Public Private Partnerships (PPP)

A consumer inserts her token in the Grundfos LIFELINK water kiosk, Kenya. Photo: PPP for Rural Water Services, Briefing Note No. 4

Action for Access: Public-Private
Finance in Water and Sanitation

The public sector might not be able to cope with the challenges regarding sanitation and water management and therefore cooperates with the private sector through a "partnership". Public Private Partnerships (PPPs) are partnerships between the public sector and the private sector for the purposes of designing, planning, financing, constructing and/or operating projects, which would be regarded traditionally as falling within the remit of the public sector. A key objective of a PPP is to allocate responsibility to the person(s) best placed to manage and deal with the task. Certain responsibilities may be more effectively managed by the private sector rather than the public sector.

Community management as well, the dominant model for rural domestic water service, works in many contexts but faces several critical challenges, particularly in regard to more complex water supplies. An alternative is to delegate operations and maintenance, or maintenance only, to the private sector through formal contracts and performance agreements. These public-private partnerships (PPPs) potentially harness market incentives to improve service delivery and leverage private capital for investment costs.

Rural water PPPs have proliferated in recent years mainly for piped schemes, less often for handpumps and other point-source supplies. Well-designed rural water PPPs have shown some success in countries with civil law—that is, legal systems that have statutes and codes regulating public service contracting. Proof that this model will deliver sustainable rural water supplies at scale, however, awaits more data on long-term costs, profitability, and performance. So far, most countries have not demanded significant investments in infrastructure from their private partners, and thus external capital financing is still needed.

Advantages

Disadvantages

- PPPs enable the public sector to profit by financial, business and other types of knowledge and skills and an innovative entrepreneurial approach in project implementation and management

- PPPs open up opportunities for private investments
- Functions can be delegated through PPPs
- PPP contracts assure fairness of contracting parties

- Preparation and implementation of PPPs is a lengthy and expensive process

- Many stakeholders: might lead to disagreements about the change process
- Contract design needs to be deliberate and is therefore very complex
- One of the contracting parties might exploit missing conditions of the contract
- There is a dispute of whether public goods such as water and sanitation should be (partly) privatised. Affordable services to all parts of society must be guaranteed

Response to community challenges

Interest in using the private sector as an alternative or supplement to community management stems from the following three challenges:

Poor service delivery. Too many ‘improved’ rural water supplies are not functioning, or are functioning poorly. The extent of breakdowns varies widely among countries, but on average, about one-third of rural water supply facilities in developing countries fail to provide a safe and reliable service.

Demand for higher service levels and increasing technical complexity. Rural water supplies were once virtually synonymous with the simplest technologies. Now, more complex and expensive piped schemes are being constructed. In Africa, 15% to 20% of the rural population lives within the supply areas of small piped schemes (Gia et al., 2010).

Investment financing. Some 742 million people lack safe water supplies, and the construction costs to remedy the situation are staggering. Leveraging private investment and credit could help finance needed infrastructure.

Where PPPs can work

The delegated management of public services is codified in the legal systems of countries with civil law. For this reason, rural water PPPs are more prevalent and more ambitious (though still relatively novel) in countries with civil-law systems (e.g., francophone Africa, Peru).

Countries where common law prevails, as in the British Commonwealth, have used delegation in the urban water sector, but rural water PPPs remain rare. People in common-law countries are more ambivalent about allowing the private sector to recover costs and profit from providing public services, since the tradition of delegating public service management is largely absent. As a consequence, contracting entities have less experience in creating incentives to achieve financial sustainability.

Here, we focus on the public delegation of rural water service delivery to the private sector. In some countries, the public sector may delegate this responsibility to community or civil society organizations, such as a village water committee or a cooperative.

Contracting the work

Contracting local private operators with specialist or professional skills can improve services and increase efficiencies beyond the capacity of conventional CBM approaches. Formal delegation of management arrangements in most rural areas is a fairly recent phenomenon and requires a step-change in management practices.

Arrangements rely on a 3-part arrangement between a contracting authority (usually the local government), an operator, and some form of regulatory body and/or support agency to help guide and monitor the contractual relationships. In some West African countries and in South Africa, private sector support agencies have taken up this role.

Things to consider

The private sector is not always more efficient than the public sector
Service provision is often more expensive for the consumer with PPPs
PPPs need complex and demanding contracts
Finding a private partner and working out the contract might be very time-consuming
A system for the monitoring and the enforcement of the articles in PPP contracts needs to be in place (see also strengthening enforcement bodies)
Clear definition of roles and responsibilities of different stakeholders are needed
The exposure to disputes needs to be clarified in the contract

In some cases, a fully private or a fully public structure will make more sense. Read more on these options here: privatisation or nationalisation.

PPPs for handpumps and other point-source supplies

Almost all community management systems for rural point-source supplies already outsource certain functions to the private sector: private shopkeepers stock and sell spare parts, for example, and private mechanics repair the pumps. These systems have had problems:

Pump mechanics who are paid for repairs lack incentives to ensure the continued functioning of supplies.
New pump mechanics are not trained when existing mechanics leave.
Communities or their water committees cannot save or mobilize funds for expensive repairs and lack incentives to pay for preventive maintenance.
Shopkeepers—particularly in sub-Saharan Africa—often lack incentives to stock spare parts, especially expensive ones, because rural population densities mean low demand.

PPPs seek to address those challenges and differ from outsourcing in that they delegate responsibility for maintenance to a private sector entity through a contract.

Allocation of Public/Private Responsibilities across Different Forms of Private Involvement in Water Services. Cell shading in the table is to be interpreted as follows: dark grey = public responsibility; light grey = shared public/private responsibility; white = private responsibility.
Chart: Millenniumassessment.org

Field Experience

Football for Water is a public-private partnership (PPP) consisting of the following organizations: Royal Netherlands Football Association, Unicef Netherlands, Simavi, Vitens Evides international, Aqua for All, Akvo and the Ministry of Foreign Affairs.

The main goal of the program is to improve drinking water and sanitation facilities at 1,100 schools in Kenya, Ghana and Mozambique. Furthermore, more than 700,000 school children will be taught life skills related to hand washing, clean drinking water and improved sanitation through football and life skills coaches (WorldCoaches).

During the celebration of UN World Water Day on 22 March 2012 in Wageningen, the new program 'Football for Water' was announced by the Director of KNVB Bert van Oostveen. The KNVB works together with Unicef, Simavi,Vitens Evides International, Aqua for All, Akvo and the Ministry of Foreign Affairs. The public-private partnership is characterized by 50-50 contribution by private partners and the Dutch government.

Read about the program: Lifeskills: Football for Water
Read more about Akvo's involvement in our blog: Football becomes a bridge to Water, Sanitation and Hygiene

Markoye, a rural settlement in Burkina Faso, has a piped water system managed by FASO Hydro. Photo: PPP for Rural Water Services, Briefing Note No. 4

In Lubango, Angola, the Dutch supported a pilot ‘handpump leasing’ project under which a small town water utility owned the handpumps in surrounding villages and was responsible for maintenance in return for a monthly fee paid by villagers. Mobile brigades from the utility company were supposed to visit the pumps regularly for preventative maintenance and repairs for each pump. However, a 2006 evaluation found that the system did not succeed in covering costs, and so rural handpump maintenance fell off.

In Burkina Faso and Rwanda, the private operators of rural piped schemes also assumed responsibility for handpumps within the supply areas. Vergnet Hydro and its partner, Faso Hydro, were one such operator for seven schemes in Burkina Faso. Eventually, the operator closed down the handpumps within 500 meters of a standpost. It proved impossible to monitor sales from the handpumps, and the non-revenue water supplied from them undercut the sales from the piped schemes.

In Rwanda, most PPP contracts for rural piped schemes state that the operators must also maintain other improved sources in the supply area, which in Eastern Province included handpumps. The results from this experience have not yet been documented.