Docstoc

Shareholders Contract

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

                        Vivek Srivastava
                            WSP-SA

                        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
  towns
Models of Urban Governance
       Which Model of City
         Governance?
• Metropolitan Government
• Metropolitan Government with
  Economic Decentralization
• Metropolitan Government with Political
  Decentralization
            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
             Similarities
• 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
 •Equity
    –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
                   Why?
         The Judge, The Jury and the
                                  .

          Executioner are the Same!

                                    Policy




                             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
                Goals

• 24 hour delivery
• coverage for by all: geographic and
  household
• 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
             Structure
•   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
                       Metropolitan
                       Government

                       •Spatial Planning
Water & Sanitation     •Fiscal Budget             R1
                       •Local Economy      •Slum-upgrading
     Waste
                         Delivery          •Primary Health
                                           •Peoples Center
    Electricity
                         Contract
                                                R2
        IT

                          Fiscal

                         Surplus                R11
Transport/Roads
PSP Options for Service
      Delivery
                 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
  PO
• A competent autonomous regulator
            State Govt.                           Municipalities
                               shareholders

                   Asset Holding Company

                                  contrac
                                  t
                   Service delivery obligations
                   Access by poor
Regulator          Pricing and subsidies
                   O&M
                   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
    systems
• 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
  million
• 15 smaller utilities with population base
  of 250,000 to 1.2 million
• Jurisdiction based on watershed
  boundaries
International Examples: France
 • WSS responsibility of Local
   Governments
 • Voluntary “Syndicates”
 • 15500 undertakings for 37000
   municipalities – 2/3 per grouping
 • SEDIF manages water services for 144
   municipalities and about 4 million
   customers
          Regional Utility
              Shareholders:
          ULBs, State government


         ASSET HOLDING COMPANY


                 Contract

           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.
  France
  – Slow
  – How to create incentives for association?
              Governance
• 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
              poor
• How are the poor being served today?
  – Free water through stand posts and tankers
    (10 -20 lpcd)
  – 15% of population not covered by public
    system
• Is Water Really Free?
  – Poor quality water with adverse health
    implications
  – Time, physical energy, drudgery and space
    costs
          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

				
DOCUMENT INFO
Description: Shareholders Contract document sample