Public Private Partnerships can help increase net benefits to society when they improve operators’ efficiency in delivering qualitative and sustainable public services in targeted geographical areas. In most cases, PPPs enable to bring private sector expertise and innovation to public services delivery, such as urban and rural water supply, which used to be managed by public authorities at ministries or municipalities level. PPPs can also help private operators to improve their own performance in delivering public services by engaging government support and enabling cost-effective allocation of risks between public and private parties.
Though common in the urban utility sector in Africa, PPPs were first introduced into the rural water supply sector in the early 2000s as an alternative to the community-based management model, which had fallen short in terms of meeting performance expectations for piped water systems. Over the past decade, many West African countries including Benin, Burkina Faso, Mali, Mauritania, Niger, Rwanda and Senegal, tested PPPs for small piped water schemes with various level of success. The present article identifies key success factors which contributed to the successful Beninese experience, with a view to identify path for adaptation and scaling-up to broader rural areas and other African countries.
The Small Towns Water Systems project initiated in Benin in 2010 illustrates how to prepare small PPP projects for competitive bidding an how to structure financially sustainable PPP concession arrangements. Under this project, the government of Benin aimed to improve water delivery to rural communities through the partial financing, rehabilitation, extension and operation by the private sector of 10 existing piped water systems covering 41,000 people across the three municipalities. The 10 pilot sites were grouped into four clusters tendered as a separate transaction by each municipality, resulting in four concession agreements signed in 2014.
Interestingly, local rural water systems were already managed by private operators at the time the Small Towns Water Systems project was designed: The decision to structure the project as a PPP was based on revealed poor performance of private operators under existing lease agreement. In other words, the purpose of this PPP project was to leverage private operators’ capacity to improve their own performance in sustainably and qualitatively delivering water services to rural communities, by revising the contract structure binding them to the Government of Benin (GoB).
PPP contractual arrangements introduced a more cost-effective allocation of risks between the GoM, municipal authorities and private operators based on each actor’s ability to manage various risks at a lesser cost than other parties. Not only did risks reallocation make it easier for private sector operators to fulfil their contractual obligations, but it also participated to increase government support and commitment: By being re-transferred the project’s risks that it could manage at a lesser cost than private operators, the GoB acquired a better understanding of the level of support required from its part to ensure successful project delivery. Such responsibilities included (i) the development of risk sharing instruments to facilitate private investment and encourage entry of banks into the water sector – through foreign currency coverage mechanisms and first loss guarantees; (ii) ensuring the ownership of the PPP process by local stakeholders; (iii) establishing an effective regulatory system; (iv) channelling sustainable financing of infrastructure investments; (v) improving information tools and services to professional user; (vi) monitoring of water quality and regular audit of private operators’ performance.
IFC and the World Bank’s understanding of Benin’s decentralized political structure was a key factor contributing to the successful design and implementation of the project. In line with traditional water governance schemes, each municipality was given the responsibility to manage the tendering process for their respective clusters, which participated to build local authorities capacity to implement and manage current and future PPP contracts. The selection of most capable private operators at a national scale through a transparent and competitive bidding process with oversight from both local and international experts from IFC and the World Banks’ Water and Sanitation program (WSP) was a key component of improved water services delivery.
The shift from short-term contracting arrangement to long-term (8-year) PPP concession agreements additionally increased incentives for private operators to design, implement and manage services effectively, with a view to minimize maintenance costs over the duration of the project. This contributed to improved quality of services and improved availability of maintenance services.
Capacity building and ownership of the PPP process by key stakeholders was ensured through consultation and training of potential bidders to give them clear understanding of the proposed structure and sustainable risk allocation. Consumer voice was also reflected in the requirement to improve water services without increasing the price of water.
The international expertise and technical assistance provided by IFC and WSP enabled the GoB to build effective regulation schemes and robust contractual framework, including flexible terms to handle change management over the duration of the four concessions. Detailed contract design gave more clarity to private operators regarding their rights, obligations and the range of activities transferred to them, whilst performance monitoring tools were put in place to ensure water operators compliance with agreed regulations. Improved contracting practices and scheme design rules participated to the development of an enabling PPP environment.
The GoB also addressed the challenge of the availability of financial services and sustainable financing of investments. Financial assistance from the World Bank and the Dutch Cooperation enabled the GoB to demonstrate commitment and actual investments in the project, which in turn improved external investors’ confidence as reflected by local commercial banks commitment to support the water sector through debt, equity and various financing instruments to concessionaires. This resulted in local commercial banks improved understanding of the risk profile of rural water supply and increased commitment to support private operators.
Structuring the Small Towns Water Systems project as a PPP as an alternative to both community-based management and private sector lease agreement models improved services delivery’s Value for Money through efficiency gains and increased interactions between public and private stakeholders. Better quality services are now being delivered to rural communities at the same price than previously required to them. The project’s cost to society hasn’t increased whilst the benefits to society improved through the extension and redesign of existing water schemes resulting in increased households outreach.
The simultaneous management of four separate concessions will enable IFC and the GoB to monitor and compare each operator’s performance and to gather lessons informing future decisions towards the scaling-up of rural water PPP supply schemes across the country and the continent. Shall all four projects prove successful on the long run, the initiative will also increase private operators’ confidence in bidding for similar PPP projects across other sectors, thus increasing the growth of PPP penetration in Benin where national action plans are being implemented to rationalize and accelerate this process.