(psp) in the peruvian drinking - Climate Investment Funds

PRIVATE SECTOR PARTICIPATION (PSP) IN
THE PERUVIAN DRINKING WATER
SECTOR: THE ECONOMIC REGULATOR
EXPERIENCE
2011 CIF Partnership Forum Session
“Tapping growth potential in climate change through
innovative partnerships”
José SALAZAR BARRANTES
President
SUNASS – PERÚ
jsalazar@sunass.gob.pe
June 24, 2011 Cape Town, South Africa
CA MacroWatch

INDEX
1. THE PERUVIAN SETTING
2. PSP IN THE PERUVIAN DRINKING WATER AND
SANITATION SECTOR
3. WINDOWS OF OPPORTUNITIES, KEY FACTORS FOR
ATTRACTING PSP, RECOMMENDATIONS FOR
PRIVATE OPERATORS
2

THE PERUVIAN SETTING:
why Peru is so attractive to
3
private investments?

CLEANER ECONOMIC GROWTH WITH SOCIAL-EQUITY
Real Growth Rate
1992-2010 (% year variation )
Opportunity: Investing in water source conservation to sustain its economic growth,
because there is no technological substitute to drinking water.
4

PERU IS THE LARGEST WATER SOURCE IN THE ANDEAN
REGION, BUT….
SUPERFICIE, POBLACIÓN, PBI, Y DISPONIBILIDAD
DE AGUA POR REGIÓN,
año 1996
%
100.0
80.0
60.0
40.0
20.0
0.0
21.8
74.6
70.0
26.0
Cities and industries are
localed in arid lands.
Pacifico Atlántico Titicaca
80.4
17.7
97.7
3.7 4.0 1.9 1.8 0.5
Superficie Poblacion PBI Disponibilidad
de Agua
Mismatch: hydro-map, demo-map and GDP-map. Match: poverty-map, water-sourcesmap,
natural-disaster-map, biodiversity-map. A new social deal is required to armonise
these maps under a governance approach

UNIVERSAL ACCESS TO DRINKING WATER–SANITATION
SUPPLY IN PERU: an opportunity for PPP
NATIONAL COVERING
MILLENIUM
DEVELOPMENT GOALS
Goal 7: Ensure
environmental sustainability
NATIONAL
AGREEMENT
By 2015, reduce by half the
proportion of people without
sustainable access to safe
drinking water
COMMITMENTS
Expansion of the coverage of
drinking water and sanitation
supply.
Improve the drinking water and
sanitation infraestructure
URBAN ZONE
RURAL ZONE
GOVERNMENT
POLICY
13 C
21 C
Fuente: Dirección Nacional de Saneamiento, Marzo 2010
6

� 3,006,478 Drinking water connections � 50
WUC (1,285,348 � SEDAPAL)
� 2,695,480 sewage connections � 50 WUC
(1,221,081 � SEDAPAL)
WUC are classified by size:
Medium
UC; 16%
Big UC; 38%
Small UC;
3%
DRINKING WATER - Informe SANITATION de Gestión 2007-2011
UTILITY COMPANIES (WUC) IN PERU
• 50 WUC UNDER SUNASS REGULATION
WUC Quantity Nº connections
SEDAPAL 1 >1,000,000.
EPS GRANDES 11 40,000 - 200,000.
EPS MEDIANAS 23 10,000 - 40,000.
EPS PEQUEÑAS 15 < 10,000 .
SEDAPAL,
43%
WUC TOTAL 50
SEDAPAL 1
Big UC 12
Medium UC 22
Small UC 15

MEF
MVCS
Other ministries
DNEP DNPP DNS APT
Health Environment
Agreements
Foreign Debt
COLFONAVI
SUNASS
Professional
Association
Chamber of
Commerce
DRINKING WATER – SANITATION SECTOR:
PERUVIAN STAKEHOLDER MAP
Autonomus agencies
& Private Associations
Budget for watersanitation
programmes
Local Debt
Tariff/
Investments
Member of the board
Member of the board
Policy and
Strategic
Planning
Water Utility
Company
(EPS)
Donations,
subsidies
Member of the board
Operation
contract
Quality of
Drinking Water
Local Government
Provincia District
2 Members of the Board
Regional Goverment
Budget
appropiations
Waste Water
Discharges

SUNASS-REGULATOR´s Informe ROLE: de Gestión urban 2007-2011 areas
FUNCTIONS
Controversy and
complaint solutions
Law, regulation,
standards
Tariff Regulation
SUNASS
Auditing and
sanction
Supervision
GOALS-PUBLIC POLICY: Universal access and operator sustainability

ALBERTO FUJIMORI
PRESIDENT
SUPERINTENDENTES-oneperson
May 1994 to january 2001
Appointed wiithout public
tender
There was no Board of
Directors
03 Superintendents
STRONG REGULATORY INSTITUTIONALITY:
THE SUNASS CASE
If you want PSP in the public utilities business, you need a strong regulator..!!
ALEJANDRO TOLEDO
PRESIDENT
Appointed as a result of a public
tender
Board od Directors: 5 experts,
where 4 experts are appointed
without public tender
ALAN GARCIA
PRESIDENT
PRESIDENT-Board-Directors PRESIDENT-Board-Directors
January 2001 to February 2007 February 2007 a February 2012
Appointed as a result of a
public tender
Renovation of each
member of the board by
public tender
SUNASS is an independent, autonomous and meritocratic agency. All members of the
board are chosen after a national public contest, with transparency.

NEW REGULATORY VALUE CREATION APPROACH
FOR ACHIEVING PUBLIC POLICY GOALS WITH EFFICIENCY
GENERATING POLITICAL
CONSENSUS WITH CIVIC
LEADERS IN DRINKING WATER
NEW SOCIAL DEAL (city-rural),
INTER-INTRA-GENERATIONAL
BROKER OF CONFIDENCE
11
BUSINESS-IDENTIFICATION,
FINANCIAL-ENGINEERING,
DEAL MAKER-BREAKER, RISK
MITIGATOR, ANCHOR-ALLY
GOVERNABILITY
ECONOMIC-
FINANCIAL-
EFFICIENCY
ARTICULATION
ENFORCEMENT-ENHANCER,
COACHING-PLAYERS,
BROKER OF CONFIDENCE
ENVIRONMENTAL
CONSERVATION
CONSERVATION-FINANCE,
LEADER-INNOVATION
INVESTMENT-ACCELERATOR,
CREATING-MOMMENTUM,
MATCH-MAKING BUSINESS,
REDUCING TRANSACTION
COSTS

Collecting
Treatment
Storage/
Distribution
Recolection
Disposal
REGULATORY MASTER INSTRUMENT: PLAN MASTER PLAN
IMPROVING BENCHMARKING: indicators of service quality and tariff levels,
subject to financing availability and population-payment-capacity
Management goals
Quality of service
Estimated Supply and Demand
Infrastructure gap
Investment Programme
Technical–Economic Evaluation
Estimated Operational Cost Efficient
Final
Investments
Technical SolutionS
� Sizing
� Efficient costs
� Scheduling
Tariff Formula &
Tariff structure

EVOLUTION OF SUNASS INSTRUMENTS:
INCORPORATING P.E.S. & RESILIENCE PRICES
+
LAW FRAMEWORK
• General law of
drinking water –
sanitation service.
• General Law
Regulation.
• Concepts of master
plan and financing
plan
UTILITY COMPANY
ADAPTATION
• Ordering the
• Implementation of
system tariffs: 1st
phase.
• Conceptual design
of master plan.
• Regulatory
functions
regulation.
MASTER PLAN
STRENGTHENING
• 31 MP approved.
• Payment for
Environmental
Services and
crossed subsides.
• Manual and
planning
Regulatory
Accounting.
• ISO 9001:2008.
• Governability.
• Risk efficient
approaches
1994-2001 2002-2006 2007-2010
+
+
RESILIENCE
• Prospective vision to
30 years for
sustainability of
system, including risk
management and
climate change.
• Improving resources
use of utility
companies including
risk economic value.
• Including in tariff
resilience prices for
natural disasters.
2011 -…..

NEW PARADIGM FOR SUSTAINABLE REGULATION
2+2 = 6
2+2 = 8
2+2 = 10
Ecological economics
Environmental economics
Natural resource economics
Market economy
DD
2+2 = 4 PMO economics
2
2+2 = 12
Industrial ecology
New tools and techniques for valuing eco-services provided by nature
29/06/2011 14 version 1.4.
Eco-good / service
Regulatory
4
6
8

GREENING ECONOMIC REGULATION OF DRINKING WATER AND
SANITATION SERVICES IN PERU
Environmental economics Regulatory economics
Indirect value
Environmental good
Natural water
Environmental service
Water cycle
AVOIDED COST APPROACH
Eco-infraestructurE
Wetlands, manglares,
bofedales, aguajales,
bosques relictos, bosques
secos, pajonales, paramos,
etc.
SUNASS
VALUE
COST
PMO
SUSTAINABLE
TARIFF
Direct value
Economic good
Drinking water
Public service
Potabilization and sanitation
COSTOS EFFICIENT APPROACH
Engineering Infraestructure
Dams, potabilization plants,
networks, pipelines, aquifers
recharge, etc.
Regulator: speaking in different languages (regulatory, legal,
environmental, economic, financial, business, etc.)
15

INSTRUMENT-TOOL AREA OBJETIVES
MASTER PLAN
TARIFF
REGULATION
OFFICE-GRT
INVESTMENT PLAN PRIORIZED AND FINACED FOR 30 YEARS
MODELING TARIFF SCENARIOS DEVELOPED FOR MASTER PLAN.
TARIFF COACHING UTILITY COMPANY STAFF TRAINNING IN MASTER PLAN USE.
CROSS SUBSIDIES POOR PEOPLE EAR-MARKED TARIFF
PAYMENT FOR
ENVIRONMENTAL
SERVICE
UTILITY COMPANY WATER SOURCE CONSERVATION, FLOWS
REGULATION, POLLUTION WATER SOURCE REDUCTION.
REARRANGEMENT SIMPLIFY TARIFFS FOR CONSUMERS
EFFICIENT COSTING
POLLUTION DISCHARGE
TARIFF
REGULATORY
ACCOUNTING
COURT CONCILIATION ADMINISTRATI
VE
VIRTUALS COURTS
COMPLAINT
RESOLUTION
TRIBUNAL-
FILES DIGITALIZATION TRASS
Fuente: Salazar, J. 2009
NEW TOOL BOX …1
INCORPORATING ECONOMIC EFFICIENCY CRITERIA IN UTILITY
COMPANY MANAGEMENT.
PENALIZE TO POLLUTERS AND AWARD TO COMPANIES THAT
TREAT ITS DISCHARGES
GET IN ORDER ITS BOOKKEEPING WITH THE TARIFF MODEL.
STRENGTH THE RELATION AND CONFIDENCE BETWEEN
CONSUMER –UTILITY COMPANY
AT NATIONAL AND VIRTUAL SCOPE, STRENGTH THE RELATION
BETWEEN CONSUMER AND UTILITY COMPANY THROUGH
REGULATOR
TRANSPARENT, REDUCING TRANSACTION-COSTS, ALLOWING
DIRECT ACCESS TO ITS FILE, ON-LINE.
16

INSTRUMENT AREA OBJETIVE
MANAGEMENT AGREEMENT
SUPERVISION &
FISCALIZATION
OFFICE
INCENTIVE GOAL-ACCOMPLISHMENT IN SHORT TERM BEFORE IT IS
PENALIZED
COMMITMENT ACT TOOL FOR GOALS ACCOMPLISHMENT IN LONG TERM.
OPERATION CONTRACT
PROFESSIONAL DIRECTORY
BENCHMARKING
ELECTRONIC NOTIFICATION
STAKEHOLDERS
IDENTIFICATION
THEMATIC LEADERSHIP
MICRO/MACRO-COURT
CONSUMERS
OFFICE
EXECUTING THE TERMS OF THE PROVISION OF PROVINCIAL
MUNICIPALITY AND DEPOLITICIZED.
PROFESSIONAL BOARD OF DIRECTORS FOR A EFFICIENT UTILITY
COMPANY MANAGEMENT
IMPROVE UTILITY COMPANY MANAGEMENT BASED ON COMPARISONS
BETWEEN UTILITY COMPANIES.
SPEED UP REGULATOR RESPONESES TO CONSUMERS AND UTILITY
COMPANIES.
IMPROVE THE RELATION BETWEEN CONSUMERS AND UTILITY
COMPANIES
EMPOWER CIVICS LEADERS IN EACH LOCALITY TO CREATE A DIRECT
LINK BETWEEN CONSUMER AND REGULATOR.
POPULATION INFORMAL APPROVAL OF UTILITY COMPANY MASTER
PLAN AND NEW TARIFF SETTING: LEGITIMACY OF PRICING.
FOCUS GROUP EFFICIENT-DECISIONS BASED ON ACCURATE INFORMATION.
SOCIAL-NETWORKS IN
INTERNET, VIRTUAL FORUMS
CONSUMER COUNCIL NET
NEW TOOL BOX…2
USE NEWS INTERNET SPACES (FACEBOOK, TWITTER) TO CONNECT
CONSUMERS, UTILITY COMPANY AND REGULATOR.
CONECT ORGANIZED CIVIL SOCIETY WITH UTILITY COMPANY AND
REGULATOR, AT MACRO SCALE.
MUNDO SUNASS
ELECTRONIC MAGAZIN
SHARING THE REGULATOR EXPERIENCES WITH STAKEHOLDERS
STAFF, CONSUMER,
UNIVERSITY TRAINING
AQUA EDUCATION
INVOLVE CIVIL SOCIETY, TRAINING WATER LEADERS
17
CULTURAL CHANGE FOCUSED ON CHILDREN, VIA EDUCATION-MINISTRY
Fuente: Salazar, J. 2009

SUNASS GLOBAL ALLIANCES FOR THE XXI CENTURY
INTERNATIONAL
COOPERATION
GOOD IDEAS, GOOD ALLIANCES= SUCCESS
NGO
18
UNITED NATIONS
DEVELOPMENT
BANKS
DRINKING WATER
REGULATORS
18
COOPERATION
SOUTH-SOUTH

PSP IN THE PERUVIAN
DRINKING WATER AND
SANITATION SECTOR: How
SUNASS can create more value
for the user and the operator?
19

KEY FACTORS FOR ATTRACTING PRIVATE OPERATORS
AND INVESTORS IN PERU, a
1.- Sound macro-economic fundamentals: high GDP growth, low inflation, low devaluation,
strong local currency, no fiscal deficit, low debt/GDP ratio, surplus of trade-balance, growing
international reserves and investment grade status (recognized by S&P, Moody`s and Fitch IBCA).
2.- Political stability: 31 years of democracy (from 1980, 7 governments including the new one
starting 2011), poverty reduction and alleviation strategies, descentralisation of power in progress,
human rights enforcement, etc.
3.- Strong regulatory institutionality: the central bank and banking regulators are the best of the
LAC region according to the IMF. The economic-sector-regulators are recognized by its peers as
the model for the region.
4.- Open economy: As Peru has signed FTA (Free Trade Agreements with the USA, China, Japan,
Korea, Singapur, European Union), foreign companies are investing in Peru for exporting. Brasil
decided to join the APEC market using Peru as its bio-oceanic two-way-path, investing in three
continental high-ways and a train.
5.- Regional hub for airlines and sea-shipping: because of its geographical location and pacific
ocean currents, it is reducing transaction costs for doing business (Peru´s raking is No 36 at the
World Bank report). This is capitalised on the IRSA (LAC integration network) strategy, the andean
community integration process, among others.

KEY FACTORS FOR ATTRACTING PRIVATE OPERATORS
AND INVESTORS IN PERU, b
6.- Local capital market expansion: the Lima stock exchange grew 50 times in 20 years and is
integrated with Chile-Colombia, linked to the NYSE; sound pension fund system with US$ 30 billion
eager to invest infrastructure projects.
7. Legislation promoting private participation: PPP law of 2008 and many bilateral investment
treaties in place and tax regimes. Independence of powers for conflict resolution.
8. Mega-biodiversity-ethnic country: It is key for the environmental community, for the foodsecurity-pharmaceutical-tourism
industry, that is supporting humankind survival on planet earth.
9. Regional source of drinking water: The Andean mountains are natural-water-sources, which
generate clean hydro-energy. So to expand Peru-GDP potential is not limited by water-energy.
10. Qualified local professionals: meeting high international standards, hard-workers, knowledge
of intercultural dialogue, good network of contacts, capacity of adaptation to change.
The synergetic combination of these factors is making Peru, the land of opportunities
for PPP (e.g., mining, oil, energy, agro-industry, tourism, tele-com, water, etc.)

HOW PSP CAN CREATE MORE VALUE FOR WATER-
UTILITY-COMPANIES and THE SOCIETY
• Questions for local policy-decision makers:
– Can PSP provide funding for reducing the
infrastructure gap? Can carbon finance catalyze
more capital and reduce transaction costs?
– Can PSP provide management expertise for securing
a top quality of service?
– Can PSP recover the user-citizen confidence on its
water utility company?
– If so, what can we do to maximize this opportunity?
22

Management Types
PSP MODELS FOR PARTICIPATORY-PPP IN PERU
Public Mixed Private
Public company
Autonomus
Public
Administration
(Direct management)
Source: Alonso E., AQUAFED
23
Mixed company
Management contracts
Service contracts
Affremage
Service concession
BOT
Responsibility for investment
Privatization
100%
Delegation to
the private sector (PPP)
Public Mixed Private

THE TIME LINE OF PSP IN THE DRINKING WATER AND SANITATION SECTOR IN PERU
DRINKING
WATER-
SANITATION
REGULATOR
CREATION
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NEW
GOVERNMENT
PROCESS
CANCELLATION
CREATING PRIVATIZATION
COMMITTEE-SEDAPAL
WASHINGTON
CONSENSUS
NEW
GOVERNMENT
SEDAPAL
SELLING
PROPERTY
PRIVATIZACIÓN - P
COMITÉ ESPECIAL DE PROMOCIÓN
DE LA IVERSIÓN PRIVADA EN
SANEAMIENTO (CEPRI)
FAILED
1° GENERATION
ETAPA DE TRANS.
CONCESSION
LIMA PLANT–
AGUA AZUL
NEW
GOVERNMENT
FAILED
GRAU
CONCESSION
CONCESSION
WUC TUMBES
CONCESSION FOR
BUILDING, SERVICE
CONTRACT
PÚBLIC PRIVATE PARTICIPATION - PPP
NEW
GOVERNMENT
2° GENERATION 3° GENERATION
+
MANAGEMENT
CONTRACT WUC GRAU
CONCESSION
LA CHIRA
WWTP
CONCESSION
TABOADA
WWTP
TRASAVE
HUASCACOCHA
CONTRACT-MANAGEMENT
CONTRACT-INVESTMENT
PÚBLIC PRIVATE PARTICIPATION
- PPP
NEW GOVERNMENT

THE CASE OF THE LIMA CITY: PSP OPTIONS
Year Project Mechanism Period Amount Operator
2000 Drinking Water Plant Concession: BOT, 25 US$ 70 Aquazul, Italy
Chillón: 1m3/second sovereign guarantee years
(SG)
MM
2008 Drinking Water Plant Building and 4 US$ 271 Camargo
Huachipa: 5-10 Management years MM Correa-OTV,
m3/second
PIPELINES
+ contract. No SG
Brasil-France
2008 Transvase
Concession: BOT, 20 US$ 70 OAS, Brasil
Huascacocha:
m3/sec
2.8 No SG
years MM
2009 Waste treatment Plant- Concession: BOT, 25 US$ 150 ACS, Spain
Taboada: 14m3/second no SG
years MM
2010 Waste Treatment Plant- Concession: BOT, 25 US$ 120 Acciona,
La Chira: 6.3m3/second no SG
years MM Spain
2010 Commercial services of Management & 3 US$ 150 Aquazul,
the city in 3 parts services, no SG years MM Veolia, Agbar
Because of the WTP-technology there was no carbon credits generation. Now it is
under study a carbon finance scheme for energy efficiency (pumping stations), lower
emissions (WTP), under a national programmatic scheme.
25

INTRODUCING THE PES (payment for hydro-services) INTO
DRINKING WATER TARIFFS IN EPS-MOYOBAMBA, PERU
NATURAL
PROTECTED
AREA
Using avoided cost it was justified the UWC
decision and valuing non tangible benefits to
the users-citizen the tariff was legitimated.
MIGRATORY
AGRICULTURE
RELAVES
MINING
INDUSTRY
Deforestation
SEDIMENTS
AGUAS
RESIDUALES
26
26
Contamination
CARGA
CONTAMINANTE
WASTE
WATER
Increased
Treatment Cost of
Drinking Water
EPS
Reduction of
storage capacity
Higher Tariffs
Lower Quality of Service
In doing so, it is moving from voluntary CUENCA initiative to mandatory revenues, CIUDAD with
reduced transaction costs, catalysing more capital to conservation by
attracting non-traditional partners. Potential for the FIP-CIF.

MATCHING BUSINESS-CYCLES WITH FINANCIAL OPTIONS,
BASED ON 30 YEARS EARMARKED-TARIFF
OPTIMAL FINANCING INFRSTRUCTURE
WASTE WATER PLANTS AND
PIPELINES

IMPROVING THE RISK PROFILE OF WATER PROJECT
FINANCE: THE REGULATOR ROLE POTENTIAL
STAKEHOLDERS RISK REDUCTION MECHANISMS COST
Drinking water
economic regulator:
SUNASS
Economy and
Finance Ministry
(MEF)
IN USE POTENTIAL
- Project ear-marked tariff (EMT).
- PMO-Investment-funds.
- Restauration of the utility-economic-financial
equilibrium.
- Moving performance indicators linked to
investments.
- Monitoring proceedings for performance
indicators.
- Institutional decision: avoiding WUC-default.
- Sovereign guarantee
- Trust funds (S.P.V.) for project-EMT
- Contractual guarantee (last resource for noncommercial
risk)
OPIC, MIGA among
Political risk +++
others
insurance
IADB, WB & CAF Global and partial guarantees +++
COFIDE, Banco-
National partial ++
Nación, INVERSAN
guarantee
Local drinking water
CER: collateral, +
utility
extra-income
Today in Peru, there is no need for traditional-sovereign-guarantee for water project
finance because of the risk mitigation strategy, in place.
+
++
+
+
++
++
+

SUNASS-ROLE IN THE CASE OF ATUSA:
AVOIDING CONTRACT RESOLUTION AND SUPPORTING
THE TAKING OVER BY ANOTHER OPERATOR
The first full-concession to the private sector, where the management was private and
the financing was public. ATUSA in northern Peru, in the city of Tumbes, starting in
2003-bid, ending with contract signed in 2005. ATUSA proposal was aggressive (30%
below the value-baseline) to win the bid, where the state-donors were co-financing the
first five-years to cover the budget, and securing a concessional-loan with grants
component. If successful, it was a model to replicate nation-wide.
This aggressive proposal, never worked out, and the operator did not meet contractual
management goals. Local population, the press, governor and majors were divided, in
favour of and against of while the foreign-operator was . It was not sustainable.
SUNASS to prevent the contract-resolution, made the following:
a) Meeting with financiers (KfW) and authorities (congressmen, majors, governors and
mnisters); b) Identifying 19 new operators and supporting it’s due diligence in the EPS-
WUC with transparency; c) Giving confidence to new operators (letter of intention,
international conference calls, meetings with its financial team, etc.), d) Securing to
stakeholders that the new operator will make it better; e) Approving the tariff-PMO for
the next five-year period, including an investment plan and goals discussed with the
new operator; f) Recognising that is a management rather than concession deal.

SUNASS ROLE IN THREE PSP:
HUASCACOCHA, TABOADA AND LA CHIRA
-Three concession projects (focused in one pipeline from the atlantic watershed, one
WWTP in northern Lima, one WWTP in southern Lima), in the area of operation
Sedapal with an investment of US$ 340 millions.
-In all three cases SUNASS issued its opinion in favour, in relation to technical
characteristics of the project.
-Also evaluated technically all drafts and final liability of the concession contract.
-Approved earmarked-tariff for each project, so that helped with the financial closure of
the operators, with reduced transaction costs.
-Carry out several meetings with operators, investment banks, risk rating agencies,
pension fund managers, Proinversion and banking-pension-funds regulator, to explain
the regulatory model and tools that are securing the sustainability of project finance
and improving its risk profile. The regulator is committed to avoid UWC-default and its
has many instruments as early warning system (e.g., monitoring, supervision), as
freeing cash flow (e.g., deferring investments-goals), as increasing the tariff (e.g., if
there is a good case), that as a package is attractive to anchor investors.
-Huascacocha and Taboada operators raised funding in local currency, at the capital
market with AAA rating for its financial instrument. La Chira financial closure now is in
progress.

CARBON FINANCE IN THE WATER SECTOR
Project Finance Debts
• Independent unit for the project.
• Contractual obligations
• Risk distribution
• Control discipline and management
• Non-traditional extra-income.
• Enhancing promoters-initial-capital value.
• More attractive for green-investors.
• Part of the exit strategy.
• The company is creditworthy.
• Guarantees qualified by the financial regulator.
• Risks and credit costs linked to the enterprise rating.
Clean Development Mechanism
PROJECTS DETAILS-RATIONALE (potential for CIF)
Energy
efficiency
Renewable
energy
Avoided
deforestation
• Non-traditional source of repayment.
• Improving quality of collateral for financiers.
• Freeing capital and collateral for other projects.
• Accessing to green funds with better terms.
- Using cleaner technologies and savers equipment (in computers, printers,
light bulbs, pumping, industrial process) in buildings and facilities in the
water utility value chain.
- Flaring methane generated in waste water treatment plant.
- Biogas generated in waste water treatment plant (methane).
- From wind-farms with PPA-Power Purchase Agreement.
Protecting water sources with reforestation, aforestation, conservation of
watersheds. In doing so, it is securing the WUC-raw-material.

WINDOWS OF OPPORTUNITIES,
RECOMMENDATIONS FOR PRIVATE
OPERATORS: according to the economic
regulator
32

EXPECTED BEHAVIOUR OF PRIVATE
OPERATOR PERFORMANCE: PRINCIPLES
1. ECONOMIC
EFFICIENCY
33
The WUC-private operator duty of efficiency, including, inter alia, to operate a cost efficient and
competitively priced supplies of all types, considering their management of supply alternatives available in
national and international markets. The EPS and the private operator specifically identify cases in which
contracted with related companies and justify that market prices paid. Its operating expenses must be
reasonable and shall be entitled to a reasonable return on their investment.
2. TRANSPARENCY The WUC-private operator must provide, in the form and the deadline set, the information requested by the
Regulator in order to facilitate understanding, analysis and comparison with other sources of information.
3. DUE
DILLIGENCE
This information may be requested from the private operator directly or through the EPS.
The WUC-private operator should exercise care and caution in the management and operation of the
service charge as well as the collection, processing, evaluation and use of information that serves as a
basis for decision-making. Both are required to manage their business in a prudent and reasonable in view
of the sustainability of the company. To this end, respect the rules of art, both technical and financial and
administrative, which indicate the legislation, regulation, instructions Regulatory Agency, and international
best practices on water and sanitation, and sustainability of operating companies.
4. GOOD FAITH The WUC-private operator act in good faith in preparing the proposals, and execution of contracts,
presuming that their performance is due to its good intentions, unless proven otherwise. Your investments
should be useful and usable, according to the principles that public services and the public interest.
Respect and comply with Peruvian law.
5. SOCIAL EQUITY SUNASS implement a policy that allows access to sanitation as many people, promoting social inclusion.
These principles are guiding SUNASS in supporting PPP via coaching, match-making,
cost-reduction, risk-mitigators, accelerating-decisions, approaching local authorities,
fund-raising with anchor investors, etc. (Board Resolution Nº 035-2009-SUNASS-CD)
33

WINDOWS OF OPPORTUNIES FOR PSP IN DRINKING
WATER-SANITATION IN PERU, a
Opportunity Rationale and details
1) Business cycles
with different
timings
2) Watershed
regulation for the
cities and others
3) Project operator
of water funds.
According to each activity, different business cycles emerge: 5 years for
management contracts, 10 years for non-revenue-water reduction, 30 years for
pipelines, WTP, WTP.
Dams and collateral business opportunities, pollution mitigation projects (cleaner
production) that allow reduce pollution and compensate avoid pollution , and
reforestation.
SUNASS has introduced the payment of hidro-service in Moyobamba-EPS-tariff.
So a new breed of watersheds-operators is required to produce “tangible
results” to the water-utility.
Upgrading 70% of Water Treatment Plants, with more than 30 years old, with
4) Technologies for
WTP-overhaul new technology, more compacts, lower costs and higher productivity.
5) Reduction of Some EPS have 60% of NRW, here it is required commercial management,
non-revenue
water, NRW
renewal and rehabilitation of pipelines network, among others.
6) Used water as Waste-TP can produce bio-fertilizers for the export-agro-industry and for
input of an industry expanding the agriculture-frontier as well as industrial process (mining, petrochemicals).
7) Free Trade Export-driven-companies must treat their waste-waters (WTP inside its facilities,
Agreement WTP for a cluster of companies outside its facilities, hire a utility company for
implementation treat its waste water, treat and re-use of its waste water in its “premises”) to
meet international standards.
8) Peru-Brasil Eco-business linked to watershed conservation, can be developed in border

WINDOWS OF OPPORTUNITIES FOR PSP IN
DRINKING WATER-SANITATION IN PERU, b
Opportunity Rationale and details
9) Economic
sectors with water
foot print
10) Universal
access under
SUNASS
11) Universal
access outside
SUNASS
12) Environmental
and Health local
policy
enforcement
13) Funding in the
peruvian capital
market
14) Mining and
Petrochemicals
look for operators
Peru is receiving investments in agroindustry, mining, industry, energy,
petrochemical, among others, which require water-efficiency-production, WTP, for
securing its expansion.
The infrastructure gap is US$ 3.5 billion, which includes know-how transfer, longterm-financing
and new technologies, under SUNASS supervision, with 50 utility
water-companies.
Small cities and urban areas are requiring new technologies for having universal
access to drinking water-sanitation services, at lower prices than urban areas.
Here the funding is coming from state-subsidies (at three levels), internationallocal
donors, users.
Programmes execution in conservation of watersheds, erosion control,
reforestation, exploring new water subterranean, mitigation of pollution in
superficial and subterranean water sources.
The peruvian capital market is buying 15 years papers very easily in local
currency, from the water sector. So new projects funded in local currency, having
pension funds as “escudo” from political risk.
SONAMINPET-bulletin, has identified a US$ 50 billion-project-pipeline, which
require water infrastructure, water equipment, water management. These
companies need to operate 24 hours-day X 365 days-year, and prefer
outsourcing the water provision and management.
15) ADERASA as The working groups of ADERASA (regulators of the Americas) act as incubators,

RECOMMENDATIONS FOR A PRIVATE OPERATOR
INTERESTED IN MAKING BUSSINESS IN PERU, a
1.- Use the peruvian-embassy, peruvian-chamber-commerce in your country to gather
initial information and be part of business missions to Peru. Search at peruvian`s
institutions websites to understand the local setting.
2.- Subscribe to free informative bulletins to receive up dated information about
business opportunities in Peru: energy-mining-chamber-commerce, economic regulators
(e.g. SUNASS/OSINERGMIN/OSITRAN), PROINVERSION, central bank, commercial
banks, MEF, investment banks, research centers, among others.
3.- Search for opportunities using urban-water-utility business plans (named PMO,
available at SUNASS website). If you have identified and opportunity, ask for a videoconference
with SUNASS to verify its viability.
4.- If so, customise your presentation to the water-utility using the PMO as reference.
In this way, your project should have a “turn-key” style. If not, the water-utility manager
could understand that he has to do your job of “tropicalising” your proposal.
5.- Contact the “water-donors-table” that is gathering the donors community
(including regional development banks) that are working in urban and rural areas in Peru.
Rural area´s information is available at the city council, regional government and the
Ministry-MVCS.

RECOMMENDATIONS FOR A PRIVATE OPERATOR
INTERESTED IN MAKING BUSSINESS IN PERU, b
6. Look for concessional funding and/or donations for pre-feasibility studies
(e.g., FASEP in France, PSOM in Holland, PPP in Germany).for covering the initial
transaction costs.
7.- Search for local partners with sound professional experience. Peruvian
corporations are already committed with global corporations, that are operating already
in Peru and you are just arriving.
8.- Do not trust lobbyists for receiving “official endorsements”, for a fee. The
Peruvians authorities decisions are not for sale.
9.- Use SUNASS tariff model for reckoning your project tariff impact, which is
available at wwww.sunass.gob.pe. Here, you can find books, PMO-master plans,
technical documents, papers, among others, free of charge.
10.- Develop an inter-cultural participatory strategy. Peru has been decentralized
the power and the budget-decisions are located at regional level, with strong local
leadership.

PRIVATE SECTOR PARTICIPATION (PSP) IN
THE PERUVIAN DRINKING WATER
SECTOR: THE ECONOMIC REGULATOR
EXPERIENCE
2011 CIF Partnership Forum Session
“Tapping growth potential in climate change through
innovative partnerships”
José SALAZAR BARRANTES
President
SUNASS – PERÚ
jsalazar@sunass.gob.pe
June 24, 2011 Cape Town, South Africa
CA MacroWatch