2005 - 2006 - Pinsent Masons Water Yearbook 2012

PART 4: APPENDIX 2: PRIVATE SECTOR PARTICIPATION
The municipality controls the assets, while the private sector controls their operation. Risk
elements start emerging, with the private sector now dealing directly with the customers, and
thus this can be the focus of discontent. Examples include: water and sewerage management in
urban areas of Guinea (SEEG, Bouygues/Veolia) and water services for Dakar and other major
urban areas of Senegal (DSE, Bouygues).
BOOT/BOT/BOO concession
Time horizon 10-30 years, up to 95 Ownership Public
Customer Govt/Municipal Investment Private
Cash flow profile Pay on completion Operation Private
Construction risk High Tariff collection Public
Regulatory risk Low
Asset ownership under the three concession types
BOO Build Own Operate Concessionaire retains ownership of assets
permanently
BOT Build/Operate/Transfer Hands over assets at end of concession, never
having owned them
BOOT Build Own Operate Transfer Hands over ownership of assets at end of
concession
Concession contracts call for a full understanding of the financial risks involved with the project.
These concession contracts can be regarded as the classic water privatisation model. Examples
include: water treatment BOO for Riverland (Australia, United Utilities) and a sewage treatment
works BOOT for Puerto Vallarta (Mexico, Biwater). The UK’s Private Finance Initiative sewage
treatment contracts are being awarded on a BOT basis.
In many cases, the concession award takes place with the splitting of the water and sewerage
entity into a service provision entity and an asset owning entity. The concession winner gains
control of at least a significant proportion of the service provision entity’s equity, along with
management control. The municipality in turn retains at least a controlling stake in the asset
owning entity. The latter entity is subsequently responsible for the extant assets and new assets
are vested into this entity at an agreed date.
Full utility concession
Time horizon 20-30 years Ownership Public
Customer Retail Customer Investment Private
Cash flow profile Subject to market risk Operation Private
Construction risk Low Tariff collection Private
Regulatory risk High if politics volatile
In this case, the private sector is allowed to get on with upgrading and operating the services,
while developing new assets for handing over to the municipalities in the longer term. There
have been mixed results to date, but some outstanding successes such as Metro Manila in the
Philippines. Examples include: water and sewerage operations for Buenos Aires (Argentina,
Aguas Argentinas) and water provision for Malacca (Malaysia, VE).
Asset sale
Time horizon In perpetuity Ownership Private
Customer Retail Customer Investment Private
Cash flow profile Subject to market risk Operation Private
Construction risk Very low Tariff collection Private
Regulatory risk Very high
378 Pinsent Masons Water Yearbook 2005-2006