private sector participation in developing...

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Private sector participation Private sector participation in developing countriesin developing countries

Sandra Sandra CointreauCointreauWorld Bank, Solid Waste AdvisorWorld Bank, Solid Waste Advisor

Why the interest in private sector Why the interest in private sector participation?participation?

ll Investment from private sector Investment from private sector llNeeded due to limits in govt. Needed due to limits in govt.

CapitalCapital

ll Efficiency driven by competitionEfficiency driven by competition

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Reasons for private sector efficiency?Reasons for private sector efficiency?

ll Accountable to customersAccountable to customersll Competition and contestabilityCompetition and contestabilityll Clear performance measures specifiedClear performance measures specifiedll Management flexibility Management flexibility ll To hire qualified staffTo hire qualified staffll To pay according to performanceTo pay according to performancell To terminate staff for nonTo terminate staff for non--performanceperformancell To adjust work hours for service demandTo adjust work hours for service demand

Reasons for private sector efficiency?Reasons for private sector efficiency?

ll Freedom from bureaucracyFreedom from bureaucracyll To obtain parts for repairsTo obtain parts for repairsll To lease equipment as neededTo lease equipment as neededll To subcontract to meet demand peaksTo subcontract to meet demand peaks

ll Freedom from political whimFreedom from political whimll To optimize ratio of professional to operational staffTo optimize ratio of professional to operational staffll To fully apply resources to only serviceTo fully apply resources to only service

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Hidden costs of government serviceHidden costs of government service

ll Depreciation of assets (buildings and Depreciation of assets (buildings and equipment)equipment)

ll Debt service on capital investment utilities and Debt service on capital investment utilities and infrastructure servicesinfrastructure services

ll Replacement versus insuranceReplacement versus insurancell Seconded staffSeconded staffll Administration overheadAdministration overheadll Social benefits (vacation, pension, medical) Social benefits (vacation, pension, medical)

Extra costs to the private sectorExtra costs to the private sector

ll Marketing, political manipulationMarketing, political manipulationll Debt service on borrowing for capital and cash Debt service on borrowing for capital and cash

flowflowll Customs duties and taxesCustoms duties and taxesll Income taxesIncome taxesll Insurance and registrationInsurance and registrationll Costs of corruption (expediting payments, Costs of corruption (expediting payments,

company registration, parts importation)company registration, parts importation)

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Which activities are suitable for the Which activities are suitable for the private sector ?private sector ?

ll Data collection and Data collection and planningplanning

ll ManagementManagement

ll Revenue collectionRevenue collection

ll AccountingAccounting

ll Performance monitoringPerformance monitoring

ll Repair and Repair and maintenancemaintenance

ll Street sweepingStreet sweeping

ll Drain cleaningDrain cleaning

ll Refuse collectionRefuse collection

ll Transfer and Transfer and transporttransport

ll Resource recoveryResource recovery

ll Materials recyclingMaterials recycling

ll Sanitary landfillSanitary landfill

Methods of private sector Methods of private sector participationparticipation

ll Private/public partnershipPrivate/public partnership -- joint venturejoint venturell Contract Contract -- service or managementservice or managementll FranchiseFranchise –– exclusive zonal monopolyexclusive zonal monopolyll ConcessionConcession –– design, build, own, and operatedesign, build, own, and operatell Private subscriptionPrivate subscription –– open competition for open competition for

customerscustomers

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What is a private/public partnership?What is a private/public partnership?

ll Joint venture of Joint venture of government and the government and the private sector private sector ll Cost and profit sharingCost and profit sharingll Government provides Government provides

existing assets (land, existing assets (land, buildings, or equipment) to buildings, or equipment) to partnershippartnership

ll Private sector promises to Private sector promises to make investments and make investments and provide technical and provide technical and management expertisemanagement expertise

TrivandumTrivandum, India, 2002, India, 2002

Private/public partnership optionsPrivate/public partnership options

ll Transfer, disposal, Transfer, disposal, treatment, recycling, treatment, recycling, resource recovery, resource recovery, or fleet maintenance or fleet maintenance facilitiesfacilities

ll Collection servicesCollection services

ll Dumpsite Dumpsite remediationremediation

Surabaya, Indonesia, 1994Surabaya, Indonesia, 1994

Riga, Riga, Latvia, 1994Latvia, 1994

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Dumpsite Closure PartnershipDumpsite Closure Partnershipll City provides City provides

dumpsite property dumpsite property rights for private rights for private developmentdevelopment

ll Private sector Private sector reclaims land, builds reclaims land, builds housing for housing for scavengers, builds scavengers, builds solid waste treatment solid waste treatment plant, creates new plant, creates new commercial commercial developmentsdevelopments

Manila, the Philippines, 1993Manila, the Philippines, 1993

Private/public partnership issuesPrivate/public partnership issues

ll Limits contestability between government and Limits contestability between government and the private sectorthe private sector

ll Difficult for government to sanction itself (as a Difficult for government to sanction itself (as a partner) if there is poor performancepartner) if there is poor performance

ll Difficult to end the partnershipDifficult to end the partnership

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What is a contract?What is a contract?

ll Firm given contract with specified outputs to Firm given contract with specified outputs to manage or provide servicemanage or provide servicell Government pays contractorGovernment pays contractor

ll Contract period established to enable cost Contract period established to enable cost recovery for investment recovery for investment ll Depreciation period is typical length of contractDepreciation period is typical length of contract

Contracting optionsContracting options

ll Solid waste collection service within a given Solid waste collection service within a given zonezone

ll Maintenance and repair of fleetMaintenance and repair of fleet

ll Operation of transfer stations, resource Operation of transfer stations, resource recovery facilities, or sanitary landfillsrecovery facilities, or sanitary landfills

ll Performance monitoringPerformance monitoring

ll BillingBilling

ll Design, build and operate contract for a Design, build and operate contract for a specific facility, such as a transfer station or specific facility, such as a transfer station or landfilllandfill

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ContractsContracts

ll Clear deliverablesClear deliverablesll Service qualityService quality

ll Service frequencyService frequency

ll Equipment normsEquipment norms

ll Crew size Crew size

ll Length of shiftLength of shift

ll Days of workDays of work

ll Government hires Government hires and pays and pays

Bangalore, Bangalore, India, 2001India, 2001

Lahore, Lahore, Pakistan, Pakistan, 19951995

ContractsContracts

Mauritius, transfer Mauritius, transfer station operation, 1998station operation, 1998

KukkattpallyKukkattpally, India, Women, India, Women--owned society, 2001owned society, 2001

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Contracting issuesContracting issues

ll Studies in hundreds of cities in UK, USA and Studies in hundreds of cities in UK, USA and Canada showed contracting is the most costCanada showed contracting is the most cost--effective form of private sector involvementeffective form of private sector involvement

ll Contracting involves serving all customers within Contracting involves serving all customers within a contract zone a contract zone -- government must have the government must have the financial means of covering the full costfinancial means of covering the full cost

What is a franchise? What is a franchise?

ll Firm given exclusive monopoly in a Firm given exclusive monopoly in a specified zone to provide servicespecified zone to provide servicell Users pay directly to the firmUsers pay directly to the firm

ll Government receives a franchise fee Government receives a franchise fee (percent of gross revenues)(percent of gross revenues)

ll Government specifies service delivery Government specifies service delivery standards and monitors performance standards and monitors performance

ll Government establishes annual tariff Government establishes annual tariff structurestructure

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Franchise optionsFranchise options

ll Solid waste collection service within an Solid waste collection service within an exclusive zone, as they sign up to pay exclusive zone, as they sign up to pay for servicefor servicell To residents and commercial/industrial To residents and commercial/industrial

establishmentsestablishmentsll To all commercial/industrial establishmentsTo all commercial/industrial establishmentsll For special wastes, such as For special wastes, such as

construction/demolition debrisconstruction/demolition debris

ll User charge collection within an User charge collection within an exclusive zone (in case of government exclusive zone (in case of government service)service)

Collection franchiseCollection franchise

ll Franchisee has exclusive Franchisee has exclusive service zoneservice zone

ll Specify deliverablesSpecify deliverablesll Customers pay Customers pay

franchisee directlyfranchisee directlyll Government manages Government manages

tariff structure and tariff structure and inspects service deliveryinspects service delivery

ll Franchise performance Franchise performance can be tied to increased can be tied to increased numbers of customers numbers of customers annuallyannually

Accra, Ghana, 1996Accra, Ghana, 1996

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Franchise issuesFranchise issuesll Suitable where customers would not be Suitable where customers would not be

willing to pay user charges to willing to pay user charges to government or would be willing to pay government or would be willing to pay more to the private sectormore to the private sector

ll Suitable where the fee for service needs Suitable where the fee for service needs to be determined for each customerto be determined for each customer

ll Franchise must be long enough for Franchise must be long enough for depreciation of assets depreciation of assets and and development development of a good cost recovery relationship with of a good cost recovery relationship with customerscustomers

What is a concession?What is a concession?

ll Firm given exclusive access to handle/process a Firm given exclusive access to handle/process a governmentgovernment--owned resource (or waste) at a owned resource (or waste) at a specified facility specified facility ll Users pay tipping fee to firmUsers pay tipping fee to firm

ll Revenues to firm from marketing productsRevenues to firm from marketing products

ll Private sector finances and owns facility for a Private sector finances and owns facility for a longlong--term periodterm period

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Concession optionsConcession optionsll Design, build, own, Design, build, own,

and operate major and operate major facilities, such as solid facilities, such as solid waste transfer stations, waste transfer stations, disposal sites, disposal sites, recycling and resource recycling and resource recovery facilitiesrecovery facilities

ll Transfer of ownership Transfer of ownership possible, if desired, possible, if desired, after a fixed after a fixed concession periodconcession period

Hong Kong, transfer station, 1992Hong Kong, transfer station, 1992

Jakarta, Indonesia, transfer station, 1993Jakarta, Indonesia, transfer station, 1993

Transfer, treatment, and disposal Transfer, treatment, and disposal concessionsconcessions

ll Careful specification Careful specification of deliverables and of deliverables and replacement/renewareplacement/renewal requirementsl requirements

ll ““Take or payTake or pay””agreement where agreement where government pays government pays tipping fees to cover tipping fees to cover all or part of costsall or part of costs

Hyderabad, India, refuseHyderabad, India, refuse--derived fuel pellets, 2001derived fuel pellets, 2001

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What is private subscription?What is private subscription?

ll Multiple firms licensed to Multiple firms licensed to compete freely for service compete freely for service to customers to customers ll Users pay directly to firmsUsers pay directly to firms

ll Government establishes Government establishes service delivery standards service delivery standards and monitors performanceand monitors performance

ll Government licenses firms Government licenses firms and retains right to revoke and retains right to revoke licenseslicenses

ll Firms pay government a Firms pay government a license feelicense fee

South Korea, Hazardous South Korea, Hazardous Waste Treatment and Waste Treatment and Disposal, 1990Disposal, 1990

Private subscription optionsPrivate subscription optionsll Solid waste collection service Solid waste collection service

to large commercial and to large commercial and industrial establishmentsindustrial establishments

ll Collection of special wastes Collection of special wastes (such as biomedical, (such as biomedical, construction/demolition, construction/demolition, hazardous wastes) hazardous wastes)

ll Solid waste disposal and/or Solid waste disposal and/or treatmenttreatment

ll Redemption centers for Redemption centers for recyclablesrecyclables

ll Fleet maintenance and repair Fleet maintenance and repair workshopsworkshops

Bangalore, India, Biomedical Bangalore, India, Biomedical Waste Treatment, 2001Waste Treatment, 2001

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Private subscriptionPrivate subscription

Accra, Ghana, household Accra, Ghana, household collection, 1997collection, 1997 Manila, the Philippines, Manila, the Philippines,

medical waste incinerator, 1996medical waste incinerator, 1996

Private subscription issuesPrivate subscription issues

ll Not costNot cost--effective for residential effective for residential collection service, except in small collection service, except in small communities, because of communities, because of ““lack of lack of contiguitycontiguity””of routesof routes

ll Involves licensing of private operatorsInvolves licensing of private operators

ll Requires good regulatory framework, Requires good regulatory framework, service rules and performance service rules and performance monitoring of licensed operatorsmonitoring of licensed operators

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Disposal private subscriptionDisposal private subscription

ll Open competition among Open competition among privately owned privately owned municipal and hazardous municipal and hazardous waste landfills is waste landfills is common in highcommon in high--income income countries, where strong countries, where strong regulation controls regulation controls landfill standardslandfill standards

ll Municipalities transfer Municipalities transfer waste to the landfill that waste to the landfill that gives the best dealgives the best deal

Washington, USA, sanitary Washington, USA, sanitary landfill, 1991landfill, 1991

Guidelines for private sector Guidelines for private sector participationparticipation

ll Build local capacity to develop technical Build local capacity to develop technical specifications, tender competitively, and specifications, tender competitively, and comparatively monitor performancecomparatively monitor performance

ll Build local capacity to provide contestable Build local capacity to provide contestable government servicegovernment service

ll Build local capacity to generate revenues and Build local capacity to generate revenues and operate as an accountable cost center operate as an accountable cost center

ll Quantify outputs to enable comparative performance Quantify outputs to enable comparative performance monitoringmonitoring

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ll Separate agreements for separate activities Separate agreements for separate activities to obtain expertiseto obtain expertise

ll Competitive, transparent procurement and Competitive, transparent procurement and multiple firms to obtain efficiencymultiple firms to obtain efficiency

ll Agreements that are long enough to allow full Agreements that are long enough to allow full depreciation of investmentdepreciation of investment

ll Agreements that are large enough to allow Agreements that are large enough to allow economies of scaleeconomies of scale


ll Agreements that are small enough to Agreements that are small enough to ensure contestability, enable the ensure contestability, enable the participation of small to medium sized participation of small to medium sized businesses, and allow decentralized businesses, and allow decentralized monitoringmonitoring

ll Agreements that are price indexed to allow Agreements that are price indexed to allow adequate cash flow and continuous adequate cash flow and continuous profitabilityprofitability

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ll Sanctions in agreements that discourage Sanctions in agreements that discourage nonnon--performanceperformance

ll Worker safety and environmental Worker safety and environmental requirements specified in agreementsrequirements specified in agreements

ll No unlicensed, uncontrolled private sector No unlicensed, uncontrolled private sector involvement allowedinvolvement allowed

ll Legal, regulatory framework to create a level Legal, regulatory framework to create a level playing field and require public cooperationplaying field and require public cooperation

Essential to Success: Essential to Success: audit, monitor, audit, monitor,

inspectinspect

Casablanca, Morocco, 1995Casablanca, Morocco, 1995

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CCompetitionompetitionAAccountabilityccountability

TTransparency ransparency

Document and Film available at:Document and Film available at:

http://www.worldbank.org/urban/uswmhttp://www.worldbank.org/urban/uswm

Thank you for your private participationThank you for your private participation !!

private sector participation in developing...

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