PRIVATE CONCESSIONS FOR SMALL TOWN WATER SUPPLY. Early Experiences from Paraguay. May, 2001

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1 PRIVATE CONCESSIONS FOR SMALL TOWN WATER SUPPLY Alexander E. Bakalian Franz R. Drees May, 2001

2 Population : 5.5 million (2000) Area : 407,000 km 2 (40% in Eastern Region where 98% of the population lives) Distribution : 46% of population lives in rural areas and small towns (< 10,000); Major cities : Asunción (1.3m), Ciudad del Este (0.2m) Encarnación (0.2m)

3 Water Sector Structure CORPOSANA urban systems (pop. > 10,000) : only about 22 of 37 cities served; coverage : 38% of total population (70% of urban population); SENASA rural systems and small towns (<10,000 population); coverage : 17% of total population (37% of rural population); service provision through about 900 autonomous water users associations ( juntas ) (total of 173,000 household connections and 550 public standpipes); SMALL-SCALE PRIVATE PROVIDERS ( AGUATEROS ) about 400 independent aguateros serve mostly peri-urban pop. of about 900,000 (17% of total pop) (mostly around Asunción and Ciudad del Este)

4 CORPOSANA AGUATEROS SENASA Urban Coverage 2.0 m of 2.9m m (mostly in periurban areas) Rural Coverage m of 2.5 m

5 Who are these Aguateros? Today: some 400 providers operate systems with connections (ave. 300 con.); average age : 10 years, some up to 20 years old; stiff competition on the edge of business zones; Camara Paraguaya del Agua (CAPA) represents 96 (larger) aguateros; Systems : borehole + disinfection + storage tank (ground level or elevated) + distribution network with metered & un-metered connections; Costs: about US$250/con. Vs. US$500/con. (SENASA); Quality: good - 100% disinfection; 90% 24h service (CAPA members); few SENASA systems actually use disinfection although all have equipment; Licensing: municipal installation permit; SENASA lab. tests.

6 Aguateros Average system size : about 300 connections; Tariff : US$ /m 3 Connection charge : about US$150 in installments over 1 year, (wide variance: US$0-370) Cost recovery primarily through connection charge Juntas de Saneamiento (SENASA) Average system size : about 200 connections (historical ave); new systems : 100 connections Tariff : US$ /m 3 Connection charge : about US$150 in installments typically over 3 years, (wide variance) Cost recovery primarily through connection charge

7 Regulatory Structure ERSSAN (Ente Regulador del Sector de Saneamiento) Sector Law passed in October, 2000 : Creates regulator for water and sanitation services (tariffs, supervision of service quality); Central govt. retains concessioning authority with option of delegation to provinces ( gobernaciones ) and municipalities; PSP under concessions (up to 30 years) and licenses (up to 10 years for systems of <2,000 con., renewable); Several key points undefined (e.g. ownership of assets, lead sector agency, concession exclusivity vis-à-vis aguateros). Aguateros have filed suit. Detailed regulation under preparation.

8 Sector Financing Challenges Target population : need to serve an additional 2.0 million people in SENASA s service area by 2010 to reach 85% coverage. Investment cost : about US$ million; Current public sector investments in rural WS: about US$5-6 million/year. It would take years to reach coverage target! Current financial arrangements for new systems (THEORY): 5% in cash up- front (communities) 10% in cash during construction (communities) 15% in labor during construction (communities) 30% as 10-year loan at subsidized interest rate (6% below market) 40% as grant (central govt..) In practice, subsidy is much higher! Need to mobilize PS capital.

9 Pilot program (US$0.5 million) under Fourth Rural Water Supply & Sanitation Project PS operators bid on 10-year concessions to design, build and operate WS systems in 4 small towns (bid as 4 separate lots); SENASA design standards (exception: hydro-pneumatic tanks) Tariffs are fixed in line with local levels : US$5.26/month for un-metered connections; US$3.95/month for 12m 3 + US$0.53/additional m 3 for metered connections; Bidding variable : Minimum connection charge up-front (in practice operator may charge in installments at an interest rate not to exceed 24% (payment in Guaranies)) Defined subsidy rather than Minimum subsidy concession (benefits of competition accrue to communities rather than government).

10 In Km14-Monday and Km14 -Acaray (Alto Paraná) In Anahi 2 y Fraccion Coeyú (Central) Subsidy : US$150/connection actually made; Km14-Monday: 483 con. Km14-Acaray: 561 con. Difficult hydrogeological area Subsidy : SENASA provides boreholes with guaranteed minimum flow; Coeyú : 58 con. Anahi 2 : 842 con. Subsidy designed to be less than US$200/con. subsidy traditionally offered to juntas Subsidy reflects SENASA reservations about boreholes drilled by private sector

11 Contractual Arrangements 1. Contract SENASA - Contractor/Operator based on modified WB document for small works; covers construction and payment of subsidy based on existing number of households in the service area; 2. Contract SENASA - Junta de Saneamiento 3. Contract Operator - Junta de Saneamiento (14 pages) operator has exclusivity in service area; service area and timetable for meeting coverage target; water and service (continuity, pressure) quality standards (+penalties for non-compliance); formulas for adjustments to tariffs and miscellaneous fees; compensation in the case of early contract termination.

12 NEXT STEPS Bidding documents to go on sale in early May, 2001; Bid award expected by July, 2001; Further information : click SENASA;

13 CONCLUSIONS Rapid growth of piped WS systems designed, built and constructed by private providers is largely unprecedented in Latin America; Key Enablers : entrepreneurial tradition spawned by underperforming public sector and high population growth in peri-urban areas; investment cost recovery for simple systems in under 3 years; relatively abundant, accessible groundwater in Eastern Paraguay; traditionally cheap electricity for pumping (now about US$0.05/kWh, previously much less); WB involvement with pilot small town PSP process (subsidy financed through WB loan); Expectation : good competition for market in upcoming tender

14 OUTLOOK While both the scope and scale of services provided by Paraguay s Aguateros are largely unprecedented, PSP in small WS systems in not unique to Paraguay (--> Colombia); Where there are no small PS providers of piped WS services, other local entrepreneurs (e.g. small contractors) might be induced to enter small town WS market Colombia Water Sector Reform Assistance Project ; Small Towns WS Clinic, 8 May at 2:30 pm; WSP case studies on Colombia, Mauritania and Vietnam.