Sector:

Water and sanitation

Name of Agreement:

Operation and maintenance with investment Agreement

Type of Agreement:

Water and sanitation public service contract with private sector participation

Region (if known):

South America   

Year of Agreement/ Draft:

2003

Parties:

Government Ministry responsible for Water, Environment and Sanitation services.

Private Operator.

Annotated by:

Maria Cabrera, LEGPS, World Bank

Purpose and Context:

Involving the private sector in the administration, operation and maintenance of water and sanitation systems in small and medium towns where the government cannot create a sustainable water and sanitation system.

Circumstances where this contract may be appropriate:

Poor and small or medium towns where the current water and sanitation systems are administrated by the government or by a public service enterprise are not sustainable because of the tariffs and lack of proper infrastructure. In such cases, specialized private operators (contractors) may be hired to operate, administrate and maintain the water and sanitation systems in these towns.

Drafted for common law/ civil law jurisdiction:

Civil law jurisdiction

Main   Features:

This contract allows public service enterprises (concessionaires) to delegate to a specialized public operator (contractor) the operation, administration, financing, restoration, expansion, replacement, and maintenance of water and sanitation systems in poor and small or medium towns. The concessionaire has to provide existing infrastructure to the contractor, and the contractor has to maintain the concessionaire’s infrastructure and build new infrastructure. The contractor has to create 4,670 new water connections and 8,600 sanitation connections during the term of the agreement.

Some of the performance standards are: (i) the contractor has to provide 97% of population with water connections and 60% of population with sanitation connections from commencement; (ii) The contractor has to satisfy 100% water and sanitation quality standards for 60% of the population from commencement; (iii) the contractor has to administrate, operate, maintain and invest in a sewerage system according to the environmental standards. The environmental authorities can modify these standards and the contractor has to apply and pay for the modifications, without compensation for change of law; (iv) the contractor has to build the infrastructure according to the law, (v) Sanctions apply if the contractor could not satisfy the public service requirements according to the technical Operative Annex; (vi) the contractor has to sell to the consumers some of the stocks in the contractor according to the asset democratization program. 

In addition, the contractor has to have the following expertise: (i) Technical expertise: Experience in administration and provision of water and sanitation services for 1 year to at least 10.000 users, (ii) Financial requirements: the contractor has to prove more than US[ ] million equity and at least US[ ] million of subscribed capital.

The legal framework that governs these contracts is conformed by the commercial and civil code, the public domiciliary services law and public contracting law (water and sanitation service provision).

Regulatory oversight is carried out by the specific organization responsible for regulating the water and sanitation public services.

Term is 20 years, extendable.

The contractor’s revenues come from tariffs and government subsidies. The government has to pay the subsidies to the contractor in any case. However, the contractor is required to invest in the infrastructure of the water and sanitation system.

Compliance audits over contractor requirements entrusted to a third party. However, the local investment work audit could be carried out by the contractor. In addition, the contractor must accomplish some tax and environmental measures.

The contractor will be selected through a public tender process.

At the contract end, the contractor has to return all concessionaires’ infrastructure, including the additions and improvements.

The tariffs for the service will be established by the regulator in accordance with the legal methodology provided in the law. The tariffs establish by the regulator have to satisfy the competition law and public service legal framework.

The contractor may be a legal person, join venture or consortium. However the contractor must be incorporated as a public water and sanitation service enterprise in accordance with the public service legal framework.

The contractor must set up a fiduciary fund to administer the investment.

The contract will enter into force after the contractor has complied with all applicable tax obligations.

The contractor will not be liable for the concessionaire’s employees and concessionaire’s third party debts. The concessionaire still responsible of its employees and suppliers obligations and the contractor does not have any relationship with these employees. The contractor will hire the necessary employees for the contract execution and he will responsible of them. The contractor does not have to hire the concessionaire’s employees.

Candidates may survey existing infrastructure prior to participating in the selection process.

Possible additional provisions that might be appropriate to include:

The contractors’ proposals evaluation committee should include technical water and sanitation experts and economists with knowledge in public services.

The requirement for the contractor to have technical expertise of at least one year seems rather short.

The contract term could be for 10 to 20 years as there is not a huge level of investment being required by the contractor.

Provisions that may not be advisable to replicate/ may need further thought:

Provisions of wider general use:

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

Unknown

Tracking Number:

Water Lease [003]