Sector: 

Water and sanitation

Name of Agreement:

Water and Sewerage Lease Contract

Type of Agreement:

Lease

Region (if known):

Africa

Year of Agreement/ Draft:

2005

Principal Author(s) (firm and contact person):

Unknown

Annotated by:

Victoria Delmon, LEGPS

Purpose and Context:

Operator to operate city water and sewerage network, to expand and improve services and to bill customers directly in Operator’s name. Capital investment program is responsibility of the Lessor.

The Operator was a public entity but the agreement could be used in the context of a lease with a private operator.

The Lease provides for an initial period (Enhanced Monitoring Period) during which asset condition and performance is established and performance standards are set.

Circumstances where this contract may be appropriate:

Where there are sufficient revenues to finance cost of operations and maintenance, a lease fee to the Grantor, abstraction fees to Government and a reasonable return for the Operator. Also only possible in circumstances where Lessor is permitted under law to delegate billing responsibility.

Enhance Monitoring Period will make it easier for an operator to take on the operating risks included in the Lease as asset condition and performance and performance standards will be established during the transition period. Annual Review in the event that the base values used are materially different from those established during Enhanced Monitoring Period.

Drafted for common law/ civil law jurisdiction:

Mixed jurisdiction – could be adapted to either system.

Main Features:

Term (3) – 10 years, extendable/ renewable [some procurement regimes may restrict extensions to contract without further procurement process]. 3.3, 3.4, 53, 54 and 55 contain useful provisions re respective obligations of parties on expiry or termination of Lease.

Service means the supply of Potable Water, Sewerage Services and Sewage treatment and disposal service (1).

Operator with exclusive right (with few exceptions) to provide Service within Operator’s Area (6.1).

Lessor vests all necessary authority and powers in Operator to provide Services (4.1).

Operator to obtain and keep in force all necessary and appropriate licences (4.1(c)). [Lessor to assist Operator on this - 5.3(j)].

Tankered Waste - Operator to receive and treat tankered waste delivered by third parties (6.4). Operator to review tankered waste and Operator and Lessor to review and agree on action to introduce new licensing system, procedure for treatment and disposal of tinkered waste, new charging system – subject to Regulator approval (6.5).

Assets - Lessor to make Assets available to Operator (but there is no transfer in ownership) (5.3(a)). Agreed Physical Asset Register to be established by parties within 12 months of Commencement Date (8.2) New Capital Works to be undertaken by Lessor and then handed over to Operator on completion (8.4)

Operator to enter into customer contracts (12.1) – need to check that local law allows for delegation of billing to Operator and in name of Operator – some laws do not allow for this.

Operator has certain obligations re new connections (12.3)

Codes of Practice – within 12 months parties to agree various codes of practice (13.1).

Minor repair work is responsibility of Operator (16.3). Major repairs and replacements are to be carried out by Operator but clear delineation set out as to responsibility between Lessor and Operator for cost of such repair/ replacement (16.4).

Operator responsible for maintenance of Ocean Outfall (16.5)

Operator to supply meters to all Customers (17.1) – [this may take time if they are not in place at commencement and so timetable and costing should be established].

Cost of installing new connections for water supply (subject to limitations) on Operator (17.3).

Unregistered connections – amnesty (17.4). Declared unregistered connections within amnesty will not be liable for fines or penalties

New connections to Sewerage System (17.7) – at cost of customer – Operator obliged to connect applicants.

Capital Works – Lessor is financially responsible for procurement of works for the Immediate Capital Investment Plan – some of this may be delegated to the Operator (18). Operator responsible for Capital Investment Program Planning (18.2) [there is no provision for excusing the Operator for failure to meet its performance obligations in the event that the Capital Works are not carried out]

Metering (22) – All commercial consumers to be metered within 1 year of commencement. all domestic customers to be metered within 5 years.

Standpipes and water kiosks (23).

Raw Water Sources (25) – Operator to pay abstraction fees.

Pollution by third parties (26.3) – Operator to be reimbursed all costs necessarily incurred in provision of any remedial action requested by

Lessor regarding pollution incident.

Performance standards (27, 28, 29) – as set out in Appendices (which are not attached). Sets out what operator required to do (immediate and non-emergency measures) in circumstances where standards not being met.

Defaults and Penalties – Performance Guarantee (45), Financial penalties (46).

Tariffs (33, 34, 35, 36, 37) – separated into water and sewerage tariffs – based on volume of water used (unless not yet metered). Tariffs set out and indexed as set out in Appendix K (not attached).

Standpipe rate (33.7). Regulatory Levy added to bills (37).

Rental Fee (38.4) – set out in 38.4, as indexed – penalty for operator for failure to pay this (46).

Reviews of Tariffs (40) – Major Review every 6 to 10 years, interim

reviews, annual reviews for specific reasons setout in 40.5

Material Change of Circumstances (41) – gives rise to entitlement for adjustment to tariff – lead to Interim Review.

Non-payment (42) – operator with right to disconnect service in accordance with provisions of customer contract.

Force Majeure (53) – this is a useful provision. It includes power failure over 24 hours – while back-up generation may be available it is useful to include power failure in Force Majeure events if back-up generation does not exist or is limited.

Return of Assets at end of contract (54, 55).

Taxes (63) – responsibility of Operator.

Dispute Resolution (64) – amicable settlement, submission to expert panel (re Operator Tariff, operator performance, application of penalties etc) – not binding but if a party refuses to accept findings it bears costs of panel proceedings (unless regulator, arbitrator etc finds in its favor), regulator (re tariff), arbitration (other than re tariff).

Possible additional provisions that it might be appropriate to include:

Provision as to what should happen in the event that the regulator fails to increase tariffs (unless it is intended that this falls within the material change of circumstances provisions in 41). Will the Government subsidy then increase? Will Operator be guaranteed certain rate of return after payment of Lessor Rental Fee?

What happens in the event that the Lessor fails to implement the Capital Investment Program – are Operator’s obligations reduced? 

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

Regulator – this is only relevant where a regulator has been established prior to contract signature. If not, another body will be required to fulfill this role – this may be a concern for the Operator if tariff setting is in the hands of the lessor, for example.

Provisions of wider general use:

Generally useful document. Particularly useful: -

Force Majeure (51)

Material Change of Circumstances (41)

Responsibilities for Capital Works (18)

Provisions re handover on termination (3.3, 3.4, 53, 54 and 55) contain useful provisions re respective obligations of parties on expiry or termination of Lease

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

Generally good working relationship between Lessor and Operator

Tracking Number:

Water Lease 2