2005 - 2006 - Pinsent Masons Water Yearbook 2012

PART 4: APPENDIX 2: PRIVATE SECTOR PARTICIPATION
Problems of public perception and changes in regulatory priorities have meant that, with the
exception of Chile and two companies in the Czech Republic, the ‘British model’ (as asset sales
have been dubbed), has not been copied abroad. In the USA, companies developed the assets
in the first place.
The ‘British’, ‘French’ and ‘German’ models
The World Bank calls delegated water management, through concession awards, the ‘French
model.’ The ‘French model’ is typically used to contrast it with the ‘British Model’ of asset sales.
In fact, the real ‘French Model’ is the Affermage lease as traditionally used in private sector
contracts in France. To make matters more complex, there is a recent tendency to refer to the
‘German Model’ as well. This approach is where the operating assets are corporatised and a
minority of the shares in the asset-holding company are held by one or more private sector
companies, who in turn operate the concession. This is known as the ‘Kooperationmodel’ or the
‘German Model’. A further variant of the ‘German Model’ is the ‘Beteribermodell’, where the
private sector operator pays a fixed rate for the right to operate the water or sewerage services.
The ‘Kooperationmodel’ probably best describes the majority of concession contracts.
The models compared:
Name Description Examples
British Model Asset sale UK Water Plcs
French Model 1 Affermage lease Suez/VE/SAUR (home)
French Model 2 Concession Suez/VE/SAUR (international)
German Model 1 Kooperationmodel Berliner Wasser (VE/RWE)
German Model 2 Beteribermodell Gelsenwasser
Generally speaking, the confusion caused by these names and the contracts that they refer to
highlights the need for globally agreed definitions of contract types. They ought not to play a
significant role outside discussions about privatisation approaches and philosophies.
The popularity of each approach
The table below is based upon water and sewerage privatisation awards, identified by the World
Bank in developing economies during the first eight years of the 1990s.
Private participation in water and sewerage in developing countries, by contract type, 1990–97:
(US$ million) Projects Total investment
Concessions 50% 80%
Divestiture 6% 4%
Greenfield 31% 16%
Operations and management 13% 0%
It is understood that the O&M entry in the above table includes lease contracts. While there are
many of these contracts, the lack of private sector investment involved highlights their role as a
partial privatisation that does not mobilise new sources of private sector investment. The
experience to date, especially in developing economies, suggests that O&M and lease contracts
are becoming a stepping stone towards concession awards at a later date or will continue to be
used to address specific areas of concern, especially when linked with aid finance and loans
from multilateral institutions. Greenfield operations are typically of a site specific nature,
involving the construction of a water or sewage treatment facility, as seen in the UK’s PFI. In
recent years, a number of Greenfield contracts have been awarded in areas earmarked to
become new housing or industrial zones. This approach has had some popularity in the
Philippines. Divestitures have been seen to date in Chile. Given the confusion between contract
types, it is not perhaps worthwhile to classify the concession contract types more specifically.
Nevertheless, the concession approach, allied with the splitting of water and sewerage entities
into operating and asset holding companies is becoming the favoured approach towards water
privatisation in many countries.
379 Pinsent Masons Water Yearbook 2005-2006