"PPP readiness" in Latin America- A gauge mechanism

“Evaluating the environment for public-private partnerships in Latin America and the Caribbean” is a good article with regard to the “PPP Readiness” in Latin America. Bolivia doesn’t seem to be on this list though, so we can’t really gauge how they’ve changed since Cochabamba. Perhaps if this sort of an analysis had been done beforehand, things might have turned out differently for the project (or the project may even have been scrapped).

One of the key observations I was able to pull from this was that countries that are more developed seem to score higher than ones that are less developed. Economic stability is a driving factor on this list.

It also mentions that centralized states score higher. But is a single government body taking all decisions from their side really the best thing? It probably would be the best thing for the PPP to succeed, but not necessarily the best thing for all the stakeholders involved if they are represented by a single entity. While the model seems to be having success, would the pros outweigh the cons?

(To access the article, go to http://www5.iadb.org/mif/en-us/home/knowledge.aspx and search for “PPP”)

Alandur Case Study

Alandur STP (www.wabag.com)

The STP at Alandur discharges the effluent in to the Adyar River and the sludge to an open dumping site at Palliakaranai (Alandur Sewerage Project: A Success Story of PPP Arrangements by Dr. Mukesh P Mathur). As far as current status goes, the project which included the construction of the STP, pumping station and the piping network was completed by the end of 2001. The 23,000 households that paid for the connection were split and categorized into phases to be connected to the sewer system. This includes  43% of the slum dwellers who opted to pay for separate sewer connections to their houses. As of today, 100% of the community is not connected to the sewer system yet. This is due to two main reasons: (1) the number of households that were willing to pay to be connected to the underground sewer system increased with increase in time, and (2) some of the households have not connected their septic systems to the main sewer, which is regarded as the responsibility of the house owner by the municipality. The O&M of the piping system is overseen by the City ever since the expiry of the contract in 2005. The STP contract with the private sector will expire in 2019.

Alandur STP (www.wabag.com)

The VfM analysis provided at http://toolkit.pppinindia.com/solid-waste-management/module3-rocs-asp7.php?links=asp7 gives a brief overview of why this particular project has been successful so far. For instance, the graded monthly sewerage fee collected by the municipality covers both the debt repayment and the O&M costs. Also, the detailed studies performed by the municipality prior to bidding, reduced any potential for scope creep. This in combination with the payment assurance by the municipality was one of the factors that enabled the successful implementation and operation of this project. 

Follow up on Cochabamba

The paper by Geraldine Dalton discusses the causes for failure of the Cochabamba project where private sector financing was used as a tool to carry out the project. While, the issues which led to the project being scrapped such as the water tariff hikes, terms of privatization, etc were discussed by the author, the passing of Law 2029 boggles my mind. According to Law 2029, the water was made into a State commodity and was exclusively licensed over to ADT. This not only meant people cant draw water from their own private wells, but also cannot collect rain water without a license. In September of 2001, the residents of Cochabamba took control of SEMAPA through La Coordinadora (La Coordinadora de Defensa del Agua y la Vida). The new SEMAPA has so far reduced the water tariffs, built a community water tank in Alto Cochabamba, installed 800 new water connections and connected 400 communities abandoned by the old company to water supply network. I have included an excerpt from the paper regarding the newly formed SEMAPA.

 As an institution, SEMAPA is a model participatory organisation. The company is run with full support and inclusion of its workers and its community rather than by ‘corrupt politicians’ (Shultz, 2001, Harden, 2001). This is achieved through the institutional focus of neighborhood citizens meetings that use local knowledge to prioritize local needs and to help solve water supply problems. Similarly, public hearings are used to define how SEMAPA should develop, and on a weekly TV show the SEMAPA Director Dr. Jorge Alvarado, answers the public's questions and hears their concerns (Barlow, 2001). This approach enables SEMAPA to optimize the financial resources available to it in order to meet social objectives in water provision and maintain and popular support for its operations.There are some constraints on SEMAPA’s continued success. Despite popular support, its affiliation with La Coordinadora has ruled out support from Cochabamba’s political and business elite. They have boycotted the organisation and refused to pay water tariffs (Harden,2001). Apart from loss of revenue, lack of support from this community is detracts from 16 SEMAPA’s institutional credibility. Although progress has been made, Cochabamba’s problems have not been solved. Jorge Cuba, a Bolivian journalist has noted that the city has no more than 5 hours of water a day and only 40% of the farmers in surrounding areas have access to clean water (Cuba, 2000). The true measure of ‘new’ SEMAPA’s potential as an organisation is its capacity to raise finance and address future as well as current water requirements.

Source: Private sector finance for water sector infrastructure: what does Cochabamba tell us about using this instrument? by Geraldine Dalton, Occasional Paper No 37, Water Issues Study Group, School of Oriental and African Studies (SOAS), University of London, September 2001

Increasing share of PPPs in JNNURM

I read this in ET today..... its good news.

The government plans to increase the funding for projects that are carried out via PPP mode under the JNNURM scheme. This is what we were discussing in class the other day- there was earlier little to incentivize the projects via the PPP mode.

Kamal Nath (Urban Development minister) has himself emphasized on the importance of PPP projects in India. Quoting him:"In our next urban renewal mission program, we propose that the central share in the case of PPPs will be enhanced by 20%".

This will be rolled out in phase-2 of the JNNURM. Although it does not guarantee better projects, in my personal view it will lead to increased capital inflows and better employment of technical knowledge.