Shareholders Contract

Document Sample
Shareholders Contract Powered By Docstoc
					   Restructuring Cities for Efficient
          Service Delivery

                        Vivek Srivastava

                        ASCI-WBI Program on
“Strengthening Urban Management - Unlocking the Potential of Indian Cities”
                      Hyderabad January 24 2003
Productive Cities as Centers
         of Growth
               The Context

• A New Global Setting
           Urban Millennium

• A New Management Challenge
     Creating World Class-Cities
 Share of Cities in GNP

Level of        Share of Urban
Development     Areas in GNP
Low-income            55%

Middle-income         73%

High-income           85%
          Important Implication
• Municipal service delivery cannot be seen in
  isolated context;
• How municipal services come together to
  serve the city-economy;
• Managing cities to be credit worthy
• National economic growth and poverty
  reduction efforts will be increasingly
  determined by the productivity of cities and
Models of Urban Governance
       Which Model of City
• Metropolitan Government
• Metropolitan Government with
  Economic Decentralization
• Metropolitan Government with Political
            Key Differences
• In the politically decentralized model, political
  and fiscal power is shared between the
  metropolitan and municipal tier.The
  metropolitan tier and municipalities jointly
  keep each other in check.

• In the economic decentralized model, political
  and fiscal powers resides at the metropolitan
  level. The regions are de-concentrated arms
  of the metro unlike the independent
  municipalities of the first model
• Fiscal and political power is devolved to
  city governments.
• Both models adopt corporate structures
  for the financing and delivery of
  municipal services with user-charges.
• In both models the city has share
  ownership with expected dividends from
  the corporations.
• Danger of political deadlock.
Evaluating Decentralization
 •Political Stability
 •Quality of Public Services
    –Horizontal (inter-state/city)
    –Within state/city
 •Impact of Macro-economic Stability
Issues in Service Delivery
            The Problem
• Chronic poor performance is the rule
  rather than the exception in many
  publicly run municipal services
• Technical losses
• Poor cost recovery
• Subsidies do not reach the poor
      Current Situation - Water
• Technical and commercial losses
     • “filling the leaking bucket”

• 3 hour connectivity

• Poor quality of service

• High coping costs

• Low Tariffs

• Fiscally and financially unsustainable
         The Judge, The Jury and the

          Executioner are the Same!


                             Define the Objectives
                               – 24-hour supply
                               – Clean water
                               – Extended Access
                            • Define the Rules

        Regulation                                           Delivery

   Enforce the Rules                                    Deliver the Service
     – Monitor Compliance                                Play by the Rules
     – Regulate Pricing

• 24 hour delivery
• coverage for by all: geographic and
• quality
• pressure
     Elements of Separation
• Government ownership of some form
  – Public good nature of water
  – Sustainability as a resource: time and quality
  – Attacking poverty
• Business approach to delivery
  – Private good nature of water
  – Demand driven; customer responsive
• Independent regulation
  City Restructuring:
Johannesburg Example
       Johannesburg’s Original
•   4 municipalities and one metro
•   Fragmented: no economies of scale
•   Duplication of service delivery
•   Typical line function responsibility
•   No integrated planning
                    IGOLI 2000
• Program A: Utilities
     • Water and Sanitation, Power Distribution, Waste Management
• Program B: Agencies
     • Roads and Stormwater, Parks and Cemeteries
• Program C: Privatize
     • Metro Gas, Airport, Stadiums, Power Generation
• Program D: Corporatize
     • Zoo, Bus Co., Market, Property and Project
• Program E: Traditional Governance
     • Admin, HR, Planning, Budget, Finance, Community Services,
       Welfare, etc.
             Restructuring of Johannesburg

                       •Spatial Planning
Water & Sanitation     •Fiscal Budget             R1
                       •Local Economy      •Slum-upgrading
                         Delivery          •Primary Health
                                           •Peoples Center


                         Surplus                R11
PSP Options for Service
                 Why PSP?
•   Efficiency
       •   Flexibility in procurement
       •   Appropriate incentives

•   Technology

•   Investment

•   Accountability
    The Basic Options Compared
               Asset                  Capital      Commercial
  Option                 O&M
             Ownership              investment        Risk

Management                                           Public/
              public     private      public
contract                                             Shared

Lease         public     private   Public/private Public/private

Concession    public     private      private        private
Large City Utility
           The potential PPP

• A public asset holding corporation (AHC) with
  – state and municipal shareholders
• A private operating company (PO) with
  – with shareholder agreement with domestic and
    international partners
  – holding a concession contract with AHC
• Appropriate mix of public and private finance
• Appropriate division of risks between AHC and
• A competent autonomous regulator
            State Govt.                           Municipalities

                   Asset Holding Company

                   Service delivery obligations
                   Access by poor
Regulator          Pricing and subsidies
                   Human resource management
                   Investment expansion

                          Operating Company
Medium and Small Towns
       Need of Alternative
       Management Model
• Too big to be managed by communities
  – Large and dense enough to benefit from
    economies of scale offered by piped water
• Too small and dispersed to be managed
  by a conventional utility
           Possible option
• Regional or multi-town utilities
• Advantages
  – Economies of scale in management
  – Minimize transactions costs of contracting
  – Viable volumes of business
      Criteria for Clubbing
• Large enough population base 
  Clusters of 1-2 million
• “Manageable” overall distance
• Within a watershed boundary
• Voluntary or prescribed
  International Examples: UK
• Economies of scale up to population of
  1 million
• 10 large utilities with population of 2-10
• 15 smaller utilities with population base
  of 250,000 to 1.2 million
• Jurisdiction based on watershed
International Examples: France
 • WSS responsibility of Local
 • Voluntary “Syndicates”
 • 15500 undertakings for 37000
   municipalities – 2/3 per grouping
 • SEDIF manages water services for 144
   municipalities and about 4 million
          Regional Utility
          ULBs, State government



           Private sector operator

Town 1            Town 2             Town 3
      Rules of Engagement
• “Top down”: Statutorily create the regions
  and enforce all ULBs to be members e.g.
  England, Scotland
  – Need to ensure compatibility with 74th amendment
• “Bottom up”: Voluntary association e.g.
  – Slow
  – How to create incentives for association?
• Vesting O&M control of water related assets
  by lease (or otherwise) to AHC/AMC
• Share ownership proportional to asset value
• Voting rights possibly allocated on a more
  equitable basis
• State government as shareholder,
  coordinator and arbiter
• Rules of entry and exit
PSP and the Poor
 Current situation: Status of the
• How are the poor being served today?
  – Free water through stand posts and tankers
    (10 -20 lpcd)
  – 15% of population not covered by public
• Is Water Really Free?
  – Poor quality water with adverse health
  – Time, physical energy, drudgery and space
          PSP and the Poor
• A sound and competitively procured PPP will
  benefit the poor through efficiency gains
• In addition, benefits to the poor can be further
  enhanced by specific contractual design
• The Manila example:
   – 600,000 poor connected within two years
   – The poor now consume three times more water at
     half the price
   – The poor now have more time for productive work
     and more living space
     Maximizing the benefits
          for the poor
• Designing Pro-poor Contracts:
  – Service expansion obligations designed to include
    the poor
  – Some form of subsidy (or finance) for one-time
    connection fee
  – Gradual phasing of prices: transition finance
  – Concessionaire responsible for providing water by
    alternative means where private connections are
    not feasible or during a transition period
Thank you

Description: Shareholders Contract document sample