SEPTEMBER 2011 I water VOLUME 6 ISSUE 3 utility management INTER N ATIONAL

COMMUNICATIONS PROJECTS Innovations in contracting for project delivery

SECTOR REFORM The regulator’s view of Malaysian reform progress

FINANCING

PLUS ... Who owns the UK water industry? and From bankruptcy to AAA rating: Emerging bond activity in the US success in Bogota NEWS

US looks towards improving infrastructure resiliency he US government is currently in the Congress, would involve the EPA establish - ‘AMWA has estimated that adapting to Tearly stages of considering a piece of ing a grant programme in which water and hydrological conditions brought about by legislation that would provide grants for a wastewater systems would compete for climate change may cost US water and range of actions to help utilities adapt to matching funds to plan or implement water wastewater systems nearly $1 trillion changing hydrological conditions. infrastructure projects made necessary by through 2050,’ noted AMWA executive A Californian Democrat, Lois Capps, has changing hydrological conditions. director Diane VanDe Hei. ‘This bill’s introduced the Water Infrastructure The legislation would support modifying modest authorisation of $50 million per Resiliency and Sustainability Act of 2011 or relocating existing water system infra - year will help utilities begin addressing with backing from the US Association of structure; projects to preserve or improve these needs today, while also creating Metropolitan Water Agencies (AMWA). water quality; investigating, designing or thousands of jobs.’ The bill would authorise a new constructing groundwater remediation, The Bill is currently at committee stage – Environmental Protection Agency (EPA) recycled water or desalination facilities; one of the first steps in the legislative programme offering competitive grant increasing watershed protection, for process – having been referred to the funding to help water systems adapt to instance by using ‘green infrastructure’; Subcommittee on Water and Power in early the impacts of changing hydrological development of renewable energy; and August. Introduced bills and resolutions conditions, including those caused by adopting and using advanced water treat - first go to committees that deliberate, climate change. ment or water demand management investigate, and revise them before they go The new legislation, which is based on techniques, among a long list of other water to general debate. The majority of bills and proposals originally introduced in the 111th efficiency and flood risk reduction actions. resolutions never make it past this stage. G UK water companies attract large-scale investment

he acquisition of the UK’s Northumbrian Gardner says: ‘This [the sale of approximately £20 million ($32 million), TWater by Hong Kong-based Cheung Cambridge Water by CKI] presents a with £7 million ($11 million) in profits Kong Infrastructure Holdings (CKI) was unique opportunity for a UK pension fund before tax. coming to a close at the time of going to to acquire one of the UK’s most efficient ‘In sum, this is an ideal asset for a press, with CKI investing £2.4 billion water companies. Cambridge Water pro - pension scheme looking for secure, ($3.7 billion) in the utility. vides essential fresh water services to over long-dated inflation-linked cash flows, CKI previously owned another UK 300,000 people in Cambridgeshire. but with a significant real return above water utility, Cambridge Water, which ‘Its activities are regulated by Ofwat long-dated inflation-linked gilts. The it sold to banking group HSBC in and its prices may be increased in line attractiveness of Cambridge Water is order to ease progress of its bid for with the agreed price review, based on a that its small size of £74 million ($117 Northumbrian Water. formula related to the retail price index, million) makes it a palatable acquisition Pensions investment consultancy plus or minus a sum relating to its level of for one of the top 25 UK pension schemes Redington and investment bank Evolution efficiency,’ says Redington. ‘Cambridge by assets, as it will represent a capital Securities are reported to have joined up to Water is permitted to earn a secure inflation investment of less than 1%. It’s well run find a UK pension fund, or consortium of linked return on its regulatory capital value and has no external debt apart from its funds, to buy Cambridge Water. of £64.64 million ($102 million). At its revolving credit facility to cover working In a blog, Redington co-CEO Robert March 2011 year-end, revenue was capital.’ G See sector review, p27

Veolia Environnement announces results and restructuring rench environmental services company Europe and to a lesser extent in reported a positive free cashflow of FVeolia Environnement SA recently North Africa, by a total amount of €155 million ($212 million) against €133 announced its half-year results in tandem €97 million ($133 million).’ million ($182 million) in the first half of with an accelerated corporate restructuring Operating income was €252 million 2010 and a reduction in net financial debt that includes divestitures and a reduction in ($345 million) against €1 billion ($1.4 by €454 million ($623 million) to €14.8 the areas in which the French water and billion) the previous year, and negatively billion ($20 million). The company also wastewater giant works. impacted by €686 million ($940 million) of reported a ‘solid execution’ of its asset The company’s statement cites non-recurring write-downs, principally in divestment programme. ‘difficulties in southern Europe, Italy, Morocco and the US. The company’s accelerated restructuring North Africa and the United States’. Veolia announced total asset aims include exiting transport activities Its consolidated revenue grew 4.4% writedowns of €800 million ($1.2 billion) in Morocco, environmental services in to €16.3 billion ($22 billion) and its because of problems in its US, Italian and Egypt, Marine services in the US and adjusted operating cashflow grew 2.3% north African businesses. Adjusted net Southern Europe, and achieving an to €1.7 billion ($2.3 million). It notes income was €188 million ($258 million) increased geographic concentration of that this figure was ‘negatively impacted compared to €263 million ($360 million) company operations with a presence in by operational difficulties within the US in in the first half of 2010. fewer than 40 countries by 2013 compared the Marine Services business, in southern On a different note, the company to 77 currently. G

2 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 NEWS CONTENTS

Report focuses on large REGULARS 7 ANALYSIS Are green shoots appearing in the US water and number of unreported wastewater market? Whole system approach focus from new breaches of consultancy chief drinking water safety 43 PRODUCTS & SERVICES 44 READING & RESOURCES he US Government Accountability Office (GAO) has warned Tthat states are not meeting their obligation to report health- 44 DIARY related breaches in drinking water to the extent that US Environmental Protection Agency (EPA) audits uncovered 26% of health-related and 84% of monitoring violations went unreported. FEATURES The GAO noted in its report that 11 states had 20 outbreaks of 9 FINANCE illness associated with drinking water in 2005 and 2006, resulting Colombian utility in 612 illnesses and four deaths. The organisation warns that the success in report findings undermine the reliability of data collected under the finance Safe Drinking Water Act (SDWA). diversification: For the report, the GAO was asked to gauge the quality the case of Bogota of the state data EPA uses to determine compliance with By Vivian Castro- the health and monitoring requirements of the Act and the Wooldridge and status of enforcement efforts, the ways in which data quality Jose Garcia could affect EPA’s management of the drinking water Larrarte programme, and the actions EPA and the states have been taking to improve data quality. 16 FRANCHISING GAO analysed EPA audits of state data undertaken in Going with the franchising flow: improving watsan services in South Africa 2007, 2008 and 2009, and canvassed EPA and state officials to By Kevin Wall and Jay Bhagwan obtain their views on factors that have affected data quality and steps that could improve it. 21 PROJECTS / CONTRACTING The GAO report concludes: ‘The data states reported to Leading projects show EPA for measuring compliance with health and monitoring contracting requirements of SDWA did not reliably reflect the number of innovation health-based and monitoring violations that community water 27 SECTOR REVIEW systems have committed or the status of enforcement actions.’ Who owns the UK’s As well as the under-reporting of violations in general, water industry? according to EPA headquarters and regional officials GAO By Keith Hayward interviewed and surveyed, state-reported data also under- reported the percentage of water systems against which the 33 BENCHMARKING states have taken enforcement actions. Survey respondents Providing incentives for improved services: outlining benchmarking benefits for Cape Verde and other officials reported that various factors contribute to By Pedro Simões and Rui Marques errors in reported data on violations and enforcement, including inadequate training, staffing and guidance, and insufficient 37 SECTOR REFORMS funding to conduct those activities. Malaysia’s progress with its water sector reform: the The GAO makes a number of recommendations to improve the regulator’s view situation, including: By Keith Hayward • The EPA’s administrator should resume data verification audits to routinely evaluate the quality of selected drinking water data on health-based and monitoring violations that the states provide • The EPA’s administrator should work with the states to establish a goal, or goals, for the completeness and accuracy of data on monitoring violations • The EPA’s administrator should consider whether the EPA’s performance measures for community water systems could be formed to more clearly communicate the aggregate public health risk posed by these systems’ non-compliance with the SDWA and progress in having those systems return to compliance in a timely manner • The EPA’s administrator should work with the EPA regions and states to assess progress in implementing the steps called for by a 2008 action plan and a 2009 memorandum from the Director of the Office of Ground Water and Drinking Water G

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 3 NEWS

US utility buys up smaller water providers quarion Water Company, the largest unifying fragmented operations’ and Ohio and to simultaneously sell Aqua’s Ainvestor-owned water utility in New preparing for future development. regulated operations in New York to England, has bought dozens of water The company most recently bought American Water. Both companies are now systems and several small companies in Meckauer Water Company, which serves the largest investor-owned water utilities in Connecticut over the last few months. just 49 customers in Bethel. Terms of the each of the two respective states. Commentators see this as part of a wider deal were not disclosed. As a result of the transaction, which industry consolidation that is taking out Bruce Silverstone, a spokesman for involves purchasing eight water systems small operators that have insufficient Aquarion in Bridgeport, said smaller water and one wastewater system, Aqua will capital to fund ongoing operational and companies could not always meet stan - acquire an extra customer base in Ohio of capital expenditure costs and meet dards set by the Department of Health. He around 57,280. increasingly-tight regulatory standards, noted: ‘Not that they don’t have good water, In a separate agreement, Aqua America providing opportunities for larger utilities but it’s increasingly difficult to continue agreed to sell its seven water systems, that can leverage economies of scale. meeting standards and do what’s necessary .’ which serve around 50,520 customers in Since April, Connecticut-based Aquarion, Other examples of recent purchases New York, to American Water’s New York which serves over 580,000 customers in include Aqua America, which recently subsidiary, for approximately $71 million. 39 cities and towns, has announced announced an agreement with American The move makes Long Island American plans to buy water systems serving a Water Works Company to purchase all of Water the state’s largest investor-owned few thousand residents ‘with the goal of American Water’s regulated operations in water utility. G Scottish Water ordered to provide full financial information on nine contracts Freedom of Information (FOI) request by examine claimed value for money issues, or seems highly likely that these contracts AUK trade union UNISON Scotland has that these key documents had been lost. were approved on the basis of minimal resulted in Scottish Water being ordered by He added: ‘Scottish Water says that FBCs “back of an envelope” calculations, which the Scottish Information Commissioner to were not required to be carried out for these is a disgrace.’ provide the public sector union with full early PFI projects, but the Scottish govern - Mr Watson told WUMI that since the financial information on nine of its major ment’s own website still to this day says that decision UNISON has put in further FOI water and sewerage public finance initiative FBCs were published for two of the nine requests to the Scottish Government to (PFI) contracts. contracts and Scottish Water told MSPs determine what the government itself does The decision was made despite Scottish (Members of the Scottish Parliament) that or does not hold. He said: ‘The Scottish Water objecting that this would substantially at least three existed, yet it has not been Government website said they had received prejudice the confidentiality of its commer - able to trace them. the FBCs and it seems they did not so they cial and industrial data. UNISON claims its ‘We also asked the then Scottish have got some explaining to do. It’s utterly FOI request suggests Scottish Water does Executive for these documents and they too bizarre that government officials should not hold full business cases (FBCs) for the said they were not held, but at that time we make decisions on multi-million pound nine contracts in question. The union also assumed at least that Scottish Water would contracts without a business case.’ disputes claims by the utility that it was not have them. We will be pursuing the mystery The nine contracts, most of which run for required to hold FBCs for its early PFIs. of the missing or non-existent FBCs with 30 years, cost nearly £600 million ($947 UNISON’s Scottish Organiser Dave the Scottish government again. million) in capital expenditure and around Watson said it was ‘scandalous’ that either ‘We expect MSPs will also be concerned £130 million ($205 million) annually. the projects had been approved without to learn that they were led to believe in UNISON has not yet received a response any FBCs that could be scrutinised to 2001 that FBCs were carried out when it from Scottish Water. G

planning, consolidation, public / private sector PUBLISHING SUBSCRIPTIONS roles, leadership, IT, and human resources. water Other regular themes include financing, Publisher Water Utility Management International utility management regulation, charging policies, procurement, Michael Dunn is available as either a print or an online INTERNATIONAL corporate governance and customer issues. subscription. Water Utility Management International is Editorial Advisory Panel published four times a year by IWA 2011 price (4 issues): EDITORIAL Publishing. Statements made do not £212 / €320 / $423 Dr Richard Franceys , Centre for Water represent the views of the International (IWA members: £181 / €271 / $344) Editor / Associate Publisher Science, Cranfield University, UK Water Association or its Governing Board. Keith Hayward ([email protected]) Dr Bernhard Hoersgen , Executive Board Contact Member, Gelsenwasser AG, Germany IWA Publishing Portland Customer Services Publishing Assistant Dr David Johnstone , Oxford Centre for Water Alliance House, Commerce Way, Colchester Catherine Fitzpatrick Research, University of Oxford, UK 12, Caxton Street, CO2 8HP, UK Prof Hamanth Kasan , General Manager - London SW1H 0QS, UK Fax: +44 (0)1206 799331 Water Utility Management International Scientific Services, Rand Water, South Africa T: +44 (0)20 7654 5500 Email: [email protected] focuses on the interests of utility executives, Mr Khoo Teng Chye , Chief Executive, PUB, F: +44 (0)20 7654 5555 policy makers and advisors around the world Singapore E: [email protected] Or visit: engaged with the key management issues Mr Alejo Molinari , Quality of Services W: www.iwapublishing.com www.iwaponline.com/wumi/default.htm faced by water and wastewater utilities. As Manager, ETOSS / ERAS, Argentina well as senior utility managers, WUMI will Dr Renato Parena , Chief Financial Officer, Design & print ISSN (print) 1747-7751 be of interest to regulators, consultants, Societa Metropolitana Acque Torino SpA, Italy Layout: IPL Print & Design Ltd ISSN (online) 1747-776X contractors, academics, and financial, Mr Eric Rothstein , Principal, Galardi Rothstein Printed by Hobbs the Printers, UK © IWA Publishing 2011 technical and legal professionals. Group, USA Utility reform and achieving efficiency are Ms Meike Van Ginneken , Senior Water and Advertising Sanitation Specialist, World Bank, USA central themes of the publication, encompass - Christian Letessier-Fenodot T: +44 (0)20 7368 7205 ing topics such as benchmarking, investment E: [email protected]

4 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 NEWS

National command centre opened to coordinate US water utility disaster response

n the aftermath of Hurricane Irene, United United Water Idaho office in Boise. It is some water treatment works and pumping IWater announced that it had opened a not in the storm path and the talented team stations suffered power cuts that reduced national command centre in Boise, Idaho, to of Boise professionals has a wealth of or completely cut off supplies. coordinate the major US water company’s expertise to help coordinate and support In his statement, Mr Iacullo response to the damage caused by high response efforts which might be needed noted that his company’s priorities winds and flooding. by our East coast operations.’ focused on ensuring the health and United Water owns or operates water A number of municipal water and safety of employees, customers and and wastewater utilities along the US’ wastewater plants more generally along clients while protecting critical hard-hit east coast, from Georgia to the eastern seaboard were reported to infrastructure and the environment. New Hampshire. have been affected by the hurricane – He stressed that the United Water team United Water president Bob Iacullo several low-lying wastewater treatment would ‘strive to maintain service and explained in a statement at the time: plants were inundated, some sending raw restore service in a timely manner should ‘The command center is located at our wastewater into nearby water bodies, and interruptions occur’. G US water market sees significant bond activity

he US water market appears to be busy Metropolitan Sewer District in Kentucky month. The California Department of Twith bond sales as investors look to also recently issued $266.9 million of Water Resources, which finances safe investments during the ongoing sewer bonds, and California’s water water infrastructure projects, was also financial crisis. department and the Indiana Finance reported to be planning to borrow $1 billion The Indiana Finance Authority is leading Authority announced plans in August of tax-exempt revenue debt. five utility issuers selling about $2.5 billion to sell more than $2 billion of utility Also recently the Bozeman City in bonds, despite yields on bonds backed revenue bonds as municipal issuance Commission approved rate increases by customer payments being at their lowest appeared set to increase 42% to $5.4 for water and the extra taxpayer money in almost a year. billion, according to Bloomberg data. will be used to build a new potable The issue is being undertaken to King County, Washington, which water treatment plant. At a meeting in facilitate the sale of Indianapolis’s encompasses the city of Seattle, also August, the commission approved a bond sewer system to CWA Authority, a sold $403 million of revenue bonds a to fund the new centre. non-profit public benefit corporation to help re-fund debt and finance American Water Capital Corp, York Water created by Citizens Energy. Officials improvements to its sewer system. and the Water Replenishment District of are said to be eager to take advantage Los Angeles’ water agency, which serves Southern California have all recently of current low borrowing costs. four million people in the city, priced issued bonds for various purposes. G The Louisville and Jefferson County $311.6 million of revenue bonds last LS See Analysis, p7

Pöyry wins wastewater rural communities and small modelling, management and Defence experts warn of disposal and management towns. The programme will optimisation software. Within the cyber risk to infrastructure contract have two components. The framework of the water supply Information experts BAE Systems Pöyry’s Water & Environment first will include measures to improvement project under the Detica warned recently at the UK’s business group has been awarded strengthen the capacity of Ministry of Municipality and Defence and Security Equipment a contract for wastewater disposal local water and sanitation Tourism for the Kurdistan region, International conference and and solid waste management for community organisations and the software will be used to develop exhibition that critical national four provincial towns in Vietnam. service providers so that they can models of the water networks of the infrastructure (CNI) will increasing - The assignment, which is funded effectively contract and supervise cities of Erbil, Duhok, ly need to adopt high-security by the German KfW Development infrastructure works and manage Sulaymaniyah and Halabjah. cyber approaches that until now Bank and the Swiss State the services sustainably. have been the preserve of military Secretariat for Economic Affairs EU provides water and sanita - and national security. (SECO) under the Program North II Innovyze wins Kurdistan tion grant to Montenegro in Vietnam, has a value of €3.5 water network modelling The European Union is providing Chile water utility stakes sold million ($4.78 million). contract a €5 million ($7.1 million) grant to US pension plan Innovyze has announced that to support water and sanitation The Chile government’s CORFO IADB provides funds for following a competitive review, projects in five municipalities development corporation has Venezuelan rural water the General Directorate for in Montenegro. This grant sold the majority of its stakes and sanitation Water and Sewerage of the from the Municipal Window in the water utilities Essbio The Inter-American Development Kurdistan regional government of the Infrastructure Project and Esval to the Ontario Teachers’ Bank (IADB) has approved a in Iraq has chosen to deploy Facility (IPF) will be teamed Pension Plan (OTPP) for Ps260.6 $100 million loan for Venezuela to multiple licenses of the with a loan from the European billion ($563.4 million). The improve or expand access to water company’s InfoWater Suite, Investment Bank (EIB) in the pension fund now owns 89.6% of and sanitation systems for some the Arc-GIS centric water context of the Western Balkan Essbio, up from 51.1%, and 94.2% 11,000 households in up to 68 supply and distribution Investment Framework (WBIF). of Esval, up from 69.8%.

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 5 NEWS

Protest group calls for Nevada pipeline support withdrawal Suez Environnement announces A protest group consisting of the US’ Center for Biological Diversity, Great Basin Water Network strong results and Nevada Conservation League has called on the Clark County Commission to withdraw its uez Environnement has announced positive effects associated with the support for the Southern Nevada Water Sresults in line with its 2011 targets – integration of Agbar and the acquisition, Authority’s massive groundwater pipeline revenue up 11.8% at €7 billion ($9.6 finalised early this year, of WSN in waste project. Rob Mrowka, a Nevada-based billion) and an EBITDA (earnings before in Australia.’ ecologist with the Center, said in a statement: interest, tax, depreciation and amortization) The group was hit by a near-doubling ‘Aside from being a financial boondoggle, the of €1 billion ($1.4 billion), up 18.3%. of its income tax from €58 million ($79 water authority’s proposed pipeline would Commenting on the results, CEO million) in 2010 to €92 million ($126 destroy Nevada’s priceless natural heritage and Jean-Louis Chaussade issued a statement, million) in 2011, mainly because of the low huge swaths of rural communities. There are saying: ‘In the first half of 2011, Suez tax rate in the first half year of 2010 in other, better options for addressing southern Environnement posted strong results Spain on capital gains generated by the Nevada’s long-term water needs.’ growth and solid performance with a Agbar takeover. double-digit growth in revenues and Net investments rose to €770 million ($1 US EPA to review municipal water operating performance. Commercial billion) – in addition to acquiring WSN in source regulations activity remained sustained. Growth in Australia, the group invested in wastewater Europe is driven by the profitable growth treatment plants in France, regulated water The US Environmental Protection Agency (EPA) of the water activities and by a rise in the activities in the US and Chile and in has agreed to review regulations to protect volumes of waste treated. energy-from-waste facilities, mainly in The municipal water sources across the country, ‘Addressing the heavy needs for Netherlands and the UK. following criticism by New York Mayor Michael environmental services, international Suez also said it was making a big push Bloomberg of a $1.6 billion federal mandate. growth is still strongly increasing. in Spain, where it is the leading water utility New York is protesting a requirement to place a The Group’s growth benefits from the after its recent acquisition of Agbar. G 90 acre concrete cover over the Hillview reservoir in Yonkers.

Agreement reached for building of AECOM announces range of contracts 50MGD desal plant The city of Carlsbad and the San Diego and new senior vice president County Water Authority have reached a tentative agreement to enable a long- lobal technical and management Sewer District’s Easterly service area. planned 50MGD (190MLD) desalination Gsupport services provider AECOM has When complete in 2016, it will provide plant due to be built by Poseidon Resources announced several large projects recently, flow management to reduce the frequency to move forward. Despite the progress, the as well as the appointment of a new chief and volume of overflows in the Dugway plant faces a further legal challenge from strategy officer and senior vice president for area and eliminate or consolidate Surfrider Foundation, which filed an appeal in water in the Americas. several regulators to ease operation early August against a decision upholding an AECOM has entered into a joint venture and maintenance. ‘open ocean’ intake for the plant. Discussions with Parsons where the companies will be Outside the US, AECOM announced between the city of Carlsbad and the Water working on a $150 million programme earlier this year that it will be providing Authority have been under way for some time. management contract awarded by the project management services for Jeddah in The Water Authority is looking at a water San Francisco Public Utilities Saudi Arabia. The $171 million project will purchase agreement with Poseidon for desali - Commission (SFPUC). see AECOM implement dams and other nated water from the plant, but Carlsbad must Under the contract, the joint venture will flood control barriers; construct drainage first waive rights it enjoys under a pre-existing provide programme management services canals and stormwater reservoirs; resolve agreement with Poseidon. for SFPUC’s $7 billion Wastewater Jeddah’s most vulnerable flood points; Enterprise Capital Improvement prepare comprehensive studies for Brazil utility submits projects for programme for multiple projects through - undeveloped areas, including environmen - national growth acceleration plan out San Francisco. The scope includes tal plans for the entire Jeddah governorate; Sanepar, Brazil’s Paraná state water utility, has programme planning and administration, implement comprehensive infrastructure submitted R488mn ($300 million) in water and implementation, technical support, improvements to solve the sewerage sanitation projects to be considered within the programme controls, and pre-construction problems in Jeddah; and establish a small projects group in the second phase of management and planning up to the disaster-management centre for the national growth acceleration plan. 47 programme’s completion in 2026. Makkah Province. wastewater collection and treatment projects AECOM has also announced that it has As well as this range of contracts, and 54 potable water supply projects have been awarded a design and construction AECOM has also announced the appoint - management contract for the $66 million ment of Susan Leal, previously the general been submitted by the utility to the national Dugway West Interceptor Relief Sewer, a manager of SFPUC, to the position of chief health foundation (Funasa), and 37 wastewater major connecting facility for almost all of strategy officer and senior vice president for projects and 21 water projects have been the combined sewer overflow control water in the Americas. G submitted to the cities ministry. projects in the Northeast Ohio Regional LS See Analysis, p8

6 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 ANALYSIS Are green shoots appearing in the US water and wastewater market? There has been a large amount of investment in US water and wastewater market bonds recently with utilities across the US selling bonds to gain funds, so is it a positive sign that the market is looking up again? LIS STEDMAN speaks to CHRIS HESSENTHALER to find out.

nvestors recently have been showing cities – Chicago, for instance, whose credit The programme will result in a self- Ia lot of interest in buying bonds in the ranking was cut by Fitch Ratings twice in sufficient groundwater supply that provides US water and wastewater market, so under three months, has borrowed $487 40% of the water for four million people, does the recent flurry of activity mean million, including $423 million in taxable 10% of the state’s population, and reduce that the market is picking up? If so, Build America Bonds, to improve and pressure on the fragile Delta and Colorado what elements of the market appear expand the city’s water system. rivers. It is also intended to provide stable strong and which remain weak? Is an Some of the recent moves have been long-term water costs and to make the upturn likely, and is there a timescale? about consolidation – turning short-term naturally-arid region viable for residents In fact, according to Chris Hessenthaler, debt into lower-interest bonds, for example. and businesses. director of global ratings agency Fitch A case in point is the American Water Bond funding under current low interest Ratings, the bond issues are more a sign of Works Company, which announced in June rates will also enable WRD to include need than any indication that the market that its financing subsidiary, American funding for improvements to the District’s is beginning to recover. He notes: ‘In Water Capital Corp, had successfully closed Safe Drinking Water Program and Regional general in the bond market for water and an offering of $26 million in tax-exempt Groundwater Monitoring Program, both of wastewater we’ve seen a pretty sizeable water facility revenue bonds issued by which play a major role in the viability of our decline in issues. It’s no different to other Owen County in Kentucky. groundwater supplies. sectors of public finance, which are also The proceeds from the bond offering will Refinancing is on the minds of utilities down for this year.’ be used to repay short-term debt accrued around the world. Back in the UK, Southern He notes that the low interest rates at by the construction of a water treatment Water and Thames Water were reported the moment may be behind some recent and transmission facility in Owen County, earlier this year to be looking to raise an additional bond issues, but that the seem - Kentucky, and to pay a portion of the aggregate of £650 million ($1030 million) ing flurry of bonds is ‘mainly refunding. remaining costs of acquisition, construction, in the bond market to refinance existing There is some issuance, but compared to a installation and equipping of the water debt on their holding companies, which are few years ago it remains at a lower level.’ treatment and transmission facility as the owned by investment funds. He adds: ‘I don’t see any definitive sign of work nears completion. This project is Of course, many US utilities may be when issuance will return to its historical being built to ensure a long-term sustainable mindful of last year’s Ceres report, which norms,’ but observes that ‘for infrastructure water supply for Central Kentucky. warned that water scarcity in the west and needs there comes a point where projects City commissioner Chris Mehl is reported south east posed risks to municipal bonds. have to move forward, whether they are as saying of the Bozeman City bond that the At the time, Ceres president Mindy Lubber mandated by regulatory requirements or city could not wait any longer as the existing said: ‘If water supplies run short, utility treatment capacity’. treatment works was decades old and had revenues fall, which means less money to Mr Hessenthaler notes that there been in use much longer than anticipated. pay off their bonds. This risk scenario is a has been a ‘slight uptick’ in refundings, He also quoted population increases and distinct possibility for utilities in water- but that the other drivers are environmental stricter regulations as further impetus for stressed regions and bond investors should regulations, ageing infrastructure and the bond issue. be worried about it.’ capital needs. The downturn has had some Low interest rates and an urgent need to This general gloom has caused effect – he observes that many cities have find new water sources lay behind the local press to note, for instance, not been moving forward on planned rate Water Replenishment District (WRD) of that Kansas City is failing to fix leaks increases to support the issuance of new Southern California’s recent bond issuance. on water mains, with a wider impression debt, though this is not a primary driver. This will pay for what the utility called ‘vital of reluctance to raise already high The Build America Bonds – the special, water projects that will provide long-term taxes any further in a number of low-interest bonds available under the future benefits to ratepayers throughout municipalities including Royse city, American Recovery and Reinvestment Act Southern California’. Both Fitch and Texas, which voted against taking – had ‘a pretty sizeable influence’, Mr Standard & Poor’s gave the district on additional debt; Marquette, Michigan, Hessenthaler notes. ‘There was a flurry of their AA+ rating, indicating a very which has sharply reduced its bond activity in the last quarter of 2010 – a lot of strong financial standing. issuance; and Concord, New Hampshire, investors took advantage of the lower The bonds will also enable the WRD to which has also reduced the size of its bond interest rate, which expired at the end of implement its Water Independence Now, issuance – the list is long. With bonds calendar 2010. It doesn’t sound like they (WIN) Program – a group of projects remaining the main way in which infra - will come back.’ intended to allow the district to gain structure projects are financed at city level independence from costly imported water in the US, it appears that the bubble has Long-term financing and increase the reliability of its well and truly burst on infrastructure These bonds were taken up by some major groundwater supply. finance for the time being. G

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 7 ANALYSIS

Whole system approach focus from new consultancy chief Global technical and management support services provider Susan Leal AECOM has appointed a new senior vice president and chief strategy officer for water in the Americas, SUSAN LEAL , who is strongly focused on providing personalised whole system strategies for utilities. LIS STEDMAN speaks with her about what she sees as AECOM’s role in equipping clients for existing and future challenges.

usan Leal, has a long track record in the to fulfill the needs of our clients.’ Management Agency) in making Sutility business that stands her in good She notes that ‘there may be many assessments of sea level and coastal stead in what will be a challenging role with lessons we have learned in San Francisco intrusion in the San Francisco Bay one of the world’s biggest technical and or Orange County that may not work for area. The company’s collection management support services providers. Houston. I think it is very important not to system experts have also been involved She notes that her role involves ‘looking approach this by saying that two clients are in some interesting projects – AECOM at client capacity and needs. I think that is similarly sized so need the same things – was the lead on a project in Boston to extremely important when trying to come the important thing is looking at a client and install ultra-modern digesters. up with an implementation strategy, their needs and not trying to equate one AECOM is also involved in the whether it be a climate change strategy or metropolitan area with another.’ upgrade of the Washington, DC building a wastewater treatment system, it collection system. ‘We have the is extremely important to look at this – what Utility challenges in North America traditional engineering horsepower are the client’s needs.’ In terms of the areas she is focusing on, she and through the companies we have She explains that while sometimes this says: ‘I am personally looking at North acquired over the years we have may seem as straightforward as a client America, that is my purview. There are environmental engineering expertise,’ wanting to have a wastewater treatment going to be a lot of interesting things going Ms Leal notes. ‘If you are a municipality plant rehabilitated, looking beyond the on. The interesting thing is that even in you get the best value for your dollar from simple answers is critical. ‘It is very impor - tough economic times there are issues a company that can offer you a diversity of tant not to look just at whether the client surrounding wastewater and there is only people to bring to the problem rather than needs a digester, for instance, but to look at so long that you can ignore them.’ having to hire several companies. AECOM their overall needs – for instance, are they Much of the infrastructure passed when can be a true partner, helping to resolve a also dealing with a collection system that the Clean Water Act and Safe Drinking range of problems and get best value.’ may be impacted by sea level rise? In many Water Act were passed in the 1970s is now In terms of what she herself brings, Ms ways, you have to look at the strategy. That at the end of its life and facing tough chal - Leal says: ‘I bring a different viewpoint. is part of what my job is, looking at client lenges, she adds. ‘This is especially true in When I am talking to someone from a utility needs for complex problems, confronting the major metropolitan areas, which I’m or a political figure that has oversight over not only the issue as they see it now but in focusing on. It’s not just issues in the west utilities, I can understand where they are the future.’ with climate change – in the east we are coming from because I have had to grapple She notes that flexibility in offering seeing storm surges. We are now dealing with those problems.’ solutions is key: ‘It is very important to with the unavoidable consequences of not She concludes: ‘I took over at a utility understand from the outset that one size having kept up with our infrastructure.’ coming off a nine-year rate freeze and does not fit all – to go in, for example, with a She observes that ‘part of my work is not had to convince the residents to accept a mindset that this client just wants their just about rehabilitation but building for the multi-year rate increase – and they did.’ digester rehabilitated. In North America 21st century’. Given the possibly climate The San Francisco Public Utility there are many overwhelmed or ageing change-related challenges the country Commission not only provides water and wastewater systems and what they need is faces – such as the sustained high temper - wastewater services but also power, and not for us to try to offer a “cookie cutter” atures in Texas and the issues that has she notes that as a result of this back - solution. We are definitely not offering caused – she notes: ‘I want to take the ground she has an understanding of solutions off the rack.’ very deep and diverse talents of AECOM the problems of running a utility and Ms Leal observes that a range of issues and put them to work. What is wonderful is implementing upgrades, as well as confront clients in large metropolitan areas, that we are not just bringing in talent from the public finance side of such work. including their geography, the types of North America but from round the world.’ ‘Whatever problem a client is tackling industry in the area, and their level of For instance, AECOM has some of the we would often not advocate a quick fix – population growth. She notes: ‘I have leading experts in biosolids processing there is often a complexity of problems to wonderful support – very smart people and nutrient removal, and has scientists deal with and not just for the short-term, throughout the world that bring their talents assisting FEMA (Federal Emergency but for the long-term.’ G

8 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FINANCE

Colombian utility success in finance diversification: the case of Bogota

The Colombian utility Empresa de Acueducto y Alcantarillado de Bogota (EAAB) is the country’s largest water utility and has gone from bankruptcy to a successful AAA credit rated business following the implementation of performance indicators and improved debt management. Here, VIVIAN CASTRO-WOOLDRIDGE and JOSE GARCIA LARRARTE explain how EAAB managed to turn its finances around.

City centre of Bogota. Credit: EAAB.

Executive summary revenue collection. In 1999, EAAB sought to diversify its sources of Empresa de Acueducto y Alcantarillado de Bogota (EAAB) is Colombia’s finance by issuing its first bond, and in 2006 issued its first debt sale of largest water and wastewater utility, serving around 8.6 million people. COP 250,000 million (approximately US$120 million) of securities to Over the past 18 years, EAAB has gone from bankruptcy to a business with refinance its existing obligations. The bonds have allowed repayment of an AAA credit rating. This was achieved through changes in consumer loans in foreign currencies, thereby reducing costs of debt. habits, changes in the tariff regime, improved debt risk management and As well as reform taking place within EAAB, the Colombian water sector debt diversification. has also evolved, with a regulator being put in place and a six-tier tariff EAAB went bankrupt because of below-cost tariffs, a mismatch structure based on income. The banking sector also evolved to become between revenues and expenses, poor maintenance of its assets, and high more robust, with improved financial legislation and a revamp of the cost of finance related to a high percentage of debt in foreign denomina - supervisory framework. This has allowed EAAB to tender amongst tions. In the early ‘90s, EAAB chose to undertake major reforms and commercial banks, providing lower interest costs and greater flexibility refinance its debt, entering into a $250 million World Bank loan agree - in debt management. ment, used to build two treatment plants and a major distribution tunnel, EAAB has developed its business performance and debt management and expand service coverage in the city of Bogota’s formal areas to 100%. over the past two decades to improve both its services to customers, and From this point, EAAB has continued to put in place mechanisms to its balance sheet, through using a range of sources of finance, moving all improve its performance, from reducing non-revenue water to incorporat - of its debt into pesos, reducing operating costs, and improving customer ing private sector elements such as outsourcing customer services and service and revenue collection.

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 9 FINANCE

2,700,000

2,400,000 olombia’s Empresa de CAcueducto y Alcantarillado de 2,100,000 Bogota (EAAB) is the country’s 1,800,000 largest water utility in terms of 1,500,000 population served, sales and asset 1,200,000 value. It is a public company owned 900,000 by the municipality, obtaining its 600,000 current status as a decentralized, 300,000 autonomous agency in 1954. Since bankruptcy in 1992, various events 0 5 7 9 1 3 5 7 9 1 3 5 7 9 0 0 0 1 1 1 1 1 2 2 2 2 2 have influenced the company’s 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 financial trajectory, including marked changes in consumer habits Pension Liability Trust Fund (1997), changes in the tariff regime Figure 1: Pension trust fund projections (2005-2029) (1999), improved ability to manage debt risk (2004-2009) and debt investment programme between 1996 Operating environment diversification (1999-2010). and 2003, amounting to about US$1 EAAB serves about 19% (8.6 million) of Alongside this, EAAB’s ability to billion due to a tariff increase, its Colombia’s population (44 million).The access capital markets has been improved operational efficiency and its city of Bogota has a population of more facilitated by its overall AAA credit new ability to attract capital. than 7.5 million (DANE 2011). About rating since 2009 and the AAA rating The company has also introduced a few half of the city’s 2.2 million households of its bonds in 2011. elements of private sector participation. are homeowners and the average Bogota’s municipal water company For example, since 2003, EAAB has consumption is 103 litres per person was founded in 1888, acquired by the outsourced customer services to private per day. Approximately 7% of the city municipality in 1914, and given its firms.These firms are responsible for population lives below the national current status as a decentralized, billing and revenue collection, and the poverty line (DANE-SDP, Bogotá autonomous agency by the city council operation and maintenance of small Quality of Life Survey 2007) and in 1955. In 1993 through Decree 1421, diameter networks.The service contracts the unemployment rate was 10.1% EAAB became a commercial and with private firms have resulted in in 2010 (DANE 2011). industrial enterprise owned by the significant improvements in customer The city’s inflation was moderate at District of Bogota.The Government of service and revenue collection. However, 3.25% over the year 2010; and 2.71% for Colombia (GoC) also established a legal EAAB still faces some performance risks the first semester of 2011 (DANE 2011). framework in 1991 that separates service due to its exposure to political cycles – Prudent macroeconomic policies and provision from policy, thus allowing and related risk of management, policy structural reforms have permitted the private sector participation. and programme changes with each new economy to recover steadily from the EAAB provides water, sewerage and mayor. A new governance declaration 1999 financial crisis, which led to an storm drainage services to the city of signed in January 2009 should help unemployment rate of 20 percent. Bogota and also sells bulk water to ten minimize this risk. The health of the local financial sector smaller municipalities. EAAB’s key A second major risk facing the has important implications for the growth functions include the sourcing, storage, EAAB is related to the uncertainty of EAAB. Overall, Colombia’s financial treatment and distribution of potable surrounding the tariff review sector is relatively stable and resistant to water.The company is also responsible for methodology, which may be modified adverse shocks since the government has stormwater drainage and the operation of every five years.The sector regulator, improved financial legislation and the Salitre wastewater treatment plant, Comisión de Regulación de Agua revamped the supervisory framework which empties into the Bogota River. Potable y Saneamiento Básico (CRA), is (BMI 2009, IMF 2005).The situation EAAB has a 100 percent coverage rate for responsible for reviewing the tariff has improved significantly since the water and a 99 percent coverage rate for methodology and setting the tariffs. 1998-1999 crisis that led to a decline sewerage in the city’s formal estates. According to Law 99 of August 1993, the in economic activity, an increase in In 18 years, EAAB has transformed city must transfer 15% of the property tax interest rates (already high) and reduced itself from a bankrupt utility into a to the Corporación Autónoma Regional the liquidity and solvency of many world-class, bankable utility with AAA (CAR) and CAR must use at least 50% institutions (IMF, 2005). Non-performing credit ratings (Table 1). Following the of these funds for environmental loan ratios have remained low (2.8% at 1990s financial crisis, the central govern - improvements in the municipality. end-June 2011) and the financial system’s ment intervened and the company signed an agreement for emergency assistance that was tied to performance targets and Table 1: Key milestones institutional restructuring measures. EAAB has since put in place the 1991 Decentralization policies adopted in Colombia mechanisms to transform itself into a 1993 Pension reforms establish a fully funded, privately administered pension system 1994 Public Service Delivery Law passed that leads to improved sector regulation financially viable utility and attract highly 1999 Strengthening of financial sector following economic crisis qualified staff and private capital.The 2005 Constitutional reform for pension schemes company was able to implement an

10 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FINANCE

Table 2: Service coverage 2003-2010 with a budget surplus equivalent to Unit Dec-03 Dec-10 US$13 million. Pop. served - water million 6.65 7.34 In 1997 the company experienced a Pop. served - sewerage million 6.24 7.28 water shortage due to a problem with one No. connections – water million 1.41 1.83 of its major water transportation tunnels. No. connections – sewerage million 1.32 1.77 In response, the then mayor Antanas Residential coverage - water % 100 100 Residential coverage - sewerage % 93.9 99.19 Mockus led a water conservation Total water production M.m 3 456.45 467.28 campaign that led to a lasting change Water billed M.m 3 283.22 290.05 in consumer habits and the adoption of Average consumption / household water saving devices, including billed customer (residential only) m3/month 13.6 10.39 more efficient toilets and taps. However, this event exposed the company’s vulner - assets were worth US$380 billion at scenarios and combinations thereof: ability and in response it developed a large end-June 2011, with an annual real business as usual; adoption of major investment project to secure its water growth rate of 14.09%. institutional reforms; debt refinancing supply – and for which it needed to with the help of the national government secure finance.The major investment Internal environment and a government loan of US$147 project included the reinforcement of Major events million payable over 12 years; and aWorld the tunnel’s walls, construction of an EAAB went bankrupt in 1992 due to Bank loan of US$250 million to finance additional tunnel, network rehabilitation and a concession contract for theTibitoc water plant.

Technical and commercial performance EAAB’s 1996-2003 investment programme enabled the company to increase coverage to two million people. Today, EAAB’s coverage rate is 100% for water; 99.19% for sewerage; and 98% for stormwater drainage in the formal estates (Table 2).The company has six treatment plants, only uses about 60% of its production capacity at the moment, and services are provided 24 hours a day. EAAB has established a sophisticated planning department and modern management information system, and has had an electronic control centre for monitoring the entire system since 2003. The company has ISO certification for Figure 2: Currency of debt portfolio (2000-2010) several of its processes, including water intake, distribution and treatment (ISO below-cost tariffs, a mismatch between the Sante Fe Investment Programme.The 9001-2000) and construction supervision revenues and expenses, poor maintenance company opted to implement major (ISO 9002/94). In the last six years the of its assets, and high cost of finance reforms and refinance its debt – and was company has made a concerted effort to (related to a high percentage of debt in able to then secure aWorld Bank loan in reduce non-revenue water (NRW) foreign denominations). In late 1993, the the amount of US$250 million. Its new through conservation campaigns and the company developed a financial viability status as a commercial and industrial outsourcing of revenue collection. model based on net cash flows.The enterprise also lent it increased budgetary Domestic 1 consumption patterns have company tested the following four autonomy and it ended the year 1993 reduced from 13.6m 3 per month per account in 2003 to 10.39m 3 per month in 2010 due to tariff increases and Table 3: EAAB domestic tariffs (Dec-10) conservation campaigns.The rate of NRW was 37% in FY10. Strata Fixed Lifeline Higher consumption cost/month tariff/m 3 blocks/m 3 COP USD COP USD COP USD Financial performance and planning 1 1952 1.00 663 0.34 2210 1.13 The regulator enforces socioeconomic 2 3904 2.00 1326 0.68 2210 1.13 strata as a basis for geographically- 3 5595 2.87 1901 0.97 2210 1.13 differentiated tariffs. Every municipality 4 6506 3.34 2210 1.13 2210 1.13 in Colombia is divided into six socio- 5 14,574 7.47 3404 1.75 3404 1.75 6 17,827 9.14 3625 1.86 3625 1.86 economic classes. Class 1 represents the * Based on exchange rate of US$1 to COP 1950. lowest-income group and Class 6 represents the highest-income group.

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 11 FINANCE

100% Class 6 residents pay four times as much as Local Banks 90% Class 1 residents per cubic metre of water Securitization (seeTable 2). EAAB uses an increasing 80% block tariff with a lifeline rate for 70% Bonds domestic customers. Domestic customers located in the first three strata pay a lower 60% Local development -Findeter tariff for the first 40m 3 of water (or 20m 3 50% Bogota municipal government per month since customers are billed 40% every two months). Commercial, JICA 30% industrial and government consumers are charged a flat tariff per m 3 (seeTables 20% National government - Refinancing 3 and 4). 10% World Bank - BIR EAAB has a detailed investment plan 0 covering the period 2004-2015.This 0 1 2 3 4 5 6 7 8 9 0

0 0 0 0 0 0 0 0 0 0 1 Master Plan forWater and Sewerage 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 helps to maintain continuity, even with Figure 3: Debt instruments used by EAAB (2000-2010) management changes that may arise from political cycles. EAAB covers all operating costs for water supply and wastewater Table 4: EAAB non-domestic tariffs (Dec-10) collection, and a quarter of its investment costs through its cash flow from tariffs, 3 Customer type Fixed cost/month Tariff/m including its expensive wastewater COP USD COP USD Industrial 8458 4.34 3050 1.56 interceptors.The company’s current large Commercial 9760 5.00 3315 1.70 undertaking is related to environmental Government 6506 3.34 2210 1.13 sustainability and includes the clean-up Special 6506 3.34 2210 1.13 of the Bogota River and protection of wetlands. The ratio of liabilities to assets is balanced at 41% (2010) compared to 68% Table 5: Summary of debt (includes securitizations) in 1995. Its debt service to revenue ratio has also strengthened from 33% (1995) to Source Original Balance as Balance as Balance as Tenure Interest Amount of Dec 2008 of Dec 2010 of Dec 2010 (years) Rate (%) 11% (2010), including securitized (COP’000, (COP’000, (COP’000, USD’000, income.The company has projected its 000) 000) 000) 000) financial figures until 2020. It plans to increase EBITDA (earnings before Original debt currency: Colombian Pesos interest, taxes, depreciation, and Bonds B1 20,000 20,000 10 DTF+3.4 amortization) by 80% between 2010 and Bonds D2 Emission III 70,000 70,000 70,000 37 10 IPC+8.99 Bonds D2 Emission IV 90,000 90,000 90,000 47 10 IPC+8.2 2020 and EBITDA / interest payments Bonds D2 Emission V 110,000 110,000 110,000 57 12 IPC+8.1 from 6.41% (2009) to 16.46% (2018). FINDETER (59 local banks) 220,000 217,963 - 12 DTF+6.8 The company has sufficient cash flow BBVA Colombia 100,000 100,000 52 12 DTF+3.5 for debt service and capital investments Banco Popular 109,600 109,600 57 12 DTF+3.6 with December 2010 EBITDA (last 12 Banco Santander 36,400 36,400 19 12 IPC+4.5 months) at COP 543,361 million Total (COP) 507,963 516,000 270 (approximately US$304 million). For the Original debt currency: USD period from January to December 2010 (USD ‘000, COP the cash from operations was COP 000) 595,037 million (US$333 million); the District Capital (Bogota) 3 2033 20 2 cash used for investments was COP IRD (World Bank) 145 44,015 17 5.52 404,761 million ($226 million); and the Total (COP) 46,048 free cash flow (FCF) was COP 17,793 million (US$10 million). Original debt currency: Japanese Yen (JPY ‘000, COP However, EAAB’s unitary cost 000) has increased due to preventative District Capital (Bogota) 8375 53,291 20 4.75% maintenance costs on the sewer system to minimize the impact of climate Total foreign debt 99,339 change, and the company is limited in its ability to significantly reduce staff costs. Sub total debt (COP) 0 607,302 516,000 270 In 2003 the company did implement a Securitization 250,000 250,000 131 IPC+5 voluntary retirement and early retirement programme to compensate for the use of Total financial liabilities 857,302 766,000 400 private firms for customer services, but the company also has an agreement

12 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FINANCE

Table 6: Summary of outstanding bond obligations

Series Value Redemption Length Rate Effective (‘000.000 COP) schedule rate 1999 bonds B1 20,000 Dec-09 Ten years DTF+3.4% 7.51% 3rd Issue D-2 70,000 Dec-12 Ten years IPC+8.99% 10.99% 4th Issue D-3 60,600 Feb-13 Ten years IPC+8.20% 10.20% 4th Issue D-4 2894 Feb-13 Ten years IPC+8.00% 10.00% 4th Issue D-5 26,506 Feb-13 Ten years IPC+8.20% 10.20% 5th Issue D-6 71,465 Sept-13 Ten years IPC+8.10% 10.10% 5th Issue D-7 38,535 Sept-13 Ten years IPC+7.40% 9.40% TOTAL 290,000

*DTF=4.11% **IPC=2% with a union limiting reductions in Creditworthiness checklist was there an adequate tariff structure personnel costs. EAAB’s credit ratings take into account in place.The local banking sector In 1993, EAAB created a pension fund its technical and financial performance, was shallow and did not offer appropriate with a start-up deposit of COP 2495 external risks and ability to maintain products for the banking sector. At million (US$1.4 million). EAAB deposits moderate financial indicators. EAAB’s that time, two years was considered COP 5000 million (US$2.7 million) on latest AAA ratings are founded on its a long-term loan. In any case, EAAB an annual basis and the current balance is strong financial performance, including a was unlikely at this time to qualify for COP 400,000 million (US$222 million). prudent debt ratio and high levels of cash commercial finance. The trust fund is managed by Fiduciaria flow. In addition, the ratings take into During this time of crisis, both the Popular. Figure 1 illustrates that by 2029, consideration its natural monopoly in the World Bank and the Inter-American the trust fund will be sufficiently water sector, the stable and regulated tariff Development Bank offered investment capitalized to meet pension obligations. (which covers partial investment costs) packages to the company. EAAB decided In 1997, EAAB hired a credit rating and its ability to implement large invest - to go with theWorld Bank’s US$250 firm to evaluate its performance.The ment programmes.The regulator has not million package to build two treatment unpublished score was A- based primarily provided explicit guidance on whether plants and a major distribution tunnel, on the risks related to low domestic the tariff should cover all or a percentage and expand coverage to 100% in the city’s savings at that time and the high ratio of the capital costs. However, the fact that formal areas.This transaction with the of foreign debt in its portfolio. investment costs may be included in the World Bank was the first non-govern - In 2000, nearly 70% of the EAAB’s tariff is favourable to EAAB’s credit mental debt incurred by EAAB and debt was in foreign currency.While the rating.The rating agencies also compare crucially, was accompanied with a transition of its debt from foreign EAAB’s performance to other, similar strategy to increase the tariff and currency to pesos began in 1999, the water utilities.This‘peer ranking’ exercise improve revenue collection, among 2003 and 2004 bond issues contributed helps to provide a greater context for other performance improvements. significantly to an overall shift to pesos – understanding the performance of Today, the landscape is vastly different and the complete shift to pesos was water utilities. from 1993 (Figure 3). EAAB is a high- finally achieved in 2010 with the A major weakness mentioned in the performing services provider with a reimbursement of a Japanese rating reports is the company’s high strategic growth vision and cost-recovery International Cooperation Agency pension liability, which it is taking structure indexed to inflation.There is (JICA) loan (Figure 2). measures to reduce.The company’s more competition in the local banking In 2002 the company began to discuss vulnerability to management changes sector and more liquidity in the market. its optimal debt-equity structure and has arising from political cycles is also The transition did not happen overnight decided to maintain its ratio of debt to mentioned as a major weakness. and there are various internal and total assets at a minimum of 59%. On However, balanced with the above external factors that contributed to average, 80% of the company’s annual mentioned strengths and management EAAB’s transformation into a bankable investments are funded through cash flow practices, the agencies have taken a utility – and a mature, local banking from operations and 20% through debt. longer-term view of the company’s sector with the capacity to respond. The trend in the company’s debt portfo - operations and ability to manage debt. lio has been increasingly towards the local Enabling environment bond market and commercial loans. Entry into the capital markets Various government initiatives, including The year 1993 was a significant turning regulation, have helped improve the point for EAAB and was the critical financial viability of Colombia’s water Table 7: Securitization transaction (2006) milestone that enabled the company to utilities. In 2002, the GoC enacted the put in place the major performance Ministry of Finance’s Decree 610 improvement plans that have taken the requiring all utilities to have a credit Subseries Amount Rate company to where it is today. In 1993, the rating as a prerequisite to incurring debt. (‘000,000 COP) company filed bankruptcy. Its finances According to Law 216 of 2003, TAB 2016 100,000 IPC+4.95% and operations were in a severe crisis – tariffs are revised every five years by TAB 2017 50,000 IPC+5.09% revenue collection, coverage, and overall the regulator, CRA.The law enabled a TAB 2018 100,000 IPC+4.94% Total 250,000 performance indicators were poor.The nation-wide tariff revision in 2003 with water sector was not yet regulated nor the first aim to improve the quality of

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 13 FINANCE

Table 8: Financial summary for EAAB (Fiscal Year Ending Dec. 30, COP’000)

Income statement 2006 2007 2008 2009 2010 Total revenues 987,449 1,103,731 1,170,553 1,212,395 1,238,719 Cost of goods sold 448,478 498,807 511,170 568,573 597,198 Operating expense 281,938 334,855 427,274 472,480 486,649 EBIT 257,032 270,069 232,109 171,342 154,872 Net income 184,588 155,068 234,673 245,177 206,551

Balance Sheet Cash and equivalents 742,704 650,376 763,995 675,322 640,102 Total assets 6,433,749 6,937,404 7,643,888 8,016,302 8,323,888 Current liabilities 232,338 262,885 242,216 233,226 193,241 Debt 479,727 554,207 566,510 517,648 516,000 Total long-term liabilities 2,501,803 2,688,266 2,905,740 3,070,188 3,246,298 Shareholder’s equity 3,699,608 3,986,254 4,495,932 4,712,888 4,884,349 Retained earnings 1,086,752 1,241,820 1,476,494 1,721,670 1,922,589

Cash flow EBITDA 460,809 537,661 580,393 545,805 543,361 Working capital 978,957 925,040 1,027,177 955,578 1,005,386 Tax 90,067 32,322 28,002 22,367 0 Cash flow from operations 259,791 559,256 450,254 595,036 595,037 Capital expenditures 247,795 497,583 431,274 538,298 404,761 Proceeds from net debt (382,348) 73,910 39,277 (75,718) (17,793)

Financial sustainability Revenue growth (%) 2 12 642 EBITDA / revenues (%) 47 49 50 45 44 Collection period 37 39 44 44 45 Debt-to-capitalization (%) 68 67 65 65 66 Return on assets (%) 32333 Cash return on capital invested(%) 7 14 10 13 12 services provision. In 2008, CRA again were Bancolombia, Granahorrar, company has seven outstanding bond revised the tariff methodology to now Colpatria, Banco Ganadero, Banco de issues with maturity dates staggered from include all costs incurred by the utilities, Credito, Megabanco, Banco Union, December 2009 to September 2013.The including finance costs (i.e. interest). Bancafe and Banco Agrario.The banks first bond was issued at DTF+3.4% and CRA is again reviewing the methodology had access to an EAAB account they has gone as high as IPC+8.99% during for the next tariff revision in 2012.The could draw from in case of nonpayment times of financial crisis.The economy is tariff is automatically indexed to inflation. (similar to securitization except that more stable now, which shows in the In practice, EAAB updates its tariffs EAAB’s name remained on the bank company’s securitizations issued at a rate whenever inflation accumulates to three account) (seeTable 5). of 4-5% in 2006. percent in order to avoid a monthly adjustment.The increase in tariff was Experience with bond markets Experience with securitization accompanied by measures to improve the EAAB issued its first bond in 1999 (Table In October 2006, EAAB issued its first company’s financial equilibrium and 6).The rationale for going to the bond debt sale of COP 250,000 million overall financial health. market was its more competitive finance (approximately US$120 million) rate vis-a-vis the local banking sector. In of securities to refinance its existing Experience with syndicated, commercial addition, EAAB could index the coupon obligations.The so-called‘TAB’ notes bank loans rate to inflation. Since the company’s were rated AAA by BRC Investor Realizing the limitations of the local tariffs are also indexed to inflation, the Services and were sold in three bullet banking sector and the need for more risk of a mismatch between cash flow tranches with ten, 11 and 12 year maturi - appropriate financial instruments in the and payments would be minimal. Over a ties. Corficolombiana was the structuring water sector, in 1997 GoC capitalized the ten-year period, the company is more agent for the future flow securitization. state-owned bank, Financiera de comfortable with a rate that is indexed to EAAB sold COP 100 billion (US$43.5 DesarrolloTerritorial (FINDETER), to inflation rather than a fixed-rate.The million) of notes maturing in 2016 at a invest in the water sector through a principal is paid back at the maturity date yield of 4.95% over Colombian inflation syndicated loan facility. FINDETER uses and the interest is paid either monthly, (IPC), COP 50 billion in 2017 bonds the facility to lend to second-tier banks, quarterly or annually, depending on with a yield of IPC +5.09%, and COP which then on-lent to EAAB. In total, the market demands.The company has stag - 100 billion of notes due in 2018 at IPC facility provided EAAB with COP gered the maturity dates of its bonds so +4.94%. Demand was extremely strong, 220,000 million (approximately that it does not incur cash flow payment reaching COP 660 billion, and came US$112.4 million) in loans with a 12-year problems (see redemption schedule in chiefly from financial services companies payment period, including a three-year Table 7). Pension funds purchased the (40.7%) and pension funds (40.1%).The grace period.The nine participating banks majority of the bonds.To date, the securitization was structured with the

14 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FINANCE

revenue of the company’s largest clients. to reduce technical vulnerabilities and prepay the obligation – an option that These accounts were transferred into the closely monitor the regulator’s actions World Bank loans do not offer. Another name of the investor. and consumers’ behaviour. It also prides strategy the EAAB used to reduce the cost itself on having transparent accounting of finance locally was to borrow from two Experience with unsyndicated, commercial records (Table 8) and achieving the commercial banks and use this finance to bank loans highest possible credit rating. prepay obligations on 40 smaller loans In 2009, EAAB went directly to the local EAAB’s experiences with different with higher interest rates.This transaction banks for capital they could use to make financial instruments over the last decade also helped the company extend the early payments on the outstanding syndi - have revealed important lessons, which it average duration of its debt portfolio. cated loans. In effect, EAAB borrowed to now applies to its debt management EAAB has a strong capacity to make refinance its existing loans that had much programme. Key to managing its debt its interest payments on time but has higher interest rates than the new loans. responsibly is reducing its currency risk. been affected by exchange rate issues. Ten banks competed for the business and EAAB has improved its financial profile It has learned to hedge these risks and in November 2009 EAAB closed a deal by having a greater proportion of local as the local banking sector and securities with two local banks, Banco BBVA and currency-denominated liabilities on its markets evolve, the company should Banco Popular. FINDETER was not balance sheet. Its debt portfolio is current - have access to sustainable sources of involved in the transaction and this ly 100% Colombian pesos compared to local finance. G is the company’s first commercial, 5% in 1998. It no longer seeks loans in unsyndicated loan. Direct access to foreign currency and where possible has Note local bank finance has resulted in a tried to prepay outstanding foreign cur - 1Household size in Bogota averages 4.7 people. savings in administration costs, since rency debt. EAAB also used a currency EAAB now only deals with two banks swap to repay itsWorld Bank and JICA References rather than 40 banks. In addition, the local obligations in foreign exchange and roll BRC Investor Services S.A. (2007) EAAB: Fifth banking sector has evolved and now offers them over into local currency debt but Annual Review. Accessed on Dec. 30, 2009 on significantly more competitive rates and the unforeseen financial crisis lowered the www.acueducto.com.co/wps/html/resources/logros/ longer tenures than it did even five years peso and actually increased the cost of this OPF07EAABRAFinal.pdf. ago. EAAB estimates that this transaction transaction.The lesson from the experi - Business Monitor International (2009). Colombia: will save the company approximately ence was to only use short-term currency Banking Sector Still Looks Strong. Posted Dec 8, 2009 on COP 30,000 million (US$16 million) swaps of less than three years. http://store.businessmonitor.com/article/310468/. over the life of the credit. The company is also better at managing Departamento Administrativo Nacional de Estadistica - On 4 November 2010, EAAB the timing of its debt maturities – and DANE (2010). Indice de Precios al Consumidor (IPC). organized an‘auction’ where it invited staggering these to avoid a concentration www.dane.gov.co/daneweb_V09/index.php?option=com all Colombian commercial banks to of payments; and ensuring that its tariffs _content&view=article&id=103&Itemid=76 compete for EAAB business.Together, the are matched to the inflation rate. Another Duff & Phelp Credit Rating Report on EAAB six competing banks offered a total of strategy to manage its debt portfolio is to (2009) COP 879,600 million (approx. US$492.6 reduce the related administrative costs. EAAB financial records million). BBVA and Banco Popular The company’s experience with develop - FitchRating Credit Report on EAAB (2009) offered the most competitive rates and ment banks has been a high level of IMF (2005). Colombia: Financial System Stability terms including a 12-year repayment transaction costs.The development banks Assessment Update. Accessed on Dec. 30, 2009 on period with a three-year grace period. served an important purpose when EAAB http://www.imf.org/external/pubs/ft/scr/2005/ These newest lines of credit have allowed was in crisis and could not secure funding cr05287.pdf EAAB to improve the conditions of its from other sources. However, develop - Secretaria Distrital de Hacienda (2010). Bogota existing loans with these two banks – ment banks like theWorld Bank ask for Poblacion. and to repay its JICA loan inYen – central government approvals that can www.shd.gov.co/portal/page/portal/portal_internet_sdh/ which means that all of its loans are take more than two years, since congress economia/siec_eco/SIEC/demografia_btaendatos/localida now in local currency. must approve the transaction.Today, des/Bta_Poblacion_2010_18_ene_10.pdf EAAB has more options and the bond UNDP. 2008. Bogotá una apuesta para Colombia: Lessons and commercial bank market transactions Informe de Desarrollo Humano 2008. Accessed on Nov EAAB ensures that it is able to honour its are quicker and more flexible.With the 11, 2009 at debt service.This implies a strong risk commercial banks, EAAB has the option http://hdr.undp.org/en/reports/nationalreports/latinamer management system, including measures to renegotiate its payment schedule or icathecaribbean/colombia/IDH_2008_Bogota.pdf

About the authors: Vivian Castro-Wooldridge is an Institutional Expert for infrastructure and environment projects with Pöyry France SA. E: [email protected]

Jose Garcia Larrarte has been an expert in EAAB’s Corporate Finance Department since 1991. E: [email protected].

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 15 FRANCHISING Going with the franchising flow: improving watsan services in South Africa

In an effort to improve the cleaning and maintenance of water and sanitation infrastructure in South Africa, an innovative franchising approach is being piloted at 400 schools, improving not only sanitation facilities, but also health and safety, as well proving employment opportunities. KEVIN WALL and JAY BHAGWAN discuss the franchising approach used and the success of its deployment.

artnerships, using the basic consistent and satisfactory quality unrelated) concepts, and creating Pprinciples of franchising, could of water services. Adapting these something extraordinary, innovative address many challenges in the principles would truly be a case of and completely new.The study found that operation and / or maintenance of connecting different (i.e. previously franchising partnerships could water services. Franchising provides appropriate training to people at services sites, and also offers backup of off-site skills, with incentives for finding people with the appropriate skills required. The innovative fran - chising partnership concept is being piloted with considerable success in South Africa. Under the guidance of a franchisor, trainee franchisees are well advanced with initial cleaning and the routine maintenance of the sanitation facilities at 400 schools in the Eastern Cape. The rapid rate of construction and commissioning of new water services infrastructure has severely challenged the public sector institutions in South Africa The first group of successful franchisees. that are responsible for operating and Credit: Wayne Birkholtz - Impilo Yabantu. maintaining this infrastructure.The quality of the operation and maintenance of water services infrastructure in South Executive summary Africa varies greatly between areas. As a The rapid rate of construction and commissioning of new water infrastructure in South Africa has result, the quality of tap water, sanitation, severely challenged the ability of public sector institutions to keep these well maintained, resulting treatment works effluent, and other water in large differences in the quality of water and sanitation services in the country. products and services varies greatly.This Looking for a solution to this, the Water Research Commission (WRC) commissioned a scoping study in 2005 to explore the application of franchising principles, to ensure a constant no different in other parts of the develop - high quality of services. This study found that franchising could address the lack of higher-level ing world and thus innovative approaches expertise often identified as key to improving service, as well as support the development of local are required. Even if all existing water micro-enterprises. services institutions were coping with Based on this study, a pilot project was begun in 2009 at 400 schools in the Butterworth the demand, there would be valid reasons Education District, undertaken by a partnership between The Department of Education (DoE) of to investigate alternative institutional the Eastern Cape provincial government, Irish Aid, CSIR (Council for Scientific and Industrial models to establish whether alternatives Research), WRC, and utility Amanz’ abantu Services (Pty) Ltd. Local people were invited to become franchisees, who were then trained and given basic equipment to clean and maintain the could be more cost-effective, allow sanitation facilities of the schools. Before and after photographs are taken for the school principals existing role players to focus on their to sign off the work, and reports on the condition of the facilities are sent to DoE to develop the other responsibilities, and offer a range relationship between the schools, franchisees, and government. of other advantages, including greater Due to the success of the first round of maintenance, the franchisees have also undertaken local economic development. maintenance of rainwater harvesting systems in the schools, and the DoE has suggested increasing TheWRC (Water Research the pilot area to 1000 schools. Eventually the franchisees will move from a subcontract agreement Commission) commissioned a scoping to a franchise agreement, working directly for DoE. The main issues arising from the pilot include the need for constant attention to the billing and study completed in 2005 (Wall 2005), to payment process so franchisees receive the funds due, the need for replacement of broken explore the application of franchising facilities, and the need for a long-term and strong partnership with the government, however the principles, which enables the consistent pilot has shown strong potential for this concept to be expanded to other water services activities, quality of products and services such as such as meter reading and domestic plumbing. Other municipalities in the area have seen the food and petrol, and which if correctly success of this pilot and are now investigating how the principles of franchisees and / or franchisor implemented, could help to ensure can be adapted and adopted to provide services to these municipalities.

16 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FRANCHISING

alleviate and address many challenges incentive to perform. contexts as close as possible to franchis - in the management of water services. The franchisees would be micro- ing. It has also drawn on the understand - Simultaneously, franchising would enterprises.The franchisors would be any ing of the small number of franchises support the development of local institutions, private sector, parastatals or already active in the water services sector, micro-enterprises and broad-based black non-governmental organisations that and on the understanding of the large economic empowerment, all within the have the required expertise, are willing to number of franchises in other fields. A public sector service delivery environ - provide the service, and would not have a substantial body of documentation of ment.Worldwide, there is limited experi - conflict of interest in providing the servic e. value to water services authorities, poten - ence of the application of the franchising There are already many potential sites tial franchisors and potential franchisees is approach water services infrastructure for water services franchising partner - soon to be published (WRC 2010). operation and maintenance, although ships, as much water services infrastruc - Whereas a business based on a single some existing partnerships share general ture currently already in place is not element of the water services delivery characteristics of the franchise approach. being operated and maintained properly value chain might not be viable, a water (DWA 2009, DWA 2010). Many of these services franchisee could build have a The potential of water services O&M sites fall under the jurisdiction of or are viable business by offering several water- franchising partnerships owned by water services authorities, but related services, thereby achieving dual The concept of franchising partnerships other sites belong to other public sector objectives, viz: economy of scale; and less is an attractive option for a number institutions such as schools and clinics. dependence on one or a limited number of reasons, in particular because it Assistance from the franchisor would be of clients. would address the lack of higher-level of particular value for areas away from the expertise often been identified as a key major urban centres. Few rural munici - The pilot to improvement of service, especially palities in South Africa can, for example, By 2008, development work had been in the more remote areas (DWA 2009, afford to employ competent qualified taken to the point where the concept of DWA 2010).The essence of water staff, and this leads to periodic unreliabili - franchising partnerships for the operation services franchising partnerships is ty of supply and frequent non-compli - and maintenance of water services infra - the creation of a pool of appropriate ance with national standards relating to, structure had been thoroughly described, expertise upon which the water services for example, the quality of effluent from including guidelines on where and how it authorities can draw, a restructuring of wastewater treatment works. could work.The research team anticipat - the local responsibility for operating the In summary, these partnerships are a ed that where the environment was services, and the creation of a two-way means of: favourable, potential franchisors would obligation – an obligation to call for • Assisting infrastructure owners by seize the opportunity and would do the assistance from the pool, and an obliga - providing expertise in water services detailed modelling to suit their abilities tion to respond rapidly to that call. infrastructure operations and mainte - and the circumstances under which the All of this combined with incentive nance that would very seldom be found concept could be applied. structures will ensure that it will happen. outside the metropoles and larger It was also realised that pilot projects In brief: urban areas would be necessary. Only through pilot - • On most days at the (say) treatment • Creating and supporting small ing would unanticipated challenges be works, nothing out of the ordinary locally-based and efficient service identified – and overcome.While some would happen. Franchisee staff, provider solutions public sector officials, when approached who are appropriately skilled, are by members of the research team, said able to cope. Franchising partnerships can offer they would not consider franchising • When major maintenance or significant potential for improvement in partnerships, others said it would be upgrading is needed, or when there is a public sector water services’ operational easier to convince their principals breakdown, those staff know who to quality and reliability. (municipal councilors in the case of call at the franchisor in order to bring Water services operation and municipalities) once a successful pilot had the higher level of skills needed. maintenance tasks with apparent poten - been completed. • Staff would know that the franchisor tial for franchising include leak detection, will be obliged to help, because there borehole management, management of Preparation for the pilot would be a binding contract and a municipal treatment works, management A few large water services providers had shared reputation. of treatment package plants, meter read - shown interest in franchising partner - • It would be a two-way obligation – an ing, pit-emptying services, laboratory ships. Amanz’ abantu Services (Pty) Ltd, a obligation on the franchisee to ask for services, data management, demand and provider based in East London, South assistance, and an obligation on the pressure control management, and site Africa, with a network covering the franchisor to provide such assistance. and property management. CSIR whole Eastern Cape, extrapolated the • Costs of the higher skills levels, which (Council for Scientific and Industrial franchising concept into its well-estab - are needed only intermittently, would Research) has modelled some of the lished and appropriate expertise, and its be spread across many sites – thus the selected elements of the water services track record of working successfully with cost per site is low. value chain that are suitable for small rural and developing communities. It set business as the components can be sys - up a subsidiary, ImpiloYabantu Services Franchisee water service providers, who tematised readily (WRC 2010).This (Pty) Ltd, to be a franchisor, and started depend for their livelihood on the success modelling has drawn on first-hand assessing the potential market, approach - of their business, would have a strong knowledge of operating such elements in ing selected owners of public sector

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 17 FRANCHISING

infrastructure in the province. franchisee who had to have its home base Contrary to our expectations that the within that service area. public sector entity willing to pioneer a Prospective franchisees were screened franchising partnership pilot would be a and shortlisted ones interviewed.Those municipality, it was the Department of selected received initial training in East Education (DoE) of the Eastern Cape London during the first week of June.The provincial government that was first to trainee franchisees then met with DoE prove receptive. Its officials responsible for Butterworth District staff and school infrastructure indicated great interest in a Servicing of a latrine. Credit: Wayne Birkholtz - principals to plan programme schedules pilot that would see franchisees doing Impilo Yabantu. and agree on work orders. routine cleaning and maintenance of unable to operate and maintain this ImpiloYabantu also trained an in-house school toilet facilities. infrastructure – and that a prime reason in team to be the back-up should a fran - Early in 2009, a memorandum of many cases was that no staff members had chisee withdraw, and to provide the understanding was signed between five taken responsibility for the infrastructure. franchisor with benchmark costs. parties: the DoE, Irish Aid, CSIR,WRC, Five franchisees would have been and Amanz’ abantu. In this memorandum School toilets and access to education sufficient for regular servicing of the it was inter alia stated that: The built infrastructure of many South school sanitation facilities in the • DoE wished to utilise small, locally- African schools leaves a lot to be desired. Butterworth District, but, based on the based enterprises, in partnership with While it is unacceptable that some schools assumption that a few might withdraw, an established provincially-based have lacked facilities from the outset, it is eight were trained. Many of the trainee service provider, to provide identified even less acceptable that so much of the franchisees are in business on their own maintenance services for its facilities infrastructure provided has been neglected. for the first time. • Research indicated that the franchising When water supply, sanitation and ImpiloYabantu set up an office and model would offer public authorities‘a hand-washing facilities are insufficient or stores in Butterworth, and the cleaning contractual mechanism for improved non-existent, schools more readily and maintenance of school sanitation efficiency, flexibility and accelerated become places where diseases are trans - facilities started at the end of June 2009. resource mobilisation’ mitted. Interventions at schools lead not Each trainee franchisee was supplied with • Amanz’ abantu would contract with only to safer learning environments, but basic cleaning equipment and protective DoE to set up and run a pilot pro - are investments – when one teaches a clothing, a light delivery vehicle clearly gramme based on the principles of child, one teaches the whole community sporting the ImpiloYabantu logo, and a franchising partnerships, for mainte - (Note 2). Improved sanitation and water digital camera.The purpose of the camera nance of school sanitation facilities in facilities, hygiene education and the is to take photographs before and after the the Butterworth Education District promotion of hand-washing inevitably maintenance service; based on these • ImpiloYabantu would perform the role lead to less sickness and improved school photographs and sign-off of the works of the franchisor attendance.This is true not only in terms order by the school principal, trainee • From its budgets normally allocated for of fewer days absent from schools, but also franchisees are paid. Spot check visits to this, DoE would provide the funding increased classroom time each day. randomly selected schools are also under - for maintenance of the facilities taken by the franchisor. • WRC and CSIR, funded by Irish Progress with the pilot A key component of the service Aid, would provide policy, technical A franchising partnerships model for provided by the trainee franchisee is and other assistance necessary to the routine maintenance of water that of inspection and reporting on facilitate the pilot programme. services infrastructure is being tested the serviceability and suitability of the This would include drafting the and evaluated at some 400 schools in facilities. Reports are submitted to the terms of reference, formulating the Butterworth Education District. district managers of DoE following each contractual documentation, Throughout, the Amanz’ abantu and visit, and repair and maintenance lists monitoring progress and ImpiloYabantu team have worked closely agreed on for the following visit. In this disseminating results with a view with DoE managers. manner, ongoing service relationships are to replication in other areas. The pilot commenced in May 2009 by developed between the trainee exploring the practicalities of managing franchisees, the school principals and The team had come to realise that the process and the allocation of tasks. DoE’s district managers. the first pilots could be negotiated Advertisements called for interested By mid-2010 the toilet facilities of most with infrastructure owners least parties to respond, on condition that they of the 400 schools in the Butterworth resistant to change because: were resident in the Butterworth area. District had benefited from a first round • They had already realized that they This was stipulated for two reasons: the of maintenance, and a second round had were unable to operate and maintain work would be done by local people from started.The schools’ work was then put on their infrastructure the communities concerned; and travel - hold for a few months due to DoE suffer - • Existing public sector jobs would not ling time and cost to Butterworth and to ing its own version of the global financial be threatened the schools that they would be servicing crisis. Fortunately, alternative work was would be minimised. Distinct areas, found for the franchisees in the mean - There was general consensus that most determined by accessibility and scope, time. At the time of writing, the funding schools in the Eastern Cape, and especial - were identified within the Butterworth is again flowing, in sufficient quantity for ly the rural schools in that province, are District. An area was allocated to each the franchisees to undertake routine

18 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 FRANCHISING

maintenance of not only the toilets, but of maintenance, each order is between missing. Many children have to bring also the water infrastructure (generally R2000 and R5000 ($271-$678)). water to school. rainwater harvesting) at the schools. ImpiloYabantu continues to provide • The technical option of a dry sanitation The business decision has been taken structured learning in the form of on system for rural schools and clinics may that because, even after a year of opera - the job specific skills training and not be the most appropriate choice tion, revenue streams are not yet firmly mentoring, and also skills and business because of the large numbers of users. established, potential further work training as needed. It is also responsible The pits fill up very fast requiring very opportunities are still being explored, for quality assurance. frequent emptying. and training is incomplete, the trainee Progress with cleaner sanitation • There must be a long-term and strong franchisees should still operate as subcon - facilities in the schools that form part partnership with government, since tractors managed by Amanz’ abantu. of the pilot project is evident.The public institutions are mainly responsi - When Amanz’abantu and ImpiloYabantu franchising partnership concept, as ble for water services delivery in the are confident that the trainee franchisees applied in the Eastern Cape schools pilot, developing world. no longer need the comfort and safety net is greatly improving the state of sanitation of a subcontract arrangement, the switch and hygiene at the schools it has reached. Lessons learned will take place to a franchising arrange - The emphasis is on the quality and relia - The principal lessons learned from ment, with the franchisees being appoint - bility of the service delivered, and the progress with the pilot so far are: ed directly by DoE for the small contracts. viability of the franchisor and franchisees. • Task-specific concept development (for Once fully-fledged franchisees, they will The state of the sanitation facilities example the specifics of the business be expected to manage their own interac - at the pilot schools has improved so model, the training programme and the tions with DoE, in particular monthly much that the Department has requested operations manuals) can be done only meetings with DoE district officials and the programme to be rolled out to a by a franchisor that know the details of ensuring that the school principals are further three education districts, performance of that task, based on first- satisfied with the results. totaling 1000 schools. hand experience in the same or a Potential total turnover of the five It is envisaged that once the system is similar community Butterworth District franchisees is working smoothly, franchisees will be able • Potential franchisees must be chosen on estimated at R4 million ($543,000) per to offer their services to clinics, other the basis of willingness to work hard annum.This is estimated on the minimum public buildings, and to the private sector. and to commit to the business principles work needed for school sanitation, and Furthermore, the programme is estab - • More potential franchisees must be assuming schools are visited on a six or lishing and supporting locally-based small chosen for training than will be needed seven week cycle. If a school requests enterprises (mostly women-headed) for to undertake the work – attrition them to do additional work (e.g. add solid the provision of appropriate and locally- during the training period will reduce waste removal or water infrastructure based service solutions. It is creating jobs numbers maintenance), or if they start working for and entrepreneurial opportunities, and • Because the water service is an other clients, their turnovers will upskilling rural people through facilitat - essential service, provision must be increase accordingly. ing workplace learning, in addition to made in the franchising agreement The trainee franchisees are billing improving school sanitation facilities. for prompt replacement of non- the schools (or DoE on the schools’ performing franchisees behalf) each time they do cleaning Issues emerging from the • Cash flow problems will quickly put and maintenance. All the development pilot experience any small enterprise out of business. costs, including developing the concept Apart from the need for constant Careful attention must be paid to and the training schemes, giving training attention to the billing and payment resolving any procedural issues around and preparing operations manuals are processes and to cash flow, a number of the payment process and ensuring being funded by Irish Aid and by in- issues are emerging, which must in due prompt payment of invoices submitted kind contributions of Amanz’ abantu course be addressed. by the franchisees and CSIR. In the short term, the biggest issue is • To facilitate rapid and dissension-free The trainee franchisees have taken loans the need to address water facilities and agreement that the work has been to fund the capital outlay for vehicles and solid waste disposal at the schools: performed according to contract and equipment. Because the banks prefer • Many of the schools have no solid waste that payment can be authorised, tasks lending to franchisees than to stand-alone facilities, and inevitably trash ends up in must be as standardised as possible, and businesses, the franchisees have had no the toilets assigned standard prices difficulty in obtaining loans. Franchisees • Most of the schools are not on a • The concept can be extended and will pay loans off from their income over reticulated water supply system, and applied to other areas of the water the next few years. Due to the burden of thus reliant on rainwater harvesting. services business the start-up costs, trainee franchisees are When the schools were built, gutters • Potential to create local skills and not expected to make net surpluses until were in place to collect roof water and capacity, as was local job creation the second or third year. channel it to storage tanks.The gutters Initially, ImpiloYabantu is receiving the at many schools are, however now Conclusion works orders directly from DoE and then broken – therefore no collection, and The franchising partnerships concept, as it instructs the trainee franchisees to per - no water in the tank. is being applied in the Eastern Cape pilot, form the work. In effect, each order is a • The tanks are in many instances broken is very promising in terms of the quality small contract (for the preliminary round or fouled, with taps often broken or and reliability of service delivered and the

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 19 FRANCHISING

Water Research Service Level Eastern Cape Commission (WRC) Agreement Department of Education References

Service Level Bhagwan, J,Wall, K, Ive, O (2009) An exploration of Agreement franchising partnerships for the operation and maintenance

Employers of water services infrastructure. 34th conference of the Council for Scientific and Representative Water, Engineering and Development Centre, Industrial Research (CSIR) Licensing (ER) Loughborough University. May 2009, Addis Ababa, (Technical Assistance) Agreement Ethiopia. O M Contracts DWA (2009) Green Drop Report 2009: South Butterworth Schools AfricanWasteWater Quality Management Performance. Sanitation and Water SMME Pretoria, South Africa. Pilot Project Franchisee DWA (2010) Blue drop report 2010: version 1. South African drinking water quality management Franchising performance. DWA, Pretoria, South Africa. Amanz’ abantu / Agreement SMME SAICE, forthcoming.The SAICE infrastructure report Impilo Yabantu Franchisee (Franchisor) card for South Africa: 2010.The South African Institution of Civil Engineering, Midrand, South Africa. UNICEF (2005) Gender achievements and prospects SMME in education: the GAP report. Franchisee Wall, K (2005) Development of a framework for franchising in the water services sector in South Africa. WRC Report No KV 161/05,Water Research Figure 1: Butterworth pilot programme organizational structure Commission, Pretoria, South Africa. viability of the franchisor and franchisees, • Franchisors are obliged to provide the Wall, K (2010) Mentored emergent entrepreneurs to and has the potential to be expanded to franchisees with specialist expertise and other maintain schools toilets – a promising pilot for school other water services activities, such as forms of assistance. support. For National Qualifications Framework research meter reading, domestic plumbing, etc. • The success of franchises is based on replication conference: Communication, coordination, collaboration for An important element is that it can create of prior success, efficient logistics and a skilled training in education, training, development and work. and institutionalise local jobs and econo - and capacitated workforce. South African Qualifications Authority. Benoni, June, my.This pilot is benefiting from an • Small business franchises businesses are 2010. extraordinary amount of management relatively easy to establish. WRC (2010)Water Services Franchising attention from Amanz’ abantu, Impilo • Accept the quality control of the franchisor – Partnerships:WRC Research Project – K5/1610.Water Yabantu, CSIR andWRC, made possible thereby assuring higher quality and greater Research Commission, Pretoria. Consisting of a set of by the Irish Aid funding.This attention efficiencies. seven research reports – the topics covered can be inferred manifests in many ways, not least in the from the titles, viz: assistance given to trainee franchisees for The cardinal elements of a franchise can be WRC 1610/1/10: Overview of the concept of ensuring that the processing of payments summarised as: franchising and its relevance to water services. to them is running smoothly, and in the • Identifying components of the value chain that are WRC 1610/2/10: Review of policy, regulation and bridging finance they have received from simple enough to systematise legal aspects. Amanz’ abantu. • Discovering good practices WRC 1610/3/10: Modelling of selected water This service delivery success, of formal - • Systematising the identified component(s) services operational elements. ly establishing small scale local service • Selecting franchisors and franchisees WRC 1610/4/10: Institutional review for the providers is being noticed by municipali - • Identifying the financial and other risks to application of franchising. ties in the area that have responsibilities both franchisors and franchisees, and as far as WRC 1610/5/10: Establishing criteria for the for water services facilities at household practically possible, reducing those risks selection of water service franchisors, partnerships and level, with the result that exploration has • Providing start-up help, including initial training franchisees. begun in the broader water services • Preparing operations manuals WRC 1610/6/10: Business analysis case study: supply chain of how the principles of • Conducting ongoing research and schools sanitation O&M. franchisees and / or franchisor can be development for the product or service and WRCTT432/09 (1610): Going with the franchis - adapted and adopted to provide services of the market dynamics ing flow: An exploration of franchising partnerships for the to these municipalities. G • Continued support, training, control and discipline operation and maintenance of water services infrastructure. of the ongoing business Notes Note 1: Franchising is a way of accelerating the The key is the incentive, to franchisor as well development of a business, based on proven, existing as franchisee, to improve efficiency, provide methodology. The franchise system firstly correlates improved service reliability and quality control – About the authors: and systematises the business, and facilitates the thereby providing the assurance that service Dr Kevin Wall is at CSIR Built Environment, Pretoria, South Africa. Email: [email protected] setting up of the business, supporting and ensuring quality will be consistent. business discipline thereafter. The principles of Note 2: ‘Schools need safe water and separate, Jay Bhagwan is Director of Water Use and franchising partnerships in the generic sense can clean sanitation facilities. …. Health education Waste Management at Water Research be summarised as follows: curricula are undermined if children are unable to Commission, Gezina, South Africa. Email: • Franchising is robust and able to ensure practice what they learn about drinking safe water or [email protected]. consistent quality products and services. washing their hands.’ (UNICEF 2005, page 12).

20 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 PROJECTS / CONTRACTING Leading projects show contracting innovation

Innovative approaches to contracting are being used around the world to deliver benefits in different aspects of the water sector, in both the construction and operation of infrastructure. Here, WUMI presents some of the current leading examples, with case studies from Queensland and South Australia in Australia, and California and Arizona in the USA, along with an example of how one of the sector’s major players, Veolia, is working to deliver advanced treatment to an industrial client in the USA. South Australia’s Allwater venture delivers an operating contract alternative Australian utility SA Water has looked to move on from the previous model under which it contracted out operation of its water and wastewater systems. Here, LIS STEDMAN looks at the success to date of its contract with the Allwater joint venture, where the utility remains involved in the operation of its system. uez Environnement and SDegrémont sealed their recent run of success in Australia by winning the contract to operate Adelaide’s water and wastewater systems – a major coup for the company, and one that again can be attributed to advanced approaches to client relations. Project general manager Jerome Bailly notes:‘Adelaide is in South Australia – the Myponga WTP, one of the six WTPs owned by SA driest state of the driest continent.Water is Water. Credit: Transfield Services (Australia) extremely important.’ Pty Ltd 2011. SAWater (South AustraliaWater) is the good job, but it was more about the an integral part of the workshops. client on the project, which had been model. Also the relationship between the ‘It was a very interesting process, and undertaken previously by UnitedWater. client and contractor was not working very different to the one we know, The contract involves operating the entire very well, so SAWater wanted to change.’ generally speaking, in Europe. It was water system – six potable water treat - real life interaction with the client.’ ment plants, 16,000km of potable water A challenging bid process At the end of December the company network and wastewater network, six There was a six-month period in which made its bid, and in February 2011 it wastewater treatment plants, and the Allwater and the Acciona consortium was awarded the contract.With the reuse system. were both in competition, and during UnitedWater contract ending at the ‘SAWater’s main concern was that which SAWater held numerous workshops beginning of July this left a relatively it wanted to be more involved in the (several times a week, for both consortia). short time frame to prepare.‘In March operation, more transparent,’ Mr Bailly Allwater developed an action plan, we were in Adelaide, and in April, May explains.‘They wanted to move from a ‘Efficiency through innovation’, whose and June we were preparing the contract. master-slave contract to a new model.’ In goal was to improve service quality at all its In July we took over,’ Mr Bailly recalls. March 2010 SAWater launched a tender facilities while reducing operating costs. ‘During the transition we built a team with two phases of prequalification. ‘Team management was very of nearly 350 people.We hired most of the For this, Suez Environnement, group important,’ Mr Bailly notes.‘This incumbent workforce and a Suez company Degrémont and local contractor involved individual assessment of Environnement management team.We Transfield Services formed a joint venture people, profiling, tests, interviews hired local people, bought new vehicles, under the Allwater name, finding them - and many workshops to show the introduced a new operational structure, a selves in competition with an Acciona-led team could work together.’ For instance, new IT system, a new logo and offices.’ consortium, MetroAqua, once the bidders one crisis management workshop simu - were winnowed down to two prospective lated a scenario in which an excavator cut Operation underway candidates in July 2010. through the IT and communications Since 1 July Allwater has been operating Mr Bailly notes:‘UnitedWater did a systems for a local airport. SAWater was the water treatment works, the water

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 21 PROJECTS / CONTRACTING

network, the wastewater network and with people from the client means we are part and the client pays part. It is a very plants and the recycling system.‘We are obliged to be completely transparent.’ smart model.’ fully in charge, and there have been no The project is also a direct cost contract Mr Bailly notes:‘I think it is a major incidents, which is a success of the in which all expenditure is reimbursed very interesting model for clients – transition,’ Mr Bailly says.‘From our point within a mechanism that encompasses the for municipalities, or water corporations of view it is a success.’ KPIs and a‘stick and carrot’ incentive that want to have the advantages of He estimates that it will take a further scheme.‘If we deliver good service we get a private company such as efficient three months to stabilise operations so a financial incentive, if bad, we get finan - technologies and risk sharing, but everything is working smoothly, everyone cial pain,’ Mr Bailly says.‘If we are more want to keep control and know understands their responsibilities and efficient, we share the gain.The first what is going on. It is a good operations are optimised.The company is priority is to do the work properly, and compromise between direct operation looking at a number of efficiencies then to be efficient and progressively by a municipality and a full concession including reducing the potable water reduce the budget.’ contract by an operator.’ network pressure to cut leakage. He adds:‘It is very different to It is, however, a model currently mainly The contract is an O&M (operation being a subcontractor, agreeing a used in Australia and New Zealand, and maintenance) type (with a twist) in price then making a margin on though he sees potential for application which SAWater is responsible for funding work you do not do. If we do not in Europe.‘The drawback is that the bid investment. SAWater is also both client do work, we spend less and get less costs are huge,’ he adds.‘The process took and partner, Mr Bailly explains.‘I have in money. If we spend more but do an six months – we had a team of 20 to 30 my team people hired by SAWater, for excellent job, we can earn more. First located in Adelaide because we had instance the person who does the finan - we need to do the job correctly to workshops every two or three days. Both cial reporting and the person responsible meet the KPIs and optimise the budget. teams had exactly the same workshops so for the KPIs (key performance indica - Everything is shared with the client. If we SAWater was able to assess the differences tors).The fact we are working every day are over budget, the joint venture pays and commitment of each team.’ G Progressive design-build procurement model brings collaboration for Stockton, California Engineering firm CDM is currently working with the City of Stockton, US, to design and build a new water treatment plant under a highly collaborative design-build-procurement model. LIS STEDMAN outlines the project and discusses how this innovative model is proving to be highly successful. S engineering and consultancy water pipeline and seven microtunnels. Opt-out option for the city Ufirm CDM won the Stockton The‘progressive model’ involves Built into the successful and evolving Delta water supply project under an extremely close collaboration with ‘progressive’ DB model is an owner’s‘off innovative ‘progressive’ design-build the client and an evolving cost process ramp’. CDM’s Paul Meyerhofer explains procurement (DBP) model that that has enabled an ongoing drive to that this point was when CDM had offers owners a great deal of reduce costs – money that was returned finished 65% of the design, and submitted flexibility and collaboration in the to the city.The process involved an initial a lump sum cost for the rest.‘The off ramp permitting / design process. proposal that included the project was there in case the city was unhappy The City of Stockton, inland from San approach and lump sum prices for with our services or thought the cost Francisco, USA, currently obtains approx - Stage 1 engineering, Stage 2 engineering, estimate was too high or it wanted to go imately 20% of its water supply from and Stage 2 construction management. down a more traditional route, or if there groundwater wells. However, population The collaborative Stage 1 then involved were permitting issues. It was simply a growth and climate change mean the cost optimisation through, for example, way to give the city a means of deciding water level in the wells is dropping and revising the pipeline alignment and to stop the DBP process. It was a simple remaining surface supplies are contractual modifying the design of the ozone thing, just saying if we couldn’t mutually in nature, making them subject to both treatment system.The Stage 2 agree to a lump sum cost CDM would environmental and market conditions. proposal included a lump sum price complete the design.’The city would at Therefore, with a need to secure a supple - for construction and a lengthy that point have reverted to a traditional mental, long-term reliable water source, commissioning process.There were design-bid-build model. the city turned to the Sacramento-San also 16 major subcontractor packages However, the project so far appears to Joaquin Delta.They issued a request for including the tunnels, electrical work, be a considerable success, largely due to proposals to design and build a 30MGD pipeline installation and SCADA the extremely cooperative style of the (114MLD) treatment plant (ozone treat - (Supervisory Control and Data contract. Mr Meyerhofer notes:‘I’ve been ment and ultrafiltration membranes), Acquisition) programming.The costing in the business 40 years and it is certainly rising to an ultimate160MGD (606MLD) process was completely transparent to the the most collaborative project I’ve been capacity along with an intake and pump client, with CDM submitting nine involved in.’ station and 12 miles (19km) of raw water binders with its entire project cost He notes that often in a traditional pipeline, six miles (9.6km) of treated information inside. procurement model once the contract

22 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 PROJECTS / CONTRACTING

significant savings, totaling approximately source of contention,’ Mr Meyerhofer says. $40 million over the life of the debt. Mr Meyerhofer says he believes the progressive design-build model‘brought Risk allocation costs down dramatically.That is why it is a The risk allocation was determined model we like to use. It costs less than during the design-build procurement some of the more traditional procurement stage. Mr Meyerhofer says:‘The client and routes, it is all very transparent, the risks the prospective design-builders had a were fairly shared, it was just a case of the number of meetings to talk through what city and CDM having a very collaborative Work taking place at the Stockton site. Credit: CDM. the risks and uncertainties were, and who process and being very transparent to each moves into the construction phase there should own the risk – what was under the other.When there is a lack of collabora - can be contention between the engineer, control of the design-builders and which tion as a contractor there is a temptation owner and general contractor.‘In this case the city had most control over.’ to put a fair amount of money in the bid there is very little chance of that – there For instance, there were a number of to cover risks and uncertainties.’ are really just the two entities.’ Both the permits that the city had to procure for Currently the scheme is around 86% design and construction processes are diverting water from the Sacramento-San complete and the plant is scheduled for collaborative, he says, even down to the Joaquin Delta that affected the timing and commission in April 2012.The schedule selection and negotiation of prices with cost of the project, so it was agreed any now calls for water to be delivered to the subcontractors.‘The city is involved in the delay associated with this process would city from 1 May 2012, ahead of schedule process – it is very transparent.They be a cause for additional cost reimburse - despite environmental restrictions. understand everything that goes into the ment, he explains.There are also perfor - Certainly, looking at the pricings price decision process.’ mance requirements for production compared to unit prices for similar con - Financing was provided by the city quantity and quality of water from the tracts, the Stockton costs also look through multiple water revenue bond plant, and the contract is set up such that if extremely good – the water treatment issues, including a series of federally the quality of the raw water is beyond plant construction cost is $2.9 million per taxable fixed rate Build America Bonds certain limits these requirements are relaxed. MGD compared to an average $3 to $4 made available through theAmerican ‘If you don’t have the ability to discuss million per MGD.The final commission - Recovery and ReinvestmentAct (ARRA). risk with the owner prior to signing the ing stage will begin in April 2012 and last Through an interest rate subsidy funded contract, and the contract doesn’t clearly until February 2013, with final comple - by the ARRA, the city was able to realise state the risk and its limits, it can be a tion scheduled for March 2013. G Industrial example of advanced water and wastewater treatment delivery using a design-build-operate contract Using a design-build-operate contract, Veolia company NA Water Systems worked with ThyssenKrupp Stainless USA and ThyssenKrupp Steel USA to provide water and wastewater treatment for a range of processes and wastes at a new carbon steel facility in Alabama, US. hyssenKrupp Stainless USA and the significant quantities of water required water and wastewater systems. Early TThyssenKrupp Steel USA were and the company’s emphasis towards contractor involvement, for example, created in 2007 to build and operate sustainability and resource recycling, enabled construction engineering consid - new, technologically advanced high quality process water and stringent erations to be incorporated into the carbon steel and stainless steel wastewater treatment were critical in design phase. It also allowed for fast- processing facilities in Alabama. The system design. tracking of the design and construct investment in this complex, which The treatment systems were designed portions of the project. was completed in 2010, has allowed and built by NAWater Systems, aVeolia Another advantage is the guarantee. ThyssenKrupp to expand its Water Solutions &Technologies compa - VeoliaWater North America is contracted 200-year-old business. ny.VeoliaWater North America operates to provide services for operation, mainte - Production began in July 2010 at the the systems under a long-term operations nance, chemicals and sludge disposal for new 3700 acre (1480ha) processing contract.The project represents a culmi - the treatment facilities serving the com - complex near Mobile, Alabama.The nation of more than two years of team - plex. By transferring the responsibility for new carbon steel facility has an annual work betweenThyssenKrupp,Veolia optimal operation of water and waste - manufacturing design capacity of 4.3 Water Solutions &Technologies, local water treatment toVeolia under a fixed fee million metric tons of products.The contractors RJ Baggett and Gulf Electric, arrangement, the operator’s performance stainless steel plant is designed to an initial and Crowder Construction. guarantee is thus structured as a long- operating capacity of 1 million metric There were a number of advantages for term warranty. tons of products annually. ThyssenKrupp Stainless USA and One of the many highlights of the new ThyssenKrupp Steel USA to using the Systems overview state-of-the-art complex is its advanced design-build-operate procurement The three major water and wastewater water and wastewater treatment. Due to method for the production complex’s treatment systems serving the complex

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 23 PROJECTS / CONTRACTING

ACTIFLOTurbo systems before storage chemical and hydraulic equalisation of and distribution to the mill. ACTIFLO waste streams, chemical reduction of Turbo is a high-rate flocculation and hexavalent chromium to trivalent settling process that utilizes microsand as a chromium, chemical addition and pH seed for floc formation.The microsand adjustment in aTURBOMIX reactor to also acts as a ballast within the floc. reduce metals solubility via precipitation The 5.8MGD (22MLD) capacity and adsorption; oxidation via aeration to wastewater treatment facility consists of treat unreacted sulphide and reduce both biological treatment and physical- residual iron solubility, and ACTIFLO chemical treatment systems.The biologi - clarification to separate the non-dissolved cal treatment system primarily relies on a metals and other particulate matter from conventional activated sludge process, the treated wastewater. ThysennKrupp facility water treatment plant. with some waste streams pretreated in an The steel industry overall is a significant Credit: Veolia. AnoxKaldnes moving bed bioreactor water user. Applications in the industry (MBBR) for organics removal. Effluent typically involve high heat, critical include: an industrial supply water treat - from the biological treatment system is non-contact cooling, high suspended ment system that treats water from the then treated in the physical-chemical solids, oil and grease contamination, and Tombigbee River; a two-stage biological treatment system. complicated cascading. At its new treatment system that treats sanitary Mill wastewater treated in the com - Alabama complex,ThysennKrupp is wastewater from within the production plex’s physical / chemical metals polishing demonstrating its commitment to facilities as well as industrial wastewater system includes effluent from the biologi - water resource recycling and sustainability with concentrations of organic loadings; cal treatment processes, contact cooling while utilizing the latest technologies to and a physical / chemical metals polishing water blowdown, acidic wastewater from safeguard the environment and provide treatment system that processes effluent pickling operations as well as neutralized, sufficient water supply and flexibility from the two-stage biological treatment pretreated wastewater from pickling for future growth. G system and inorganic industrial waste - operations.The physical / chemical water that has been pretreated at various system includes five main unit operations: Article provided by Veolia. production areas within the mills. NAWater Systems completed the design-build project with value-added engineering, on schedule and under the budget originally projected.Through its design,Veolia’s ACTIFLO,TURBOMIX, AnoxKaldnes Moving Bed Biofilm Reactor (MBBR) and other technologies enable the treatment processes at the state-of-the-art complex to produce high quality water within a very small footprint. In the new complex’s 14.4MGD (54.7MLD) capacity water supply treat - ment system,Tombigbee river intake water is filtered through a passive screen to prevent aquatic life entrainment and then solids are removed via coagulation, flocculation and ballasted settling in four

Creative contracting delivers results for Unitywater in Queensland

At the end of last year, Phase II of Australia’s Murrumba Downs wastewater treatment plant in Queensland was completed by an alliance between Unitywater, John Holland Group and MWH. STACEY MCCRYSTAL looks at this successful alliance project.

n 2007, Pine Water, now part of upgraded infrastructure. The of an Advanced Water Treatment IUnitywater (the operator serving team, which included construction Plant (AWTP) to comply with Moreton Bay and the Sunshine Coast contracting specialist John Holland Queensland’s emergency drought in Queensland), initiated the Group and wet infrastructure legislation. The AWTP was delivered Murrumba Alliance to deliver more engineering firm MWH, first well ahead of schedule and than $200 million in new and undertook design and construction under budget.

24 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 PROJECTS / CONTRACTING

Building upon the success of that effort, review meetings were chaired by key the Alliance embarked upon significant members of both the design and upgrades to, and refurbishment of, the construction team, and attended by all Murrumba Downs wastewater treatment relevant alliance members, enabling plant, which also included provision of an continuity between the design, onsite odour management facility.The construction and operations processes. existing plant – which had been delivered under a design and construct contract a Consistency of leadership decade earlier – was overloaded and Because one of the key constraints with would reach its design capacity in 2010, major projects that run for a long time is Aerial shot of the Murrumba Downs wastewater with substantial increases in sewage loads the ability to keep the same staff members treatment plant. Credit: MWH. expected over the next 15 years. on the project for many years, the resource to the Unitywater operations The scope of work included the design, Alliance’s consistent leadership is a staff for the ongoing operations of the construction, augmentation, and commis - significant accomplishment. MWH and plant.They were developed with the sioning of new and existing process units John Holland made a commitment to aim such that any new Unitywater staff to increase the capacity of the facility Unitywater that key staff would not be member, with no prior history of the from 13.2MLD to 30.8MLD to meet the changed throughout the course of the treatment plant or upgrade project, could demands of a growing population within project.The Alliance manager, design effectively understand and operate the Brisbane’s Northern Growth Corridor. In manager, construction managers, process treatment plant. addition, the upgrade works also coordinator and other key individuals on Because of the ongoing relationship improved the plant’s nutrient removal the team were kept on board through the with Unitywater through the operations capability, reducing the median effluent life of the project, helping to eliminate the support phase, during the January 2011 total nitrogen and total phosphorus negative impacts that can occur when floods across South East Queensland, concentrations to less than 3mg/l and someone leaves and ensuring retention of MWH provided daily site support to 1mg/l respectively, thus reducing the knowledge around key decisions made Unitywater and helped with restabilising pollutant load to the nearby receiving during the concept design, target outturn the Murrumba Downs treatment plant waters. cost (TOC), detailed design, construction process after it was affected by the flooding. and commissioning phases. Throughout the process, the Building a sound organisational structure Following completion of the plant, two Murrumba Alliance’s mission remained The Murrumba Alliance was Unitywater’s engineers from MWH stayed on board in clear –‘in these exceptional times, we will first experience with alliance contracting. a support role to Unitywater operators. deliver a sustainable water resource that By working as a unified team, and in large They were onsite on a weekly basis to will enable the community to grow and part thanks to the consistency and over - help with process optimisation and prosper’. Phase I of the Murrumba sight of its leadership, the Murrumba training.This ongoing support, which Downs wastewater treatment plant pro - Alliance was able to ensure the highest lasted for six months, helped Unitywater ject was delivered without any opera - quality of service. Each organisation had a achieve stability in the treatment plant tional interruptions and was handed over role to fill: Unitywater as owner / client, operations, reduce operational in December 2009, five weeks before its John Holland as principal contractor, and expenditure by optimising chemical contracted delivery date.This success was MWH as lead design firm. dose rates, and provided the Unitywater achieved despite six weeks of lost time An Alliance Leadership Group (ALG), operations staff with a higher level of due to wet weather, and allowed including one person from each confidence in operating the upgraded Unitywater to be confident that the organisation, was formed to provide wastewater treatment facility. anticipated peak flows and loads during executive-level oversight of all Alliance Together, the Alliance appreciated the the summer season would be well within activities. Likewise, the Alliance pro - higher operational complexity of the the new plant’s capabilities. gramme management team (APMT) treatment plant due to the increased In addition, Phase II of the project was included John Holland’s Alliance manag - number of process units required to handed over in December 2010.This er, as well as Unitywater and MWH’s achieve the performance objectives. As success was achieved despite lower than project managers and MWH’s technical such, an additional training period was expected flows within the Murrumba leaders.These teams helped monitor undertaken, which provided the Downs catchment area, which resulted in performance and resolve issues in the Unitywater operations staff with key the eventual decommissioning of early stages to ensure they did not intensi - process training for each discrete area of Bioreactor 1 to reduce overall operational fy or interfere with project delivery. the treatment facility.These training expenditure.The once-outdated plant is Both teams were consistently staffed sessions outlined the intended operation now outperforming all odour and effluent with the same key individuals from the of each process area and allowed a forum quality targets. Furthermore, the experi - initiation of the Alliance, providing a solid for the Unitywater operations staff to ask ence introduced Unitywater to alliance foundation and a sense of stability questions and troubleshoot any contracting, which has now become an throughout the contract. In addition, operational issues. important tool in its project delivery thorough review processes were As part of the commissioning and toolkit. G established in the form of technical operations support process, a set of review meetings, which allowed review operations and maintenance manuals About the author and endorsement by all Alliance partners were produced, including training videos. Stacey McCrystal is a Project Manager at of all designs throughout the project.The These manuals provide a valuable MWH, Australia.

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 25 PROJECTS / CONTRACTING

State-of-the-art wastewater treatment for Arizona As part of an overall plan to improve wastewater treatment across Arizona’s Pima County, the county entered into a design-build-operate with engineering group CH2M HILL with the stipulation that a five- stage nutrient removal process would be used to produce high quality produced water. LIS STEDMAN reports on the bidding process. he Pima County Regional Competing approaches team, then under Arizona law a draft TWastewater Reclamation A competing team was led by a joint contract was issued with the RFP and Department (RWRD) and venture of Epcor Canada and United then a final contract for both teams. Each international engineering group Water (an LLC), which offered an Epcor team had the opportunity to provide CH2M HILL have begun work on a design-build and joint operation model. feedback on concerns and issues. He new wastewater reclamation facility The second competing team, led by notes:‘The county then had some ques - that will treat 32 million gallons (141 AmericanWater, included Black and tions and clarifications for both teams and MLD) of wastewater on a new water Veatch and McCarthy Construction, with fortunately selected ours.’The contract reclamation campus that replaces an AmericanWater being identified as the was signed and soon afterwards ground outdated 1950s wastewater operator – the same team composition was broken. treatment plant. that succeeded in winning the contract The new plant, in theTucson, Arizona for the Lake PleasantWTP in Phoenix, Risk allocation area, US, is part of a county-wide regional Arizona, which was completed some In terms of the risk allocation, Mr Alpert optimisation master plan (ROMP) to eight years ago. notes:‘We have done quite a few DBO upgrade wastewater treatment operations. Mr Alpert notes:‘We do design-build contracts and we understand the risk Scheduled for completion in mid 2014, and operations and have a strong record as profile.We were aiming to satisfy our - the facility will use the latest wastewater a DBO firm so we didn’t have partners, selves that the risk allocation between the treatment technology to produce high just a variety of team subcontractors. county and ourselves was acceptable and quality effluent capable of meeting new There were requirements to hire local we proceeded accordingly. On a DBO permit requirements and will feature firms, and we have a local firm that will project, it is very difficult to see changes state-of-the-art odour control. CH2M deliver a big chunk of the construction. in the initial cost you establish – that is a HILL will design, build and then operate Epcor and UnitedWater had a clear big risk that each team has to understand.’ (DBO) the 32MGD facility for 20 years. division of responsibility as they don’t He adds:‘There are some approaches to CH2M HILL SeniorVice President of deliver standalone DBO.’The latter, he address escalation of costs, a baseline the company’sWater Business Group, notes,‘is a very competitive model’. O&M (operations and maintenance) cost, Mark Alpert, explains that the existing Mr Alpert notes:‘There were three repair, and replacement, and we agreed plant, also in theTucson, Arizona area, in really good teams in the competition. with the county in the financial offer [of] conjunction with a second plant operated After the shortlist was announced, the how we would meet costs over time. by the county, needed to be upgraded county explained what the request for There is a lot of risk around the cost to meet new, more stringent effluent proposals (RFP) would encompass and structure of the O&M and repair and standards. CH2M HILL won the $172 the constraints on the one element – the replace elements.We have to pass a very million DBO in December 2010. secondary treatment process. Subsequent rigorous acceptance test for the system – ‘For the Roger RoadWWTP upgrade, to that meeting the AmericanWater team there is a 30-day test period where the the county chose to go to the marketplace withdrew from the competition.’ system has to meet all performance with a performance-based competition From then on, he says, it was a‘match parameters before the county formally with some restraints. One treatment race’ between the two teams, competing accepts the plant and proceeds to the process was permissible and acceptable for on all aspects of the project.The county, operational stage of the work.’ P (phosphorus) removal. How the rest of he observes, had hoped for a greater field The contract is now in the very the plant was developed was up to the of competitors. Apart from the process early stages of construction.The plant plant operator,’ Mr Alpert explains. restraints around the secondary treatment only treats liquid wastewater – the process (the county stipulated that a five- biosolids are pumped to the county’s stage Bardenpho enhanced nutrient otherWWTP, the Ina Road facility, removal process would be used) the teams where a centralised dewatering and had freedom for the rest of the plant to treatment facility is being constructed. create significant innovation, providing Apart from the Bardenpho treatment they had competitive offerings and gave process the other main treatment performance guarantees. stages are DAF (dissolved air floatation) ‘Both teams had what we call in the US clarification and secondary clarification, proprietary meetings – the county met filtration, disinfection, and two odour with both teams in a confidential setting control systems – a central biofilter to explore topics such as technical, com - and a carbon absorption system.The mercial, operational and staffing aspects, plan is for the new Pima County Artist’s impression of the 32MGD wastewater and the risk appetite.There was a mini - WRF plant to go operational in treatment facility in Tucson, US. Credit: CH2M HILL mum of six or seven meetings with each September 2014. G

26 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REVIEW

Who owns the UK’s water industry? The UK’s water sector is known around the world for its largely privatised approach, in which the private sector utilities own the assets they operate. This brings with it the potential for changes in ownership of this critical infrastructure, the latest high profile example of which is the takeover of Northumbrian Water by the Hong Kong-based consortium controlled by tycoon Li Ka-Shing. KEITH HAYWARD reviews the ownership of the UK’s water sector, and speaks with two of the regulators with an interest in this ownership – the Office of Fair Trading, and the sector’s economic regulator, Ofwat.

ith a price tag of some £2.4 authorities.The last couple of decades a number of shareholders, with the largest Wbillion ($3.7 billion), the have seen the coming and going of being identified as IIF International SW acquisition of the UK’s excitement around the‘multi-utility’ UK Investments Limited, advised by Northumbrian Water by the Hong approach of joint water and electricity investment bank JP Morgan. Kong-based Cheung Kong group utilities.They even saw the sector caught But amongst this complexity, there are controlled by tycoon Li Ka-Shing up in the Enron bankruptcy scandal of some clear types of owners. represents no small investment. 2001, withWessexWater being sold early The Northumbrian acquisition Indeed the move, when formally the following year for some £1.2 billion essentially puts it in the hands of a non- announced in August, was said to be ($1.9 billion) to pay off the debts of Enron UK industrial group. Overseas industrials the highest value acquisition of a subsidiary Azurix. also ownWessexWater, BristolWater, stock exchange-listed company The sector has come a long way since Sembcorp BournemouthWater and, of in the UK to date this year. then. Of the ten privatised water and course, the threeVeolia companies. Northumbrian’s largest shareholder sewage utilities, the anticipated takeover In the case ofThamesWater, has been Canada’s Ontario Teachers completion and presumed delisting of Macquarie’s acquisition was through its Pension Plan Board, so the move Northumbrian will leave United Utilities, European Infrastructure Fund. Other highlights both the potential scale SevernTrentWater and SouthWestWater investors therefore lie behind this – a and the international nature of the as those held as part of UK stock recent report indicated a South Korean water business. And it shows how exchange-listed companies. Listing Defence Ministry fund is considering what are critical assets can be means there are many individual small relinquishing its investment inThames moved between quite different shareholders, but for each company there Water made through the Macquarie fund. forms of ownership. are also a number of more prominent Recent years have seen a rise in dedicated This also points to the fact that private shareholders.The majority of the ten infrastructure funds, and they are also sector ownership in the UK comes in companies are now privately owned – involved in the ownership of Anglian different forms. Indeed, the sector is more ThamesWater, SouthernWater,Wessex Water, South EastWater, South diverse than that, with parts also being in Water, AnglianWater andYorkshireWater, StaffordshireWater, and Sutton and public hands. due to be joined by Northumbrian.These East SurreyWater, for example. The privatisation of the sector in 1989 may be under the control of a single Pension funds clearly feature by Prime Minister MargaretThatcher owner, as what notably happened when prominently, especially the various took place only in England andWales.The ThamesWater was acquired by Australia’s Canadian and Australian pension funds, sector remains public in Scotland, where Macquarie Group, but there may be joint who own shares in the listed companies ScottishWater serves some five million owners, with some notable examples of but are equally keen to take part in private people in 2.4 million homes, making it consortia having been formed to acquire ownership arrangements. Banks and many the fourth largest water utility in the the water utility.That leaves Dwr Cymru of the private investment funds also take UK. Meanwhile, in Northern Ireland, WelshWater, which is run as a not-for- on ownership in both listed and private government-owned company Northern profit trust. As is already clear, owners may companies. US-based Invesco and IrelandWater serves around 800,000 well be from outside of the UK, and they Switzerland’s Pictet, for example, feature properties for water supply and around may themselves be listed elsewhere. A prominently in listed company share 660,000 for sewerage. It describes itself as similar spectrum of ownership is seen in ownership, as does UK-based Legal & a statutory trading body owned by central the water-only companies. General. Banking group HSBC, for government, but operating under One thing that becomes clear when example, stepped in recently to take company legislation and with substantial looking at the ownership of the sector is over ownership of CambridgeWater, independence from government. just how complex the arrangements can smoothing the way for CKI’s approach for As for England andWales, there is a long be. SouthernWater provides as good an Northumbrian. Deutsche Bank is another history of private sector involvement in example as any in this respect.The water good example, having taken on and then the sector through water supply only undertaking itself, SouthernWater syndicated ownership of Sutton and East companies that currently include names Services Ltd, is ultimately owned through SurreyWater in 2007. such as BristolWater, CambridgeWater, a string of companies by Greensands There are therefore different types of PortsmouthWater and South EastWater. Holdings Ltd, which is incorporated in ownership arrangements and different The privatisation of 1989 saw stock Jersey, while the group’s companies types of owners, and one way those two exchange listings for what had previously include a financing arm incorporated in aspects are linked is in relation to the been ten regional water and sewage the Cayman Islands. Greensands itself has extent to which owners can be involved

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 27 SECTOR REVIEW

The ten water and wastewater undertakings of England and Wales: the private companies

Anglian Water arrangements in the sector, the water undertaking is ultimately owned by With 4.3 million customers, Anglian Water Services Ltd is owned by Jersey-registered Greensands Holdings Ltd, with related companies Anglian Water Group, which itself was previously a stock exchange listed including the funding vehicle Southern Water Services (Finance) Ltd, a company, but was acquired by a consortium, Osprey Acquisitions Ltd, in company incorporated in the Cayman Islands. November 2006. The consortium that made the acquisition in October 2007 included: According to the water company’s website: ‘Osprey is a consortium of • IIF International SW UK Investment Ltd (28.1%) (advised by pension funds and long-term infrastructure investors and fund managers. JP Morgan Investment Management), an independent infrastructure These investors are committed and responsible owners who have strong investments company reputational and ethical standards. The investors have affirmed their • Challenger Infrastructure Fund (23.4%), whose subsidiary was support for the management and strategy of AWG.’ Independent Water Networks Ltd Shareholders in Osprey are: • Seven Australasian superannuation funds (15.7% in total) (advised by • Colonial First State Global Asset Management (32.3%), an Access Capital Advisers, with the funds including MTAA Super and Australian private pension fund (described on Anglian Water’s State Super which, at the time, had shareholdings in Kemble Water website as the consolidated asset management division of the Holdings, the holding company of Thames Water Utilities Ltd) Commonwealth Bank of Australia group, with assets of A$145.2 • UBS (15.6%), to be transferred to the UBS International Infrastructure billion (US$139.4 billion) Fund and managed by UBS Global Asset Management • Canada Pension Plan Investment Board (32.9%), a Canadian private pension fund with assets of C$127.6 billion (US$121.4 billion) The Challenger holding appears since to have been transferred to • 3i (15%), a UK private equity group with assets of £9.6 billion ($14.8 management by UBS, who now manages five funds that represent billion) and listed on the London Stock Exchange 39% of the shareholding. • IFM Global Infrastructure Fund (19.8%), an Australian private According to Southern Water’s last two Annual Reports, the two largest infrastructure fund with assets of A$22.7 billion (US$21.8 billion). shareholders of Greensands are now IIF and US-headquartered The According to Anglian Water’s website, IFM (Industry Funds Northern Trust. The Office of Fair Trading, however, in its assessment Management) is ultimately owned by Members Equity Bank Pty Ltd. completed during 2010, put the 23.4% holding in the hands of the Australian government’s Future Fund, whose investment managers in the According to AWG’s Annual Report 2010, these shareholders each infrastructure sector include UBS Global Asset Management. currently have two non-executive directors on the Board. Southern Water’s directors include non-executive director Paul Moy, Water-only company Hartlepool Water has been merged with Anglian. Global Head and Chief Investment Officer for UBS Infrastructure and Private Equity. Alternate non-executive directors include representatives Southern Water of JP Morgan Asset Management and UBS Global Asset Management Water undertaking Southern Water Services provides water to around (UK). All are also directors of intermediary company Greensands (UK). one million homes and wastewater services to around two million homes. Additional investors account for the remaining 17.2% of ownership of In what are perhaps the most complex ownership and financing Greensands. At the takeover these were: in the management or oversight of the Macquarie Investment Banking Group, infrastructure as a whole, publishing its water companies. and Gordon Parsons, a director of results in December. Shareholders of listed companies, for Macquarie Capital Funds with ‘We wanted to map who owns what example, will generally have relatively responsibility for Macquarie’s UK and to understand ownership models and little say in how a company is run. One of infrastructure assets. whether they matter,’ comments OFT’s the most direct examples of involvement Chris Jenkins, who was involved in can be seen at Northumbrian where, An issue of infrastructure ownership? the study. prior to CKI’s acquisition, the Ontario One organisation with an interest in As with any country, investment Teachers’ Pension Plan Board held a ownership in the sector is the Office of in infrastructure forms the basis for 26.76% shareholding in the water FairTrading (OFT), a government body economic development, and the UK’s undertaking’s parent company, whose which works to protect consumer national strategy for infrastructure, board has included Claude Lamoureaux interests. Last year OFT carried out a published last year, puts the overall invest - as a non-executive director.With review of the ownership and control of ment demand at around £40-50 billion retirement set at the end of July 2011, he was appointed in December 2006 and Publicly owned 13% was until December 2007 President and CEO of OTPP. Plc 34% Generally it is in private company structures that owners have a more direct say in how the water companies are run. Infrastructure fund 27% This can be seen atThamesWater, for example, where the 15-strong board of Private ownership the water company itself,ThamesWater 39% Utilities, includes 12 non-executive directors.These include Ed Beckley, an Investment fund 1% executive director of Macquarie Capital Pension fund 9% Funds and Chief Financial Officer of Private equity 1% Private limted 0% the Macquarie European Infrastructure Unknown 1% Funds, Martin Stanley, CEO of the Figure 1: Ownership of UK water utilities. Credit: Office Macquarie European Investment Fund Foreign plc 8% Company limited by of Fair Trading Infrastructure Ownership and Control LP and an executive director of guarantee/Trust 6% Stock-take water ownership database, December 2010.

28 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REVIEW

• Sumaya Investments Ltd (4.8%), an ‘indirect wholly owned subsidiary customers and sewage services to some 2.7 million customers. The of Cheung Kong Infrastructure Holdings Ltd (CKI, at the time owner of company is owned by the unlisted YTL Utilities Ltd, which is in turn owned Cambridge Water, and now taking over Northumbrian Water) by Malaysia’s YTL Power International Berhad and, ultimately, by the listed • Sky Brace Investments Ltd (4.8%) YTL Corporation Berhad. The company acquired Wessex Water from the • Retail Employees Superannuation Trust (2.6%) (at the time had a Enron Corporation of America in May 2002. shareholdings in Kemble Water Holdings, the then holding company In May of this year, YTL Corporation announced its latest figures, of Thames Water Utilities Ltd) featuring an 11.5% growth in revenue and a rise in profit before • Hermes (3.9%) taxation. YTL Group Managing Director Tan Sri Dato’ Francis Yeoh • Paceweald (1.1%) Sock Ping said this was due substantially to overseas operations, including Wessex Water. Thames Water Wessex Water’s non-executive directors include Francis Yeo, Serving 14 million customers, Thames Water Utilities Ltd is owned by as well as Hong Yeoh, director of YTL Corporation and executive unlisted Thames Water plc which is in turn, through Kemble Water director of YTL Power International, Mark Yeoh, a board member Holdings Ltd, owned by Australia’s Macquarie Group through its European of both YTL Corporation and YTL Power International, an Kathleen Infrastructure Fund. The fund acquired the company from Germany’s Chew, group legal advisor for YTL Corporation as an alternate director RWE in October 2006 for around £8 billion ($12.4 billion). to Francis Yeoh. The first ( €1.5 billion ($2 billion)) and second ( €4.5 billion ($6 billion)) Macquarie European Infrastructure Funds list Thames Water as among Yorkshire Water their investments. Serving some 4.7 million people, Yorkshire Water Services Ltd is part of the The Thames Water Utilities Board includes 12 non-executive directors. Kelda Group plc, which was delisted following acquisition by investment These include Ed Beckley, an executive director of Macquarie Capital consortium Saltaire Water made up of Citigroup, GIC (the Government of Funds and Chief Financial Officer of the Macquarie European Singapore Investment Corporation), Infracapital (of the Prudential Group), Infrastructure Funds, Martin Stanley, CEO of the Macquarie European and HSBC. Investment Fund LP and an executive director of Macquarie Investment According to last year’s Office of Fair Trading assessment, the Banking Group, and Gordon Parsons, a director of Macquarie Capital ownership is: Funds with responsibility for Macquarie’s UK infrastructure assets. • Citi Infrastructure Investors (47.1%) According to a Bloomberg report in July, the South Korean Defence • GIC (26.32%) Ministry’s Military Mutual Aid Association may look to sell later this year the • Infracapital Partners LP (19.6%) 6.9% of Thames Water Utilities it obtained for $281 million through the • Unknown private equity (6.98%) Macquarie fund. Northumbrian Water Wessex Water Currently being acquired by to private ownership. See box on Wessex Water Services Ltd provides a water supply service to some 1.3 listed companies.

($62-77 billion) per year until 2030. OFT OFT’s website.The work does however parent company is listed or unlisted is interested in how competition and set the developments in the water sector (38% compared to 62%) and what the markets will have to play a role in in a wider context. shareholder types are (see Figure 1). It delivering this investment.Water therefore ‘We found in terms of ownership across also assessed the number of times water formed just part of the study, which also infrastructure as a whole that there was utilities had transferred from or to the covered airports, telecoms, rail, ports, diversity of ownership, so around 42% was different types of ownership, and set out power, waste, car parking, and toll roads. public listed companies, 30-something % the gain or loss of the different types of Many of the OFT’s findings were was private, and there was also a fair ownership in terms of market share. framed around activities that are not degree of public and not-for-profit ‘Water I think has, compared to the currently subject to market regulation – ownership,’ comments Jenkins. infrastructure as a whole, slightly more ports, waste, toll roads and car parks – The water sector-only analysis, based unlisted private ownership and has a with a separate presentation of data solely on asset value, set out some figures as of relatively large share of infrastructure fund on the water sector made available on last year on, for example, whether the ownership,’ says Jenkins.‘We found about a quarter of ownership was by infrastruc - ture fund, but that is in a way in line with The ten water and wastewater undertakings of England and the overall trend which is towards greater Wales: the not-for-profit company private equity and / or infrastructure fund ownership and away from UK-listed plcs Dwr Cymru Welsh Water (public liability companies).’ Water undertaking Dwr Cymru Cyfyngedig / Welsh Water serves some 1.2 million households. The rise of infrastructure funds in the Currently following a different ownership path to the other main utilities of England and Wales, it is water sector, as seen in particular at fully owned by a trust board, Glas Cymru Cyfyngedig. GCC operates on a not-for-profit basis, and ThamesWater, therefore fits with wider has members who do not receive dividends and who do not have a financial interest in the company. At the end of last year 26 new members were recruited to replace members due to developments.‘Our findings were that stand down, temporarily bringing the total number of independent members to 82. 12 members infrastructure funds have clearly grown appointed in 2001 stood down after this year’s Annual General Meeting, and another 12 are due to over the last 10-15 years as a major stand down next year. investment vehicle in infrastructure,’ says Financial surpluses are reinvested, and the company distributes an annual ‘customer dividend’ Jenkins.‘We think there are very sound – a payment made back to customers. The group structure includes DC Financing, which was reasons for the development of those formed to issue bonds. funds. Effectively they match long-term Welsh Water had been part of multi-utility Hyder, which was acquired by Western Power Distribution, a subsidiary of US utility PPL, in 2000. The water utility was then sold to Glas Cymru. capital looking for long-term returns with long-lived assets which can provide

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 29 SECTOR REVIEW

The ten water and wastewater undertakings of England and Wales: the listed companies

Northumbrian Water made by Invesco to a Competition Commission pricing enquiry carried Water undertaking Northumbrian Water Ltd serves a population of 2.6 out last in year in relation to Bristol Water. In its submission, Invesco million in the north-east of England. Following an earlier merger, the commented last April: ‘We, at Invesco Perpetual, currently have a company also supplies water to 1.8 million people in the south-east of total of £925m ($1.4 billion) invested across the four quoted water England, where it trades as Essex and Suffolk Water. NWL is owned by and sewage companies and are the largest institutional investor Northumbrian Water Group plc, which has been a listed company since across the quoted sector… Our continued support for this industry 2003 and is the current focus of attention in the sector, following the move is dependent on an acceptable and appropriate rate of return on by Hong Kong businessman Li Ka-Shing to acquire the group in what is our capital. If an attractive rate of return is set, we are happy to put said to represent the UK’s biggest takeover of a listed company to date more equity capital into this industry, but the reverse would also in 2011. apply if an appropriate return is not set. Ultimately we will not Prior to this takeover, significant shareholdings in the group (as of the hesitate to divest from the sector to find alternative investment end of March 2011), according to its latest Annual Report, were: opportunities where there are lower risks and better returns.’ • Ontario Teachers’ Pension Plan Board (26.76%) • Pictet Asset Management Ltd (7.48%) South West Water • Artemis Investment Management LLP (below 3%, but with around Serving a permanent population of around 1.7 million, South West Water 15 million shares at the end of May 2011) Services Ltd is part of listed Pennon Group plc. • Legal & General Investment Management Ltd (UK) (3.15%) According to the Pennon Group Annual Report for 2011, as of 13 June 2011 the major shareholders were as follows, accounting for 46.64% of The group’s board has included Claude Lamoureaux as a non-executive the shares: director. Due to retire at the end of July 2011, he was appointed in • Invesco Ltd (11.98%), US plc investment fund December 2006 and was until December 2007 President and CEO • Ameriprise Financial Inc (9.98%), US plc investment fund of OTPP. • Pictet Asset Management SA (7.24), Swiss plc bank Northumbrian Water had been part of the Suez Group, which sold • AXA SA and its Group Companies (6.14%), French investment fund most of its shares in the group in 2003. Suez had previously merged the in plc UK-listed water-only company Essex and Suffolk Water plc with • Legal & General Group plc (5.91%), UK investment fund in plc Northumbrian Water in 2000. • Prudential plc (5.39), UK investment fund in plc The current acquisition is being made by UK Water, a consortium led by Cheung Kong Infrastructure, Cheung Kong Holdings and The investment management arm of the Legal & General Group, Legal the Li Ka-Shing Foundation. Li Ka-Shing is chairman of Cheung & General Investment Management, describes itself as a leading UK Kong Holdings Ltd, which owns just under 50% of Hong Kong institutional investment management group, managing in excess of Stock Exchange-listed Hutchison-Whampoa, which in turn owns £362 billion ($559 billion). just over 80% of Cheung Kong Infrastructure. CKI describes itself as the largest publicly-listed infrastructure company in Hong Kong. United Utilities CKI previously owned water supply-only company Cambridge Water, Serving 3.2 million customers, or around seven million people, water which has been sold to help avoid concerns around competition. undertaking United Utilities Water plc is part of the United Utilities Group plc, with the group describing itself as ‘the UK’s largest listed Severn Trent Water water business’. Serving over eight million customers, Severn Trent Water Limited The group is listed on the London Stock Exchange. Previously United is owned by Severn Trent plc, a listed company in the UK. According Utilities plc was listed on the LSE, which prior to that was listed on the New to Severn Trent’s 2011 Annual Report, major shareholdings as of York Stock Exchange. 23 May 2011 were: According to the group’s 2011 Annual Report, as of 25 May 2011 the • Norges Bank (3.98%) major shareholders were as follows, representing around 23% of the • Legal & General Group plc (3.97%) company’s shares: • Aegon Asset Management (3.04%) • AXA SA (4.933%, direct and indirect holding) • BlackRock Inc (5.13%, indirect holding) According to the 2010 Annual Report, major shareholdings were at • Legal & General Group plc (3.94%, direct holding) that time: • Pictet Asset Management S.A. (4.995%, indirect holding) • Pictet Asset Management SA (7.6%) • Norges Bank (3.94%, direct holding) • Invesco Limited (5.0%) • Legal & General Group plc (3.9%) Stock exchange notifications regarding holdings in the company issued towards the end of last year additionally related to Deutsche According to the 2011 Annual Report, most of the company’s shares Bank AG and Invesco. (almost 83%) are held by 386 shareholders – about 0.5% of the total Initially privatised as North West Water, the water company number of shareholders. subsequently became part of multi-utility United Utilities. Some insight into investor motivations is provided by the submission long-term returns.’ can be positive, particularly in industries The need for ‘fit and proper’ owners None of this appears to present where there isn’t really product market Another organisation with an interest OFT with concerns though in terms of competition,’ says Jenkins.‘Given the in water utility ownership is the ownership.‘Our high level finding was government’s fiscal constraints, much of sector’s economic regulator, Ofwat. that ownership matters a lot less than the [the needed] investment is going to have Just how this interest is manifested regulatory framework that is in place and to come from the private sector. I think it can be seen in the consultation the degree of competition in the market,’ fits with our findings on ownership and Ofwat carried out recently on the says Jenkins. Rather, he notes a number of competition that allowing, for example, acquisition of CambridgeWater by benefits of freedom of ownership. foreign investment or allowing different HSBC, following CKI’s sale of ‘Change in ownership is more important types of investment into the sector should CambridgeWater to smooth the way in a sense than type of ownership.We help maximise the funds coming in to for its acquisition of Northumbrian. think strong competition for ownership fund the necessary investment.’ In this, Ofwat sought views on a range

30 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REVIEW

The water supply only companies of England and Wales infrastructure investment funds, with approximately A$2 billion (US$1.9 Bristol Water billion) in funds under management. Serving around one million people and another water-only company under UTA is managed by Hastings Funds Management Ltd, which also non-UK ownership, Bristol Water plc, a subsidiary of Agbar UK Ltd, is manages the Hastings Diversified Utilities Fund and sold that fund’s owned by Spain’s Agbar (Sociedad General de Aguas de Barcelona SA). interest in South East Water to CDPQ at the end of 2010 for A$206 million Three quarters of Agbar’s shares are owned by the Spanish subsidiary of (US$197.5 million). In its announcement to the Australian Stock Suez Environnement through the listed holding company HISUSA (Holding Exchange, HFM stated that the sale price represented a more than 30% Infrasetructuras y Servicios Urbanos), with most of the remaining shares premium on the average broker valuation of HDF’s interest in SEW and that being held by Criteria CaixaCorp. Minority shareholders hold 0.56% of it intended to use the proceeds to focus on the energy sector. Agbar’s share capital. SEW had previously been owned by the Macquarie European Infrastructure Fund, which had itself acquired the company from Saur UK, Cambridge Water a subsidiary of the French Bouygues Group. Currently undergoing change due to the takeover of Northumbrian Water, Another water supply only company, Mid Kent Water, has previously Cambridge Water plc had been owned by Hong Kong’s Cheung Kong been merged with SEW following acquisition by Hastings Diversified Infrastructure Holdings Ltd (CKI) since 2004. Given CKI’s decision in Infrastructure Fund / UTA from Swan Capital Group, itself controlled by August to make a firm offer for Northumbrian, Cambridge Water was sold Germany’s Westdeutsche Landesbank. and was acquired by bank HSBC. Economic regulator Ofwat has been consulting on this acquisition. A press release issued at the time stated that South Staffordshire Water ‘HSBC sees its role as custodian-owner, with three seats on the Cambridge South Staffordshire Water is owned by South Staffordshire plc, Water board’. Expectation is that the company will be sold on. which is in turn owned in the UK by Hydriades IV Ltd and ultimately by the US-based Alinda Infrastructure Fund. Alinda Capital Partners Dee Valley Water LLC describes itself as the world’s largest independent infrastructure Formed in 1997 through the merger of Chester Water Company and firm, with over $7 billion in equity commitments to infrastructure Wrexham Water Company, this is the only UK-listed water supply-only investments. Hydriades IV directors include Alinda managing partner company. According to the company’s latest Annual Report, major Chris Beale. shareholders as of 1 June 2011 were AXA Investment Managed Funds (35.1%) and Gartmore Fledgling Trust plc (3.8%). Sutton and East Surrey Water Supplying water to around 650,000 people in 280,000 homes, the water Portsmouth Water undertaking Sutton and East Surrey Water plc is owned by East Surrey Portsmouth Water Ltd is ultimately privately owned by South Downs Capital Holdings Ltd, an unlisted company. This was acquired by Deutsche Bank Ltd. According to Ofwat documentation, takeover of the company in 2001 through Aqueduct Capital UK Ltd. Deutsche Bank syndicated its owner - involved a 40% employee stake, a 15% management stake, and a 45% ship in 2007. According to the Office of Fair Trading analysis, ownership as stake for a subsidiary of the Royal Bank of Scotland, but with deferment of of 2010 was: the latter’s shares effectively giving an ownership split of 73%:27% • iCON infrastructure partners LP (13.89%), a Guernsey-based private between employees and management. In 2005, a 36% stake in South infrastructure fund (acquisition March 2010) Downs Capital held by Abbey National Treasury Services Overseas • Aqueduct Capital Holding S.a.r.l (25%) Holdings was acquired by Secondary Market Infrastructure Fund UK LP. • TIP Master Holdings (GBP) S.a.r.l (10%), a UK private infrastructure fund According to Ofwat’s consultation document about this acquisition, the • Infra-PSP Canada Inc. (33.61), an investment vehicle of Canada’s transfer did not affect proposals for the investments to be redeemed over a Public Sector Pension Investment Board period of approximately 15 years, to leave the employees and management • Alberta Investment Management (17.5%), a pension fund of the as owners. Canadian Province of Alberta

Sembcorp Bournemouth Water According to Ofwat’s 2007 consultation documentation about the syndica - Previously Bournemouth and West Hampshire Water, and renamed in tion, Aqueduct Capital Holding S.a.r.l. is a wholly-owned subsidiary of Lion January of this year, Sembcorp Bournemouth Water Ltd serves around half Global Infrastructure Fund Limited, which is managed by Singapore-based a million people and is, as the name suggests, mainly owned by Sembcorp Lion Capital Management and owned by Deutsche bank (20%) and Great Industries Ltd, which is listed on the Singapore Stock Exchange. Eastern Life (80%). Bournemouth Water was previously owned by Dutch company Cascal, SES’s Board includes non-executive director Paul Malan, Managing which was itself part-owned by the UK-based Biwater Group and part listed Director of Deutsche Bank in London. on the US Stock Exchange. The Veolia Water companies South East Water Veolia Water Central Ltd. Previously Three Valleys Water plc. Approximately South East Water Ltd is owned by unlisted company HDF (Holdings), 1.3 million connections and three million people. Owned by Veolia which is in turn 50% owned by Canadian pension fund CDPQ (Caisse de Water UK. dépôt et placement du Québec) and 50% by the unlisted Utilities Trust Veolia Water East Ltd. Previously Tendring Hundred Water Services plc. of Australia. Approximately 150,000 people. Owned by Veolia Water UK. According to South East Water’s website, CDPQ is one of the largest Veolia Water Southeast Ltd. New name for Folkestone & Dover Water institutional fund managers in Canada and North America, managing Services Ltd. Approximately 160,000 customers. Veolia Water UK is investments worth around £130 billion ($200.9 billion), and is a majority shareholder. shareholder in more than 4000 companies worldwide. UTA, meanwhile, is Parent company is Veolia Environnement, which is listed on the Paris described has having been established in 1994 as one of Australia’s first and New York Stock Exchanges. of issues which largely centre on whether to change the licence of the water com - more significantly, what are their or not the new owner can be considered pany to deal with things that we may have intentions for the company in respect of ‘fit and proper’. concerns about in relation to fitness management and board structure, and ‘It’s an ongoing view of all owners,’ and properness.’ then secondly what is their financial comments Keith Mason, Ofwat’s This can mean looking for what he capacity,’ says Mason, continuing:‘Water Director of Finance and Networks. describes as‘obvious skeletons’ in the companies generally have a relatively ‘There’s no statute behind fit and proper, background. Beyond this, the assessment high capital programme… So is there but what it does mean is, would we need focuses on two main areas:‘Probably anything about the potential ownership

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 31 SECTOR REVIEW

by whoever it is that may mean that might The public bodies be restricted or constrained in any partic - ular way.’ Scottish Water Whatever the ownership, the actual Publicly-owned utility serving some five million people in 2.4 million homes in Scotland. water company, the undertaking, is an entity licensed by Ofwat. Importantly, the Northern Ireland Water undertaking’s finances are‘ring-fenced’ as ‘Go-Co’, or government-owned company, serving around 800,000 properties for water supply and part of this licensing. Mason explains around 660,000 for sewerage in Northern Ireland. that this ring-fencing has evolved since privatisation, and he considers it to be ‘Certainly where the owner is based is not control over to others. well developed.‘It would have to be a concern,’ says Mason, offering the ‘We go back as far as we need to go unusual circumstances for us to change examples of CKI from China, and the back,’ comments Mason.Taking consortia the ring fence now from the standard,’ previous and current owners ofThames as an example, this can mean going back he says. Water, respectively Germany’s RWE and to the top level company where there is a Issues that may be of concern to Ofwat Australia’s Macquarie. But he does add shareholder management agreement that include, for example, the size of the that Ofwat will still be looking to ensure all parties have signed up to and looking companies involved – is a very small adequate management expertise is at which party has operational control, company trying to acquire a very large in place. but it is not then necessary to go beyond one.There could be concerns over the There are two further aspects relating this.‘If it’s a pension fund who’s part of arrangements in place for taking money to ownership, both of which are attached the consortium, we don’t then look out of the business. Or there may be to licences through what is known as behind the pension fund to see who concerns over the creditworthiness of the ‘Condition P’. invested in the pension fund, because company trying to make the acquisition. The first relates to the governance of there’s no need,’ adds Mason. Mason considers the hypothetical posi - the undertaking, and requires that the ‘In the end, if there’s doubt we get more tion where a company with a relatively companies have two or three independent than one undertaking’ says Mason, adding low credit rating was looking to take over non-executive directors.‘These are in relation to overseas ownership:‘In a water company and the rating agencies people who are not put on the board some cases we’ve had joint ones or we get were‘making noises’ about the possible by the owner… they’re completely two, so we get one from the ultimate UK impact on the credit rating of the water independent of the owner,’ comments holding company and we also get one company and, as a consequence, the cost Mason. He says there is the hope also that from their foreign based company.’ of borrowing to finance capital invest - there is a director with, for example, a As Mason explains, the intention is that ment.‘If they were to have a poorer level geographical connection to the area or these are legally-enforceable undertakings of credit quality, and certainly one that is one able to provide customer services intended to ensure the ultimate owner or going towards not being an investment expertise.‘On on top of that we expect owners are identified and the water grade quality, we’d look quite seriously at there to be a majority of non-execs in company can meet its obligations.This it,’ says Mason, adding that Ofwat may terms of the governance, [and] we expect begs the question as to whether there has then want to ask‘What can we do to the governance to follow the normal ever been a need to enforce one of these prevent that in terms of improving the corporate rules of governance and the undertakings. ring fence?’ corporate code,’ he adds. ‘So far we haven’t had to do that Management issues can potentially be The other aspect of Condition P over the Condition P, where the of concern also.‘If what they wanted to requires Ofwat to identify who, through behaviour of an owner has been such do with the board, or even perhaps the whatever ownership structure, ultimately that we’ve had to invoke that,’ comments management, looked a bit strange – say controls the water company and to seek a Mason, adding lightheartedly:‘I don’t they had no experience of running a legal undertaking from them.‘This legal know if that’s down to good luck or water business but they wanted to sack undertaking effectively asks that body good management or what, but no, their existing management team – we who controls the water company – not we haven’t had to do that.’ G would ask questions of, well, how are you necessarily the direct owner, it’s whoever going to bring the expertise to run this at the top of the chain has the most business then,’ says Mason.‘If the answer influence – [to] give a legal undertaking was not satisfactory, we would probably that essentially says they won’t do want some licence conditions that gave anything to disturb the running of the that a bit of teeth to say they have to do business, so that they can fulfil their something about the management and licence conditions,’ says Mason. the running of the business.’ ‘It can be quite complex, because Having said this, Mason points out that you have to work your way through the this type of issue would in the first chain.You have to look at share capital instance probably be raised and discussed ownership, but also governance – who’s informally, and that Ofwat hasn’t had to on the board, who has influence on the introduce a licence condition in this area. board in terms of voting powers,’ says ‘Or we haven’t so far,’ he adds. Mason.This can include, for example, What is not relevant, though, is whether considering whether investors in corsortia Keith Mason or not the owner is from the UK. are passive investors and have handed

32 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 BENCHMARKING Providing incentives for improved services: outlining benchmarking benefits for Cape Verde

Cape Verde is characterized by scarcity of water resources which, along with the low socioeconomic status of the population, is one of the main barriers for the improvement of the drinking water supply and sanitation services in the country. Here, PEDRO SIMÕES and RUI C MARQUES outline their recommendation for improving service quality in Cape Verde, through the use of a benchmarking system.

iven the geographical and this case study can enrich the knowledge 26/2003, is endowed with regulatory Ghydrological features of Cape and information available on water functions that include assignments at the Verde, an archipelago located off the utilities regulation and benchmarking. level of standardization, supervision and Atlantic coast of Africa, the water sanctioning of violations. Moreover, the supply there needs to rely on The water sector in Cape Verde agency enjoys administrative, financial and desalination. Moreover, the and its regulation asset management autonomy. socioeconomic status of the country Market structure ARE’s mission is to promote economic explains the poor level of services The water sector in CapeVerde comprises efficiency and financial stability in the and coverage currently found. The 15 operators of drinking water services regulated utilities, as well as to guarantee situation is even more distressing and three operators of wastewater ser - the provision of public services in an for sanitation services despite the vices, including the largest operator in the appropriate way. In addition, ARE tries to developments observed in recent country, ELECTRA. In addition to the ensure the fulfilment of public service years. Considering the increasing provision of energy services across the obligations (e.g. universal service), to water consumption, together with whole country, ELECTRA is also protect customer rights and interests the scenario of water resources responsible for the drinking water supply (e.g. tariffs versus quality of service), to scarcity, it is necessary to adopt an on four islands (Praia, SaoVicente, Sal guarantee the impartiality of regulation appropriate management policy and Boavista), covering about 200,000 and transparency (either between aimed at making better use of inhabitants (40% of the CapeVerdean operators themselves or between them these resources. population), and for the service of and their customers), to safeguard the Accordingly, successive governments of wastewater treatment in Praia.The implementation and enforcement of CapeVerde have undertaken several other islands and cities are supplied legislation, to coordinate the application reforms of the water sector (INGRH, by municipal companies (100% of principles of the competition law, to 2003). In addition, the creation of the public ownership). assure the (economic) viability of the Water Code (Law No. 41/II/84) ELECTRA, which was partially sectors regulated and, finally, to keep the established the legal regime of ownership, privatized in 2000 to a consortium of customers well informed about all the protection, conservation, development, Electricity of Portugal (EDP), and Águas regulatory procedures. management and use of water resources in de Portugal (ADP), has, since 2007, had CapeVerde. As part of that set of rules, the the CapeVerde government as its major Tariffs Government of CapeVerde established shareholder.The remaining operators are ARE is responsible for supervising the the Legal Framework for Regulatory related to 11 municipal companies.There tariff and price setting according to the Agencies (Law No. 20/2003). In this are also some private pump trucks that legislation, ensuring compliance with the regard a multi-sector regulator was provide water in the peri-urban tariff standards imposed in the concession created, the Economic Regulation and rural areas. contracts and licenses, and for defining rules Agency (ARE), which covers water and for cost accounting and implementing the wastewater activities (as well as electricity, Water sector regulation tariff revision. Until 2010, ARE had not transportation and fuel). In general, the ARE, regulated by the Decree-Law No. carried out activity in this scope.Tariffs of role of ARE has been important and positive. However, concerning the water Cape Verde from Monte Verde. Credit: Frank Bach / Shutterstock images. sector, its regulatory model is not yet well defined. This article provides an overview of a recommended regulatory model for water utilities in CapeVerde. It is based on the yardstick competition approach of benchmarking, and as far as we know, it is the first research undertaken into the application of benchmarking in the water sector in this country, particularly with its focus on regulation. CapeVerde is quite similar to other island countries in the Caribbean and the Pacific and, therefore,

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 33 BENCHMARKING

Table 1: List of performance indicators suggested for ARE Use of benchmarking in regulation Number Performance indicator Unit The application of benchmarking in regulation has many potential benefits, 1 Water coverage % mainly in the water services (Marques et 2 Sanitation coverage % al., 2011), where the competition in the 3 Wastewater treatment % market is more difficult to implement as 4 Unaccounted-for water % the operators generally work in a regional 5 Metering % (local) natural monopoly regime 6 Continuity Hours 7 Staff Employees / 10 3 connections (Ballance andTaylor, 2005). Among the 8 OPEX coverage Return / OPEX main advantages of benchmarking use 9 Bursts in the water mains Bursts / 10km (Marques, 2006a), the following can be 10 Blockage at wastewater network Blocks / 10km pointed out: strong incentives are 11 Percentage of residual chlorine % of sample > 0.5mg/l) provided to operators to be efficient 12 Turbidity % of sample > 5NTU) and innovative, mitigating the costs of 13 Complaints Complaint / 10 3 customers 14 Billing Revenue charged / revenue collected operation and the capital expenses; an 15 Pressure Metres water column on-going pressure is put on the water utilities to improve the quality of service; ELECTRA are proposed by value that the CapeVerdeans give to this a fairer recovery of costs and of the capital the firm itself and approved by the gov - resource.The problems related to the investments is assured; and there is an ernment (ELECTRA, 2010). For the quality of service are mainly due to increase of transparency and sharing of municipal companies the tariffs are economic and financial constraints. information, minimizing the asymmetry approved by the local government. Moreover, the priority has been to between different stakeholders (especially As a rule, the tariff system is defined increase the service coverage and the between the regulator and the operators). by increasing blocks according to availability of water resources. It is well known that regulation using consumption and category of final (performance) incentives, based on customer.There is also a fixed tariff, Public service obligations benchmarking, introduces the productivity which depends on the size of the meter In CapeVerde, public service obligations component associated with cost reduction and on the type of customer. in the water sector are mainly established as a major objective for the regulated The current framework for wastewater by the Decree-Law No. 75/99 and utilities. Using this method, the operators treatment and collection services is include, inter alia, universality, quality take more risks, but can also increase their generally characterized by the absence of service, accessibility and reliability. gains (Marques, 2010). In recent research of charges or by a great deficit between Following the legislation and the terms in Europe, the major reason found to the revenues and the real operational of concession contracts, the principles justify the differences in efficiency cost. However, the water service is of universality and accessibility try to between water utilities from different extremely costly for customers in ensure that all customers within the countries was the use of benchmarking CapeVerde, and the operational costs concession area that require the service (Witte and Marques, 2010). are also very high, basically due to will be served, according to a suitable In fact, the search for the best practices, the unavoidable need for desalination trade-off between tariffs and quality through the implementation of a (Banerjee et al., 2010). For instance, of service. Furthermore, one of the benchmarking system, has a great impact the average water charges represent major aims for the setting of the on performance improvement. Given the about €26.1 ($37.5) for a domestic regulatory agency was to foster particular features of these services, the customer with a consumption level the principles of equality, solidarity benchmarking tool is of great impor - of 10m 3 (ARE, 2010). and transparency in the water service. tance, allowing the authorities to monitor

Quality of service The scarcity of water resources and the Table 2: Weight of performance indicators lack of financial resources to invest in infrastructure, together with the Number Performance indicator Weight customers’ low ability to pay, in general, 1 Water coverage 10 results in diverse consequences for the 2 Sanitation coverage 5 water sector development, not only in 3 Wastewater treatment 5 terms of its coverage expansion but also 4 Uncounted-for water 10 concerning the drinking water quality 5 Metering 5 and the quality of service provided (e.g. 6 Continuity 10 continuity). In fact, the water supplied 7 Staff 5 8 OPEX coverage 5 does not always meet the minimum 9 Bursts in the water mains 5 quality standards for human consumption, 10 Blockage at wastewater network 5 and in situations of greater demand 11 Percentage of residual chlorine 10 there are unexpected interruptions of 12 Turbidity 5 water supply. 13 Complaints 5 The percentage of water losses is not 14 Billing 10 15 Pressure 5 very high, emphasizing the price and the

34 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 BENCHMARKING

Table 3: Targets and classification for the indicator continuity Performance Contracts (APCs).These implement its model based on sunshine contracts, based on benchmarking, focus regulation, whose principle relies Target Value on increased accountability and commit - on the discussion and publication of ment through increased autonomy and performance results for utilities (Marques, Excellent 22 – 24h 5 apportionment of operating risk to the 2006b).With recognized merits (e.g. in Good 19 – 22h 4 operating teams through performance- the water sector regulation of Zambia), Satisfactory 15 – 19h 3 based pay mechanisms (Mugisha, 2008). the highlighting of performance within Non-satisfactory 7.5 – 15h 2 Regarding South and Central America, the utilities acts as an incentive for its Poor < 7.5h 1 there is an association (ADERASA) made improvement.The results would be the process of similar organizations and to up of eight national water regulators, guaranteed by external pressures. identify successful cases. At this point, the which have formed a global performance In order to provide even more incentives, application of performance evaluation assessment among these eight countries ARE, based on a weighting system, could methodologies, including performance through a set of 28 PIs divided into four develop rankings of the regulated utilities. indicators (PIs), which are easily applica - groups (service structure, e.g., water and Moreover, the regulator could recognize, ble and understandable, is fundamental sanitation coverage; operational, e.g., staff through some kind of award (or prize), (Kayaga and Franceys, 2008). per connection or bursts per km; quality the best rated players, and somehow In this regard, PIs represent the most of service, e.g., complaints per customer penalize the ones who do not reach the adopted method among regulators to or analysis compliance; and economic, targets established.Table 2 shows the provide incentives for the operators’ e.g., operational costs coverage or opera - weighting system proposal for the better performance, as well as to safeguard tional costs per customer). Several other set of PIs. the customers’ interests (Trémolet and regions around the globe have also In this scope, the regulator should also Hunt, 2006), e.g. in the context of applied benchmarking in the regulatory implement targets for each indicator, i.e. Guaranteed Standard Schemes. Moreover, scope (see IB-NET of theWorld Bank). goals that ARE deems as likely to be PIs have the ability to encompass (and reached by the utilities. However, it evaluate) the most relevant aspects in Proposal for water sector regulation should not neglect the external factors water services, such as water resources, The ARE regulatory model shows a great that characterize (and often constrain) customers, assets, quality of service, prices potential for improvement. It is clear that the services provided. Moreover, in and finances, and health. the benefits expected from the private order to standardize the quality of service Nevertheless, the selection of PIs is not sector participation will not overcome the that is provided, ARE can establish levels the only issue in the benchmarking weaknesses of the sector in CapeVerde. according to the utilities performance, for process.There is also an important aspect ARE must be aware of the dimension example, excellent, good, satisfactory, regarding the method and the collection and the constraints that actually exist non-satisfactory, or poor. of the relevant operating and financial in the implementation of this kind Table 3 shows the example of the information (Berg and Corton, 2008). of services, dealing openly with the continuity indicator. In addition, this The latter might be a too demanding task (likely) failure of ensuring an (non-) classification could be assigned, for the water utilities. As PIs might require economically sustainable service. respectively, with a value between one and greater detail (and a lot of data) they Thus, one possible proposal relates to five, which would be used as basis for the should also be implemented sequentially the various technological possibilities for development of the ranking system. (Alegre at al. 2000).This is particularly implementing such services, i.e. the Based on these ratings, the regulator important in developing countries. regulator should be endowed with the could provide recommendations to For instance, in Indonesia, the water best tools to ensure a suitable trade-off each operator, with the aim of improving regulator (JakartaWater Supply among quality of service, price and their performance and, accordingly, Regulatory Body – JWSRB) adopted a service coverage. contribute to the overall development set of PIs to evaluate the main aspects of As a step forward, a key aspect of the of the water utilities. the service, e.g., continuity, pressure, regulatory model would be the creation The regulatory model would take availability, quality, meter reading, water of incentives for water operators to note of (recurrent) cases of poor results. bills and complaints.This has been improve their performance. In this Consequently, the regulator, in such cases, considered useful for gaining sound context, we propose a benchmarking would develop mechanisms that compel experience (Lanti, 2006). In Zambia, the system which includes 15 PIs, which can the operator to a stricter accountability water regulator (NationalWater Supply be seen inTable 1. than the (normal) annual one, such as and Sanitation Council – NWASCO) is By encouraging a better performance monthly reports, including all the using PIs of water quality, metering ratio, among the utilities regulated, ARE could decisions taken by the board of directors, water coverage, sanitation coverage, hours of supply, staff, collection efficiency and operational costs coverage to develop Table 4: Benchmarking system proposed for the ARE rankings among the regulated companies Target Weight Colour (NWASCO, 2010). Also, in Uganda, the NationalWater and Sewerage Excellent 22 – 24h 5 Green Corporation (NWSC), in order to Good 19 – 22h 4 Dark green overcome some structural problems Satisfactory 15 – 19h 3 Yellow and instigate incentives in the service Non-satisfactory 7.5 – 15h 2 Orange provision, developed a number of Area Poor < 7.5h 1 Red

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 35 BENCHMARKING

and the performance evaluation results. special attention. Despite the governmen - A. Cabrera, Jr. and Miguel Angel Pardo, 307-320. IWA Thus, the operator would be under a tal actions to tackle these issues, such as Publishing, London, England. tighter supervision until such a time that the implementation of diverse standards ELECTRA (2010) Relatório e Contas 2009. the results improve. and laws, the role of the water regulator ELECTRA, CapeVerde. Moreover, this process of quality of (ARE) is very important to carry out ERSAR (2010) Annual Report onWater andWaste service regulation could be linked to a reforms in the water sector. Services in Portugal. Entidade Reguladora dos Serviços de colour system, which would set out more Although ARE is endowed with Águas e Resíduos, Lisbon, Portugal. clearly the performance of regulated the powers of tariff setting and quality INGRH (2003) Politica Nacional do entities.This scheme could be imple - of service regulation, assuring the Saneamento.National Institute forWater Resources mented with the adoption of the colour viability of the sector and the defence Management, CapeVerde. green for excellent performance, a dark of customer interests, its action has been Kayaga, S and Franceys, R (2008)Water service green for good performance, yellow for somehow limited. regulation for the urban poor: Zambia.Wat. Manag. satisfactory performance, orange for non- In this regard, the use of benchmarking 161(2), 65–71. satisfactory performance, and, finally, red by ARE has several advantages. In particu - Kayaga, S and Kadimba-Mwanamwambwa, C for poor performance.Table 4 shows the lar, it is one of the few available tools to (2006) Bridging Zambia’s water service gap: NGO / benchmarking system proposed for ARE. create some‘competition’ in the market. Community Partnerships.Wat. Manag. 159(3), 155- The aim of this (colour) system, besides Besides, its use is encouraged by the 160. the recognized benefits achieved in existence of a significant group of Lanti, A (2006) A regulatory approach to the Jakarta various sectors and countries (e.g. in the players in the CapeVerdean water sector. water supply concession contracts. Intern. J. ofWat. Res. Portuguese water sector, ERSAR, 2010), This circumstance mitigates the main Develop. 22(2), 255-276. is related to the fact that it is easily benchmarking drawback, which is the Marques, R (2006a) Performance benchmarking in perceptible by the customer with regard comparability of operators. In fact, the water and sewerage services regulation: Principles and to the operator’s results. application of benchmarking creates experiences.Wat. Utility Manag. Intern. 1(2), 16-21. As a way of increasing customers’ ability strong incentives for the operators Marques R (2006b) A yardstick competition model for to pay for water and wastewater services, to be efficient and innovative regarding Portuguese water and sewerage services regulation. Utilities the regulator should (at least) propose to the operation and capital expenses, Policy 14(3), 175-184. the municipalities and the operators the transparency, and the dissemination Marques, R (2010) Regulation ofWater and implementation of a pricing system that of information, among others. Wastewater Services. An International Comparison. IWA includes social measures, i.e. by adopting a The identification of best practices in Publishing, London, England. rate that takes into account the number of similar countries / regions allows us to Marques, R, Simões, P and Pires, J (2011) Performance people in the household or other type of infer that there is room for improvement benchmarking in utility regulation:The worldwide social tariffs (based on age, income, etc.). in ARE’s regulation policy.Thereby, we experience. Polish J. of Environ. Stud. 20(1), 125-132. The setting of prices should also take into put together a proposal of a new Mugisha, S (2008) Infrastructure optimization and account the results of the benchmarking regulatory model for the water supply and performance monitoring: empirical findings from the water scheme, allowing the best operators to set sanitation services to be adopted by ARE sector in Uganda. Afr. J. Bus. Manage. 2(1), 13-25. tariffs a little higher and compelling the based on benchmarking. NWASCO (2010) Urban and Peri-urbanWSS sector worst ones to reduce them. These recommendations have been report 2008/2009. NationalWater Supply and Although in some cases the customers passed across to ARE, as we feel that the Sanitation Council, Zambia. can be too demanding and critical, in introduction of more incentives for Trémolet, S and Hunt, C (2006)Taking Account of the general, they are the ones who better efficiency and innovation represents a step Poor inWater Sector Sanitation.Water Supply & perceive the quality of service that is ahead for water and sanitation services in SanitationWorking Notes.TheWorld Bank,Washington, provided. In order to take advantage CapeVerde. G USA. of this feature, the regulator should Witte, K and Marques, R (2010) Designing perfor - encourage customer participation in the References mance incentives, an international benchmark study in the regulatory process, including the creation Alegre, H, Hirner,W, Baptista, JM and Parena, R (2000) water sector. Central Europ. J. Oper. Res. 18(2), 189-220. of voluntary groups responsible for Performance Indicators forWater Supply Services. Manual safeguarding customer rights in the of Best Practices. London: IWA Publishing, London, Article based on a paper presented at Pi2011, the 4th water sector and the dissemination of England. IWA International Conference on Benchmarking and information available on the service ARE (2010)Tariffs. Available at www.are.cv. Performance Assessment of Water Services, which provided such as those resulting from the BallanceT andTaylor A (2005) Competition and took place 14-16 March 2011 in Valencia, Spain. proposed performance assessment (e.g. Economic Regulation inWater.The Future of the the regulator in Zambia created theWater EuropeanWater Industry. InternationalWater Association, Watch Groups (Kayaga and Kadimba- IWA Publishing, London, England. Mwanamwambwa, 2006)). Banerjee, S, Foster,V,Ying,Y, Skilling, H andWodon, Q About the authors: Pedro Simões is a PhD student at the Center (2010) Cost Recovery, Equity and Efficiency inWater for Management Studies (CEG-IST), Conclusions Tariffs. Evidence fromWater Utilities. Policy Research Technical University of Lisbon, Lisbon, The water sector in CapeVerde shows Working Paper 5384.TheWorld Bank,Washington, Portugal. Email: [email protected]. diverse problems.The need for desalina - USA. tion (to address water scarcity), the poor Berg, SV and Corton, M (2008)Water Utility Rui C Marques is an Associate Professor at quality of water, especially in rural areas, Benchmarking for Managerial and Policy Decisions: the Center for Management Studies (CEG- IST), Technical University of Lisbon, Lisbon, and the low coverage level of the services Lessons from Developing Countries. In Performance Portugal. Email: [email protected]. are some of those problems that require Assessment of Urban Infrastructure Services, ed. Enrique

36 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REFORMS

Malaysia’s progress with its water sector reform: the regulator’s view

Malaysia is making progress with the fundamental reforms of its water sector that were set in motion with legislation introduced in 2006, and the country’s water regulator, SPAN, has a central role in these reforms. KEITH HAYWARD spoke with CEO DATO’ TEO YEN HUA, about the progress and his organisation’s development.

hen Dato’TeoYen Hua, the WChief Executive Officer of SPAN, the National Water Services Commission of Malaysia, set out his perspective of the country’s water sector reforms in the March 2009 issue of WUMI, he concluded by noting that the policy and legal framework for the reforms had been put in place, that implementation was on track but may take a little longer than anticipated, and that there was the prospect of improve- ments in service levels, transparency and funding, all of which would pave the way for a sustainable water sector for the country. Speaking this September,Teo retains his positive view about the prospects for the country’s water sector,but it worth noting that his original comments about the implementation of the reforms were prefaced by a comment that the benefits would come‘once all the necessary arrangements in the form of corporatiza- tion and migration to the new regulatory regime are completed’. That comment has proven to be partic- ulary significant.At their heart,the reforms are based around federal legisla- tion, primarily theWater Services Industry Act 2006 (WSIA 2006),created in a move that required amendments to the federal constitution.This move was to have been followed by a transition by the various state governments to the new arrangements.A central feature of the new structure for the sector is its use of an ‘asset-light’approach,with water assets transferred to ownership by a new organi- sation, PAAB,and with the operators of these assets being licensed by SPAN. There has been progress on this front, Dato’ Teo Yen Hua, Chief Executive Officer including some recent developments (see of SPAN, Malaysia’s National Water ‘Malaysia makes progress on reform Services Commission. implementation’,p3,WUMI June 2011).

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 37 SECTOR REFORMS

tariffs do cover both.‘We are not saying that the water operators must not hold Executive summary assets.They can hold assets if they can Following introduction of the Water Services Industry Act in 2006, Malaysia’s water sector has been afford to – if there is willingness to pay undergoing a process of reform. Key features are the transfer of ownership of water assets to a new and when the tariff is able to cover both body, PAAB, with water services then being provided by ‘asset-light’ operators. The new regulator, SPAN, is at the heart of these reforms and its role includes issuing licenses to the country’s water OPEX (operational expenditure) and operators. The reforms also require completion of the process of corporatisation of state water CAPEX (capital expenditure).Then the departments. operators should eventually finance their SPAN’s Chief Executive Officer, Dato’ Teo Yen Hua, comments on the progress being made with own capital expenditure.’ the reforms. He explains that one of the latest states to transfer to the new regime, Penang, has ‘In the case of Penang,they are running adopted a version of the asset-light approach that may be followed in other states. He also provides at a surplus,so rightfully,whatever assets an update on progress with corportisations. they have,we allow them to keep,’says According to Teo, there is evidence that the new approach is succeeding in states where the changes have been implemented. This includes evidence that under the asset-light approach Teo.Only the outstanding liabilities have PAAB is able to achieving financing of capital investment at better rates. therefore been transferred to PAAB.‘I Future developments are expected to include a new tariff-setting mechanism, and greater think one or two more states are going to integration of water and wastewater activities, according to Teo. adopt the same model,’he adds. As a priority, Teo believes that SPAN must ensure it maintains its independence. Progress in Selangor came with the This article also gives a state-by-state review of the status of the reforms, identifying the main creation of a special purpose vehicle, water supply entities and concessions operating in each of the states. Acqua SPV Berhad,to acquire the state’s water-related bonds.Teo anticipates that But there is still a way to go. Adapting the asset-light model further discussions will be needed to pave Teo highlights the elections held across Negotiations with Penang were the way for completion of reforms there. the country in 2008 as an important finalised at the end of last year and ‘I think that it may take a bit longer,until factor as these brought in new govern- the restructuring completed in June. next year,before we can complete the ments in a number of states.‘As a result of Teo notes that there had been a migration,’he says.But overallTeo is that we had to go and brief them again to change in government in Penang expecting further progress on restructur- introduce them to this asset-light model too.‘They agreed with our model ing of the sector this year:‘I think another and the concept of this water restructur- except that there was a slight change,’ one or two states will be migrating before ing,’ he comments. he says.He explains that the slight the end of the year.’ Three states transferred their assets to change is that some of the assets have PAAB in 2009.The first states to do so been retained by the operator.The new Further progress on restructuring and adopt the new model were,in terms model for the sector is the‘asset-light’ Another dimension of the reforms is that, of population,the relatively small states of approach,butTeo says this does not mean as well as transferring public water assets Melaka and Negeri Sembilan.These were the operator has to be asset-free. to PAAB,states are expected to ensure followed by the more populous state of Malaysia’s water sector is in what he that any state water departments not Johor.Last year only Perlis transferred describes as a‘transitional period’,where already operating as separate entities its assets,in August.The more recent in many cases tariffs are not adequate to move to a corporatised set-up.Operators developments have involved the states fund operating and capital expenditure. of the assets are to be licensed and regu- of Penang and Selangor. But the goal is to reach a point where lated by SPAN,and corporatisation will ensure in particular that the finances of the water function are separate from those of the state and that there is clear accountability. SPAN reported progress with corporatisation during 2009,with the federal government approving corporatisations in Kedah,Perlis and Pahang and with implementation of these changes reaching different stages during the year.Less progress had been made in Perak and Labuan. In an update provided by SPAN this year,corporatisation in Perlis was expected to be completed by the middle of this year. According toTeo,corporatisation in Negeri Sembilan took place at the start of 2009,followed by Kedah.In Pahang,Teo notes that‘they are in the process of implementing it’,while change is still to Dato’ Teo Yen Hua being interviewed in October 2010 by Malaysian local TV station TV3’s ‘Aduan Rakyat’ take place in the small federal territory of Programme on issues and public complaints which were successfully handled and addressed by SPAN. Labuan.Regarding Perak,Teo says the

38 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REFORMS

water board operates relatively indepen- dentely to the government.‘In terms of corporatisation,I think we have made a lot of progress over the past three years,’ he concludes. Alongside all of this,Malaysia’s water sector is a noted for the extent to which water services are privatised,especially in Penang,Johor and Selangor.The reforms have therefore had to take account of the concessions that are already in place,and SPAN is able to issue authorisations to operate under section 191 of theWSIA 2006 to those entities who have not migrated to the new licensing regime.In 2009 SPAN issued authorisations to 12 entities,and issued 8 in 2010.One of those receiving an authorisation in 2009, GSLWater Sdn Bhd,transferred to the new regime and received a licence in 2010. Teo contrasts the situation in Selangor, where there are concession agreements, with the case of Johor.‘If you were to continue with the concession,then you will have to regulate them based on Launching of National Desludging of Septic Tanks Campaign in Muar, Johor, Malaysia, by Deputy Minister of whatever terms continue in the agree- Energy, Green Technology and Water, Noriah Kasnon (pictured far right), on 26 June 2011. ment, together with the general provision of the law,’he says.Johor,meanwhile,has the corporatisation.In the meantime, almost 40% since corportisation – with- migrated to a licensing regime,where some states have begun to work with the out any tariff increase.‘After they were operating licences run for three years.‘As new arrangements.According toTeo, corporatised,they put in a better system a regulatory agency,I think that licensing benefits can be seen,for example,in the of billing,they have better enforcement, is more in line with the spirit of the law cases of Negeri Sembilan and Melaka. they are very focused on their operation, whereby [operators] will be imposed with ‘They were unable to run profitably – and in terms of the level of service in the KPIs (key performance indicators) that’s why we more or less agreed that providing the water supply to the people, and the licence is to be renewed.As a they should transfer all the assets to they have shown tremendous improvement.’ regulator,we feel that it is better for PAAB,’he comments.‘Now they are As a further example,Teo refers to a the people.’ operating at a surplus,despite the fact that new water treatment plant due to start they have to pay the lease rental.’ operation by the end of the year and Evidence for success In the case of Negeri Sembilan,Teo which has been financed through PAAB. There is therefore still a way to go with points out that revenues have gone up by ‘In terms of lease rental payment,because

Behind the scenes: some of the other participants in Malaysia’s water sector

Companies acquired by investment holding company Aliran Ihsan Resources Berhad (AIR Bhd) have included two with presence in the water sector in the Malaysian state of Johor: Equiventures Sdn Bhd and Southern Water Corporation Sdn Bhd. A 74% interest in AIR Bhd has since been acquired by MMC Corporation Bhd, which claims to supply 75% of treated water to consumers in the state through its portfolio of 16 water treatment plants. The main shareholders in listed company MMC are Seaport Terminal (Johore) Sdn Bhd, asset manager Permodalan Nasional Berhad (PNB) / Amanah Saham Bumiputera (ASB), and Employees Provident Fund Board. See: www.airb.com.my and www.mmc.com.my.

According to the website of Berjaya Corporation, the private business activities of its chairman / CEO Tan Sri Dato Seri Vincent Tan include a controlling stake in Intan Utilities Berhad, which holds a 40.08% stake in Berjaya Infrastructure Sdn Bhd, which is the holding company for Metropolitan Utilities Corporation Sdn Bhd and Air Utara Indah Sdn Bhd, concessions in the states of Perak and Kedah respectively. SPAN issued authorisations to both concessions under section 191 of WSIA 2006 in 2010. According to the Berjaya website, BISB also owns an 80% interest in a build, operate, transfer concession in Bali, Indonesia, and a 100% interest in two water concessions in Qing Yuan County, Guandong, China. See: www.berjaya.com/corporate-profile.html

Indah Water Konsortium Sdn Bhd, the national sewerage company, wholly-owned by the Minister of Finance Incorporated, is responsible for providing sewerage services, operating and maintaining over 5750 public sewage treatment plants and 13,000km networks of sewerage pipelines since April 1994. It was authorised by SPAN under section 191 of WSIA 2006 in 2010, covering sewerage services in Peninsular Malaysia (except Kelantan, Johor Bahru and Pasir Gudang) and the federal territory of Labuan. SPAN also issued sewerage authorisations to local authorities in Johor Bahru, Pasir Guidang, Johor Tenggara and Kelantan in 2010. See: www.iwk.com.my

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 39 SECTOR REFORMS

it is financed by PAAB,it is much,much also notes that SPAN has been working ‘We have also successfully reviewed lower than the build operate transfer with the operators to start to tackle illegal tariffs for four states,’saysTeo,pointing model,’saysTeo,adding:‘If you ask me, connections.‘If there’s any illegal connec- out that the outcomes in one case definitely the process is working.’ tion then they have an enforcement team have been implemented this year. which will work closely with our He continues:‘We are now also preparing SPAN’s growing role enforcement team and we are able to to introduce a tariff-setting mechanism As the move to the new industry structure bring those culprits to court,’he says. whereby we hope we can depoliticise this has progressed,so SPAN has had to take Teo also points to the fact that SPAN is tariff setting,and that will come together on its responsibilities as the sector’s regulator. expecting to implement new water rules with a regulatory accounting framework.’ This has meant,for example,monitor- from the start of next year.‘Previously Bear in mind also that SPAN has to ing the progress of the licensed operators. water operators had their own set of rules, regulate a huge number of organisations These have to provide a 30-year strategic every state had their own set of rules,’he and individuals,encompassing contractors plan and a three-year rolling plan,with notes.Following consultation with the and,indeed,plumbers.‘The scope and the KPIs to measure progress.‘Our require- industry and other stakeholders,new rules entities that we are regulating is actually ment now is that they have to submit a will provide uniformity in areas such as very wide and very broad,’Teo points out. quarterly report to us based on the KPIs planning and design of facilities that will Naturally,it also includes regulation of that have been agreed upon,’saysTeo.He be handed over to the operators. wastewater.Teo explains that every settle-

The Malaysian water sector Main water supply body Population: 2.3 million Corporatisation of the state water supply depart- Malaysia, which has a population of around 29 ment, Jabatan Bekalan Air Kedah, was approved Main water supply body million, comprises mainland Peninsular by the federal government in 2009. The state Discussions on corporatization and transfer of Malaysia as well as East Malaysia (Malaysian government set up Syarikat Air Darul Aman assets of Lembaga Air Perak (LAP) ongoing. Borneo). Peninsular Malaysia comprises 11 (SADA) as the state’s corporatized See: www.lap.com.my states and two federal territories and has a water operator. population of around 23 million. East Malaysia See: www.sada.com.my Concessions comprises two states and one federal territory Metropolitan Utilities Corporation Sdn Bhd and has a population of around 6 million. Most Concessions (MUC) of the states and territories are covered by the Air Utara Indah Sdn Bhd (AUI) Awarded the build-operate-transfer concession reforms of the country’s Water Services Manages, operates and maintains five water under the Greater Ipoh Water Supply Phase II Industry Act of 2006 – all apart from the East treatment plants in Kedah. Authorised under privatisation programme to supply treated water Malaysian states of Sabah and Sarawak. s.191 to enable continued operations. See to Lembaga Air Perak. Authorised under s.191 Under WSIA 2006, regulator SPAN issues separate box. to enable continued operations. See separate licences. Initially operators received authorisa- See: http://aui.com.my/about.asp box. See: www.muc.com.my tions, for two years to allow them to continue operation before migration to the new regime. Taliworks (Langkawi) Sdn Bhd GSL Water Sdn Bhd Authorisations included s.190 (to licensed Water supply and distribution in Langkawi. Concession for Gunung Semanggol and Taiping operators under state water supply enact- Authorised under s.191 to enable continued water treatment facilities. Shareholders are: ment;) and s.191 (to water concession operations. According to the website of Taliworks Gopeng Berhad, SISMA Water Technology Sdn companies). These authorisations were Corporation, it also holds the concession for the Bhd (see www.sisma.com.my/water.php), and extended in 2010 to allow for completion of Sungai Selangor Water Treatment Works Phase Suez Lyonnaise des Eaux. The concession the transition. Concessionaires who choose 1 in the state of Selangor. expired at the end of 2009. GSL was issued with not to migrate to the new licensing scheme See: www.taliworks.com.my a service licence by SPAN in 2010. and whose status has been finalised by the Federal Government will be authorised under State: Kelantan s.192(5) until the expiry of their respective State: Penang Capital: Kota Bharu concessions. Capital: George Town Population: 1.5 million Population: 1.5 million State: Perlis Includes Penang Island, and Greater Penang – Main water supply body Capital: Kangar the Conurbation of George Town, one of the Air Kelantan Sdn Bhd (AKSB) Population: 230,000 largest metropolitan areas in Malaysia. Authorisation under s.191 to enable continued operations. See: www.airkelantan.com.my Main water supply body Main water supply body Corporatisation of the state water Perbadanan Bekalan Air Pulau Pinang (PBAPP) State: Terengganu supply department, Jabatan Kerja is the water supply company serving Penang. It Capital: Kuala Terengganu Raya (Cawangan Bekalan Air) Perlis, is owned by PBA Holdings Bhd, a public Population: 1 million was approved by the federal government company listed on the Malaysian stock in 2009. Assets were transferred to PAAB exchange. Restructuring arrangements were Main water supply body in 2010. Corporatisation is in progress and completed in the middle of this year, with SPAN reported in 2009 that negotiations with is due to be completed in 2011. PBAPP retaining fully paid assets and with Syarikat Air Terengganu Snd Bhd (SATU) were See: http://jkr.perlis.gov.my outstanding liabilities transferred to PAAB. expected to start in 2010. Authorisation to Licence was effective from 1 June 2011. continue operations issued by SPAN in 2010 State: Kedah See: www.pba.com.my under the category of ‘Authorisation to licensed Capital: Alor Setar operators under state water supply enactment’. Population: 1.8 million State: Perak See: www.satuwater.com.my Capital: Ipoh

40 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 SECTOR REFORMS

ment of 150 population equivalents or need to be a move away from the current that it began to enforce the law at the more is required to have a centralised separation of water and wastewater in beginning of 2008.‘Today,in terms of the sewage treatment plant,but that the tariff the sector.‘We believe,and actually the licensing regime,we have five states ‘is still very,very low’– he estimates the policymakers – our ministry,are tending already under the new regime,we have monthly charge is around MRY8,or less towards integration of the two sectors.I issued licenses,and in terms of the model, than €2.‘That is hardly sufficient to cover would say that within three to five years, PAAB has proven that they are able to get the operating expenditure,’comments we would start to see some reform in the financing that is much better than the Teo.‘The challenge is,how do we ensure sewerage sector.’ traditional concession model.We are even that the tariff is slowly moved up to cover That provides a pointer towards one of being appointed to start writing standards OPEX and eventually to cover CAPEX. SPAN’s future priorities,but looking – we have been appointed by SIRIM,our That is something that I think needs to be back over what has been done since the standards writing organisation...and we done immediately,but the tariff in devel- regulator’s launch,Teo sees that a great have also gone through a lot of enforce- oping countries is so sensitive and is deal of progress has been made.The law ment.We have now I think more than 40 always linked to politics.We think that we was passed in July 2006 and he was cases convicted in court,and 200 other can only review the tariff after the appointed at the start of the following cases being investigated now.’To this he General Election.’ March,Teo recounts.The rest of the year adds the registering of qualified Teo also sees that ultimately there will was spent setting up the organisation,so individuals,such as engineers and

State: Pahang Concessions Main water supply body Capital: Kuantan Puncak Niaga (M) Sdn Bhd. Authorisation under Restructing in the state in 2009, with corporati- Population: 1.4 million section 191 of WSIA 2006 issued by SPAN sation and transfer of assets to PAAB. SPAN in 2010. issued a service licence in 2009 to Syarikat Air Main water supply body A subsidiary of Puncak Niaga Holdings Melaka Berhad. Corporatisation of the state water supply depart- Berhad (the main shareholder of SYABAS), See: www.samb.com.my ment, Jabatan Bekalan Air Pahang, was Puncak Niaga (M) Sdn Bhd holds five water approved by the federal government in 2009. treatment concessions with the Selangor state State: Johor Implementation of restructuring underway. government. According to the company, it is the Capital: Johor Bahru See: http://jba.pahang.gov.my nation’s second largest water supply concession- Population: 3.3 million aire, operating, managing and maintaining 29 State: Selangor water treatment plants with a combined capacity Main water supply body Capital: Shah Alam of 1930 million litres per day. Assets transferred to PAAB in 2009. SPAN Population: 5.4 million See: www.puncakniaga.com.my issued a service licence to SAJ Holdings Sdn Bhd in 2009. SAJ Holdings is a subsidiary of Federal territory of Kuala Lumpur Syarikat Pengeluar Air Sungai Selangor Snd Bhd Ranhill Utilities, part of Malaysian stock Malaysia’s capital, which lies within the state (SPLASH). Authorisation under section 191 of exchange listed company Ranhill. of Selangor WSIA 2006 issued by SPAN in 2010. See: www.saj.com.my and www.ranhill.com.my Population: 1.6 million This is the concessionaire appointed by the Greater Kuala Lumpur extends into the state government to build, operate and maintain Concessions surrounding states and has a population of the Sungai Selangor Water Supply Scheme With the completion of the restructuring of Johor over 7 million Phase 3. Shareholders are Gamuda Berhad in March 2009, authorisations were issued under (40%), The Sweet Water Alliance (30%), and s.192(5) to Equiventures Sdn Bhd (ESB) and Federal territory of Putrajaya KDEB (30%). See: www.splash.com.my Southern Water Corporation (SWC), effective Established as Malaysia’s federal administrative from 1 January 2010 until the end of their centre to the south of Kuala Lumpur. Konsortium ABASS Sdn Bhd. This consortium concessions i.e. 30 June 2012 and 31 May 2014 Population: 70,000 operates and maintain the Sungai Semenyih respectively. See separate box. Water Supply Scheme. According to KDEB, KPS Main water supply body holds a 55% stake in Konsortium ABASS via State: Sabah The privatised water supplier for the state of Titisan Modal (M) Sdn Bhd. Capital: Kota Kinabalu Selangor and the federal territories of Kuala See: www.kdeb.com Population: 3.1 million Lumpur and Putrajaya is Syarikat Bekalan Air Not covered by WSIA 2006 Selangor Sdn Bhd (SYABAS). Authorisation State: Negeri Sembilan under s.191 has been issued by SPAN to Capital: Seremban State: Sarawak authorise SYABAS, which has not yet migrated Population: 1 million Capital: Kuching to the new licensing regime, to enable it to Population: 2.5 million continue operations. Main water supply body Not covered by WSIA 2006 See: www.syabas.com.my Restructing in the state took place in 2009, with corporatisation and transfer of assets to PAAB. Federal Territory of Labuan The main shareholder (70%) of SYABAS is SPAN issued a service licence in 2009 to Capital: Victoria Puncak Niaga Holdings Berhad. The federal Syarikat Air Negeri Sembilan Sdn Bhd (SAINS). Population: 80,000 government holds one ‘golden share’. The other See: www.sainswater.com A small island off the coast of Sabah shareholder is government-linked company Kumpulan Darul Ehsan Berhad group State: Melaka Main water supply body (www.kdeb.com), which includes Kumpulan Capital: Malacca City Jabatan Bekalan Air Labuan – discussions on Perangsang Selangor Berhad Population: 0.8 million corporatization on-going. (www.kps.com.my). See: www.jba.gov.my

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 41 SECTOR REFORMS

Teo.He believes operators need to have their own teams to deal with non-revenue water,and not always outsource it to contractors.‘I hope that the government, together with the regulator and the facilities owner,PAAB,will be able to come up with a scheme,’he adds. SPAN must also continue to build on how it fulfils its role as regulator. ‘In terms of our role,I think it is very clearly spelt out in the law,’saysTeo. ‘I think we need to make sure that we are apolitical,we are not linked to any political party or anything,and we are not favouring one party as against another party.Our role in providing advice for the Minister in terms of policy making is another important aspect of it. Another is that we have to ensure that those states that have migrated can benefit from this new regime.’ That said,Teo says it is the public En. Nik Mohd Nasim Nik Ismail (SPAN Central Region Director) officiating the reinstatement of water supply to who will ultimately decide on whether Saujana Putra in Hulu Langat in 2010, which had been facing prolonged inadequate water supply. the reforms can be seen as a success. ‘In terms of the performance for these architects,for the certification of water where he says non-revenue water is operators,I think the consumers will facilities.‘Based on that,I personally low,in the region of 18%,with that be the ones who are going to be the feel that there has been quite a bit of in other states,where it can be as high judge.They will be the ones who see achievement,even though I must agree as in excess of 50%.Commercial losses whether,[for] those who have migrated, there is much more to be done.’ can be addressed through better billing actually it benefits the people.’ButTeo systems and meter reading,andTeo feels the evidence so far provides grounds Future priorities describes these activities as‘low-hanging for him to remain optimistic.‘I must say With much more to be done,Teo sees a fruits’.Physical losses are more challeng- that,from the states that have been migrated, number of priorities for the coming ing, especially since more than 40% of we noticed that,even with the tariff review period.‘I think I need to further expand the pipes are based on asbestos cement that was implemented,there was very little the organisation a bit,because I find pipes that need to be replaced,comments objection by the people.’ G that now the resources are quite stretched,’he says.‘We need a bigger Thailand organisation now because people are beginning to count on or depend on SPAN to address some of the daily Perlis problems faced by them.’ Teo continues:‘We have also been Kedah asked by the Minister to more or less provide the leadership role in planning for future water and sewerage facilities. Labuan Penang Sabah The plans will have to come from the Kelantan Brunei operators,but we are the ones who Terengganu • have to check through them and ensure Perak that resources are well spent and revenues Sarawak are sufficient to cover those expenditures.’ To this list he adds capacity building, Pahang especially in the area of water loss and non-revenue water.‘I’ve noticed that the Selangor Indonesia industry requires new competency, (Kalimantan) because when you look at the non- Negeri Sembilan revenue water,it’s still high,it’s still in the region of 35 to 36%.That is something Malacca Johor that I think we have to seriously look into Indonesia it...Progress has been there,but I think (Sumatra) that much more can be done.’ Teo contrasts the situation in Penang, • Singapore

42 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 PRODUCTS & SERVICES triOpsis launches Visual Intelligence for Utilities Autodesk adds Autodesk Inventor and Autodesk K software company triOpsis Revit Structure to plant Uhas launched itsVisual Intelligence for Utilities, designed to design software help utilities deliver quality assets through real time visibility and S design and engineering control, it says. Usoftware company Autodesk, triOpsis says thatVisual Intelligence for Inc. has released Autodesk Plant Utilities enables an onsite worker to Design Suite 2012, the latest version record the status of remote assets and the of its plant design software. The quality of work undertaken, removing the particular benefit to utilities covering a new suite, says the company, need for repeat visits to a site . large geographical area, and who have a simplifies cross-department The software works by combining large number of rural assets, due to the coordination among process photographs with additional information increased cost of re-sending workers out plant design stakeholders. compiled on each asset. An image can be to fix a problem.‘triOpsis can also help if With Autodesk Plant Design Suite taken by a mobile worker from any the job cannot be done first time because 2012, says Autodesk, users can create phone with a camera and uploaded, the field worker can photographically designs more quickly while sharing data complete with critical data, providing survey the reason he cannot do the job, so throughout the piping, structural and senior management with the intelligence it can be completed second time with no equipment design processes. By engaging required to make strategic decisions back additional issues.’ stakeholders at multiple workflow stages, at head office. Regarding the challenges of Autodesk Plant Design Suite 2012 helps Andy Hutt, CEO of triOpsis, explained implementing the system in a reduce construction mistakes, expensive to WUMI that aborted jobs are a working utility, Hutt says that: reworks and extended plant shutdowns, substantial issue for all utility companies, ‘The primary challenge in any says the company. G with jobs often being planned in the implementation is obtaining buy in office with limited information of the site from all stakeholders and then clear http://usa.autodesk.com or assets.‘As soon as a gang arrives on site communication to obtain agreement they are faced with the actual state of the on the solution design and implementa - UK water utility goes live with site, which could be very different to tion plan.This is the major challenge what was planned, and this is when because our solution cuts across the HiAffinity aborted jobs occur,’ says Hutt.‘Jobs are full organisation and hence there are ST Global Solutions, a aborted for a large range of reasons, a large number of stakeholders.The Dprovider of billing and including incorrect skills or equipment, reports are of interest across many customer management solutions, traffic sensitive areas, no access, site not parts of the organisation, ranging from has announced that its HiAffinity ready, dry holes, unsafe, incorrect job streetworks or insurance. solution for utilities has been being planned etc. Failing to get the job ‘The solutions we provide are not successfully deployed at UK done right the first time means time, policing tools, they are supportive for the utility South East Water Limited. money and manpower are all wasted in gangs in the field.The solution means the Following the merger of South East rectifying the problem. gangs are covered in the event of any Water and Mid KentWater, the new ‘triOpsis is complementary to existing claim, dispute or question on any part of organisation was faced with the challenge systems and therefore can be implemented workmanship, therefore the uptake from of integrating two separate customer on a standalone basis or integrated with gangs is very high if the project is clearly service and billing operations for 880,000 existing systems depending on what and effectively communicated.’ G CF billable customers. Earlier this year South provides the most value,’ he continues. EastWater successfully went live on a Hutt says that this system can be of www.triOpsis.com single platform powered by DST Global Solutions’ HiAffinity solution.This has enabled the new organisation to consoli - Innovyze releases IWLive for InfoWater date to one call centre and implement nnovyze has announced time (or delayed) SCADA telemetry, consistent business processes across its Ithe release of IWLive for demand history, and valve and pumping customer service and billing teams. its hydraulic modelling software control scenarios. ‘We now have a solid platform which InfoWater. InfoWater users Beyond increasing efficiency enables us to apply consistent, stream - can now move their hydraulic and reducing energy consumption, lined processes across the shared cus - modelling and analysis from IWLive can help operators understand tomer service team,’ said Oliver Martin, planning and design to operation the impact on CO 2 emissions as well as Head of Billing and Collections at South and control. the effects of main breaks, pump and EastWater.‘We are able to implement Intended for use in the water reservoir shutdowns, and other scheduled changes more quickly and train our users distribution control room, IWLive maintenance, says Innovyze. G in less time.’ G allows users to run hydraulic simulations that factor in energy costs, weather, real www.innovyze.com http://dstglobalsolutions.com

WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011 • 43 READING & RESOURCES DIARY

Drinking Water Quality Management • How to motivate people Water Loss Reduction in Water from Catchment to Consumer • How to deal with clients, regulators, unions, Supply Systems A Practical Guide for Utilities Based shareholders, politicians and the press 14-15 November 2011, on Water Safety Plans • How to achieve sustainability Sofia, Bulgaria Editor: Bob Breach Web: www.bwa-bg.com The Bonn Network is a global group of water The book presents case studies, manage - suppliers who have adopted the Bonn Charter ment theory, comparative analysis of situations Acwua's 4th Best Practices for Safe Drinking Water. The network was reported in the literature and the personal Conference originally established to develop and share best experience of an author who has lead a number 7-8 December 2011, Sharm Al practice in drinking water quality management. of successful processes of change in different Sheikh, Egypt Drinking Water Quality Management from water companies. Web: www.acwua.org Catchment to Consumer is a best practice book Software is also available, free of charge, that brings together the experience of network for book purchasers by contacting Water Loss 2012 members and [email protected], and providing 26-29 February 2012, Manila, provides a details of the book’s purchase. Philippines practical guide IWA Publishing February 2012 Web:www.iwa-waterloss.org/2012 to help utilities 200pp. Paperback worldwide ISBN: 9781843391951 Water Loss 2012 is intended to present to develop Price: £69.00 / US$124.20 / €93.15 and discuss the latest developments, improved water IWA members price: £51.75 / US$93.15 / €69.86 strategies, techniques and applications quality manage - To order, visit: www.iwapublishing.com of international best practices in non- ment. It is based revenue water management. Sessions on the principles Evolution of Water Supply Through the will provide the opportunity to hear of the Bonn Millennia expert opinion on and discuss topics Charter and Authors: Andreas N Angelakis, Larry W Mays, such as pressure management, customer water safety plans and is intended to Demetris Koutsoyiannis, and Nikos Mamassis meter management, water loss technologies complement and support other relevant This book presents the major achievements in and strategic planning. publications, particularly the WHO Water the scientific fields of water supply technologies Safety Plan Manual. and management throughout the millennia. It IWA Water Security Conference – This emphasis is on practical information provides valuable insights into ancient water Resilience 2012 ‘by operators for operators’, learning from supply technologies with their apparent 25-27 March 2012, the experience of a range of water suppliers characteristics of durability, adaptability to the Sydney, Australia across the world. environment, and sustainability. Web: www.watersecurity2012.com IWA Publishing November 2011 Rapid technological progress in the twenti - 272pp. Paperback eth century created a disregard for past water Water Loss Europe 2012 ISBN: 9781843393863 technologies that were considered to be far 23-25 May 2012, Ferrara, Italy Price: £85.00 / US$153.00 / €114.75 behind the present ones. There are a great deal Web: www.waterlosseurope.com IWA members price: £63.75 / US$114.75 / €86.06 of unresolved problems related to the manage - To order, visit: www.iwapublishing.com ment principles, such as the decentralization of 9th International Conference on the processes, the durability of the water Urban Drainage Modelling Management of Change in Water projects, the cost effectiveness, and sustain - 4-7 September 2012, Companies ability issues such as protection from floods Belgrade, Serbia Case Studies of Moving Fast from and droughts. Web: Bad to Good to Great Moreover, new problems have arisen such http://hikom.grf.bg.ac.rs/9UDM Author: Joaquim Pocas Martins as the contamination of surface and ground- This book tells real stories of real water water. Naturally, intensification of unresolved IWA World Water Congress & companies that went through processes problems led societies to revisit the past and to Exhibition of change and achieved their best results reinvestigate the successful past achievements. 16-21 September 2012, ever in just a few years. To their surprise, those who attempted this Busan, Korea This practical and effective book shows: retrospect, based on archaeological, historical, Email: [email protected] • How to change, modernize and make and technical evidence were impressed by Web:www.iwa2012busan.org profitable old-fashioned organizations two things: the similarity of principles with • How to reduce water loss and promote present ones and the advanced level of water Water Contamination Emergencies: efficiency in water companies engineering and management practices. managing the threats • How to use the savings to rehabilitate IWA Publishing February 2012 19-21 November 2012, Muelheim and expand infrastructure without 550pp. Hardback an der Ruhr, Germany increasing tariffs ISBN: 9781843395409 Web: www.WCEC5.eu • How to deal with overstaffing Price: £115.00 / US$207.00 / €155.25 • How to plan, finance, build and IWA members price: £86.25 / US$155.25 / Denotes an event organised or maintain infrastructure €116.44 supported by the International • How to introduce innovation To order, visit: www.iwapublishing.com Water Association

44 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2011