Private sector participation in developing countries

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1 Private sector participation in developing countries Sandra Cointreau World Bank, Solid Waste Advisor Why the interest in private sector participation? Investment from private sector Needed due to limits in govt. Capital Efficiency driven by competition 1

2 Reasons for private sector efficiency? Accountable to customers Competition and contestability Clear performance measures specified Management flexibility To hire qualified staff To pay according to performance To terminate staff for non-performance To adjust work hours for service demand Reasons for private sector efficiency? Freedom from bureaucracy To obtain parts for repairs To lease equipment as needed To subcontract to meet demand peaks Freedom from political whim To optimize ratio of professional to operational staff To fully apply resources to only service 2

3 Hidden costs of government service Depreciation of assets (buildings and equipment) Debt service on capital investment utilities and infrastructure services Replacement versus insurance Seconded staff Administration overhead Social benefits (vacation, pension, medical) Extra costs to the private sector Marketing, political manipulation Debt service on borrowing for capital and cash flow Customs duties and taxes Income taxes Insurance and registration Costs of corruption (expediting payments, company registration, parts importation) 3

4 Which activities are suitable for the private sector? Data collection and planning Management Revenue collection Accounting Performance monitoring Repair and maintenance Street sweeping Drain cleaning Refuse collection Transfer and transport Resource recovery Materials recycling Sanitary landfill Methods of private sector participation Private/public partnership - joint venture Contract - service or management Franchise exclusive zonal monopoly Concession design, build, own, and operate Private subscription open competition for customers 4

equipment) to partnership Private sector promises to make investments and provide technical and management expertise Trivandum,

5 What is a private/public partnership? Joint venture of government and the private sector Cost and profit sharing Government provides existing assets (land, buildings, or equipment) to partnership Private sector promises to make investments and provide technical and management expertise Trivandum, India, 2002 Private/public partnership options Transfer, disposal, treatment, recycling, resource recovery, or fleet maintenance facilities Collection services Dumpsite remediation Surabaya, Indonesia, 1994 Riga, Latvia,

Dumpsite Closure Partnership City provides dumpsite property rights for private development Private sector reclaims land, builds housing for scavengers, builds solid waste treatment plant, creates

6 Dumpsite Closure Partnership City provides dumpsite property rights for private development Private sector reclaims land, builds housing for scavengers, builds solid waste treatment plant, creates new commercial developments Manila, the Philippines, 1993 Private/public partnership issues Limits contestability between government and the private sector Difficult for government to sanction itself (as a partner) if there is poor performance Difficult to end the partnership 6

7 What is a contract? Firm given contract with specified outputs to manage or provide service Government pays contractor Contract period established to enable cost recovery for investment Depreciation period is typical length of contract Contracting options Solid waste collection service within a given zone Maintenance and repair of fleet Operation of transfer stations, resource recovery facilities, or sanitary landfills Performance monitoring Billing Design, build and operate contract for a specific facility, such as a transfer station or landfill 7

8 Contracts Clear deliverables Service quality Service frequency Equipment norms Crew size Length of shift Days of work Government hires and pays Bangalore, India, 2001 Lahore, Pakistan, 1995 Contracts Mauritius, transfer station operation, 1998 Kukkattpally, India, Women- owned society,

9 Contracting issues Studies in hundreds of cities in UK, USA and Canada showed contracting is the most cost- effective form of private sector involvement Contracting involves serving all customers within a contract zone - government must have the financial means of covering the full cost What is a franchise? Firm given exclusive monopoly in a specified zone to provide service Users pay directly to the firm Government receives a franchise fee (percent of gross revenues) Government specifies service delivery standards and monitors performance Government establishes annual tariff structure 9

10 Franchise options Solid waste collection service within an exclusive zone, as they sign up to pay for service To residents and commercial/industrial establishments To all commercial/industrial establishments For special wastes, such as construction/demolition debris User charge collection within an exclusive zone (in case of government service) Collection franchise Franchisee has exclusive service zone Specify deliverables Customers pay franchisee directly Government manages tariff structure and inspects service delivery Franchise performance can be tied to increased numbers of customers annually Accra, Ghana,

11 Franchise issues Suitable where customers would not be willing to pay user charges to government or would be willing to pay more to the private sector Suitable where the fee for service needs to be determined for each customer Franchise must be long enough for depreciation of assets and development of a good cost recovery relationship with customers What is a concession? Firm given exclusive access to handle/process a government-owned owned resource (or waste) at a specified facility Users pay tipping fee to firm Revenues to firm from marketing products Private sector finances and owns facility for a long-term period 11

Concession options Design, build, own, and operate major facilities, such as solid waste transfer

possible, if desired, after a fixed concession period Hong Kong, transfer station, 1992 Jakarta,

specification of deliverables and replacement/renewa l requirements Take or pay agreement where

12 Concession options Design, build, own, and operate major facilities, such as solid waste transfer stations, disposal sites, recycling and resource recovery facilities Transfer of ownership possible, if desired, after a fixed concession period Hong Kong, transfer station, 1992 Jakarta, Indonesia, transfer station, 1993 Transfer, treatment, and disposal concessions Careful specification of deliverables and replacement/renewa l requirements Take or pay agreement where government pays tipping fees to cover all or part of costs Hyderabad, India, refuse- derived fuel pellets,

licenses firms and retains right to revoke licenses Firms pay government a license fee South Korea, Hazardous Waste Treatment and Disposal, 1990 Private subscription options Solid

13 What is private subscription? Multiple firms licensed to compete freely for service to customers Users pay directly to firms Government establishes service delivery standards and monitors performance Government licenses firms and retains right to revoke licenses Firms pay government a license fee South Korea, Hazardous Waste Treatment and Disposal, 1990 Private subscription options Solid waste collection service to large commercial and industrial establishments Collection of special wastes (such as biomedical, construction/demolition, hazardous wastes) Solid waste disposal and/or treatment Redemption centers for recyclables Fleet maintenance and repair workshops Bangalore, India, Biomedical Waste Treatment,

except in small communities, because of lack of contiguity of of routes Involves licensing of private

14 Private subscription Accra, Ghana, household collection, 1997 Manila, the Philippines, medical waste incinerator, 1996 Private subscription issues Not cost-effective for residential collection service, except in small communities, because of lack of contiguity of of routes Involves licensing of private operators Requires good regulatory framework, service rules and performance monitoring of licensed operators 14

Disposal private subscription Open competition among privately owned municipal and hazardous waste landfills is common in high-income income countries, where strong regulation controls landfill

15 Disposal private subscription Open competition among privately owned municipal and hazardous waste landfills is common in high-income income countries, where strong regulation controls landfill standards Municipalities transfer waste to the landfill that gives the best deal Washington, USA, sanitary landfill, 1991 Guidelines for private sector participation Build local capacity to develop technical specifications, tender competitively, and comparatively monitor performance Build local capacity to provide contestable government service Build local capacity to generate revenues and operate as an accountable cost center Quantify outputs to enable comparative performance monitoring 15

16 Guidelines for private sector participation Separate agreements for separate activities to obtain expertise Competitive, transparent procurement and multiple firms to obtain efficiency Agreements that are long enough to allow full depreciation of investment Agreements that are large enough to allow economies of scale Guidelines for private sector participation Agreements that are small enough to ensure contestability, enable the participation of small to medium sized businesses, and allow decentralized monitoring Agreements that are price indexed to allow adequate cash flow and continuous profitability 16

Guidelines for private sector participation Sanctions in

environmental requirements specified in agreements No unlicensed,

framework to create a level playing field and require public

17 Guidelines for private sector participation Sanctions in agreements that discourage non-performance Worker safety and environmental requirements specified in agreements No unlicensed, uncontrolled private sector involvement allowed Legal, regulatory framework to create a level playing field and require public cooperation Essential to Success: audit, monitor, inspect Casablanca, Morocco,

18 Competition Accountability Transparency Document and Film available at: Thank you for your private participation! 18

Yanino Waste Processing Plant City of St. Petersburg

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