Private Sector Participation in Water Infrastructure Private Sector OECD CHECKLIST FOR PUBLIC ACTION Participation in Water Many countries have sought the involvement of the private sector to upgrade and develop their water and sanitation infrastructure and improve the efficiency of water systems. However, high Infrastructure capital intensity, large initial outlays, long pay-back periods, immobility of assets and low rates of return generate high risks. These factors, when combined with poor initial information and a weak OECD CHECKLIST FOR PUBLIC ACTION investment environment, constitute important constraints on private sector participation in water and sanitation infrastructure. Infrastructure Water in Participation Sector Private Recognising this, the OECD has developed practical guidance, building on the OECD Principles for Private Sector Participation in Infrastructure, to help governments and other stakeholders to assess and manage the implications of involving private actors in the financing, development and management of water and sanitation infrastructure. The resulting OECD Checklist for Public Action provides a coherent catalogue of policy directions for consideration by governments, including appropriate allocation of roles, risks and responsibilities, framework conditions and contractual arrangements necessary to make the best of private sector participation and to harness more effectively the capacities of all stakeholders. 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FOREWORD Foreword Recognising the critical importance of infrastructure sectors, including water and sanitation, for growth and sustainable development, the OECD Council approved in March 2007 the OECD Principles for Private Sector Participation in Infrastructure. The Principles are intended to serve as a first step to help governments interested in involving the private sector in the development of infrastructure. The Principles offer a coherent catalogue of policy directions to be assessed as part of a development strategy in light of national circumstances and needs. They were developed in consultation with a broad group of experts from the public and private sector as well as with non- governmental organisations. They build on the lessons learned from the experiences of private sector participation in recent years. In response to the international community’s call for strengthened efforts to ensure adequate provision of water and sanitation services, the OECD launched a specific application of the Principles to the water and sanitation sector. The initiative constitutes one element of a major OECD cross-cutting programme on water policies for affordable services and sustainable resources management. It complements recommendations developed by the OECD on pricing and realistic financing strategies. The work involved the development of a guidance based on the Principles and building an information base of country experiences. The guidance is in the form of a checklist of the main specificities of the water and sanitation sector that bear on private sector participation and of the key policy issues for consideration by governments. It also provides a set of available tools and practices, building on recent country experiences. The focus is mainly on drinking water and sanitation infrastructure in developing and emerging economies where extending service coverage to all constitutes a major challenge, but builds on practices and tools from both OECD and non-OECD countries. The work was developed through regional consultations: in Africa, through the NEPAD-OECD Africa Investment Initiative Roundtable organised in Lusaka (Zambia) in November 2007; in Asia, through the joint OECD/Asian Development Bank expert meeting organised in Manila (Philippines) in March 2008; and in Latin America, through the joint OECD/Mexican Institute of Water Technology meeting organised in Cuernavaca (Mexico) in September 2008. The World Water Week held in August 2008 in Stockholm (Sweden) provided a further opportunity for consultation with civil society and the broader water expert community. In addition, the work contributed to the discussions in various fora held in 2008: the Viet Nam-Japan-OECD forum on Public-Private Partnerships in Hanoi (Viet Nam), the AFUR Water and Sanitation Sectoral Committee Workshop in Accra (Ghana), the World Water Congress in Montpellier (France) and the 2008 SPECA Economic Forum in Moscow (Russia). The material for this publication was prepared under the auspices of the OECD Investment Committee by Céline Kauffmann, economist in the Investment Division, headed by Pierre Poret, in the OECD Directorate for Financial and Enterprise Affairs. Other parts of the OECD Secretariat contributed inputs and comments, specifically the Environment Directorate (Brendan Gillespie, Monica Scatasta, Peter Borkey, Xavier Leflaive, Roberto Martin-Hurtado and Alexandre PRIVATE SECTOR PARTICIPATION IN WATER INFRASTRUCTURE: OECD CHECKLIST FOR PUBLIC ACTION – ISBN 978-92-64-05921-4 – © OECD 2009 3 FOREWORD Martoussevitch). In the Investment Division, Cristina Tébar Less contributed to organising the regional consultation in Latin America, Lahra Liberti is the legal adviser and Pamela Duffin the communication officer. The regional analysis drew on research and statistical work carried out by Edouard Perard, Jenny Datoo and Veronica Herrera. 4 PRIVATE SECTOR PARTICIPATION IN WATER INFRASTRUCTURE: OECD CHECKLIST FOR PUBLIC ACTION – ISBN 978-92-64-05921-4 – © OECD 2009 TABLE OF CONTENTS Table of Contents Executive Summary . 7 Introduction . 9 An evolving environment . 9 Why a checklist for public action? . 10 Chapter 1. Definitions, Trends and Concepts. 13 The private actors . 14 Modalities of participation and risk-sharing . 17 Providing a sound regulatory framework . 24 Chapter 2. Checklist for Public Action in the Water Sector . 33 Deciding on public or private provision of infrastructure services . 38 Enhancing the enabling institutional environment . 46 Goals, strategies and capacities at all levels . 54 Making the public-private co-operation work . 62 Encouraging responsible business conduct . 76 Chapter 3. Water at a Glance . 87 Water availability and access . 88 Operational performance of the water