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 T´ecnicowhom 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 T´ecnicowith 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, Jos´eTuna 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. v Abstract The current research discusses the organisational and institutional model of PuP companies in the provi- sion 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 im- plementation 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, con- tract 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 P´ublico- P´ublicasna presta¸c~aode servi¸cos p´ublicos de infra-estruturas locais em Portugal. Com a entrada do Peaasar ii (plano estrat´egicode abastecimento de ´aguae de saneamento de ´aguasresiduais), a difus~ao destas parcerias para os servi¸coslocais come¸caa ser mais significativa, visto ser no sector das ´aguase 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 consider´avel nestes sectores. De maneira a compreender a difus~aonum contexto mais generalizado, o uso destas parcerias foi analisado num contexto Europeu, com o objectivo de atingir um conhecimento mais sustentado de pr´aticascomuns e hip´otesesde aplica¸c~ao. O status da presta¸c~aode servi¸cosde infra-estruturas em pa´ısescomo a It´alia,a Espanha, a Austria´ e a Su´ecia,foi consequentemente efectuado. Uma an´alisecompleta da realidade Portuguesa foi posteriormente considerada, com uma ampla carac- teriza¸c~aodo estado dos operadores. Desta forma, o status quo Portugu^esfoi compreendido e analisado. Devido `aexist^enciade diversos modelos poss´ıveis, uma an´aliseSWOT 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 relat´orios,com o objectivo de conseguir analisar a participa¸c~aodos accionistas, a transpar^enciainerente ao servi¸coe a responsabiliza¸c~aodos parceiros. A gest~aodo risco aliada `acomposi¸c~aode tarifas foi igualmente analisada. De seguida, uma entidade concession´aria,como poss´ıvel modelo alternativo, foi estudada sobre esses mesmos par^ametros. Deste modo, conclui-se que este modelo (PuPs) pode contribuir significativamente para a difus~aode boas pr´aticasinternas e interesses sectoriais, mas que em contrapartida n~aoapresenta uma estrutura de gest~ao de risco, e tamb´emde promo¸c~aode efici^encia,`aaltura. Palavras-chave: Parcerias P´ublico-P´ublicas;an´aliseSWOT; an´alisecontractual; sector empresarial local; servi¸code interesse geral; viabilidade; administra¸c~aolocal; gest~aode risco. ix 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