LWC - Private Sector Participation

Lagos Water Corporation - Private Sector Participation

PSP Titbits

LIMITED COMPETITION
When two operators are compared in performance some competitive spirit is created in the system. Consumers in market 1 can quickly compare the performance of their operator to its neighbour's and make a request for better performance.

MAINLAND OPTIONS (LAGOS WEST)

(Covering Lagos Mainland, Ikorodu up to Badagry). The mainland is considered for a concession contract or a hybrid option whereby contracts differ with different stages of operations. As we all know, the stages of operation in water supply are clearly divided into production, transmission, distribution, and commercial.

The same operator will enter into different contractual agreements at the different levels of operations.

PRODUCTION STAGE OF OPERATION.
A system called "Affirmage", a type of lease where the owner of assets leases them to a private operator, who takes on the full managerial and commercial risk. Investment planning, financing and execution rest with the owner.
The operator should be responsible for all maintenance and investment at the production centers. The operator will produce water for the people and get paid for the supply.

DISTRIBUTION/COMMERCIAL STAGE OF OPERATION.

At these operational levels, an enhanced management contract will be operated. This contract will be for seven years during which the leakage control and collection ratio would have been enhanced. The level of rehabilitation and system performance that will attract a full concession must be attained within the seven years. The State Government, through loan funding that will be recovered through revenue, will, however, make capital investment into the system.

High Points on PSP.

Injection of private funds

Application of entrepreneurial spirit and skills to maximise cost and optimise tariffs

Introduction of modern technology and management

Improved efficiency

Improved customer services

Increased access to water supply

The water supply system will be expanded and more hand will be recruited to carry out new tasks, hence employment opportunities for Lagos residents.

Capacity expansion

Vigilance on the part of the private operator

Tariff collection efficiency is expected to improve

Staff welfare will be enhanced

PROBLEMS FACING EFFICIENT WATER SUPPLY IN LAGOS STATE

Irregular production rate; plants operate far below capacity

Existence of leakage, illegal connections, encrustation, etc

Low revenue generation and high level of unaccounted for water in the system

PSP and Water
The PSP option under consideration for the LSWC system is not the outright sale of government assets to the private investor. The asset is not for sale, “it is our common heritage”. But the private operator will be free to run the emerging sector more efficiently and the system will attract more funding.

GOVERNMENT STILL OWNS THE SYSTEM
The ownership of existing LSWC assets lies with the Lagos State Government.

Lagos Water Development Corporation

An “Asset company” will be the custodian of public assets (existing and future) on behalf of the state (owner). The company will be constituted by government appointees to carry out the role of Board of Directors to the system.

It will be In charge of:

Accounting of public assets

Regulation and contract monitoring

Management of public financing of assets and accounting of loans

Making decision on asset creation and sector expansion

Delegate water supply functions to the operator

REGULATORY COMMISSION.
The private sector participation programme is aimed at protecting all stakeholders' interests. The interest of the private business is to recover its cost and maximise its profits.

The consumer, likewise, must not be left at the mercy of a private monopoly because of exploitation. Fortunately, the Lagos system allows for comparative competition.

The government will seek to protect the interest of its citizens and the environment. Therefore, the regulatory commission will perform the duty of tariff regulation, service standards and quality in such a way that all interests are balanced.

TWO OPERATORS (PRIVATE)
The existing system will be divided into two, that is, horizontal “unbundling” whereby two investors will be operating side by side. The first will produce and transmit water to the mainland (Lagos Mainland, Badagry, Ikorodu), while the other will produce, transmit and distribute water to Lekki, Lagos, Victoria Island, Ikoyi, and Epe.

WHAT IS PRIVATE SECTOR PARTICIPATION (PSP)?
PSP is an initiative that allows the private sector to participate in the provision of public utilities like water, electricity supply, and telecommunications. The options come in the following forms:

(1. Concessions like:
BOT (Build, Own and Transfer)
BOOT (Build, Own, Operate and Transfer)
BOO (Build, Own and Operate)
DBO (Design, Build and Operate)

(2. LEASES OR AFFIRMAGE

(3. MANAGEMENT CONTRACTS

(4. SERVICE CONTRACTS

(5. FULL DIVESTITURE (outright sale)

The Lagos State option is domesticated to address concerns for two different markets by considering different contracts for the islands (Concession) and the mainland (Hybrid contract, incorporating lease and management contract or concession).

P: PRODUCTIVITY
S: SUSTAINABILITY
P: PROFITABILITY

LSWC edict cap 108 of 1994 of Lagos State mandates LSWC to provide potable water supply to the entire populace.

PRESENT AND FUTURE CHALLENGES
The present water supplies have succeeded in meeting about 40% of water demand in Lagos State . Projection at 4% population growth rate has implied that water demand will increase from 533ML/D in 2002 to 1066ML/D by 2020.

The financial outlay required to meet this expansion is put at between US $1.8 billion and $2.5 billion. This amount is no doubt colossal and such funds can only be mobilised within a reasonable time frame from the private sector.

EXISTING SERVICE LEVEL

The percentage of unaccounted for water is 55%.

The present production level is 34ML/D, which is about 56% of the installed capacity of the facility.

WHAT IS THE ROLE OF THE WORLD BANK?
The World Bank, through its sister agencies, is to provide guarantee covering sovereign risk, where required, to facilitate loans to private investors. IBRA and IDA would assist in mobilising loans required to fund the emergency rehabilitation programme and expansion works required by the mainland contract.
International Finance Corporation (IFC), the private investment arm of the World Bank, has been appointed by the state government as its advisor on private sector participation in Lagos State.

LEKKI AND ISLANDS (LAGOS EAST)

(Covering the islands up to Epe). This option is expected to be a concession whereby the investor will bring its funds, build new treatment plants, when required, lay some pipes, and collect its revenue for about 25 years then transfer the whole assets back to government. This is considered because of the perceived low commercial risk in the area.

The concession, however, will start its operation by buying water from the mainland supplier to supplement supply from the existing mini-waterworks within the island, pending the time the market will develop to warrant a large-scale investment into a new works. It is, however, believed that the rate of development of estates along the Lekki corridor will make the development of the new works imperative.
If demand projections indicate the need to build the works the investor will take the decision. The mandate for him is to supply water to the people of the island at economic rates and acceptable service and qualify standard.

* PSP Titbits