Water

• clear provisions for tariff adjustments especially for currency fluctuations
• arbitration and mediation processes
• termination and step-in rights process
• protection from political interference
• tax incentives, and others.

The success of a private-public partnership in water supply is largely dependent on a balanced contract where risks are shared equitably amongst the parties that are best able to address specific risks.

Water operators in several Asian cities cite the need to mitigate political risk in order to increase private sector interest in water projects. Experience in the region reveals that contracts are dependent on political leadership and personalities rather than institutions.

There is a need to assist governments who wish to involve private sector operators in water supply projects to establish sound and clear baseline conditions for PSP contracts. This requires considerable time and money, but investment in this stage will eliminate significant problems in the future and result in more viable contracts.

Good regulation and competent regulators are key ingredients to the success of contracts, particularly for long-term concession contracts. Regulators should be strong enough to enforce the contract and flexible enough to allow for amendments to accommodate changes in circumstances and the environment. Capacity of existing regulators needs to be strengthened. Twinning arrangements as a way to build capacity is a viable option.

Institutional arrangements of regulatory offices should be improved. Regulators should ideally be independent from political interventions and pressures. Regulation by contract, although expedient in some cases, may not be ideal as this does not provide the regulator such independence and authority from the appointing powers.

Rural areas are lagging behind the race to meet the Millennium Development Goals (MDGs). The private sector appears to lack of sufficient interest in rural areas, since they are too small to allow private sector operators a decent return on investments. Political conflicts at the local level in rural areas increase the disinterest of the private sector.

Small scale service providers can play a major role in expanding services to the poor, since full-piped networks may not necessarily be appropriate in poor areas where space is limited. However, SSPWPs must also meet world health standards for water quality and impose reasonable tariffs.

• Mitigate political risks by facilitating dialogue amongst public and private sectors especially with contract difficulties that require renegotiations and/or providing political risk guarantees
• Mitigate risks of currency devaluation by introducing long-term financing in local currency

• Improve regulatory capacities through training and capacity building programs, including twinning arrangements with other regulators
• Assist the public sector in the development of regulatory frameworks that promote transparency, accountability, credibility and independence of regulators
• Develop capacity and expertise within the public sector to prepare basic conditions for PSP contracts. ADB could assist in the packaging of projects including baseline data on asset conditions, preparation of PSP contracts, bid documents and the selection process

• Shoulder connection fees through partnership projects with private sector providers or grant funding.
• Facilitate access to financing for public utilities especially in rural areas
• Facilitate access to financing for private sector operators who are efficient in service delivery and explore equity participation in such private water utilities
• Explore the possibility of facilitating access to financing for SSWIPs to expand coverage in poor communities closely coordinating with existing concessionaires, if any

• Promote media/public awareness and education on PSP options and the role of the private sector in water utility operations (i.e. water as a resource versus water as a service/distinctions between privatization and various PSP models)
• Promote public awareness on the need for cost-recovery tariffs and assist governments develop a more rational program of subsidies that will specifically benefit the poor