareholder Aquapor was sold by the “AdP group” to a Portuguese consortium dst/ ABB; moreover, both have their core business as construction. Aquapor is one of the main private providers in the Portuguese water sector, holding 38% of private equity invested (total) in municipal concessions (ERSAR, 2010c). Indeed, Aquapor holds equity in several PPP models (iPPP and cPPP), being AdVouga a cPPP, particularly, a Leasing model (as described in Figure 2.4) with an equity of 3.250.000 euros, bearing particular characteristics specified in Figure 4.10, which are driven by the respective concession contract.

Figure 4.10: AdVouga’s concession type institutional model

4.4.1 Contractual relationship

The concession contract establishes that AdVouga has to provide maintenance (or equipment renewal) to the water system in question (infrastructure + equipments). Hence, and in accordance to Figure 4.10, AdVouga is fully liable for operational purposes; as for remuneration, AdVouga retains revenue collected from the bulk water provided to AMCV through AdRA, bearing in mind the existence of minimum amount thresholds. Upon the system’s expansion, AdVouga is liable to expand the delivery accordingly; and the rents, tariﬀs and its updates, are to be reviewed. However, the ownership of infrastructures and responsibility to make investments remain with AMCV, being those based on speciﬁc biannual investment plans to be developed together with AdVouga (Appendix S). In addition, the concessionaire has to align the water provision with the contractual clauses related to quality and quantity, being assigned to AMCV all the needed investments in order to comply to those features in case of noncompliance, except in those situations where the concessionaire is at fault. The concessionaire is also liable to 78

invest in the human and technical resources needed to fully operate the system. AdVouga has also, for monitoring and supervision purposes, to present monthly reports on: i. the amounts of abstracted, treated and pumped water; ii. the amount of water provided to each reservoir or delivery point; iii. accidental interruptions and system malfunctions; iv. analytical control and supervisory interventions; v. reagents and consumables used, and; vi. maintenance and other interventions along the resources used/ replaced. Further reports have to be presented on a yearly basis, related to the system’s functioning and based on joint inspections, specifying: i. technical characteristics; ii. the yearly volumes of water, as developed for the monthly reports; iii. system’s efficiency, costs, revenues, staff and financial situation; iv. renewal and repair measures developed, and; v. a global assessment. In addition, a report on the biannual investment plans development, needs to be provided. In case of noncompliance (e.g. deadlines), a penalty can be applied after hearing the MC. Indeed, there are further penalties that can be applied to AdVouga, also after hearing the MC, mainly related to interruptions in water supply and the quality of water provided, and if their value might seem not relevant, their existence is (Appendix S). If those failures would harm the water quality and public health, Amcv may take over (for a reasonable period) the service’s management and operation, upon informing Ersar and MC, and notifying AdVouga. Then, all the measures conceived as needed shall be enforced, being the risks and costs bore by AdVouga. The mentioned MC, introduced/ created by the contractual amendment, has 3 members being one appointed by AMCV, another by AdVouga and the last by the two previously appointed members. Although not enjoying a binding force on its issued opinions, it is in charge with additional responsibilities like to: i. issue an annual report regarding the contract’s compliance, to be sent to AMCV and ERSAR; ii. issue an opinion on the applicability of contractual penalties and their respective amount; iii. issue opinions, when required, on the risks effectively born by AMCV, and on disputes between parties (mainly related to contract clauses interpretation), and; iv. hear both sides and collect their contributions to contract amendments. The transmission of assets will take place upon significant situations specified in contract, as the redemption procedure or termination of contract. The first may occur under the defense of public interest, meaning that AMCV

1 after 5 of the contract’s duration may redeem all needed assets, being bound to pay a compensation (Appendix S). The termination of contract, by either parties, implies the one at fault to cover for actual damage and loss of profits. The reasons specified in contract, that can lead to such an outcome are also specified in Appendix S.

4.4.2 Financial conditions

Prior to the concession contract’s signature, AdVouga was required to present a surety, via a bank guarantee, updated to nearly 3.000.000 euros. This deposit is to be refunded upon the contract’s completion or redemption. Furthermore, the amendment performed, due to the objectives to be achieved, entailed a reinforcement and extension of the previous system. Therefore, an investment had to be guaranteed amounting to 30,4 million euros, in which AdVouga was to contribute with 13 million euros through rent payments via medium and long term commercial bank loans, as highlighted in Table 4.9. This amount was established based, mainly, on the NSRF contribution rate, minimum flows thresholds and tariffs to be applied. Any change implies those values to be reviewed. As a result, the rents to be paid to AMCV changed in accordance to Table 4.9, being, nonetheless, AMCV liable to apply them, when applicable, to finance the system’s expansion investments plan. Any delay in payment shall give rise to the payment of interest at a rate equal to the Euribor (6 months). In addition, the regular rents are to be yearly updated according to the Consumer Prices Index (CPI) excluding housing. Those rents will be reviewed, if the investments plan features (e.g. contribution rates, schedule or its actual value) or assets consigned, change.

The tariﬀ model to be charged, which include all operating costs and rents to be paid to amcv, is a uniform volumetric charge that will evolve as displayed in Table 4.9. Any delay in payment shall give rise to the payment 79

of interest at a rate equal to the Euribor (6 months) plus 2 p.p., further delays may allow AdVouga to suspend the supply or any payments due to amcv. Those tariffs will be yearly updated, as specified in Appendix S, by a formula based on labor costs, energy and hicp values, to be reviewed upon a system’s expansion or if any of those indices enjoy a change greater than 20% from the values initially taken in the contract, being subject to ratification by amcv and ersar’s opinion. Moreover, the tariffs charged are covered by discount echelons, as seen in Appendix S. In case the amount of water supplied has a growth higher than 20% of the minimum flows threshold, the tariff charged will be modified. Further situations can also lead to that end, as: i. meaningful change of the rules or legislation that leads to the alteration in procedures or costs not foreseen when signing the contract; ii. change in operating costs, as foreseen in viability studies, due to technical improvements in, mainly, reagents (25%), energy (30%) or both (15%), and; iii. change in rental payments to AMCV due to those reasons previously described.

Table 4.9: AdVouga - Concession ﬁnancial details (respectively in 2010/ 2011/ 2011 prices)

Sources of ﬁnancing Total (euros) Rent payments (euros) Year Tariﬀs Cohesion Fund-nsrf (55,4%) 16.841.974 6.649.024 2012 (euros/m3) Year amcv-AdVouga’s rents (42,7%) 13.000.000 6.350.976 2013 0,3117 2012-2013 amcv-Own funds (1,8%) 554.884 300.000 2014-2025 0,3922 2014-2019 Investment amount 30.396.859 225.000 2026 0,4706 2020-2026

The Parties agree that, for ﬁnancial/ economic purposes and, in general, for risk sharing, to be taken into account the replacement of the Shareholder’s IRR, established in the viability studies as 10,70% (reasonably competitive).

4.4.3 Accountability

AdVouga is a company that has matured over the last 16 years, developing and adapting several management tools in order to achieve an outstanding performance, which combined with the existing national benchmark procedures (sunshine regulation), fosters good internal and external accountability. AdVouga has inherited good management practices, from both the former shareholder (AdP) and the current (ABB and dst). Some of those grant through diversified characteristics and key indicators a positive trend towards external accountability, as: the production of monthly and annual reports, audited by an external auditor, focused on performance and quality; ability to secure financing on own credentials; advanced care of complaints, and; existence of a regulator. As for internal accountability, there is the need to highlight that AdVouga has: all 12 employees with open-ended contracts; incentive based employment structure; a rightful board of directors involvement (more than once per quarter), and; a sound HR development programme (e.g. certification of technicians and training events). From those management tools there is one, in which, the main operating objectives are defined along possible ways to reach them. In 2010, the main areas of action were: quality of service (e.g. system reliability); water quality, and; annual results (e.g. reduce costs and increase revenues). Further related to AdVouga own initiatives, there is the adoption (since 2005) of a quality management system (QMS) in accordance to np en iso 9001:2008, that renders a significant step into improved quality and efficiency. This way, costumer satisfaction, reduced costs through improved performance along a sound and motivating corporate culture are achieved, increasing the product’s quality, operational efficiency and financial performance, thus, fostering continuous improvement. Taking advantage over ersar’s existence, which enforced sunshine regulation procedures over several providers (mainly concessions), AdVouga had their economic and financial performance assessed along the overall quality of service. This system, promoting accountability, assessed: financial strength; protection of user interests; operator sustainability, and; environmental sustainability (Appendix T). AdVouga enjoys the highest qualitative evaluation in all indicators, unless in the average collection period (financial) indicator in which fares the average level (ERSAR, 2010a,b). In addition, AdVouga has a 100% rate of analysis within the parametric values, and recently won the 1st 80

place in the “drinking water quality” awards, conceived by ersar and a water sector newspaper. The promotion of energy eﬃciency and renewable energy are further good practices developed by AdVouga (as shown in Appendix T).

4.4.4 Risk analysis

Marques & Berg (2011b) state that risk management in cPPPs has been widely discussed, specifying the need to establish, under contract, rights and responsibilities for the public and private sectors in a comprehensive manner. Indeed, failing to do so, will raise the costs of IS (Akintoye et al., 2003). Furthermore, there is the need to clarify some characteristics: on the one hand, since AdVouga only provides bulk water services, amcv is the costumer; on the other hand, being a cPPP, the contract between parties is more discrete and entails a private partner. Thus, it is important to prevent renegotiation, so as to avoid a noncompetitive (and, generally, nontransparent) environment, in which there are, usually, substantial differences in information, legal skills, and technical support. Therefore, for this concession arrangement and following the risk analysis steps mentioned in chapter 4.3.8, the major risks can be identified and classified in accordance with Marques & Berg (2011b), so as to reach a greater consistency with practice while being quite intuitive: major protagonists are associated with each category. Figure 4.11 highlights the relevance of such risks and their allocation, as established in the regulatory contract.

Figure 4.11: Allocation of risks as established in the regulatory contract (adapted from Marques & Berg, 2011b)

Since it is a cPPP, it is easier to assign to each contractual party, the respective rights and responsibilities. However, the contract has clauses protecting the private sector from bearing several risks, while still ensuring economic and financial equilibrium during the contract. The minimum flows threshold and the establishment that an increase of 20% in the volume of water delivered leads to contract renegotiation, are clauses that assign to the public sector those risks, as it is an opportunity to renegotiate without competition. Furthermore, the private partner may reopen other issues to its benefit. Hence, this circumstance by itself may promote opportunistic behavior. The signed amendment arose some unrest in a number of local decision makers, as it was conceived as a clear violation of competition principles (contract duration extended without public tender), lacking transparency and, probably, not the best deal, as a better one was thought to be attainable through public tender ([8], 2012). In order to shape minimization measures and ensure their compliance, the existence of penalties to be applied to AdVouga, is a reliable way to provide commitment. Further into risk mitigation, AdVouga also secures minimization approaches protecting them by contract (force majeure) and/ or with insurance. Additionally, to support the QMS developed, there is a risk management plan covering the operational risks (identification + impact + mitigation) allowing to define required procedures, strengthening water quality and protecting public health without interruptions. 81

Chapter 5

Concluding remarks and future developments

5.1 General conclusions

Generally speaking, with this dissertation several points were achieved in order to analyse the advantages and disadvantages of the public-public partnership (PuP) model, by successfully studying an important case study for the Portuguese utility environment, which enabled to discuss good practices and main obstacles of this kind of partnerships. Firstly, the rules of the game covering 5 countries were opportunely analysed, enabling to have a wider knowledge on PuPs. Since, as stated by Stevens & Schieb (2007), for both diversity and innovation, it is essential to look across regional and national borders, to benefit from experience elsewhere with different techniques and approaches applied to different areas of infrastructure. In doing so, it is important to realise that there is virtually nothing truly new in the world in terms of financing, funding or provision of infrastructures - innovation is very much a relative concept. What is a traditional way of doing things in one country may be a highly innovative approach for another country, and vice versa. Further, analysis on the implementation of this model in the Portuguese environment and the comparison between significant models was also prosperously accomplished, providing a solid ground to assess the main objective. The mentioned objective, was to study a PuP company in the provision of local infrastructure services, while comparing it to an example of a sound conceptual model, allowing to gather good practices and key obstacles for its success.

5.1.1 SWOT/ comparison analysis

The SWOT analysis made, highlighted the possibilities that the PuP model may entail. Respectively a sensible awareness of its strengths and weaknesses conveys that it is a sound model in order to cope some situations at local level. The asymmetric nature of the municipalities might favor a scheme that promotes collaboration like a PuP model. Despite the extraordinary evolution in recent years, the current situation regarding the management of water and waste services continues to show some shortcomings in terms of capacity building in this area, in qualified human resources, and in the search for effectiveness and efficiency. Those, at local level, usually arise due to constraints imposed from the model used itself (e.g. employment structure). Indeed, each model characteristics influence greatly the possibilities to reach the desired objectives. Thus, as each model faces different maturity challenges, they are required to be appropriate to the context and conditions of each service. Hence, even provided that a, whole scenario, strategic analysis presents boundless relevance, each case needs to be addressed in detail where every possibility should be covered. Therefore, as the main conditions for IS development are generally identified, different models enjoy different features that might enhance the ability to further counter it. Thus, due to its characteristics, the PuP model can be a viable way to pursue that. 82

5.1.2 Case study: The PuP model analysis

Pragmatically, these entities are a feasible way for the embodiment of sector trends and policies, along with an easier access to community and national funds. However, the partners/ shareholders need to consider that, too high ambitions may cause overly high costs, that might be misunderstood, with an incomplete public debate, on necessity and added value of the project. As of today, almost the entire Portuguese population has access to these services, but due to an existing diverse set of realities, some enjoy severe problems (e.g. wastewater retail services). Therefore, these partnerships will allow in particular cases, clear economies of scale and scope alongside environmental gains. From the AdRA’s experience, in the SARA system, some important problems were outlined:

i. an improper condition of some assets, and a high number of system malfunctions;

ii. in retail segments the infrastructures and equipment registries were quite limited;

iii. in water supply retail segments, some municipalities, had a quite harmful amount of non revenue water;

iv. in wastewater retail segments, some municipalities, had a quite low coverage ratio, and;

v. in wastewater retail segments, some municipalities, had a significant high rate of inflow/ infiltrations.

Therefore, since the system had an asymmetric status, AdRA brought significant regional benefits. Pragmatically, it enabled to improve capacity (e.g. infrastructures and resources) in those municipalities (services previously provided mainly by municipal departments); the development of a complete geographic information system (GIS) and the setup of measurement and control zones, were some of those key benefits. Generally, the municipalities could entail important investment plans, with clear benefits for the consumers in quality, mainly in small municipalities where otherwise would not be possible to perform such investments, general cost savings and regional growth and development. Further benefits, by entailing AdP as shareholder are: the acquirement of relevant know-how and experience gathered in the sector, by fostering the use of “further” management tools; possibly the partnership in itself, as the creation of this kind of partnerships involves wide political issues, and; connected to the investments, the possibility to use commercial banks finance. This partnership, from the AdP point of view, also allows to gather information on the viability of “local PuPs”, as this model can be considered a pilot project. Which is further extended by the role that this model bears to accomplish the Peaasar objectives. Some problem raising features can also be found. AdRA’s internal structure might be one of such, since evidently all the general meetings resolutions, and consequently the board of directors resolutions will be conceived by the partner/s holding the majority of shares, which is in a peerless way, AdP. Hence, the municipalities are left with a residual internal power, based on the relationship’s cooperativeness, that provides guaranteed awareness but little preponderance on those matters. Indeed, from an internal point of view, all the decision making is pragmatically based on the AdP choices, however, regarding AdRA’s external control, the partners/ shareholders have a perceived equality in the PC opinions, since the appointment of its members is equally conceived. In addition, due to the PC powers to monitor and supervise AdRA’s activities, checking its compliance with the management contract, it stands as the possible stronghold for municipalities’ rights. Nonetheless, other problem raising features seem unavoidable. On the one hand, since AdP and Ersar are “under the same umbrella” (under the scope of the same ministry), the management contract’s supervision might be not as effective as expected. On the other hand, political elections (4 years) are not aligned with the board of directors assignment (3 years), which may lead to “inflexible periods” (e.g. divergences between managers and politicians). The convergence of tariff levels, to the highest level enforced, in the region, before the partnership, raises the need for compliance and, perhaps, public awareness. Since it led to contest situations, as operating costs were lower 83

than the ones in perspective, due to delays in construction procurement procedures and non-execution of budgeted activities, which were significant setbacks on investments plan, and were duly criticized. Also, the prior asymmetry between tariff levels, made the situation to be sensible to any setback, as the effort is considerable.

In AdRA there are two different “partners’ returns” situations. The first is related to the transfer of infrastructures and equipments from the municipalities to AdRA and the second is linked to activity itself, or else the system’s operation and management. If the first seems to enjoy diverse considerations, turning it into a comprehensible payment for the objective set, the second does not. Since the return rates are applied over and along the management contract life period, regardless the company’s performance. Indeed, the shareholders’ return rate was made into a “guaranteed” return rate, that only varies according to the risk-free return rate index, over the contract life period. Providing little incentive for efficient operation.

However, AdRA established the compliance with symbiotic relationship and good governance principles, the mentioned BSC and risk management procedures (e.g. COSO framework), allowing to increase eﬃciency and eﬀectiveness in overall management and to inherit good accountability to standards proposed1. The fact that there is no real need to comply to those, arise the doubt in whether these frameworks will induce AdRA (when applicable) and its employees to be held responsible for what outcomes, potentially obstructing the PuP to be successful.

Nevertheless, those procedures and tools established account for a great improvement, although some details should be enhanced. Risk allocation is one such case, since both public partners are involved in management, although with different preponderance, key elements like price levels and price structures, quality of service, and investments are periodically defined, and the risk is significantly transferred to the customers. Indeed, it seems that AdRA is similar to the other PuP companies that in general do not bear risks; risks are then transferred considerably to customers or to taxpayers. Although mitigated, the residual risks are allocated on them. Moreover, the tariffs are the “guiding stick” in accordance to the assumptions made in the economic and financial viability studies. The tariff changes according to these values in the respective quinquennial tariff reviews and to annual updates.

Additionally, affordability is an important dimension that is different than willingness-to-pay. While cost recovery via tariff increases may be essential for the sustainable operation of infrastructure utilities, it can force the poor to pay more than they can afford for the service. An economic willingness to pay does not imply that the payment is affordable or socially desirable.

5.1.3 Comparison case: The cPPP model analysis

The entity analysed, AdVouga, has a clear connection with AdRA, due to the municipalities covered being provided by both entities. In addition, following the creation of AdRA, the expansion of AdVouga’s system gained an increased strength, as the economic and ﬁnancial viability study initial assumptions were changed, particularly related to consumption forecasts, for the ones used by AdRA. Indeed, it seemed that the AdP team (working in the AdRA project) was in a better position to extrapolate consumption forecasts (consumption/ demand risk). This situation, jointly with a highlighted lack of transparency, led to some unrest in local politicians, as it was conceived

1The staﬀ performance evaluation procedures to be established, is important for personnel accountability. 84

as a clear violation of competition principles (contract duration extended without public tender), and probably, not the best deal, as a better one was thought to be attainable through public tender. Furthermore, the alleged investments included in this amendment were also conceived, by local politicians, as a way to lighten the heavy investments to be established by AdRA, without a proper follow-up in the tariffs charged (nonexistent public debate). Nonetheless, the private partner ended up being a valuable feature, as it allowed to gather extra funds from commercial banks, that otherwise would not have been possible. As for the “amended” contract design, several issues can be considered as doubtful. The existence of minimum quantities of water to be charged, is one such issue, followed by some clauses that lead to the restoration of economic and financial equilibrium, which transfer several important risks or specifically allocates them to AMCV. Further clauses identified are: the nonfulfillment of investment commitments assumed by AMCV, and unilateral changes. On the other hand, it also brought improved features. The creation of a MC enabled to simplify: monitoring (identifying clear contract violations), and a swifter application of sanctions/ penalties. Further strengths are related to the employment structure, as the existence of premiums and penalties (which are not allowed in the public sector) are what drives the performance of workers, because otherwise there is no causality. Even if there is a performance evaluation tool, without significant incentives it is not that effective. Although, there is the belief that AdVouga could bear additional risks. In the end, with this model, the relevant risk assignment between AdVouga (private operator) and AMCV (public entity - directly or through the tariffs), stand as a clear strength. Further strengths are: advantages from the access to competitive tenders, and; the numerous good practices and management tools, that jointly with specific contract clauses, allow to mitigate important risks.

5.2 Future developments

As stated in chapter 1, this work is intended to be an inceptive approach to assess good practices and key issues related to PuPs in the delivery of local IS. Accordingly, major aspects still leave room for improvement. One of such aspects is the development of an analysis covering PuPs in further countries, this way, solutions could be achieved or a greater inception could be obtained. The conclusions obtained with this document allow to assure that this model is sufficiently widespread to justify such endeavor. Besides, the relationship between different level authorities is an important step to advocate a wider range of institutional solutions and should be further studied on this basis. Another aspect is related with the need to continue monitoring these entities trying to adjust/ counter those key issues found, which should be a central matter in a future continuation of this theme. The improvement of methods that could fix those bottlenecks appears as an important objective to accomplish. Therefore the development of mechanisms which incorporate the implementation of incentives/ penalties strategies for efficiency, allowing to reach a better solution avoiding the possibility to exploit perverse incentives. Another paramount goal is to improve the model to allow a more reliable risk sharing structure, to mitigate the actual residual risk allocation on the customers. There are diversified types of PuPs (depending on contract details, as company shares), an assessment could be made on the others so as to build a more robust trend, understanding the ability of this model to reach its ends, as they are necessarily different. To design a scheme that could lead to the promotion of better public participation, taking into consideration the Portuguese environment, so as to reach better solutions and decrease doubtful contestation. Therefore it is important to continue this topic evolution, as it seems evident that this model is spreading; emerging the need to improve the model’s viability, with regard to a trustworthy solution for the public interest (in terms of both customers and, desirably, the population), as it has a paramount role in reaching Peaasar objectives. 85

Bibliography

[1] (2011). URL: europa.eu/about-eu/countries/. (consulted in 20/09/2011).

[2] (2011). URL: www.dn.pt/inicio/portugal/interior.aspx?content id=1955764. (consulted in 15/02/2012).

[3] (2012). URL: economico.sapo.pt/noticias/renegociacao-das-ppp-poupa-mil-milhoes-de-euros 151588.html. (consulted in 13/09/2012).

[4] (2012). URL: www.regiaodeagueda.com/agua-e-saneamento-agueda-endurece-posicao-contra-a-adra/. (consulted in 02/10/2012).

[5] (2012). URL: www.jn.pt/paginainicial/pais/concelho.aspx?Distrito=Aveiro &Concelho=Aveiro &Option=Interior &content id=1618365. (consulted in 01/10/2012).

[6] (2011). URL: www.transportesemrevista.com/Default.aspx?tabid=210&language=pt-PT&id=2843. (consulted in 22/05/2012).

[7] (2009). URL: www.jn.pt/paginainicial/interior.aspx?content id=1284539. (consulted in 05/03/2012).

[8] (2012). URL: www.regiaodeagueda.com/tag/agua-inquinada/. (consulted in 12/10/2012).

Abbott, M. & Cohen, B. (2009). Productivity and eﬃciency in the water industry. Utilities Policy 17, 233–244.

AdP (2012a). Relat´oriode Sustentabilidade 2011. Aguas´ de Portugal, SGPS, S.A. (tranlated as: Annual Sustainability Report).

AdP (2012b). Relat´orioe Contas 2011. Aguas´ de Portugal, SGPS, S.A. (translated as: Annual Report).

AdRA (2009a). Contrato da Parceria. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Partnership Contract).

AdRA (2009b). Contrato de Gest˜ao. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Management Contract).

AdRA (2009c). Estatutos da Sociedade. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Statutes of the Firm/ Articles of Association).

AdRA (2010). Relat´orioe Contas 2009. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Annual Report).

AdRA (2011a). Plano de Gestãode Riscos de Corrup¸cãoe Infra¸cõesConexas. Aguas´ da Regiãode Aveiro, S.A. (tranlated as: Corruption and Related Issues Risk Management Plan).

AdRA (2011b). Relat´orioe Contas 2010. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Annual Report).

AdRA (2012). Relat´orioe Contas 2011. Aguas´ da Regi˜aode Aveiro, S.A. (tranlated as: Annual Report).

AdVouga (1996). Contrato de Concess˜ao. Aguas´ do Vouga, S.A. (tranlated as: Concession Contract). 86

AdVouga (2009). Plano de Seguran¸cada Agua´ . Aguas´ do Vouga, S.A. (tranlated as: Risk Management Plan).

AdVouga (2011a). EficiênciaEnergética. Aguas´ do Vouga, S.A. (tranlated as: Energy Efficiency Report).

AdVouga (2011b). Relat´orioe Contas 2010. Aguas´ do Vouga, S.A. (tranlated as: Annual Report).

AdVouga (2011c). Sistema de Gest˜aode Qualidade. Aguas´ do Vouga, S.A. (tranlated as: Quality Management System).

AdVouga (2012). Aditamento ao Contrato de Concess˜ao. Aguas´ do Vouga, S.A. (tranlated as: Amendment to the Concession Contract).

AEAS (2006). Suministro de agua potable y saneamiento en España(2004), IX Encuesta nacional. Asociación Españolade Abastecimiento de Agua y Saneamiento, Madrid.

Akintoye, A., Beck, M. & Hardcastle, C. (2003). Public-private partnerships - Management risks and opportunities. Blackwell Science, Oxford, UK.

Andrieu, M. (2007). A Cross-Sectoral Synthesis on the Long-Term Outlook for Infrastructure Business Models, vol. 2 of Infrastructure to 2030: Mapping Policy for Electricity, Water and Transport, chap. 2. Paris: OECD.

Argento, D. (2008). Il dominio del cambiamento nella governance del servizio idrico: una comparazione fra Italia e Paesi Bassi. Cedam, Padova.

Argento, D., Grossi, G., Tagesson, T. & Collin, S.-O. (2010). The “externalisation” of local public service delivery: experience in Italy and Sweden. Int. J. Public Policy 5(1), 41–56.

Arrow, K. (1999). Forward. In: Firms, Markets and Hierarchies: The Transaction Cost Economics Perspective (Carrol, G. R. & Teece, D. J., eds.), chap. vii-viii. New York: Oxford University Press.

Asenova, D. (2010). Risk management in private finance initiative projects: The role of financial services providers. Lambert, Saarbrücken, Germany.

AuditCommission (2005). Governing partnerships: Bridging the accountability gap. Public sector National report. Audit Commission Publications.

AvfallSverige (2009). Swedish Waste Management 2009. Avfall Sverige, Malm¨o.

Baedelli, L. & Robotti, L. (2009). The water sector in Italy. Working Paper 01, CIRIEC.

Baietti, A., Kingdom, W. & van Ginneken, M. (2006). Characteristics of wellperforming public water utilities. Water Supply & Sanitation Working Notes 9, World Bank Group.

Bauby, P. & Similie, M. M. (2010). Public Services in the European Union - Public Services in the 27 Member States. In: Mapping of the Public Services. CEEP.

Belke, A. & Schneider, F. (2004). Privatisation in austria: Some theoretical reasons and ﬁrst results about the privatisation proceeds. Working Paper 1123, CESifo.

Bilodeau, N., Laurin, C. & Vining, A. (2007). Choice of Organizational Form Makes a Real Diﬀerence: The Impact of Corporatization on Government Agencies in Canada. Journal of Public Administration Research and Theory 17(1), 119–147. 87

Boardman, A. E. & Vining, A. R. (1989). Ownership and performance in competitive environments: A comparison of the performance of private, mixed, and state-owned enterprises. Journal of Law and Economics 32(1), 1–33.

Bourgon, J. (2008). The Public Service of 2025 - Themes, Challenges and Trends: Human Resources Management Trends in OECD Countries. OECD, Quebec City.

Brown, T. & Potoski, M. (2003). Managing Contract Performance: A Transactions Approach. Journal of Policy Analysis and Management 22(2), 275–297.

Canete,˜ O. R. & Menendez,´ D. D. (2009). The Water Sector in Spain. Working Paper 04, CIRIEC.

Carlsson, B. & Stankiewicz, R. (1991). On the nature, function and composition of technological systems. J. Evol. Econ. 1(2), 93–118.

Chadwick, E. (1859). Results of different principles of legislation and administration in Europe: of competition for the field, as compared with the competition within the field of service. Journal of the Royal Statistical Society 22A, 381–420.

Christensen, T. & Lægreid., P. (2007). Transcending New Public Management: The Transformation of Public Sector Reforms. Ashgate, Hampshire.

Clifton, J., Com´ın, F. & Fuentes, D. D. (2003). Privatisation in the EU: public enterprises and integration.

COM (2003). 270 ﬁnal. Tech. rep., Green Paper on Services of General Interest. Commission of the European Communities.

Confservizi (2006). Annuario Associate 2006 - Le gestioni del sistema Confservizi. Roma.

Correia, T. & Marques, R. C. (2011). Performance of portuguese water utilities: how do ownership, size, diversiﬁcation and vertical integration relate to eﬃciency? Water Policy 13, 343–361.

Corte dei Conti 2006 (2008). Sezione delle Autonomie - Stato dei Controlli della Corte dei Conti sugli Organismi Partecipati dagli Enti Locali. Deliberazione n.13.

Crozet, Y. (2007). Strategic Issues for the Future Funding and Operation of Urban Public Transport Systems, vol. 2 of Infrastructure to 2030: Mapping Policy for Electricity, Water and Transport, chap. 6. Paris: OECD.

Cruz, N. (2008). Viabilidade das Empresas Municipais na Presta¸c˜aode Servicos de Infra-estruturas Urbanas. Mas- ter’s thesis, Instituto Superior T´ecnico(IST-UTL). Supervisor: Rui C. Marques.

Cruz, N. (2010). Financiamento de Infra-estruturas Municipais. Powerpoint lecture for Project Management and Contracts, IST-UTL, Lisbon. (4th of June).

Cruz, N. (2011). Acesso ao mercado, partilha de riscos e gest˜aode contratos em PPPs nos munic´ıpios. Powerpoint lecture for Parcerias P´ublico-Privadas a N´ıvelMunicipal course, IST-UTL, FunDEC, Lisbon. (1st of March).

Cruz, N. & Marques, R. C. (2012). Mixed Companies and Local Governance: No man can serve two Masters. Public Administration 90(3), 737–758.

Cruz, N. F., Berg, S. V. & Marques, R. C. (2011). Governan¸cade servi¸cosde infra-estruturas locais nos EUA. Revista Portuguesa de Estudos Regionais 28(3), 71–80. 88

Cruz, N. F. & Marques, R. C. (2010). Uma an´aliseswot ao modelo de empresa municipal em Portugal. Estudos Regionais 20, 173–192.

DCLG (2006). Shared Services and Public/Public Partnerships, vol. 3 of Rethinking Service Delivery. London: DCLG Publications.

Demmke, C., Hammerschmid, G. & Meyer, R. (2006). Decentralisation and accountability as focus of public administration modernisation. European Institute of Public Administration, Vienna.

Dexia (2004). Local Public Companies in the 25 Countries of the European Union. Paris.

Dexia (2008). Les collectivitésterritoriales dans l’Union européenne- Chiffres de 2005. Paris.

DG-ECFIN (2011). The Economic Adjustment Programme for Portugal. Occasional Papers 79.

DGAL (2010). Entidades Participadas pelos Munic´ıpiosPortugueses. DGAL, Lisbon.

Diathesopoulos, M. (2010). Relational contract theory and management contracts: A paradigm for the application of the Theory of the Norms. Munich Personal RePEc Archive.

DiMaggio, P. & Powell, W. (1983). The iron cage revisited: institutional isomorphism and collective rationality in organisational ﬁelds. American Sociological Review 48(2), 147–160.

E.Control (2004). Marktbericht 2004. Energie-Control Ltd, Vienna.

E.Control (2006). Jahresbericht 2005. Energie-Control Ltd, Vienna.

Emblemsv˚ag, J. & Kjølstad, L. E. (2002). Strategic risk analysis - a ﬁeld version. Management Decision 40(9), 842–852.

ERSAR (2010a). Avalia¸c˜aoda Qualidade do Servi¸coPrestado aos Utilizadores, vol. 3 of Relat´orioAnual do Sector de Aguas´ e Res´ıduosem Portugal. ERSAR.

ERSAR (2010b). Caracteriza¸cãoEconómica e Financeira do Sector, vol. 2 of RelatórioAnual do Sector de Aguas´ e Res´ıduosem Portugal. ERSAR.

ERSAR (2010c). Caracteriza¸c˜aoGeral do Sector, vol. 1 of Relat´orioAnual do Sector de Aguas´ e Res´ıduos em Portugal. ERSAR.

ERSAR (2010d). Sum´arioExecutivo. Relat´orioAnual do Sector de Aguas´ e Res´ıduosem Portugal. ERSAR.

ERSAR (2011). Encargos dos utilizadores finais domésticos com os servi¸cospúblicos de águase res´ıduosem 2011. Entidade Reguladora dos Servi¸cosde Aguas´ e Res´ıduos,Lisboa.

Farsi, M. & Filippini, M. (2009). An analysis of cost eﬃciency in Swiss multi-utilities. Energy Economics 31, 306–315.

Fetz, A. & Filipinni, M. (2010). Economies of Vertical Integration in the Swiss Electricity Sector. Energy Economics 32(6), 1325–1330.

Fligstein, N. & Choo, J. (2005). Law and Corporate Governance. Annu. Rev. Law Soc. Sci. 1, 61–84.

Franco, A. L. S. (1987). Finan¸casP´ublicas e Direito Financeiro. Edi¸c˜oesS´ılabo, Coimbra. 89

Freire, A. (2004). Estrat´egia:sucesso em Portugal. Editorial Verbo, Lisboa.

Froud, J. (2003). The Private Finance Initiative: risk, uncertainty and the state. Account. Org. Soc. 28(6), 567–589.

Garcia, S., Moreaux, M. & Reynaud, A. (2007). Measuring economies of vertical integration in network industries: An application to the water sector. Int. J. Ind. Organ. 25, 791–820.

Goldsmith, S. & Eggers, W. (2004). Governing by Network. The New Shape of the Public Sector. The Brookings Institution, Washington.

Grossi, G. (2004). Governance, responsabilit`ae controlli nei gruppi comunali. Azienda pubblica , 547–563.

Grossi, G. (2007). Governance of public-private corporations in the provision of local utilities in the Italian case. International Public Management Review 8(1), 130–151.

Guasch, J. (2004). Granting and Renegotiating Infrastructure Concession: Doing It Rights. World Bank Publica- tions, Washington DC.

Guislain, P. & Kerf, M. (1996). Concessions - The Way to Privatize Infrastructure Sector Monopolies. In: Private sector Infrastructure. The World Bank Group, Washington DC, pp. 21–24.

Hall, D., Lethbridge, J. & Lobina, E. (2005). Public-public partnerships in health and essential services. Discussion Paper 23, PSIRU.

Hermann, C. & Verhoest, K. (2007). Varieties and Variations of Public Service Liberalisation and Privatisation in Europe. In: Synthesis report on liberalisation and privatisation processes and forms of regulation. PIQUE.

Hofbauer, I. (2006). Liberalisation, privatisation and regulation in the austrian electricity sector. Research Re- port 13, FORBA.

Hood, C. (1995). The New Public Management in the 1980s: variations on a theme. Accounting, Organisations and Society 20(2-3), 93–109.

Houben, G., k. Lenie & Vanhoof, K. (1999). A knowledge-based SWOT-analysis system as an instrument for strategic planning in small and medium sized enterprises. Decision Support Systems 26(2), 125–135.

Hughes, O. (2003). Public Management and Administration. An Introduction. Palgrave Macmillan, New York, 3rd ed.

IGAE (2009). Sector P´ublico Empresarial y Fundacional - Composici´ony estructura 2009.

Iglesias, G., del R´ıo, P. & Angel´ Dopico, J. (2011). Policy analysis of authorisation procedures for wind energy deployment in Spain. Energy Policy 39, 4067–4076.

INE (2011). Censos 2011 - Resultados provis´orios. Lisboa.

IPPR (2001). Building Better Partnerships: the ﬁnal report of the Commission on Public Private Partnerships. Institute for Public Policy Research, London.

ISEG (2011). Consultoria T´ecnicapara elabora¸c˜aodo Livro Branco do Sector Empresarial Local. Final report, ISEG-UTL. 90

ISO (2009). Principles and guidelines on implementation. ISO 31000. International Organization for Standardization, Geneva.

Johannsen, K., Pedersen, L. & Sorensen, E. (2004). Independent Regulatory Authorities - a Comparative Study of European Energy Regulators. AKF Forlaget, Copenhagen.

Kaufmann, D. (2002). Transparency, Incentives and Prevention (TIP) for Corruption Control and Good Governance. Empirical Findings, Practical Lessons, and Strategies for Action based on International Experience. The World Bank, Washington DC. Background Paper for Qinghua University-Carnegie Conference, Beijing, April 11-12th, 2002.

Klien, M. (2009). Water Services in Austria. Working Paper 09, CIRIEC.

Klien, M. & Loser, P. (2009). Austrian waste sector. Working Paper 10, CIRIEC.

KPC (2007). Database 2007. Kommunalkredit Public Consulting GmbH, Vienna.

KPC (2009). Report on measures to cope with over-fragmentation in the water supply and sanitation sector, OECD Final Report. Kommunalkredit Public Consulting GmbH, Vienna.

Larsen, A., Pedersen, L. H., Sørensen, E. M. & Olsen, O. J. (2010). Independent regulatory authorities in europe. Tech. rep., akf - Institute of Local Government Studies, Copenhagen.

Linhos, R. (2006). Das Management des kommunalen Konzerns. Zeitschrift füröffentlicheund gemeinwirtschaftliche Unternehmen (ZögU) (4), 367–389.

Lorrain, D. & Stoker, G. (1997). The Privatization of Urban Services in Europe. Pinter, London.

Lopez,´ A. N. (2007). The relationship between central and local authorities. In: Report of the European Committee on Local and Regional Democracy (CDLR).

Lynn, L. E. (2001). The Myth of the Bureaucratic Paradigm: What Traditional Public Administration really Stood for. Public Administration Review 61(2), 144–160.

Macneil, I. (1978). Contracts: Adjustment of Long-Term Economic Relations under Classical, Neoclassical, and Relational Contract Law. Northwestern University Law Review 72(6), 854–905.

Maldonado, I. (2003). O Processo de Descentraliza¸cãonas Autarquias Locais e a Consolida¸cãode Contas. XIII Jornadas Hispano - Lusas de GestiónCient´ıfica , 301–308.

Malerba, F. (2002). Sectoral systems of innovation and production. Res. Policy 31(2), 247–264.

Marcou, G. (2007). Local authority competences in Europe. In: Report of the European Committee on Local and Regional Democracy (CDLR).

Marcou, G. & Wollman, H. (2008). Europe. In: Decentralization and local democracy in the world - First Global Report by United Cities and Local Governments. pp. 128–167.

Markard, J. (2009). Characteristics of infrastructure sectors and implications for innovation processes. Tech. rep., Cirus.

Markard, J. (2011). Transformation of Infrastructures: Sector Characteristics and Implications for Fundamental Change. Journal of Infrastructure Systems 17(3), 107–118. 91

Marques, R. & Simoes,˜ P. (2008). Does the sunshine regulation approach work? Governance and regulation model of the urban waste services in Portugal. Resources Conservation and Recycling 52(8-9), 1040–1049.

Marques, R. C. (2005). Regula¸cãode servi¸cospúblicos. Edi¸cõesS´ılabo, Lisbon.

Marques, R. C. (2008). Comparing private and public performance of portuguese water services. Water Policy 10, 25–42.

Marques, R. C. & Berg, S. V. (2010). Revisiting the Strengths and Limitations of Regulatory Contracts in Infrastructure Industries. J. Infrastruct. Syst. 16(4), 334–342.

Marques, R. C. & Berg, S. V. (2011a). Public-Private Partnership Contracts: A Tale of Two Cities with Diﬀerent Contractual Arrangements. Public Administration 89(4), 1585–1603.

Marques, R. C. & Berg, S. V. (2011b). Risks, Contracts, and Private-Sector Participation in Infrastructure. Journal of Construction Engineering and Management 137(11), 925–932.

Marques, R. C. & Witte, K. D. (2010). Is Big Better? On Scale and Scope Economies in the Portuguese Water Sector. Economic Modelling 28, 1009–1016.

Massarutto, A. (2010). Municipal waste management in Italy. Working Paper 01, CIRIEC.

Mattisson, O., Paulsson, G. & Tagesson, T. (2003). Sweden. In: Reforming Governmental Accounting and Budgeting in Europe (Luder,¨ K. & Jones, R., eds.), chap. 8. Frankfurt: Fachverlag Moderne Wirtschaft.

Mattisson, O. & Thomasson, A. (2010). The water sector in Sweden. Working Paper 12, CIRIEC.

Menard, C. (1996). Why Organizations Matter: A Journey Away from the Fairy Tale. Atlantic Economic Journal 24(4), 281–300.

Menendez,´ D. D. & Canete,˜ O. R. (2010). The Spanish Waste Sector: Waste Collection, Transport and Treatment. Working Paper 03, CIRIEC.

Morgan, T. (2007). Assessing the Long-Term Outlook for Business Models in Electricity Infrastructure and Services, vol. 2 of Infrastructure to 2030: Mapping Policy for Electricity, Water and Transport, chap. 3. Paris: OECD.

Norton, A. (1993). International Handbook on local and regional government. A comparative analysis of advanced democracies. Edward Elgar, London.

ODPM (2004). Risk Management. Technical Notes - Strategic Partnering Taskforce Structures. London: Oﬃce of the Deputy Prime Minister.

OECD (1994). OECD Economic surveys: Portugal 1994. OECD Publishing.

Palaniappan, M., Cooley, H., Gleick, P. H. & Wolff, G. (2007). Water Infrastructure and Water-related Services: Trends and Challenges Aﬀecting Future Development, vol. 2 of Infrastructure to 2030: Mapping Policy for Electricity, Water and Transport, chap. 4. Paris: OECD.

Piacenza, M. & Vannoni, D. (2004). Choosing among Alternative Cost Function Speciﬁcations: An Application to Italian Multi-Utilities. Economic Letters 82(3), 415–422.

Pina, V. & Torres, L. (2001). Analysis of the eﬃciency of local government services delivery. An application to urban public transport. Transportation Research Part A 35, 929–944. 92

PLMJ (2009). Guia de Investimento (Investment Guide). PLMJ, Sociedade de Advogados, RL, Portugal.

PMI (2008). A guide to the project management body of knowledge. Newton Square, PA: Project Management Institute, 4 ed.

Portugal (2011). Livro Branco do Sector Empresarial Local (SEL). Minister Assistant and for Parliamentary Aﬀairs, Lisbon.

Protocol No 26 (2008). On Services of General Interest. Oﬃcial Journal C 115 of 09.05.2008.

Queiros,´ M. & Vale, M. (2005). Ambiente Urbano e Interven¸c˜aoP´ublica: O Programa Polis. AGP X Iberic Coloquium, Evora.´

Reeves, E. (2011). The Only Game in Town: Public Private Partnerships in the Irish Water Services Sector. The Economic and Social Review 42(1), 95–111. Policy Paper.

Regulski, J. (2010). A Practical Guide to Building Local Government - The Polish Experience. Local Government and Public Service Reform Initiative, Open Society Institute, Budapest. (Annemarie Haar and William Haar, trans.).

Reichard, C. (2006). Strengthening competitiveness of local public service providers in Germany. International Review of Administrative Sciences 72(4), 473–492.

Riccaboni, A. (2003). Interessi pubblici e privati nel settore idrico: Le attivitàdi pianificazione e controllo. In: Acqua: Fra Incidenza Sociale ed Efficienza Gestionale (Riccaboni, A., ed.). Il Ponte Editore, pp. 323–353.

Rocha, J. A. O. & Araujo,´ J. F. (2006). Administrative reform in Portugal: prospects and dilemmas. EGPA Annual Conference, Milan, Italy.

Rodrigues, M., Araujo,´ J. & Tavares, A. (2009). Municipal Service Delivery: The Role of Transaction Costs in the Choice between Alternative Governance Mechanisms. EGPA Annual Conference, Malta.

Rodrigues, N. C. (2004). “Golden-Shares” As empresas participadas e os privil´egiosdo estado enquanto accionista minorit´ario. Coimbra Editora.

Ropenus, S. & Jensen, S. G. (2009). Support schemes and vertical integration-Who skims the cream? Energy Policy 37, 1104–1115.

Savary, G. (2005). L’Europe va-t-elle d´emantelerles services publics? L’Aube.

SCB (2007a). Oﬀentlig Ekonomi 2007 (translated as: Public Sector Finances). Statistiska Centralbyr˚an(Statistics Sweden), Stockholm.

SCB (2007b). Offentligt Agda¨ Företag 2006 (translated as: Publicly Owned Enterprises, 2006) Serie Offentlig ekonomi - OE27SM0601. Statistiska Centralbyr˚an(Statistics Sweden), Stockholm.

SCB (2008). Public Finances in Sweden 2008. Statistiska Centralbyr˚an(Statistics Sweden), Stockholm.

SCB (2010). Offentligt ägdaföretag 2010 (translated as: Publicly owned enterprises 2010) Serie Offentlig ekonomi - OE27SM1101. Statistiska Centralbyr˚an(Statistics Sweden), Stockholm.

Segalla, P. (2006). Kommunale Daseinsvorsorge. Vienna. 93

Stevens, B. & Schieb, P.-A. (2007). Infrastructure to 2030: Main Findings and Policy Recommendations, vol. 2 of Infrastructure to 2030: Mapping Policy for Electricity, Water and Transport, chap. 1. Paris: OECD.

Stone and Webster Consultants (2004). Investigation into Evidence for Economies of Scale in the Water and Sewerage Industry in England and Wales. Final Report, OFWAT.

Strategor (1995). Pol´ıtica global da empresa: estrat´egia,estrutura, decis˜ao,identidade. C´ırculode Leitores, Lisboa.

Stumm, T. (1997). Comparing alternative service delivery modes: Municipal enterprises require special consideration. Journal of Urban Aﬀairs 19(3), 275–289.

Taleai, M., Mansourian, A. & Sharifi, A. (2009). Surveying general prospects and challenges of GIS implementation in developing countries: a SWOT-AHP approach. Journal of Geographical Systems 11(3), 291–310.

Tavares, A. & Camoes,˜ P. (2005). New Forms of Local Governance: A Theoretical and Empirical Analysis of the Case of Portuguese Municipal Corporations. Midwest Political Science Association Conference, Chicago, Illinois.

Peaasar-ii (2007). Plano Estratégico do Abastecimento de Agua´ e Saneamento de Aguas´ Residuais 2007-2013. Ministériodo Ambiente do Ordenamento do Territórioe do Desenvolvimento Regional, 1 ed.

Torres, L. & Pina, V. (2002). Changes in public service delivery in the EU countries. Public Money & Management 22(4), 41–48.

Urakami, T. (2007). Economies of vertical integration in the Japanese water supply industry. ahrbuch f¨urRegion- alwissenschaft 27(2), 129–141.

Urbano, P. M., Rua,´ A. R., Gutierrez,´ J. I. S. & Losantos, G. A. (2010). Spanish Local and Regional Public Transport. Working Paper 02, CIRIEC.

Utilitatis (2008). Green Book. Roma. (www.utilitatis.org).

Vallesp´ın, E. M. & Gianfelici, C. (2011). El fenómeno de las sociedades municipales: un estudio comparativo de su evolucióny gobernanza en Italia y España. Presupuesto y Gasto Público 65, 131–158.

Valotti, G. (2006). I nuovi modelli di corporate governance delle imprese pubbliche locali. In: Evoluzione Delle Imprese Pubbliche Locali (Elefanti, M., ed.). Bologna: Il Mulino, pp. 95–143.

Vining, A. R. & Boardman, A. E. (2008). Public-Private Partnerships Eight Rules for Governments. Public Works Management & Policy 13(2), 149–161.

Warner, M. E. & Bel, G. (2008). Competition or Monopoly? Comparing Privatization of Local Public Services in the Us and Spain. Public Administration 86(3), 723–735.

Wettenhall, R. (2001). Public or private? Public corporations, companies and the decline of the middle ground. Public Organization Review: A Global Journal 1(1), 17–40.

Wettenhall, R. (2003). Exploring types of public sector organizations: past exercises and current issues. Public Organization Review: A Global Journal 3(3), 219–245.

WIFO (2002). Nachhaltige Nutzung der Wasserressourcen - Institutionelle und Okonomische¨ Voraussetzungen. Vi- enna. 94

Williamson, O. E. (1975). Markets and Hierarchies: Analysis and Antitrust Implications. Free Press, New York.

Williamson, O. E. (2002). The Theory of the Firm as Governance Structure: From Choice to Contract. Journal of Economic Perspectives 16(3), 171–195.

Williamson, O. E. (2010). Transaction Cost Economics: The Natural Progression. American Economic Review 100(3), 673–690.

Zatti, A. (2011). New organizational models in European Local public transport: from myth to reality. Working Paper 06, CIRIEC. 95

Appendix A Sources of national law on Infrastructure services (updated as of 2010)

Table A.1: Austria (AT) - Legal sources (adapted from Bauby & Similie, 2010)

Sector Legal references Web sites Telecommunications Telekommunikationsgesetz (telecommunications Act) www.rtr.at

Postal services Postgesetz (post Act) www.post.at

Production of electricity Elektrizit¨atswirtschafts und organisationsgesetz www.e-control.at (electricity industry and organisation Act)

Elektrizit¨atswirtschafts und organisationsgesetz Electric networks (electricity industry and organisation Act) www.e-control.at Transport/ distribution Starkstromwegegesetz (electric power lines Act)

Marketing of Elektrizit¨atswirtschafts und organisationsgesetz www.e-control.at electricity (electricity industry and organisation Act)

Gas Gaswirtschaftsgesetz (gas industry act) www.e-control.at Transport/distribution

Marketing of gas Gaswirtschaftsgesetz (gas industry act) www.e-control.at

Bundesbahngesetz (OBB¨ Act), Eisenbahngesetz (railroad Act) Railway transport Oﬀentlicher¨ Personennah und Regionalverkehrs gesetz www.bmvit.gv.at/ of passengers (public passenger local and regional transport Act) verkehr/eisenbahn/

Freight rail transport Bundesbahngesetz (OBB¨ Act) www.bmvit.gv.at/ Eisenbahngesetz (railroads Act) verkehr/eisenbahn/

Regional and local Oﬀentlicher¨ Personennah- und Regionalverkehrsgesetz www.bmvit.gv.at/ transport of passengers (public passenger local and regional transport Act) verkehr/nahverkehr/

Air transport Luftfahrtgesetz (air transport Act) www.austrocontrol.at Austro Control Gesetz (Austro Control Act)

Inland water transport Schiﬀfahrtsgesetz (water transport Act) www.bmvit.gv.at/ verkehr/schiﬀfahrt/binnen/

Maritime transport Seeschiﬀfahrtsgesetz (maritime transport Act) www.bmvit.gv.at/ verkehr/schiﬀfahrt/see/

Public BGBl. I Nr.1/1930 and its amendments www.ris.bka.gv.at/ administration Federal Constitutional Law 96

Table A.2: Spain (ES) - Legal sources (adapted from Bauby & Similie, 2010)

Sector Legal references Web sites Telecommunications General Law 32/2003 of telecommunications www.cmt.es

Postal services Law 14/2008 www.correos.es

Production of electricity Law 54/1997 electric sector www.cne.es

Electric networks Law 54/1997 electric sector www.cne.es (transport- distribution)

Marketing of electricity Law 54/1997 electric sector www.cne.es

Gas transport-distribution Law 34/1998 hydrocarbons sector www.cne.es

Railway transport Law 39/2003 railway sector www.adif.es of passengers

Freight rail transport Law 39/2003 railway sector www.adif.es

Regional and local Law 39/2003 railway sector www.adif.es transport of passengers

Air transport Law 4/1990 www.aena.es

Water Diﬀerent Local framework

Waste water Diﬀerent Local framework

Heating Diﬀerent Local framework

Broadcasting Law 17/2006 on radio and television (state ownership) www.rtve.es Several Regional norms (regional ownership)

Public Ley de 1985 and amendments on Local adminitration http://www.060.es administration 97

Table A.3: Italy (IT).1 - Legal sources (adapted from Bauby & Similie, 2010)

Sector Legal references Web sites Law n. 249/1997 foundation of “Autorit`aper le Garanzie nelle Comunicazioni” (AGCOM) www.comunicazioni.it Telecommunication D.M. 25th november 1997 on individual authorization www.sviluppoeconomico.gov.it L. n. 59/2002 on the provision of internet service www.agcom.it D.Lgs. n. 259/2003, “Code of electronic communications” D.Lgs. n. 82/2005 “Code of digital administration”

D.L. n. 487/1993 conv. L. n. 71/1994 “Transformation of post and telecommunication Adm. in public economic authority and reorganization of Department” www.comunicazioni.it Postal services Decision CIPE n.244/1997 “Ente Poste Italiane” becomes a S.p.A. www.sviluppoeconomico.gov.it D.M. n. 75/2000 “Regulation of general authorizations” www.poste.it D.M. 12 maggio 2006 “Mail on universal postal services Tariﬀs and prices of internal and foreign sending”

L.n. 9/1991 “National Energy Plan” L.n. 481/1995 Autorit`aper l’energia elettrica e il gas (AEEG) D.Lgs. n. 112/1998 Regional and local competencies www.autorita.energia.it Production of related to energy wholesale and retail services www.enel.it electricity with the exception of the State reserved ones www.terna.it D.Lgs. n. 79/1999 Implementation of directive 96/92/CE www.gse.it (internal market of electricity) www.sviluppoeconomico.gov.it D.L. 239/2003 conv. L. 290/2003 Safety and development L. n. 239/2004 “Reorganization of electricity service”

D.Lgs. n. 79/1999 Implementation of directive 96/92/CE www.sviluppoeconomico.gov.it Electric networks (internal elecricity market) www.autorita.energia.it (Transport/distribution) D.L. 239/2003 conv. L. 290/2003 Safety and development www.enel.it L.n. 239/2004 “Reorganization of electricity service”

www.sviluppoeconomico.gov.it Marketing of D.Lgs. n. 79/1999 Implementation of directive 96/92/CE www.tesoro.it electricity (internal elecricity market) www.autorita.energia.it www.acquirenteunico.it www.mercatoelettrico.org

L.n. 481/1995 Autorit`aper l’energia elettrica e il gas (AEEG) Gas networks D.Lgs. n.164/2000 Implementation of directive n. 98/30/CE www.autorita.energia.it (Transport/distribution) (internal natural gas market) in accordance with www.acquirenteunico.it art. 41 of L.N. 144/1999 L.n. 239/2004 Reorganization of electricity service

D.Lgs. n. 625/1996 Implementation of directive 94/22/CEE authorizations in the hydrocarbons sector www.sviluppoeconomico.gov.it Marketing of D.Lgs. n.164/2000 Implementation of directive n. 98/30/CE www.autorita.energia.it Gas (internal natural gas market) in accordance with www.eni.com art. 41 of L.N. 144/1999 www.stogit.i L.n. 239/2004 Reorganization of electricity service

L. n. 210/1985 “Ferrovie dello Stato” D.Lgs. n. 188/2003 Implementation of directives www.trenitalia.it Railway transport 2001/12/CE, 2001/13/CE and 2001/14/CE www.trasporti.gov.it of passengers L.n. 194/1998 Interventions in the transport sector www.mit.gov.it D.Lgs. n.163/2007 Implementation of directive 2004/50/CE (Interoperabilit`adel Sistema ferroviario Transeuropeo)

Freight rail D.Lgs. n.41/1999 Freight rail dangerous transport www.trasporti.gov.it transport (Implementation of directives 96/49/CE e 96/87/CE) www.trenitalia.it 98

Table A.4: Italy (IT).2 - Legal sources (adapted from Bauby & Similie, 2010)

Sector Legal references Web sites

d.P.R. n.5/1972 Devolution of regional functions d.P.R. n.616/1977 in accordance with art.1 of L.22 382/1975 Regional/ local L.n. 151/1981 Regulation, reorganization and improvement transport of D.Lgs. n.422/1997 Devolution of local transport functions www.trasporti.gov.it passengers D.Lgs. n.345/1998 regional and local functions www.mit.gov.it L.n. 194/1998 Interventions in the transport service D.L. n.400/1999 Modiﬁcation to D.L. 422 D.Lgs. n.267/2000 Rules regarding local authorities

R.D. 30 marzo 1942, n.327 Code of Navigation Air transport L.n. 194/1998 Interventions www.trasporti.gov.it Convention of Montreal del 1999 Community Regulationsn.2027/97, n.889/2002, and n.261/2004

R.D. n.327/1942 Regulation Inland water d.P.R. n.5/1972 Devolution of regional functions transport d.P.R. n. 616/1977 and D.Lgs. n.112/1998 www.trasporti.gov.it L.n. 16/2000 European agreement (Ginevra, 19/01/1999) Regional Laws in implementation of D.Lgs. n.112/1998

Maritime R.D. n.327/1942 Code of Navigation transport D.Lgs. n.45/2000 Implementation of directive 98/18/CE www.trasporti.gov.it (regulation and safety rules)

R.D. n.1775/1933 regulation L.n. 183/1989 Rules about protection of public land L.n.36/1994 water resources Water D.Lgs. n.31/2001 Implementation of directive 98/83/CE www.mit.gov.it (quality of water for human use) D.Lgs. n.195/2005 Implementation of directive 2003/4/CE (access to environmental informations) D.Lgs. n.152/2006 and D.Lgs. n.284/2006 Environment

L.n. 319/1976 Protection from pollution L.n. 183/1989 Protection of public land Waste water D.P.C.M. 04.03.1996 Water resources www.mit.gov.it D.Lgs. n.152/1999 as modiﬁcated by D.Lgs. n.258/2000 Directive 91/271/CEE Treatment of urban waste water

Heating As for electricity and gas legal references

Law n.223/1990 Regulation of broadcasting system Law n.249/1997 Autorit`aper le Garanzie nelle Comunicazioni (AGCOM) Law n.5/2000 Local broadcasting activities Broadcasting D.Lgs. n.259/2003 Code of electronic communications www.comunicazioni.it Law n.112/2004 RAI-Radiotelevisione italiana S.p.A. www.sviluppoeconomico.gov.it D.Lgs. n.177/ 2005 www.agcom.it D.Lgs. n.82/2005 Code of digital administration D.Lgs. n.9/2008 Regulation of sports audiovisual D.M. n.33827/2008

National public Italian Constitution administration L.Cost. n.3/2001 Modiﬁcations to the Constitution www.governo.it L. n.131/2003 Adjustments to L.Cost. n.3/2001

Regional/ local D.Lgs. n. 267/2000 Local authorities public L.Cost. n.3/2001 Modiﬁcations to the Constitution www.aﬀariregionali.it administration L. n.131/2003 Adjustments to L.Cost. n.3/2001 99

Table A.5: Sweden (SE) - Legal sources (adapted from Bauby & Similie, 2010)

Sector Web sites Telecommunications www.pts.se/en-gb/

Postal services www.pts.se/en-gb/

www.energimarknadsinspektionen.se/ Production of electricity Energy-Markets-Inspectorate/ www.energimyndigheten.se/en/

Electricity networks (transport-distribution) www.energimarknadsinspektionen.se/ Energy-Markets-Inspectorate/

Gas transport-distribution www.energimarknadsinspektionen.se/ Energy-Markets-Inspectorate/

Railway transport of passengers www.rikstraﬁken.se/ www.transportstyrelsen.se/en/

Freight rail transport www.transportstyrelsen.se/en/

Regional and local transport of passengers www.rikstraﬁken.se/Article.aspx?a=5&c=5

Air transport www.transportstyrelsen.se/en/

Inland water transport www.transportstyrelsen.se/en/

Maritime transport www.transportstyrelsen.se/en/

Water www.va-namnden.se/summary/default.asp

Waste water www.va-namnden.se/summary/default.asp

Broadcasting www.rtvv.se/uk/start/

www.kammarkollegiet.se/eng/kk english.html National public administration www.lst.se/lst/en/ www.statskontoret.se/default309.aspx

Regional or local public administration www.skl.se/startpage en.asp?C=6390

Local administration Act www.regeringen.se/content/1/c6/03/91/65/16f96742.pdf

101

Appendix B Sources of Community law on Infrastructure services (mainly updated as of 2010)

Table B.1: Europe (EU) - Legal sources (adapted from Bauby & Similie, 2010)

Subject matter Treaties, Secondary law, Communications (selective list) Quality framework for Services of General Interest 2011 Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, signed at Lisbon, 13/12/2007, OJ n◦ C 306 of 17/12/2007 (consolidated version 2008) and Protocol n◦ 26 on services of general interest annexed to the Lisbon Treaty

Treaty establishing the European Community, consolidated version, OJ no C 321 of 29 December 2006 - in particular, Article 16 and Article 86

Charter of Fundamental Rights of the European Union, OJ n◦ C 303 of 14 December 2007 - in particular, article 36

Directive 2006/123/CE of the European Parliament and of the Council SGIs-SGEIs-SSGIs of 12 December 2006 on services in the internal market, OJ n◦ L 376 of 27 December 2006

Communication from the Commission accompanying the Communication on “A single market for 21st century Europe” - Services of general interest, including social services of general interest: “a new European commitment” COM(2007) 725 final: the SGIs “can be defined as the services, both economic and non-economic, which the public authorities classify as being of general interest and subject to specific public service obligations.”

Communication from the Commission. White Paper on services of general interest - COM(2004) 374 ﬁnal

Green Paper on services of general interest (Presented by the European Commission) - COM(2003) 270 ﬁnal Directive 2004/18/CE of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts, OJ N◦ L 134 of 30.4.2004 Management Green Paper on public-private partnership Community law on public contracts and concessions

Interpretative Communication on the concession under Community law of 29 April 2000, OJ N◦ C 121 of 29.04.2000

103

Appendix C Social tariﬀs/prices & General contributions attributed to SGIs per country

Table C.1: Sectors covered by Social tariﬀs/prices & General contributions (adapted from Bauby & Similie, 2010)

Coutry Social tariffs/prices Public contributions CO Austria Electricity, Railways, Heating, Broadcasting Railway transport(Pa) (30-40%) G and other SGIs not enclosed in this study (F)rail transport (30-40%) G Spain Electricity (R/L)transport(Pa), Wastewater R/L Heating,Water, Broadcasting R/L Electricity(P),Railway transport(Pa) C (F)rail transport, Broadcasting C Italy Telecom, Electricity, (R/L)transport, Railways (R/L)transport(Pa), Broadcasting G and other SGIs not enclosed in this study Portugal Water, Electricity, (L)transport, Railway(Pa)transport (R/L)transport1,Air transport2, G Water3,Wastewater3,Broadcasting4 G Sweden Other SGIs not enclosed in this study Postal services, Broadcasting C (R)transport(Pa) R Electricity(P), (L)transport(Pa), L Gas (T/D), Water, Wastewater, L Heating, Broadcasting L 1- metropolitan transports, 2- on flights to the furthest parts of Portugal, 3- some cases and 4- public operator Interpretation: (F)- Freight, (Pa)- of passengers, (P)- Production, (T/D)- Transport and distribution, (R/L)- Regional and/or local, C- Central, CO- Contribution’s origin and G- General. 1stNote: The Broascasting sector, in addition to the specified subsidies, is mainly financed by operators. 2ndNote: The public contributions are vast for each country, mainly in other SGI services (e.g. SSGI).

105

Appendix D Sector characteristics and trends

Table D.1: Comparison of telecommunications, electricity and water (adpt. from Bauby & Similie, 2010)

Telecommunications Electricity Water Basic features Multi-pole networks, each consumer is Production - transport - distribution Resource - treatment - transport producer. Increasing storage capacity - ﬁnal consumption. No storage - consumption. Cycle of water. Limited storage Terms of reference Globalisation Globalisation Watersheds Organising authority National or regional National or regional Local Community standards Internal market Internal market Environment and public health Production High cost: extraction, treatment, Low cost of production of message Very high level. High investment conformity to standards ... High investments Interconnection Generalised global Generalised continental Limited Transport Multiple means (wired, wireless, Natural monopoly of networks of Natural monopoly of supply chain satellite, cable, electrictal circuits, transport and distribution. and distribution. High costs and etc.) Technological progress and lower Third party access. Increasing costs relatively stable. High maintenance unit costs. Maintenance costs with distance (losses) costs. Leaks Payment of transport Integrated in the contract Integrated Integrated Distribution Possible unbundling Natural monopoly networks - third Integrated person access Marketing By Provider By Provider By Provider Provider In competition In competition Monopoly to the level of the organising authority Global payment of the service By the issuer By the consumer By the consummer Possible competition Selection by organising authority Compulsory. In service Compulsory. In service between “in house” and outsourcing. For the service in case of outsourcing Technological progress Rapid Fairly slow Slow Trends in unit costs Rapid decline Stability and increases due to Stability and rising because of production standards Providers Global groups integrated + “small” Global groups + “small” Local companies + large multi-service groups Industrial organisation European oligopoly European oligopoly Multiplicity of local companies + several large groups

107

Appendix E Detailed data on service contribution per country

Table E.1: Service contribution to GDP/ Workforce employment (adpt. from Bauby & Similie, 2010)

Contribution to Austria Spain Italy Sweden Portugal Total GDP/Workforce employment (%) (AT) (ES) (IT) (SE) (PT) EU Elect. Gas 2,2/0,7 1,3/0,2 1,2/0,4 2,0/0,7 1,8/0,2 1,5/0,6 Water 0,1/0,1 0,2/0,2 0,1/0,1 0/0 0,3/0,3 0,2/0,2 Transport 1,0/1,5 1,1/0,9 0,9/1,0 1,2/1,8 0,9/0,8 0,9/1,3 Post / Telecom 1,7/1,2 2,1/0,8 2,1/1,2 1,9/1,6 2,3/0,6 2,2/1,4 Total/country 5,0/3,5 4,7/2,1 4,3/2,7 5,1/4,1 5,3/1,9 4,8/3,4 Note: Only comparative values

109

Appendix F Austrian service provision data

Table F.1: Major players in the Austrian electricity sector (adpt. from Hofbauer, 2006)

Company Owner(s) Verbund 51% Republic of Austria 24% dispersed ownership 10% Wienstrom 10% EVN 5% TIWAG

BEWAG (Burgenland) 51% Province of Burgenland 49% Burgenland Holding

EVN (Lower Austria) 51% Province of Lower Austria 31.2% EnBW 17.8% dispersed ownership on the stock exchange

ESTAG (Styria) 75% Province of Styria 25% EdF/Gaz de France

Energie AG (Upper Austria) 93.75% Province of Upper Austria 6.25% Linz AG

KELAG (Carinthia) 51% Province of Carinthia 49 % RWE 35.12% Verbund 1% dispersed ownership 0.03% municipalities

SAFE (Salzburg) 42.56% Province of Salzburg 31.31% City of Salzburg 26.13% Energie Ober¨osterreich Service- und Beteiligungsverwaltungs-GmbH

TIWAG (Tyrol) 100% Province of Tyrol

VKW (Vorarlberg) 76.4% Province of Vorarlberg 20.4% private dispersed ownership 3.2% municipalities

WIENSTROM (Vienna) 100% City of Vienna 110

Table F.2: Numbers of diﬀerent types of institutions in water supply and wastewater treatment (adapted from KPC, 2009)

Water supply Wastewater treatment Number of water Connected Number of Connected Type of Utility/ Owner suppliers inhabitants [%] sanitation inhabitants [%] - based on a companies - based on a WIFO study WIFO study Provincial enterprise (staterun, 2 6 — — public enterprise)

Associations of municipalities 125 21% 330 51% (publicly owned)

Municipalities - publicly owned 1900 59% 1100 38%

User cooperatives 3300 4% 650 1% (cooperation of private persons)

Private wells / cesspits 250000 10% 250000 10% 1st Note: Some of the population in rural areas are still not connected to public water supply and sanitation. About 10 % of the Austrian population have their own wells for the extraction of the drinking water and they use cesspits for wastewater disposal, especially in rural areas. 2nd Note: Private sector companies only ﬁgure as minority shareholders in two water companies, which together serve 6 % of the population. There are private holdings in a few pilot wastewater projects to which less than 1 % of the population are connected (KPC, 2007). 3rd Note: The WIFO study is based on a questionnaire which was sent out to about 1,600 water utilities. The rate of return was around 41% meaning that these data are indicative and used only as a proxy for revealing the share of the population served by diﬀerent types of utilities Source: KPC (2007) and WIFO (2002)

Table F.3: Responsibility for waste collection and treatment (adapted from Segalla, 2006)

Länder Collection Treatment Burgenland Association Association Kärnten Municipalities Associations Niederösterreich Municipalities Municipalities Oberösterreich Municipalities Associations Salzburg Municipalities Associations Steiermark Municipalities Associations Tirol Municipalities Land Vorarlberg Municipalities Land Wien Municipality Municipality 111

Appendix G

Spanish service provision data

Figure 5: Supply Management systems by size of population 2004 (In % of municipalities)

Overall 36 40 16 7 1

Metropolitan area 28 61 11

> 100.000 25 34 25 12 4

50.000 a 100.000 32 26 27 7 8

20.000 a 50.000 82 8 3 7

< 20.000 80 22 15 1

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Private company Public company Public-private company Administrative Local Org. Other

Source: AEAS 2004 Figure G.1: Supply Management systems by size of population 2004 (In % of municipalities, adpt. from AEAS, 2006)

Table 3 shows the water management system 7 in different Spanish cities (sorted by population size). This table shows the predominance of private management followed by mixed 8, regardless of the political party holding the government (PP - Popular/Conservative Party - or PSOE - Socialist Party -).

7 Private company, public company or mixed (public-private partnership). 8 With the single exception of the city of Madrid.

113

Appendix H Italian service provision data

Table H.1: Distribution of municipal expenses and municipal societies (adpt. from Vallesp´ın& Gianfelici, 2011)

Total expenses Expenses Societies Municipal (euro) (%) (%) societies (%) Northeast 731 753 729 13 28 24 Northwest 2 282 677 727 42 43 45 Center 1 281 717 103 24 18 14 South 754 574 192 14 8 12 Islands 392 837 509 7 3 5 Italy 5 443 560 260 100 100 100

Table H.2: Evolution of management forms in municipal waste management (adapted from Utilitatis, 2008)

Municipalities (%) Population (%) 1995 2005 1995 2005 Direct labour 45 20 34 11 Public company 31 46 40 58 Contracted out 24 34 26 30 Total 100 100 100 100 114

Table H.3: The most typical transactions in the waste management market (adpt. from Massarutto, 2010)

Market / object of Who is on the demand Leading operators transaction side 1 Commercial waste -Industrial and commercial Specialized private activities companies

2 Delegation of -Municipalities (ev. See Table H.2 integrated MWM associated)

3 Disposal of MW (if -Companies collecting Owners of disposal and not integrated as in waste for municipalities treatment facilities (mostly (2)) (2) public)

4 Collection and -Operators in charge for Specialized SME on a separate collection integrated management (2) contracting-out base

5 Landﬁll of ultimate -Owners of treatment Owners of landﬁll (mostly waste facilities (3) public, sometimes private especially in the south)

6 Treatment of -Industrial and commercial Specialized companies (more commercial waste activities, intermediaries concentrated than (1)). Often publicly owned companies

7 Intermediation of -Industrial and commercial Specialized traders, brokers commercial waste activities and consultants; often integrated with (1)

8 Processing of -Municipalities (ev. Main municipal companies combustible waste in associated) Sometimes constructing WTE facilities -Regional plan companies operating -Owners of commercial facilities on BOT base waste

9 Processing of -Responsible entities for Specialized SME (eg materials from EPR processing of plastics and separate collection -Intermediaries and paper; composting) collectors of SW (1-7)

10 Recycling of -Responsible entities for Recyclers materials EPR -Processors (9)

11 BOT and similar -Municipal companies (2) Specialized national and multinational companies often construction, engineering or large companies operating in other markets Interpretation: MWM- Municipal waste management, SME- Small and medium enterprises, WTE- Waste to energy, EPR- Extended producer responsibility and SW- Special Waste 115

Appendix I Authorities responsible for setting pricing and/or tariﬀ policies per country

Table I.1: Authorities responsible for setting pricing and/or tariﬀ policies (adpt. from Bauby & Similie, 2010)

Country Central Länder/Regional Local Regulatory Providers government government government agencies Austria Heating Telecom Rail. transp.(Pa) Broadcasting Electricity(P/T/D) Gas (D) Spain Telecom (R/L)transp.(Pa)3 Electricity(P) electricity(M)1 Gas (T/D) Gas (M) Rail. transp.(Pa) (F) rail transp. Italy Rail. transp.(Pa)2 (R)trans.(Pa) (L)trans.(Pa) Telecom Air transp. (F)rail transp.2 Inl. water transp. Waste water Electricity(M) Maritime transp. Water4 Gas (T/D) Heating Portugal Rail. transp.(Pa) Water5 Telecom6 (L)transp.(Pa) Waste water5 Postal services6 (metrop. areas) Solid waste5 Electricity net.(T/D) Gas (T/D) Water7 Waste water 7 Solid waste 7 Sweden Water Waste water Heating 1- After receiving proposals from the regulatory agencies, 2- These are responsibilities of the regions, 3- CIPE (Comitato Interministeriale per la Programmazione Economica) regulates the tariffs’ policies, 4- The local tariff policies (concerning the ATO) fix a sole tariff for distribution and purification of water, so completely covering the operative and investment costs of service, 5- Within the framework established by the national regulatory agency, 6- Except in the liberalised sector and 7- Framework of the tariffs Interpretation: (F)- Freight, transp.- transport, (Pa)- of passengers, (P)- Production, (T/D)- Transport and distribution, (M)- Marketing, (R/L)- Regional & local and Inl.- Inland

117

Appendix J Regulatory authorities data

Table J.1: Independent decision-making - which competencies does the regulator exercise (adpt. from Larsen et al., 2010)

Country Tariﬀs Network Licensing Terms of Disputes Enforcement access delivery Austria(AT) FFPFPN Spain(ES) PFPPPN Italy(IT) FFPFFF Portugal(PT) FFNFFP Sweden(S) FFFPFP Interpretation:F = Fully competent; P = Partly competent; N = Not competent

Table J.2: Objectives of the electricity sector IRAs (adpt. from Johannsen et al., 2004 in Larsen et al., 2010)

Economic Environ. Socially Number Market Consumer efficiency friendly Security responsib. of Country Comp. transpa. protection in the electricity of price objectives supply supply supply policies (n=7) industry Austria(AT) XXX—XX— 5 Spain(ES) XXXX—X— 5 Italy(IT) XXXXX—X 6 Portugal(PT) XXXXX—X 6 Sweden(S) —X————— 1 Note:The survey used to build this table may be somewhat open to interpretation by the respondents, because some authorities have missions and objectives stated in several different pieces of legislation and with different degrees of priority. In addition to the uncertainties mentioned above it is far from clear that the objectives have the same meaning in the different national contexts. The wider energy policy obligations are in some countries (Sweden) the responsibility of the energy agencies - one can of course argue that as the electricity regulator is part of the energy agency, it can be misleading (only has 1 objective). Interpretation: Comp.- Competition, transpa.- transparency, Environ.- Environmentally and responsib.- responsible

119

Appendix K Law 159/99 of September 14th - Framework establishing the scope of local authorities (competencies)

(...) Article 13th Municipalities’ functional areas of responsibility

1. Municipalities enjoy functional areas of responsibility in the following ﬁelds:

a) Urban and rural equipment;

b) Energy;

c) Transports and communication;

d) Education;

e) Heritage, culture and science;

f) Leisure and sports;

g) Health;

h) Social welfare;

i) Housing;

j) Civil protection;

k) Environment and basic drainage / sewage;

l) Consumer protection;

m) Development’s promotion;

n) Spatial planning and urban design;

o) Municipal police;

p) External cooperation.

(...)

(Own translation)

121

Appendix L Sources of Portuguese national law on Infrastructure services (mainly updated as of 2010)

Table L.1: Portugal (PT) - Legal sources

Sector Legal references Web sites D.L. n. 309/2001, of December 7th (Legal framework of ANACOM) Law n. 5/2004, of February 10th (Electronic communications) Telecommunications D.L. n. 129/2009, of May 21st (Infrastructures) D.L. n. 192/2000, of August 18th (Equipments) www.anacom.pt D.L. n. 151-A/2000, of July 20th (radio communications) www.moptc.pt D.L. n. 82/2008, of May 20th (e-commerce) Law n. 102/99, of July 26th, D.L. n. 116/2003, of June 12th www.ctt.pt Postal services Law n. 448/99, of November 4th; www.moptc.pt D.L. n. 150/2001, of May 7th www.anacom.pt Production D.L. n. 97/2002, of April 12th (regulatory agency ERSE) www.erse.pt of electricity D.L. n. 172/2006, of August 23rd (Legal Basis) www.edp.pt Electricity networks D.L. n. 185/2003, of August 20th (transport) www.erse.pt transport- distribution D.L. n. 172/2006, of August 23rd (Legal Basis) www.edp.pt D.L. n. 228/2006, of November 11th (privatization of REN) www.ren.pt D.L. n. 184/2003 of August 20th(marketing) Marketing of D.L. n. 172/2006, of August 23rd (Legal Basis) www.erse.pt electricity D.L. n. 185/2003 of August 20th (open market) www.edp.pt D.L. n. 19-B/2006, of April 20th (Iberian Market) Gas marketing D.L. n. 30/2006, of February 15th (National System) www.erse.pt transport-distribution D.L. 274-C/93, of August 4th (transport) Railway transport D.L. n. 75/2003, of October 28th (legal framework) of passengers Regulation n. 21/2005, of March 11th (prices) www.imtt.pt Freight rail D.L. n. 137-A/2009, of June 12th (public provider) www.moptc.pt transport D.L. n. 141/2008, of July 22nd (infrastructure) Regional and local Law n. 10/90, of March 17th (land transport system) www.aml.pt transport Law n. 1/2009, of January 5th (local transport autorities) www.amp.pt of passengers www.imtt.pt Air transport D.L. n. 138/99, of April 23rd (public service obligations) www.inac.pt Maritime transport D.L. n. 146/2007, of April 27th www.iptm.pt Water and Law n. 58/2005, of December 29th (legal basis) www.ersar.pt Waste water D.L. n. 194/2009, of August 20th (local systems of distribution) D.L. n.90/2009 of April 9th (PuP model) solid waste D.L. n. 178/2006, of December 5th www.ersar.pt Law n. 4/2004, of January 15th (central administration) National public Law n. 3/2004, of January 15th (indirect administration) www.min-financas.pt administration D.L. n. 442/91, of November 15th (general legal basis of action) D.L. n. 135/99, of April 22nd (rules of conduct) Law n.159/99 of September 14th (local competencies) Local public Law n. 169/99, of September 18th (legal basis) www.min-financas.pt administration Law n. 2/2007, of January 15th (local administration financing) Local Law n.53-F/2006 of December 29th enterprise Amended by: Law n.55/2011 of November 15th, www.portalautarquico.pt sector (SEL) L.n.64-A/2008 of December 31st & L.n.67-A/2007 of December 31st

123

Appendix M Listing of governance models in the Portuguese universe, listed by model

Table M.1: Entities belonging to local enterprise sector- Municipal company model

Entity CAE- 1st lvl “SABUGAL +”- Empresa Municipal de GestãoEspa¸cosCulturais, Desportivos, Tur´ısticos R A.S. - Empresa das Aguas´ de Santarém- EM, S.A. E ACLEM - Arte, Cultura e Lazer Empresa Municipal EM R Agênciade Desenvolvimento Local do Seixal - “FábricaDe Pólvora”, LDA F AGERE - Empresa de Aguas´ Efluentes e Res´ıduosde Braga - E.M. E Aguas´ de S. João,E.M., S.A. E AIN - Agro-Industrial do Nordeste, S.A. G ALDESP, Empresa PúblicaMunicipal de Gestãodos Espa¸cose Equipamentos Desportivos EM R ALFANDEGATUR - Empresa de Desenvolvimento Tur´ısticode Alfândega da FéEM I AM - Aquárioda Madeira, E.M. R Ambifaro - Agênciapara o Desenvolvimento Económicode Faro, S.A. M AMBIOLHAO-Empresa˜ Municipal de Ambiente de Olhão,EM E AMIPAREDES- AgênciaMunicipal de Investimento de Paredes, EM M Anima Cultura - Sociedade de Concep¸cão e Gestãode Projectos de Anima¸cãoe Desenvolvimento R Sócio-Tur´ıstico,Unipessoal Lda Apor - AgênciaPara A Moderniza¸cãodo Porto, S.A. M Aquisern SA F ATLANTICOˆ VILA - Sociedade de Concep¸cãoe Gestãode Projectos para o Desenvolvimento R AVEIRO-EXPO - Parque de Exposi¸cões E.M. N Avepark - Parque de Ciênciae Tecnologia, S.A. N BaiãoVida Natural, EM, LDA. R Basto Solidário- Servi¸cosde AçcãoSocial e Cuidados de SaúdeEM SA Q Bragahabit - Empresa Municipal de Habita¸cãode Braga - E.M. F Ca¸cae Turismo Terras de Vimioso Lda A CDN - Gestãoe Promo¸cãodo Parque Empresarial de Vila Nova da Barquinha, EM, SA N Centro de Estudos Diogo Dias Melgaz, Unipessoal Lda P Centro de Estudos e Forma¸cãoAquiles Esta¸co,Lda P Coimbra Inova¸cãoParque - Parque de Inova¸cãoEm Ciência,Tecnologia e Saúde,S.A. F COLISEU MICAELENSE - Soc de Promo¸cãoe Dinamiza¸cãode Eventos Culturais, Sociais e R Recreativos, SA COMBANIMA - Espa¸cosMunicipais, EM N Companhia das Aguas´ de Caldas de Arêgos,E.M., S.A Q Congida La Barca - Transportes Fluviais LDA H Culturguarda, Gestãoda Sala de Espectáculose Actividades Culturais E.M. R CURA AQUAE - Termas de Melga¸co,EM Q E. P. F. - Ensino Profissional de Felgueiras Lda P E. P. R. M. - Escola Profissional de Rio Maior Lda P Continued on next page 124

Table M.1 – Municipal company model – Continued from previous page Entity CAE- 1st lvl E.M.I.A. - Empresa Municipal de Infraestruturas da Azambuja EM F Ecalma - Empresa Municipal de Estacionamento e Circula¸cãode Almada E.M. H EMAC - Empresa de Ambiente de Cascais EM SA R EMAFEL - Empresa PúblicaMunicipal de Ambiente de Felgueiras EM N EMBARCA - Cultura, Desporto e Lazer, EM R EMGHA - Gestãoda Habita¸cãoSocial de Cascais, E.M., S.A. L EML - Empresa Municipal de Urbaniza¸cão,Requalifica¸cãoUrbana e Ambiental e Habita¸cão N Social de Lagoa, E.M. EMPDS - Empresa Municipal de Promo¸cãoe Desenvolvimento Social do Concelho de Belmonte, R EM Empet - Parques Empresariais de Tavira E.M. F Empresa de Melhoramentos de Alcanena, S.A. R Empresa de Transportes Colectivos da Ilha Graciosa Lda H Empresa Municipal de Cultura e Recreio - E.M.C.R. de Seia - E.M. R Empresa Municipal de Educa¸cãoe Cultura de Barcelos E.M. R EMSUAS - Empresa Municipald de Servi¸cosUrbanos de Alcácerdo Sal EM N EMUNIBASTO - Empresa de Servi¸cospara Educa¸cão,Forma¸cão,Cultura, Desporto, Tempos N Livres e Turismo EM ENASEL - Turismo E Cinegetica, SA A ENCANTA - Restaura¸cão e Servi¸cosde Trancoso Lda I EPAVE - Escola Profissional do Alto Ave, Sociedade Unipessoal Lda P EPB - Escola Profissional de Braga Lda P EPMAR - Empresa PúblicaMunicipal de Aguas,´ Res´ıduose Equipamentos de Vieira do Minho, E E.M. EPMES - Empresa PúblicaMunicipal de Estacionamento de Sintra, EM H EPT - Ensino Profissional de Tomar Lda P Escola Intercultural Profissoes e Desporto Amadora E.M. P Escola Profissional da Mealhada Lda P Escola Profissional de Vouzela, Soc Unipessoal, Lda. P Escola Profissional do Marques de Valle Flôr,Lda P ESPROSER - Escola Profissional, Sa P ESUC - Empresa de Servi¸cosUrbanos de Cascais E.M. F EXPOBEJA - Sociedade Gestora do Parque de Feiras e Exposi¸cõesde Beja, EM N EXPOVIS - Promo¸cãoe Eventos Lda N FAGAR - Faro, Gestãode Aguas´ e Res´ıduosE.M. E FalcãoCultura, Turismo e Tempos Livres, E.M. R Fatiparques - Parques de NegóciosOurém/ Fátima,S.A. F FERIMO - Sociedade Imobiliária,SA L Figueira Paraindústria,GestãoDe Parques, SA M Figueira Verde - Agricultura E IndústriasAgro-Alimentares E.M. G Flores Invest, Empresa Municipal de Desenvolvimento, S.A. O Fozcoainvest - Energia, Turismo e Servi¸cosE.M. F Continued on next page 125

Table M.1 – Municipal company model – Continued from previous page Entity CAE- 1st lvl FTM - Fundaoturismo Em N Futurolhão- Investimentos e Iniciativas de Desenvolvimento, E.M. N Geodesis Turis - Promo¸cãoe GestãoTur´ısticade Vila de Rei E.M. I Gesloures - GestãoDe Equipamentos Sociais EM R Gespa¸cos- GestãoDe Equipamentos Desportivos E.M. R Gesruda - Gestãoee Equipamentos Municipais e Presta¸cãode Servi¸cosE.M. J GIATUL - EM para Gestãode Infraestruturas em Actividades Tur´ısticas I Gondomar, Cora¸cãoDe Ouro, EM L Grutas de SãoVicente - Madeira, SA R Guarda Cidade Desporto E.M. R H.S.N. - Empresa Municipal de Habita¸cãoSocial do Concelho do Nordeste E.M. L HABISOLVIS - Empresa Municipal de Habita¸cãoSocial De Viseu EM L HABITAGUA´ - Servi¸cosDomiciliários,Lda F HERDADE DA CONTENDA, E.M. A Hortaludus, Gestão e Explora¸cãode Equipamentos E.M. R INFRALOBO-EMPRESA DE INFRA-ESTRUTURAS DE VALE DO LOBO EM E INFRAMOURA - EMPRESA DE INFRAESTRUTURAS DE VILAMOURA EM E INFRAQUINTA - EMPRESA DE INFRAESTRUTURAS DA QUINTA DO LAGO EM E INFRATROIA,´ INFRAESTRUTURAS DE TROIA,´ EM M INOVOBEJA - EMPRESA MUNICIPAL DE DESENVOLVIMENTO, E.M. M Instituto de Educa¸cãoe Forma¸cãodo Sorraia Lda P INTERMINHO - SOC GESTORA DE PARQUES EMPRESARIAIS, E.M. F Itb-Investimentos Turisticos das Beiras Lda I Lamego Renova F LEIRISPORT - DESPORTO, LAZER E TURISMO EM R LOGICA´ - SOCIEDADE GESTORA DO PARQUE TECNOLOGICO´ DE MOURA, E.M. M LouléConcelho Global, Em, Unipessoal, S.A. L LOURES PARQUE, EMPRESA MUNICIPAL DE ESTACIONAMENTO EM H LOUSADA SECULO´ XXI - Actividades Desportivas e Recreativas EM R MACMAI - MATADOURO AGRICOLA E COMERCIAL DA MAIA LDA C MAFRATLANTICOˆ - VIAS RODOVIARIAS´ EM F MAIAMBIENTE- EM E Maisourem S.A. M Mapicentro - Sociedade de Abate Comercializa¸cãoe Transforma¸cãode Carnes e Subprodutos C S.A. Marc - Mercado Abastecedor da Regiãode Chaves, S.A. G MARIENSEGEST - Gestão,Explora¸cãoe Promo¸cãode Actividades Culturais, Desportivas e R de Lazer de Vila do Porto EM MARINA DA VILA - INDUSTRIA´ DE MARINAS E RECREIO EM R MATADOURO REGIONAL DE MAFRA, S.A. C MATADOURO REGIONAL DE MONÇ AO˜ EM C Continued on next page 126

Table M.1 – Municipal company model – Continued from previous page Entity CAE- 1st lvl MELSPORT - MELGAÇO - DESPORTO E LAZER E.M. R MERCADO ABASTECEDOR DA COVA DA BEIRA, E.M., S.A. G Mercado Municipal de Faro, S.A. L MERTURIS - EMPRESA MUNICIPAL DE TURISMO - EM R METROPOLITANO LIGEIRO DE MIRANDELA, SA (PuP) H MIRANDA CULTURAL E RURAL E.M. N MMB - MERCADO MUNICIPAL DE BRAGANÇA E.M. G Mme - Mercado Municipal de Evora,´ S.A. L MMPO - MERCADO MUNICIPAL DE PORTALEGRE, SA G MOBITRAL - MOBÍLIAS TRADICIONAIS ALENTEJANAS EM C MONTEGES - GESTAO˜ DE EQUIPAMENTOS SOCIAIS E.M. R Moveaveiro - Empresa Municipal de Mobilidade E.M. H Municipália- Gestãode Equipamentos e Patrimóniodo Munic´ıpiode Odivelas E.M. R NOVA COVILHA,˜ SRU - SOCIEDADE DE REABILITAÇ AO˜ URBANA, EM F Novbaesuris - Empresa Municipal de Gestãoe Reabilita¸cãoUrbana, EM S.A. M OCIDENTALMAIS - Empresa PúblicaMunicipal de Gestãoe Equipamentos Económicos, Cul- M turais, Desportivos, e de Lazer, EM OVAR FORMA - EMPRESA MUNICIPAL PARA O ENSINO E FORMAÇ AO˜ EM P Parkurbis - Parque de Ciênciae Tecnologia da Covilhã,S.A. M Parque IbéricoNatureza e Aventura de Vimioso - V i I P, Lda R Pavilhãodo Arade, Congressos, Espectáculose Anima¸cãodo Arade, S.A. R PAVIMAFRA-INFRAESTRUTURAS E RODOVIAS,EM.,S.A., F Pda Pq Desportivo Aveiro S A R PEB - EMPRESA PARQUE DE EXPOSIÇ OES˜ DE BRAGA - E.M. N Pec-Tsm - Parque Empresarial da Corti¸ca,das Terras de Santa Maria, EM L PENAPARQUE 2 - Gestãoe Promo¸cãode Equipamentos Municipais de Penacova EM L PFR INVEST SOC GESTAO URBANA E M F Pombal Prof - Soc de Educa¸cãoe Ensino Profissional, Lda P Ponta Delgada Social - Constru¸cão,Explora¸cãoe Gestãode Equipamentos Sociais, Sociedade Q Unipessoal Lda PortimãoUrbis Sgu-Sociedade de GestãoUrbana, E.M. M Povoainvest - Empresa Municipal de Habita¸cãoSocial E.M. L PRAIA AMBIENTE, EM M Praia Em Movimento, E.M. M PRBIS - PRODUTOS REGIONAIS E SERVIÇOS, SOCIEDADE UNIPESSOAL LDA C Prodeso - Ensino Profissional Lda P Proen¸catur,Empresa de Turismo de Proen¸caE.M. I Profiacademus - Escola Profissional de Santa Comba Dão- Unipessoal Lda P Quinta de Tuberais - Ensino Profissional de Cinfães- Sociedade Unipessoal, Lda P Ribeira Grande Mais Empresa Municipal de Habita¸cãoSocial Requalifica¸cãoUrbana O RIBEIRAPERA-Sociedade para o Desenvolvimento de Castanheira de Pera, SA N Continued on next page 127

Table M.1 – Municipal company model – Continued from previous page Entity CAE- 1st lvl RUMO 2020, EM M Santa Cruz XXI - Gestãode Equipamentos Municipais e Presta¸cãode Servi¸cosE.M. O SAP - Servi¸cosde Apoio a Praias E.M. R Satu - Oeiras - Sistema Automáticode Transporte Urbano, E.M., S.A. H SDVF - Sociedade de Desenvolvimento de Habita¸cãoSocial de Vila Franca do Campo, SA L Serpobra - SRU - Sociedade de Reabilita¸cãoUrbana E.M. F SITEE - Sistema Integrado de Transportes e Estacionamento de Evora EM H SOCIEDADE DE TURISMO DE SANTA MARIA DA FEIRA, SA Q Sociedade Teatral Louletana Lda R Sociedade Termal de Mon¸cãoLda Q Sodenfor - Sociedade Difusora de Ensino da Figueira da Foz Lda P STR-URBHIS - SOCIEDADE DE GESTAO˜ URBANA DE SANTAREM,´ EM, SA F T.M.F. - Teatro Municipal de Faro - E.M. R TAVIRAVERDE-EMPRESA MUNICIPAL DE AMBIENTE,EM E TC - TURISMO DE COIMBRA EM S Teatro Aveirense Lda R Teatro Circo de Braga, S.A. R TECMAIA- Parque de Ciênciae Tecnologia da Maia, S.A. E.M. L Tema - Teatro Municipal de Aveiro E.M. R TERNISA - Termas da Fadagosa de Nisa E. M. Q TERRA FRIA - CARNES LDA C Terras da Beira Baixa - Sociedade de Desenvolvimento Agro-Industrial de Castelo Branco, EM A TMTN - Teatro Municipal de Torres Novas, EM R TUB - Empresa Transportes Urbanos de Braga - E.M. H TUMG-Transportes Urbanos da Marinha Grande EM H TVPAR - Parques Empresariais de Torres Vedras S.A F VALLIS HABITA - Sociedade Municipal de Gestãode Empreendimentos Habitacionais D L Vieira Cultura e Turismo E.M. R Vila Solidária- Empresa Municipal de Habita¸cãoSocial E.M. O Vimioso 2003 - Actividades Artesanais e Tur´ısticas de Vimioso E.M. R VISEU NOVO - SRU - Sociedade de Reabilita¸cãoUrbana de Viseu , SA (PuP) O Vitaguiar - Apoio Ao Desenvolvimento Agro-Industrial E.M. N VITRUS AMBIENTE, EM, S.A. E ETE - Empresa de Turismo Estoril EM SA F Vfc Empr - EM de Activ Desp Recreativas e Tur´ısticasde Vila Franca do Campo E.M. R CIDADE EM ACÇ AO˜ Sociedade de Desenvolvimento e Gestãode Equipamentos Urbanos S A N FRONTEIRA EXPANSAO˜ - Gestãode Espa¸cosDesportivos e Turismo, E. M. R Vougapark - Parque Tecnológicoe de Inova¸cãodo Vouga E.M. P VRSA SGU, Sociedade GestãoUrbana, E.M. SA M 128

Table M.2: Entities belonging to local enterprise sector- Intermunicipal company model

Entity CAE- 1st lvl Adral - Agênciade Desenvolvimento Regional do Alentejo, S.A. S AMBILITAL - Investimentos Ambientais no Alentejo, EIM E AMBISOUSA - Empresa Intermunicipal de Tratamento e Gestãode Res´ıduosSólidosEIM E AR Aguas Ribatejo EIM E ASTAQ Técnica,EIM M ECOBEIRAO˜ - Sociedade de Tratamento de Residuos do Planalto Beirão,SA E ECOLEZIRIA - Empresa Intermunicipal para o Tratamento de Residuos Sólidos,EIM E EIRSU - EIM de Recolha de Res´ıduosSólidosUrbanos da Ilha de S. Miguel - EIM E EHATB - Empreendimentos Hidroeléctricosdo Alto Tâmegae Barroso EIM D GESAMB - GESTAO˜ AMBIENTAL E DE RESÍDUOS EIM E GRAFICA´ DA AMDB EIM C LEMO - LABORATORIO´ DE ENSAIOS DE MATERIAIS DE OBRAS, E.I.M. , S.A. M MATADOURO REGIONAL DO ZEZERE,ˆ SA C Minhocom Gestao Infraestruturas Telecomunicacoes Eim J MUNICÍPIA, SA - EMPRESA DE CARTOGRAFIA E SISTEMAS DE INFORMAÇ AO,˜ SA M MUSAMI - OPERAÇ OES˜ MUNICIPAIS DO AMBIENTE EIM E Naturtejo - Empresa de Turismo Eim M Perm - Parque Empresarial de Recupera¸cãode Materiais das Terras de Santa Maria, EIM L Regi - Planeamento e Desenvolvimento Regional Eim M RESIALENTEJO - Tratamento e Valoriza¸cãode Res´ıduosEIM E Residuos do Nordeste, EIM E TRATOLIXO - Tratamento de Res´ıduos SólidosEIM- empresa intermunicipal, S.A. E Valicom Gestao Infraestruturas Telecomunicacoes Eim I VIMAGUA´ - Empresa de Agua´ e Saneamento de Guimarãese Vizela - EIM E DOURONORTE AMBIENTE - EIM de GestãoAmbiental do Vale do Douro-Norte, EIM E Primus Mgv - Promo¸cãoe Desenvolvimento Regional, S.A. M Escola Profissional Amar Terra Verde P AZORES PARQUE - Sociedade de Desenvolvimento e Gestãode Parques Empresariais, SA F LT, SOCIEDADE DE REABILITAÇ AO˜ URBANA, EM M Estruturas e Investimentos do Mondego, ADR, EIM N SicóForma¸cão- Sociedade de Ensino Profissional, S.A. P Wrc - Web Para A RegiãoCentro, Agênciade Desenvolvimento Regional, S.A. J

Table M.3: Entities belonging to local enterprise sector- Municipal enterprise model

Entity CAE- 1st lvl ABTT - Aguiar da Beira Termas e Turismo, EEM R AC, Aguas´ de Coimbra, EEM E Adl - Aguas´ de Longroiva, Explora¸c˜aoe Gest˜aode Aguas´ Termais, E.E.M. Q Continued on next page 129

Table M.3 – Municipal enterprise model – Continued from previous page Entity CAE- 1st lvl Aguas´ do Caima, E.E.M. E Aguas´ e Parque Biológicode Gaia, EEM E ALBIGEC - Gestãode Equipamentos Culturais, Desportivos e de Lazer, EEM R ALMEIDA MUNICIPIA - Empresa de Reabilita¸cãoUrbana, Desenvolvimento Económicoe R Gestãode Equipamentos, EEM AMBIOUREM Gestao Espacos e Equipamentos Municipais EEM A AMIGAIA - AgênciaMunicipal de Investimento de Vila Nova de Gaia EEM N ARCASCAIS - Entidade Empresarial Gestora do Aeródromode Cascais, E.E.M H Areal Dourado - Eventos, Gestãode Equipamentos Desportivos e Culturais e AçcãoSocial, R E.E.M. Cais Invest, Empresa Para O Desenvolvimento de SãoRoque do Pico, E.M. O CAMPOMAYOR XXI - EMPRESA MUNICIPAL O CASFIG - Coordena¸cãode Ambitoˆ Social e Financeiro Habita¸cõesMunic GuimarãesEEM S CIDADEGAIA, SRU - Sociedade de Reabilita¸cãoUrbana E.E.M. F CMPEA - Empresa de Aguas´ do Munic´ıpiodo Porto, EEM E CMPH - DOMUSSOCIAL - Empresa de Habit. e Manut. do Munic´ıpiodo Porto, E.E.M. L CMPL - Porto Lazer - Empresa de Desporto e Lazer do Munic´ıpiodo Porto, E.E.M. R CUL.TUR - Empresa Municipal de Cultura e Turismo de Santarém,EEM R Culturangra EEM O Culturpico, Equipamentos e Projectos Para o Desenvolvimento das Lajes do Pico, E.E.M. O Culturval Gestãode Equipamentos Culturais de Vila Real, E.E.M. R D.L.C.G. - Desporto, Lazer e Cultura de Gouveia, E.E.M. R Desmor E.E.M. R EAMB-ESPOSENDE AMBIENTE EM E Edeaf - Empresa Municipal de Desenvolvimento de Alfândegada FéE.M. M Educa - Gestãoe Manuten¸cãode Equipamentos Educativos de Sintra, E.E.M. R Ema - EstádioMunicipal de Aveiro E.E.M. R EMARP - EMPRESA MUNICIPAL DE AGUAS´ E RESÍDUOS DE PORTIMAO,˜ EEM E EMARVR - AGUA´ E RESÍDUOS DE VILA REAL, EEM E EMAS - EMPRESA MUNICIPAL DE AGUA´ E SANEAMENTO de Beja EEM E EMEL - EMPRESA PUBLICA´ MUNICIPAL DE ESTACIONAMENTO DE LISBOA, EEM H Empreendimentos Solcalheta, E.E.M. R EMPRESA METROPOLITANA DE ESTACIONAMENTO DA MAIA- EEM H EMCEL - EM Celoricense - Gestãode Espa¸cosCulturais e Sociais E.E.M. R Empresa Municipal de Desportos de Barcelos, E.E.M. R EPUL - Empresa de Urbaniza¸cãode Lisboa, EEM F Ensino Profissional do Entre Douro e Tãmega,SA P ESPAÇO MUNICIPAL- RENOVAÇ AO˜ URBANA E GESTAO˜ DO PATRIMONIO,´ E.E.M. F Espa¸coPovoa¸cão- EM de Actividades Desportivas, Recreativas e Tur´ısticasE.M. O ESPOSENDE 2000 - ACTIVIDADES DESPORTIVAS E RECREATIVAS E.E.M. R EVORA´ VIVA, SRU - SOCIEDADE DE REABILITAÇ AO˜ URBANA, EEM F Continued on next page 130

Table M.3 – Municipal enterprise model – Continued from previous page Entity CAE- 1st lvl Feira Viva, Cultura e Desporto, E.E.M. R FESNIMA, EMPRESA PUBLICA´ DE ANIMAÇ AO˜ DE OLHAO,˜ E.E.M. S Figueira Cultura e Tempos Livres E.M. R FIGUEIRA DOMUS - EM De GestãoDe Habita¸cãoDa Figueira Da Foz, EEM L Figueira Grande Turismo - E.E.M. M FIGUEIRA PARQUES - EM De Estacionamento Da Figueira Da Foz, EEM G FLUVIARIO´ DE MORA - EMPRESA MUNICIPAL, EEM R Fortaleza de Cascais E.E.M. N Fozcoactiva - Gestãode Equipamentos Desportivos e Culturais, E.E.M. R FRENTE MARFUNCHAL - GESTAO˜ E EXPLORAÇ AO˜ DE ESPAÇOS PUBLICOS´ EEM L FUNDAOVERDE - ESPAÇOS E JARDINS, E.E.M. N FUTURLAGOS - EMPRESA MUNICIPAL PARA O DESENVOLVIMENTO, EM O Gaianima - Equipamentos Municipais E.E.M. R Gaiasocial-Entidade Empresarial Municipal de Habita¸cão,E.E.M. L GAIURB - URBANISMO E HABITAÇ AO,˜ EEM M GEBALIS - GESTAO˜ DOS BAIRROS MUNICIPAIS DE LISBOA EEM L Gedaz - Gestãode Equipamentos Desportivos de Azeméis,EEM R GEMC - GESTAO˜ DE EQUIPAMENTOS DO MUNICÍPIO DE CHAVES EEM R GESTAO˜ DE OBRAS PUBLICAS´ DA CAMARAˆ MUNICIPAL DO PORTO, EEM M HABEVORA´ - GESTAO˜ HABITACIONAL, EEM L HABITAR S.JOAO˜ - Entidade Empresarial Municipal De Habita¸cão,E.E.M. L Hpem - Higiene PúblicaE.E.M. N Icovi - Infraestruturas e Concessõesda Covilhã,E.E.M. F INOVA - Empresa De Desenvolvimento EconómicoE Social De Cantanhede, EEM E ISERBATALHA - GestãoDe Equipamentos Urbanos, Cultural E Inser¸cãoEEM N LAGOS-EM-FORMA, GESTAO˜ DESPORTIVA, EM R LAMEGO CONVIDA - GESTAO˜ DE EQUIPAMENTOS MUNICIPAIS E.E.M. R Madalena Progresso, E.M. O MATOSINHOSHABIT - MH, EEM DE HABITAÇ AO˜ DE MATOSINHOS, EEM F Mercados de OlhãoE.M. M MERVAL - Gestãode Mercados e de Promo¸cãode Projectos de Desenvolvimento Local, E.E.M. N Mobilidade S Joao E.E.M. M Ms - Matosinhos Sport, EM de Gestãoe Equip Desportivos e de Lazer, E.E.M. O NAZARE´ QUALIFICA, E.E.M. N NORDESTE ACTIVO - EM De Actividades Desportivas, Recreativas E Tur´ısticas, Aguas` E R Res´ıduos,E.E.M. Nova Meda - Empresa Gestora de Equipamentos Municipais, E.E.M. S OBIDOS´ PATRIMONIUM - GestãoE Produ¸cãoActivid Equip Culturais, Educa¸cãoProjectos R Valoriza¸cãoTur´ıstica, EEM Obidos´ Requalifica - E.E.M. M OEIRAS VIVA - GESTAO˜ DE EQUIPAMENTOS CULTURAIS E DESPORTIVOS E.E.M R Continued on next page 131

Table M.3 – Municipal enterprise model – Continued from previous page Entity CAE- 1st lvl OUREMVIVA´ - GESTAO˜ DE EVENTOS, SERVIÇOS E EQUIPAMENTOS, EEM O PALMELA DESPORTO EM De GestãoDe Espa¸cosE Equipamentos Desportivos Municipais, R EM PARQUES TEJO - PARQUEAMENTOS DE OEIRAS E.E.M. H Penafiel Activa - Entidade Empresarial Local, E.E.M. R PENAFIEL VERDE - ENTIDADE EMPRESARIAL LOCAL, EEM E PMUGEST - POMBAL, MANUTENÇ AO˜ URBANA e GestãoE.E.M. N Porto Santo Verde, Geoturismo e GestãoAmbiental, E.E.M. E PRAZILANDIA,ˆ TURISMO E AMBIENTE - E.E.M. N PROVIVER, E.E.M. DE VILA VERDE R PROMOTORRES E.E.M. R PROMOVICENTE - Gestão,Participa¸cões,Promo¸cãoE Divulga¸cãoCultural EM M Proruris - Empresa Municipal de Desenvolvimento Rural de Vinhais, E.E.M. O Qualidade de Basto - Empresa Para O Desenvolvimento do Tecido EconómicoLocal, E.E.M. M S.D.M.S.A.-Sociedade de Desenvolvimento Municipal Da Ilha De Sta Maria, EEM O Scalabisport - Gestãode Equipamentos e Actividades Desportivas E.M. R Sintra-Quorum - Gestãode Equipamentos Culturais e Tur´ısticos,E.E.M. R SOCIOHABITAFUNCHAL´ - Empresa Municipal de Habita¸cãoE.E.M. F SRUFATIMA SOC REABILITACAO URBANA FATIMA EEM F SRU-SOCIEDADE DE REABILITAÇ AO˜ URBANA DE OLHAO˜ DA RESTAURAÇ AO,˜ EEM O T.E.G.E.C. Trancoso Eventos, EM de Gestãode Equipamentos Culturais e de Lazer E.E.M. M Teatro Jose Lucio da Silva R TERAMB - EM de Gestãoe Valoriza¸cãoAmbiental da Ilha da Terceira, EEM E TERMALISTUR-TERMAS DE SAO˜ PEDRO DO SUL, EEM Q TERRA CIDADE - E.E.M. O Terra de Paixao, EEM O TROFAGUAS´ - Servi¸cosAmbientais EEM E Trofa-Park - Empresa de Reabilita¸cãoUrbana, Desenv Económico,Inov Empresarial e Gestão O de Equip E.E.M. TURIMONTESINHO - Empresa Municipal de Promo¸cãoTur´ıstica,EEM R URBHORTA - Constru¸cão,Gestãoe Explora¸cãode Projectos de Desenvolvimento Empresarial, F EEM VARZIM LAZER - EM GESTAO˜ EQUIPAM DESPORTIVOS EEM R Velasfuturo - Empresa PúblicaMunicipal de Gestãode Equipamentos Culturais, Desportivos, O Económicose de Lazer, E.E.M. Vila Real Social - Habita¸cãoe Transportes E.M. F Academia das Artes da Maia - Produ¸cõesCulturais E.E.M. R Lisboa Ocidental, Sru - Sociedade de Reabilita¸cãoUrbana E.E.M. F Egeac - Empresa de Gestãode Equipamentos e Anima¸cãoCultural, E.E.M. R Turrisespa¸cos- EM de Gestãode Equipamentos Culturais e Desportivos do Munic´ıpiode Torres R Novas, E. E. M. VIVERFUNDAO˜ - Promo¸cãoe Gestãodas Condi¸cõesEstruturais e Infraestruturais para o M Concelho do FundãoEM Continued on next page 132

Table M.3 – Municipal enterprise model – Continued from previous page Entity CAE- 1st lvl Armamar Investe Mais, E. E. M. R

Table M.4: Entities belonging to local enterprise sector- Intermunicipal enterprise model

Entity CAE- 1st lvl EIMRAM - Empresa Intermunicipal Da RegiãoAutónomaDa Madeira - Investimentos E N Servi¸cosIntermunicipais - EEIM Empresa De Concep¸cão,Execu¸cãoE GestãoDo Parque Das Cidades, Loulé/Faro, EEIM F PISOESTE - PARQUE DE INERTES E SERVIÇOS DO OESTE, EEIM C

Table M.5: Entities belonging to local enterprise sector- Indirectly controlled

Entity CAE- 1st lvl A.D.C. - Aguas´ da CovilhãEM E ALFADOCE Do¸cariaTradicional de Alfandega da Fe Unipessoal LDA C CITREZE Transformacao e Comercio de Carnes Matreze C Conservatorio de Musica da Maia CMM Sociedade Unipessoal LDA P EEA-EMPREENDIMENTO EOLICO´ DE ALVADIA LDA D EOLICA´ DA SERRA DE MAIROS LDA D EOLICA´ DE ATILHO´ LDA D EOLICA´ DE BARBADAES,˜ UNIPESSOAL, LDA D EOLICA´ DO LEIRANCO, UNIPESSOAL, LDA D FOZ COAˆ PARQUE - SOCIEDADE DE TURISMO CULTURAL LDA R HIDROELECTRICA´ DE DAIVOES˜ UNIPESSOAL LDA D MATADOURO INDUSTRIAL DO CACHAO˜ S A G Paceteg S A F RIBEIRA DA TEJA - Produ¸cãode Energia EléctricaLDA D S P R L P - Sociedade Promo¸cãoe Requalifica¸cãodas Lajes do Pico S A N Sociedade Hoteleira Senhora da Veiga LDA I TERRA DE FAJAS˜ S A N BRAVAL - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E TUR AREGOS,ˆ E.M., S.A. Q

Table M.6: Entities belonging to the “in-house” sector- Municipal service w/ Autonomy

Entity CAE- 1st lvl Servi¸cosMunicipalizados da CâmaraMunicipal Abrantes E Servi¸cosMunicipalizados da CâmaraMunicipal da Guarda - Aguas´ e Saneamento E Servi¸cosMunicipalizados da CâmaraMunicipal da Nazaré E Continued on next page 133

Table M.6 – Municipal service w/ Autonomy – Continued from previous page Entity CAE- 1st lvl Servi¸cosMunicipalizados da CâmaraMunicipal de Peniche E Servi¸cosMunicipalizados da CâmaraMunicipal de Ponta Delgada - Agua´ e Saneamento E Servi¸cosMunicipalizados da CâmaraMunicipal de Torres Vedras - Agua´ e Saneamento E Servi¸cosMunicipalizados de Agua´ e Saneamento da Câmara Municipal de Leiria E Servi¸cosMunicipalizados de Agua´ e Saneamento da Câmara Municipal de Sintra E Servi¸cosMunicipalizados de Agua´ e Saneamento da Câmara Municipal das Caldas da Rainha E Servi¸cosMunicipalizados de Agua´ e Saneamento da Câmara Municipal de Vila Franca de Xira E Servi¸cosMunicipalizados de Agua´ e Saneamento de Albergaria-a-Velha E Servi¸cosMunicipalizados de Agua´ e Saneamento de Almada E Servi¸cosMunicipalizados de Agua´ e Saneamento de Anadia E Servi¸cosMunicipalizados de Agua´ e Saneamento de Oeiras e Amadora E Servi¸cosMunicipalizados de Agua´ e Saneamento do Montijo E Servi¸cosMunicipalizados de Agua,´ Electricidade e Saneamento de Valongo E Servi¸cosMunicipalizados de Agua,´ Saneamento e Electricidade da CâmaraMunicipal de Tomar E Servi¸cosMunicipalizados de Aguas´ de Mirandela E Servi¸cosMunicipalizados de Viseu E Servi¸cosMunicipalizados de Aguas´ e Saneamento de Matosinhos E Servi¸cosMunicipalizados de Angra do Hero´ısmo E Servi¸cosMunicipalizados de Aveiro E Servi¸cosMunicipalizados de Castelo Branco - Agua,´ Saneamento e Res´ıduosUrbanos E Servi¸cosMunicipalizados de Electricidade, Aguas´ e Saneamento da Câmara Municipal da Maia E Servi¸cosMunicipalizados de Saneamento Básicode Viana do Castelo E Servi¸cosMunicipalizados de transportes colectivos do Barreiro H Servi¸cosMunicipalizados de Transportes Urbanos de Coimbra H SMA - Servi¸cosMunicipalizados de Alcoba¸ca E SMAES - Servi¸cosMuncipalizados de Agua,´ Electricidade e Saneamento de Santo Tirso E SMAS - Servi¸cosMunicipalizados de Loures E SMAT - Servi¸cosMunicipalizados Portalegre - Aguas´ e Transportes E

Table M.7: Entities possibly belonging to local enterprise sector- Cooperative model

Entity CAE- 1st lvl A Oficina - Centro de Artes e Mesteres Tradicionais de GuimarãesCIPRL S Brancelhe/Cooperativa de Presta¸cãode Servi¸cosCulturais e Tur´ısticos R CAID - Cooperativa de Apoio A` Integra¸cãodo Deficiente Ciprl Q Centro de Criatividade R COMOIPREL - Cooperativa Mourense De IPRL P ECO-AVE-SUCATAS- CIPRL G Ensinansiães- Ensino Técnico-Profissional - CIPRL P Epa - Escola Profissional de Alte Ciprl P Continued on next page 134

Table M.7 – Cooperative model – Continued from previous page Entity CAE- 1st lvl Epralima - Escola Profissional do Alto Lima - CIPRL P FRATERNA - Centro ComunitárioDe Solidariedade E Integra¸cãoSocial CIPRL Q LACTICORVO, LACTICÍNIOS DO CORVO, CIPRL C Mercoalcobaca Mercado de Origem de Frutas e Legumes de Alcoba¸ca A Naturfafe - Presta¸cãode Servi¸cosde Turismo, Desporto, Cultura e Tempos Livres, Crl R Praia Cultural - CIPRL R REDAT - Redondo Artesanato e Turismo CIPRL N TAIPAS - TURITERMAS - CIPRL Q TEMPO LIVRE - Centro Comunitáriode Desporto e Tempos Livres CIPRL R TURIPENHA - Cooperativa de Turismo de Interesse Publico CRL H Basto Vida - Servi¸code AçcãoSocial e Cuidados de Saúde,CRL Q ZENDENSINO - Cooperativa de Ensino e IPRL P

Table M.8: Entities possibly belonging to local enterprise sector- CI (40%

Entity CAE- 1st lvl ALFAMEL Agrupamento de Apicultores de Alfandega da Fe LDA A ATBERG Eolicas do Alto Tamega e Barroso LDA D BTP - Publicidade em Transportes e Meios de Comunica¸cãoS.A. M Caldas da Cavaca S A L Caminhos do Campo S A F CAMPISCINAS - Desenvolvimento e Implementa¸cãode Piscinas S A R CISTER - Equipamentos Educativos S A F DAOGEST˜ - GESTAO˜ E INVESTIMENTOS S A F DNHS - Empresa De Desenvolvimento De Habita¸cãoSocial Do Nordeste S A L EMPRESA EOLICA DO BARROSO LDA D EOLICA DA SERRA DAS ALTURAS S A D EOLICA DE MONTENEGRELO S A D EOLICA DE PADRELA LDA D GEDERNOR - Constru¸cãoE GestãoDe Equipamentos Desportivos Recreativos E Turisticos R Do Nordeste S A GESQUELHAS - Constru¸cãoE GestãoDe Equipamentos Desportivos De Vila Franca S A R HIDROLOUREDO HIDROELECTRICA DO LOUREDO LDA D MADALENAGIR S A N MAFREDUCA S A F NEOFUTUR - PROMOÇ AO˜ E CONSERVAÇ AO˜ DE IMOVEIS S A F PAÇO DE MAIORCA - Promo¸cãoE GestãoDe Equipamentos Hoteleiros S A M PARQUE FUTURO SEC XXI S A N S D C P V - Sociedade de Desenvolvimento do Concelho da Praia da VitóriaSA N Jardins Expo, Promo¸cãoImobiliáriaS.A L Continued on next page 135

Table M.8 – CI (40%

137

Appendix N Listing of Public-Public Partnerships (PuPs) with dominant state participation

Table N.1: Entities belonging to PuPs with dominant state participation

Entity CAE- 1st lvl AdRA - Aguas´ da Regiãode Aveiro, S.A E AdTMAD - Aguas´ de Trás-os-Montes e Alto Douro, SA E AdAlgarve - Aguas´ do Algarve, SA E AdCA - Aguas´ do Centro Alentejo, SA E AdCentro - Aguas´ do Centro, SA E AdDP - Aguas´ do Douro e Paiva, SA E AdMondego - Aguas´ do Mondego, SA E AdNoroeste - Aguas´ do Noroeste, SA E AdNA - Aguas´ do Norte Alentejano, SA E AdOeste - Aguas´ do Oeste, SA E AdZC - Aguas´ do Zêzeree Côa,SA E AgdA - Aguas´ Públicas do Alentejo, S.A. E Algar - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E Amarsul - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E Coimbra Viva SRU - Sociedade de Reabilita¸cãoUrbana, S.A. F CostaPolis - Sociedade para o Desenvolvimento do Programa POLIS na Costa da Caparica, O SA Ersuc - Res´ıduosSólidosdo Centro, SA E GestAlqueva - Sociedade de Aproveitamento das Potencialidades das Albufeiras de Alqueva F e Petrogão,S.A MARL - Mercado Abastecedor da Regiãode Lisboa, SA L Metro do Porto, SA H Metro Mondego, SA H Parques Sintra Monte da Lua, SA R

Polis Litoral Norte - Sociedade para a Requalifica¸cãoe Valoriza¸cãodo Litoral Norte, SA M Polis Litoral Ria de Aveiro - Sociedade para a Requalifica¸cãoe Valoriza¸cãoda Ria de M Aveiro, SA Polis Litoral Sudoeste - Sociedade para a Requalifica¸cãoe Valoriza¸cãodo Sudoeste Alen- M tejano e Costa Vicentina, SA Porto Vivo, SRU - Sociedade de Reabilita¸cãoUrbana, SA F ResiEstrela - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E ResiNorte - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E ResuLima - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E SanEst - Saneamento da Costa do Estoril, SA E Simarsul - Sistema Multimunicipal de Saneamento de Aguas´ Residuais da Pen´ınsulade Setúbal E SIMDouro - Saneamento do Grande Porto, SA E SIMLis - Saneamento Integrado dos Munic´ıpiosdo Lis, SA E SIMRia - Saneamento Integrado dos Munic´ıpiosda Ria, SA E Continued on next page 138

Table N.1 – PuPs – Continued from previous page Entity CAE- 1st lvl SIMTejo - Saneamento Integrado dos Munic´ıpiosdo Tejo e Trancão,SA E Polis Litoral Ria Formosa - Sociedade para a Requalifica¸cãoe Valoriza¸cãoda Ria Formosa M SulDouro - Valoriza¸cãoe Tratamento de Res´ıduosSólidosUrbanos, SA E Trevo Oeste - Tratamento e Valoriza¸cãode Res´ıduosPecuários,SA E ValNor - Valoriza¸cãoe Tratamentos de Res´ıduosSólidos,SA E ValorLis - Valoriza¸cãoe Tratamento de Res´ıduosSólidosUrbanos, SA E ValorMinho - Valoriza¸cãoe Tratamento de Res´ıduosSólidos,SA E ValorSul - Valoriza¸cãoe Tratamento de Res´ıduosSólidosdas Regiõesde Lisboa e do Oeste, E S.A. VianaPolis - Sociedade para o Desenvolvimento do Programa Polis em Viana do Castelo, S. A. O Parque EXPO 98, S.A. F EDAB, S.A.- Empresa de Desenvolvimento do Aeroporto de Beja F MARB - Mercado Abastecedor da Regiãode Braga, SA L MARF - Mercado Abastecedor da Regiãode Faro, SA L MARE - Mercado Abastecedor da Regiãode Evora,´ SA L 139

Appendix O ERSAR’s regulatory model, as declared in ERSAR (2010d)

(...)

2.3. REGULATORY MODEL

(...)

In terms of structural regulation of the sector, ERSAR:

• Monitors the national strategies for the sector, assessing its implementation and periodically reporting its evolution and shortcomings;

• Prepares proposals for new legislation in the sector, for example at the legal municipal and multimunicipal level, and technical legislation regarding water and waste legal regulatory systems.

In the ﬁeld of the regulation of operators’ behaviour, ERSAR:

• Monitors the legal and contractual guarantees of the operators throughout their life cycle, speciﬁcally through analyses of bidding processes and concessions, contract change, termination of contracts and reconﬁguration and fusions of systems, monitoring the execution of contracts, and intervening when necessary in the conciliation of parties;

• Ensures the economic regulation of the operators, promoting the regulation of prices to secure eﬃcient and socially acceptable prices without harming the ﬁnancial sustainability of the operators;

• Ensures the regulation of the quality of the service rendered by the operators through the evaluation of the service to end-users and comparing the operators themselves through the application of indicators that promote eﬃciency;

• Ensures the regulation of drinking water quality, evaluating the quality of the water supplied to end-users, comparing with other operators and following up on non-compliance in real time, thus promoting greater quality of water;

• Analyses end-users’ complaints and promotes reconciliation between end-users and operators.

In terms of additional regulatory activities, ERSAR:

• Drafts and discloses precise and accessible information on a regular basis to all players involved in the sector and the public;

• Gives technical assistance to operators, promoting publishing, professional training and organizing seminars and conferences frequently in partnership with universities and research and development centres;

• Answers queries from all players in the sector.

All these competencies of the regulation model should be perfectly articulated, so that a coherent model can be achieved.

(...)

141

Appendix P AdRA’s predicted investments in ﬁxed capital over the management contract lifetime and the analysis period (APer.)

Figure P.1: Fixed investments plan, as declared in the economic and ﬁnancial viability studies before the 10th municipality’s entrance

Figure P.2: Fixed investments plan, as declared in the economic and ﬁnancial viability studies after the 10th municipality’s entrance

143

Appendix Q AdRA’s management contract main features

Management contract between the shareholders and AdRA

• Limit setting of activities and territorial scope;

• duration;

• technical model, including the best estimation available for the global investment plan;

• assumptions on the ﬁnancial-economic viability studies;

• list covering infrastructures, equipments and legal relations related with the system’s management and operation;

• activities to develop, milestones and indicators;

• quality performance indicators;

• tariﬀ setting and revision procedures;

• authorization and conditions setting to subcontract;

• rules to adopt if concessions (of particular system sections) are awarded;

• rules and procedures to contract changes and termination.

145

Appendix R Risk treatment measures developed in AdRA

Operational Risk

i. Quality standards (service interruptions) and respective tariﬀs

AdRA has carried an intensive effort to equip itself with proper tools (technology), to monitor the service provided while keeping high quality standards. Further, the activity provided (water supply and wastewater services) is highly regulated by a demanding set of laws, regulations and contracts, ranging from service quality to tariff setting, which are strictly fulfilled.

ii. Assets and their maintenance

Being a capital intensive activity, requiring large investments in infrastructures, the operating assets suitable identification and maintenance, is a key feature in daily management. Several projects are in progress to improve efficiency and effectiveness of asset management. Those projects range from a proper identification and inventory, to the development of asset evaluation projects alongside the implementation of new IT tools that help maintenance control.

iii. Climate changes

Due to the nature of AdRA’s activities, climate changes may influence the cash-flow. Since higher rainfall levels in a year will result in a higher volume of wastewater to be treated in wastewater treatment plants. On the other hand, in periods of drought, water sources may also be affected in terms of quantity available and quality.

Financial risk

The main objective is to mitigate adverse effects resulting from financial markets unpredictability, by using structured finance instruments.

i. Market risk (e.g. interest rates)

The interest rate risk management policy of the Group is geared towards a reduction in financial costs and in debt’s cash-flow exposure to market fluctuations by engaging in structured finance instruments.

ii. Credit risk

The main sources of credit risk are: i. customers, ii. bank deposits and ﬁnancial investments.

As is generally known, the “region’s” economic situation influences the ability of firms and households to fulfil their financial responsibilities, which can have consequences on receipts for services rendered.

Relative to financial institutions, AdRA benefits from being an AdP group entity, since AdP holds an important history of business relationships with key financial entities, selecting the counterparties based on credit ratings issued by independent rating agencies.

iii. Liquidity risk

The liquidity risk management relies on maintaining an adequate level of cash or cash equivalents, as well as the negotiation of credit limits that ensure the activity’s normal development. This risk is also mitigated by the availability of credit lines contracted and not yet used. 146

Regulatory risk

Due to being water service providers, the AdP group operates in an environment highly regulated by ERSAR. This entity, empowered by the state, regulates among other things the tariﬀs charged. In an attempt to balance an adequate access to the services provided, the shareholders return (contractually established) and the public interest, the regulator’s actions may have a negative impact in the group’s cash-ﬂows, among other adverse consequences. 147

Appendix S AdVouga’s concession contract main features

Tariﬀ plan: Annual updates

T rt = T cbt × P t (S.1) in which: t=the year related to the tariff update; Trt=reviewed tariff; Tcbt=tariff used in the viability studies, and;

IMO IE HICP P t = 0, 2 × t−1 + 0, 37 × t−1 + 0, 43 × t−1 (S.2) IMOcb IEcb HICPcb being IMO the labour factor published by INCI (Instituto de Constru¸c˜aoe do Imobili´ario),IE covers the variatons in energy and HICP updates the value in accordance to the Harmonised Index of Consumer Prices.

Tariﬀ plan: Discount echelons

Moreover, the tariffs charged (per m3) will have 3 discount echelons, ranging for values from 5% above the minimum flows threshold to 20%, in sets of 5%, for respectively 15%/ 30%/ 45% of the tariff charged (per m3) for that particular extra volume of water comprised in each specific echelon.

Biannual plan of investments (as speciﬁed in the tender documents)

Those investments, are to be implemented by whoever the AMCV sees ﬁt to do so (either the concessionaire or by an undertaking), concern infrastructure/ equipments, expansion or modiﬁcations, due to: i. changes in raw water characteristics; ii. higher quality requirements due to new legislation, and; iii. required increases in assets, service coverage and abstraction capacity.

Operational risk: Subcontracting procedures

Since the system’s operational responsibility is assigned to the concessionaire, the contract forbids it to subcontract or to change a subcontracted party, unless if, upon a prior request to the contractor, it is deemed acceptable. Either way, the liability remains allocated to AdVouga.

Maintenance risk: Consignment of assets

AdVouga also bears the maintenance risk, being accountable for the assets after their consignment (only happens after a rightful inspection).

Reports: Delivery deadlines

All the reports have deadlines for delivery, being the 15th of the next month for the monthly, and 30th of January for the yearly, unless the report on the investment plans development to be delivered on the 30th of September. If those deadlines are overrun, a penalty can be applied after hearing the Monitoring Commission (MC).

Main sanctions/ penalties covered in contract (as speciﬁed in the tender documents)

• Water supply interruptions: 100 m3/ hour, and if the duration surpasses 5 hours - 200 m3/ hour.

• Quality: In case of noncompliance - 200 m3/ hour. 148

• Noncompliance with deadlines for submission of reports: 1000 m3/ day.

• Delivery of false information or non-delivery of requested data: 1000 m3.

Procedure of conduct: Restoring the water supply

To restore the water supply to normal conditions (after interruptions), the whole procedure must be conducted as eﬀective and eﬃcient as possible, being AMCV the one that adjudges the concessionaire’s performance in doing so.

Disagreement and dispute cases: Arbitration tribunal

Another situation covered by contract are disagreement and dispute cases. In such cases, the parties shall endeavor to reach, by mutual agreement, an appropriate and equitable solution. In case it is not possible, an arbitration tribunal will be composed by the respective parties in accordance to Law n.31/86, of August 29th. The arbitrators are to be elected by the parties, one by each party and the later in mutual agreement by those already chosen, as last resource the last arbitrator will be the president of the respective court of appeal. The arbitrators will interpret in “ex-aequo et bono” and their resolutions shall not be subject to appeal (unless on points of law).

Transmission of assets: Completion of the contract

Upon completion of the contract, the transmission of all infrastructures and equipment consigned, shall be done in perfect working and maintenance conditions free of charge to AMCV. In addition, the transmission of further technical resources needed to provide operational continuity while keeping its quality, shall take place, receiving AdVouga a payment determined by mutual agreement and based on their net book value.

Transmission of assets: Redemption of the contract

Upon a redemption procedure, the contracting authority is bound to pay a compensation equal to all the reimbursements, remunerations and other cash flows (considered in the contractual amendment in the economic and financial viability studies) owed to the shareholders till the end of contract. That sum can be paid in one payment updated to Euribor (6 months) rates, plus a risk premium of 400 basis points. Furthermore, AMCV will still have to cover all the remaining debts incurred due to AdVouga’s bank financing (required for the system’s expansion investments).

Termination of the contract: Reasons attributable to each party

Termination due to reasons attributable to the concessionaire (AdVouga):

i. trespassing or subcontract contractual rights and obligations;

ii. takeover for a longer duration than is legally accepted;

1 iii. total value of sanctions in 6 months up to 6 of the rent paid; iv. fail to fulﬁl the obligations to which it is liable, jeopardizing or undermining the contract’s purpose;

v. noncompliance with technical requirements;

vi. fail to comply with the required asset maintenance, and;

vii. dispose totally or partially of respective equity shares.

Termination due to reasons attributable to the contracting authority (AMCV):

i. contract suspended for a period over 3 months;

ii. total water sold is 50% less than the minimum ﬂows threshold, and;

iii. delay of more than six months in payments. 149

Appendix T Sunshine regulation indicators and energy eﬃciency procedures

Bulk drinking water supply services: Indicators

In accordance to ERSAR (2010b), the ﬁnancial strength of AdVouga is assessed through: Total costs; unitary operational costs; average debt cost; turnover; net proﬁt/ loss; equity, reserves and retained earnings; operating margin; long-term capital coverage; equity to assets; capitalization level; average collection period. As for the protection of user interests, operator sustainability, and environmental sustainability; Figure T.1 highlights the indicators used, and Figure T.2 their evaluation over time.

Figure T.1: Indicators related to protection of user interests, operator sustainability, and environmental sustainability (adapted from ERSAR, 2010d)

Figure T.2: Evolution of bulk water supply services quality indicators over time (adapted from ERSAR, 2010a) 150

Energy eﬃciency and renewable energy procedures

The promotion of energy efficiency and renewable energy contribute to stimulate the “brand image” of the company. In fact, AdVouga promotes the identification and implementation of measures that support an optimal energy consumption, this philosophy resulted in several opportunities for the company. The use of a renewable energy turbine (teresaTM ) is such an example, that has clearly shown its economic and environmental benefits.