22 April 2021

How to boost PPP projects in the Water and Sanitation sector in LAC countries?

— By AgenceLaQuincaillerie

Executive Summary

How to boost PPP projects in the Water and Sanitation sector in LAC countries?

Latin-American and Caribbean (LAC) countries are facing four main challenges in the Water and Sanitation sector (W&S): the low level of wastewater treatment, W&S systems low efficiency, institutional and regulatory inefficiencies, and the inequitable availability of water aggravated by climate change. Nevertheless, governments lack of sufficient public resources to finance investment in the W&S sector to overcome such challenges. Therefore, now more than ever, under the current COVID-19 context, it is important to understand which are the restrictions and areas of opportunity in each country of the region to encourage private investment in the W&S sector, as well as to analyze in depth the Critical Success Factors (CSF) of Public-Private Partnership (PPP) projects in that sector.

The analyses and recommendations summarized thereafter are based on a detailed diagnosis of the political, economic, social, technological, legal, institutional, procedural, and environmental frameworks for implementing PPP in the W&S sector for each of the 26 countries, members of the Interamerican Development Bank (IDB): Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad and Tobago, Uruguay, and Venezuela.

In addition, three complementary methodological approaches have been implemented to identify the most important CSF of W&S PPP projects: case studies, literature review, and the application of a structured questionnaire to a group of experts.

The most relevant CSF identified – for which the three previous approaches concur- are the following: (i) authorities’ political will to support private sector participation, (ii) an adequate transaction design to ensure the project’s bankability, (iii) an adequate management of the social risk, and (iv) the strengthening of the W&S sector’s institutional and regulatory frameworks. Another important conclusion of the study is the need to promote the adoption of a clear, simple, and favorable regulatory framework for the development of PPP projects in the W&S sector, given the excessive complexity that currently exists in this area in most of the countries in the region.

The W&S sector can significantly benefit from the implementation of PPP models aiming at improving the efficiency of operating agencies in order to increase the coverage and quality of water treatment services and to remedy the shortage of quality water suffered by some region’s areas. This implies the use of comprehensive PPP schemes that include both infrastructure development and fee charging to users, as well as bundling transactions for the design, financing, construction, operation, and maintenance of assets.

Based on the analyses carried out, 8 general and 33 specific recommendations were formulated to promote private participation in the W&S sector. These recommendations entail the following subjects: the legal framework, the political will to support private sector participation, institutional strengthening of the W&S sector, social impact management, bankability, public sector capabilities, and project environmental sustainability.

For further information (Spanish): https://publications.iadb.org/es/asociaciones-publico-privadas-en-el-sector-de-agua-potable-y-saneamiento-en-america-latina-y-el

 

By Anne-Laure Mascle-Allemand

Executive Director of PIAPPEM and Associate of IKONS, Guasch & Associates

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