PUBLIC

Ninety percent of the world population growth in the coming three decades will be concentrated in urban areas. As a result of this fast urbanization, the appropriate management of environmental issues in ensuring a sustainable future for our societies in medium and large cities has become a critical factor. Considering the need to implement more effective solutions and more inclusive policies, local governments are actively evolving from the search of traditional schemes of services privatization to more innovative partnership arrangements to deal with these issues. In the Latin America and the Caribbean (LAC) region this search is conditioned also by a generalized situation where some 25 per cent of the population depend on independent providers for water and about 50 per cent depend on private sanitation businesses; these percentage is rising in secondary cities and towns (Solo, 1999). Additionally, the informal settlements are currently in an expansive process in LAC’s cities. Poor families living in these settlements usually lack of access to the water treatment system and also have an inadequate and expensive access to potable water facilities. The way to expand both the potable water and waste facilities to these settlements in a context of better participation of the private sector, is proposing an interesting challenge to the institutional transformation in the decentralization and democratization processes promoted by the local governments.

Different LAC cities are exploring options for increasing overall drinking water coverage, as well as economic efficiency and cost recovery. The trend is to view water as an economic as social good: one capable of paying for itself in a demand-driven market (James, 1998). Generally, important investments have been required in order to include all these issues in any effective partnership with the private sector. As consequence, the private sector involvement has been usually focussed on national capitals and mega-cities and few multinational firms ("French approach") dominate the international water sector. As Solo (1999) analysed, assessing the impact of this approach on the local economy and social network, other more innovative approaches and public-private partnerships are currently being considered by all large, medium and also agglomeration of small cities as effective way to encourage the micro-enterprises role as main or complementary service suppliers. The urban waste management is also an area demanding more holistic approaches to deal with its cycle. After initial steps done by local governments and communities to work with private firms in the LAC region, both the public and the private sector are strongly demanding ways to organize demonstrative efforts on its social and environmental achievements. Governance on these issues is implying efforts to improve the cooperative relationships among various urban management levels of government: federal, regional, state/provincial, and municipal and with other local stakeholders. Governments are entailing a deep transformation of both institutions and partnership’s policies. Systematized knowledge on this new models of partnerships for sustainable human development - sources of financing, technology, capacity development, and management - are clearly required.

The literature shows as public-private partnerships include a range of possible relationships between both sectors, which are established in order to answer, in a cooperative way, the need for improvement and development of infrastructures and services to deal with the urban and environmental management issues (James, 1998; Rapten, 1998; World Bank, 1997). Different models of joint ventures are currently being experienced in the region where the government plays jointly the role of final regulator and as active shareholder managing the enterprise (Hart, 1998). Also in these relationships, the private sector can be represented by enterprises or by more complex institutional structures including for example NGOs and/or community organizations.

Private sector involvement in water supply

Awareness Building: Building the awareness of either governments or private parties of the opportunities For improving the delivery of environmental services through the spectrum of collaborative approaches.

Agreeing Frameworks: Agreeing on the basic frameworks for community or private action through participatory mechanisms ranging from Local Agenda 21 processes to negotiation of contractual terms.

Passive Private Investment: Making private investment available to government run operations, such as through the purchase of municipal bonds.

Traditional Public Contracting: Entering into a contractual relationship under which the public sector purchases product from the private sector or hires a private organisation to design or build a new facility.

Operation, Maintenance and Service Contracts: Entering into a contractual relationship under which the public sector essentially hires a private organisation to carry out one or more specified tasks or services for a specified period. The public sector remains the primary provider of the infrastructure service and is responsible for funding any capital investments needed to expand or improve the system.

Joint Ventures (Mixed-Capital Partnerships): Creating a company jointly owned by the government and private companies, in which they assume co-responsibility for the delivery of infrastructure services. The public and private sector partners can either hold shares in a new company or assume joint ownership of an existing company (e.g., the public sector sells shares of an existing municipal company to the private sector) which provides urban infrastructure services. Joint ventures require that both parties accept the idea of shared risk and shared reward - each must be willing to make quantifiable contributions throughout the project development and implementation process.

Build-Operate-Transfer Contracts: Bringing private investment into the construction of new infrastructure plants or the substantial renovation of existing ones by using BOT contracts. Under a BOT, the private sector finances, builds and operates a new infrastructure facility or system according to performance standards set by the government for time periods ranging from 10 to 20 years. The government retains ownership of the infrastructure facility and becomes both the customer and the regulator of the service.

Concessions: Awarding a private firm (concessionaire) full responsibility for the delivery of infrastructure services in a specified area, including all related operation, maintenance, fee collection, and management activities. The concessionaire is also responsible for any capital investments required to build, upgrade, or expand the system, as well as for financing those investments using the tariffs paid by system users. The government is responsible for establishing performance standards and ensuring that the concesionaire meets them. In essence, the public sector's role shifts from being the provider of the service to the regulator of its price and quantity. The fixed infrastructure assets are entrusted to the concessionaire for the duration of the contract (typically 25 years), but they remain government property.

Passive Public Investment: Bringing government funds to private operations through the grants, equity investments, loans or guarantees offered by a range of public institutions, such as the International Finance Corporation.

Community-Based Provision: Using any of these or other options to help communities address their own needs. Community-based provision starts when financial or institutional limitations prevent the government from providing adequate waste and water services to particular sectors of the population, forcing residents to find their own means of meeting their needs. Community-based providers might include individuals, families, or local micro-enterprises. Community-based organisations often play a key role in organising poor residents into taking collective action and in representing their interests in negotiations with non-governmental organisations and governments. Community based provision schemes may also be integrated with the formal systems run by the public, the formal business sector or both.

Source: PNUD/PPPUE

In developing countries these new models of public-private partnership are being generally conditioned by the size of cities. Medium and smaller cities are mostly unattractive for traditional investors. High transaction cost; size of the consumer base; municipal solvency and underprivileged status to obtain government-backed guarantees are part of the barriers to attract the formal private sector. Amalgamating small cities and metropolitan areas is one of the solutions usually proposed by consultants in order to increase the consumer base. There is poor information on this alternative in the LAC region but as James (1998) mentions, the bottleneck of these efforts seems to be the challenge to manage the tensions associated with getting municipalities to work together and reconcile the commons goals with the more local agenda of social issues.

Other important issue conditioning the effective assessment of partnership agreements is the lack of information on the role played by both main actors involved, coordinating mutual interests and the facilitator role currently played by third actors represented in this new institutional models.

Cartagena in Colombia, represents an interesting example of these new models. In this city the local government has developed a joint venture to supply potable water to 750.000 dwellers. "Aguas de Barcelona", a Spanish-French supplier of water services, is the main private partner and the local government continues being the system owner. The public sector define the investment, is guarantying the participation of local small enterprises as services suppliers and is monitoring also the employment conditions. In order to increase transparency on decision making processes a representative of the civil society takes part in the board.

In many cities of developing countries mixed systems of small and larger enterprises working together with municipalities are representing an increasing trend (Hann et al., 1998). Coordination with microenterprises for primary collection from the most difficult part of the city is been integrated in new models of arrangements where the municipalities define responsibilities and the larger contractor provides financial support.

Other modality of public private partnership currently growing in the LAC region is the promotion of community organization to supply environmental services to the city. This provision of services based on the community usually includes individual persons, families, and local small enterprises. Generally these activities are not recognized nor integrated within the municipal formal system and are mainly under the informal market conditions. NGO’s and other forms of local community organizations are playing a key role organizing this people and facilitating their negotiation with both the government and private initiatives which are working with the municipality in the formal system. These social and environmental services provided to the city through this approach seems to be strongly affected by lack of social recognition and financial sustainability ¹

"Agua para todos" Initiative, Tegucigalpa, Honduras

In an informal public-private partnership, the national water authority of Honduras established an executive unit for marginal and informal settlements to take responsibility to provide water to settlement resident that were not connected to the main supply system. Working with community based groups, this executive unit implemented a range of technologies through different types of structures, depending on topography, demographics and financial |condition of a given community. Neighborhood boards are working recovering investment costs in the water sector and organizing micro enterprises in charge of the maintenance of infrastructures as an autonomous distribution net. Local authorities provide regulation, quality control and some technical support to coordinate the connection with the general system. The Chamber of Commerce and the national authority of waters take part jointly with the local governments of the board of the Agua para Todos initiative. This Board manages some actions to sustain growth and to promote and optimize the role of these micro-enterprises and community based groups in the city.

Source: James (1998); FUNDEMUN ²(personal communication)

The literature on financing community initiatives and particularly on the organization of these efforts in micro enterprises is scarce. James (1998) for example, mentions how public and private sectors assure the market niche to supply complementary services by these micro enterprises describing the role played by community-based credit systems rather than grants, as mechanism used to address some market imperfections. However, while motivation and initiative are commonly quite big among urban immigrants, neighborhood groups and small and micro entrepreneurs lack financial resources and economic incentives to invest in their own businesses and communities. Common issues usually faced are the effective access of the financial sources and the perceived risk presented when formal or big investors are discussing or finally enter in partnership with public authorities to manage the water and sanitary systems. Generally in the LAC region these issues have been resolved implementing grant programs under international cooperation programs. Definition of criteria to organize and manage the transit between the more common grant or direct government funding system to other kind of financing support is currently a priority in the agenda of public authorities and a thematic area demanding applied knowledge.

Constraints limiting access to financial resources in the water supply sector

by small and microenterpises (SMME) and community initiatives

· water supply loans amortize over long periods, due to extended pay back period

· the potential for water supply enterprises to earn a profit is not widely recognized

· communities and SMME have no track record when it comes to loan repayment

· smaller loans have proportionally higher transaction costs

· low-income households or groups and SMME that need credit rarely have traditional forms of collateral against which to guarantee loans

· financing institutions may be wary of the capacity building components of efforts to establish local water supply enterprises

Source: James (1998)

The emergence of third actors working jointly with government institutions and as part of the public- private arrangements is mainly justify when both the public and the private sector looks for integrative solutions to deal with this unsustainable situation. NGOs and associations of small enterprises in the water and sanitary supply sector are playing this role as negotiator with both the public and the private representatives and as financial intermediary for community and micro enterprises initiatives (Solo, 1999). This type of activity is fitting also into the growing trend for many NGOs in developing country to promote activities recovering costs through fee-based services. By on lending at rates slightly higher than the payback rate to the original lending institution, NGOs can pass on some cost to their target audience, along with capacity building skills (James, 1998).

The national association of "Aguateros" of Paraguay is an example of the above strategy. These are micro enterprises that are competing for markets among themselves and also with the public water company (CORPOSANA) and with other public-private partnerships working on peri-urban areas as water committees, the "juntas de agua". This association is acting as bank supporter and financial intermediate for these enterprises and negotiating with the water company, the local governments and other public- private partnerships already established the conservation of the market niche in the country, (Solo, 1999).

Other areas of the public-private partnerships are demanding especial attention in relation with the role played by third parties in the governance of this institutional arrangements. Bennet (1998) for example, analysed how the competitive bidding procurement process is representing an inefficient vehicle for forming contractual relationships between public and private sectors in some specific areas. This traditional procurement practices are generally promoted in order to prevent corruption and to ensure good value under negotiations. The author summarizes how the current discussions and practices are shifting to the implementation of new mechanisms and forces outside this process. These mechanisms are gradually including third parties in the selection process (civil society representatives), greater role for the media and specific management tools and systematized information for greater emphasis on performance evaluation.

Local governments in the LAC region are searching these experiences, exploring successful stories on public-private partnerships. In these novel models, local governments are exploring mainly how the objectives and dynamism of the private sector could be combined with the social responsibility, environmental awareness, local infrastructure and community organization capacity and job generation concerns of the public sector.

Considering this framework, IDRC through its Small, Medium and Micro Enterprise, Innovation and Technology program initiative (SMMEIT) and the Environmental Management Secretariat for LAC (EMS) are presenting this initiative to support research activities on new financing mechanism and institutional models for public-private partnerships to the urban environment in the LAC region. The initiative has the goal of systematize knowledge on effective and social responsible mechanisms and models to deal with water and waste management issues in the urban environmental agenda. Supply and maintenance of potable water and sanitation; restoration and maintenance of urban watersheds; and integrated management of solid wastes represent the central areas where research efforts will be addressing. Other research question addressed in this proposal explores alternatives arrangements including the "non-traditional" private and civic service providers, such as community based structures and micro-enterprises. This proposal also represents an opportunity to coordinate IDRC activities in the LAC region with the UNDP’s Public-Private Partnerships for the Urban Environment Program and the Habitat’s Urban Management Program in LAC.

The overall goal of this project is to examine emerging experiences in the region with public-private partnerships for urban environmental management and within this problematic, promoting research activities focussing on:

The initiative will be carried out through a competitive small grant program for municipalities (Annex I). Research proposals should be submitted by municipalities, executed by research centres and should include the private sector inputs for the design process. Grants will have an upper limit of CAD 20.000. Parallel funding by local governments and/or the private sector will be required to allocate the grants. Parallel funding of other agencies could be also considered as one of the key criteria. IDRC, UNDP/PPPUE and Habitat/UMP will establish the bases for the call and the evaluation processes. The recommendations emerged from the Mexico International Meeting organized by IDRC on November, 1998 as criteria to design the call and to evaluate proposals will also be considered. The IDRC/EMS will manage the call process and will coordinate the evaluation task. Monitoring activities of the approved projects will be executed in coordination with related activities and resources of the IDRC, UNDP/PPUE and Habitat/UMP through the LAC region.

1- (1) EMS Project (1997-1998): “Participatory research: daily habits and Improvements in the management of waste in the So-called marginal areas” http://ems-sema.org/english/proyectos/solidaria/1997.html
(2) PNUD/PPPUE-Yale University Research Clinic: Rapten, K., 1998. “Community participation in Municipal Solid Waste Management in Developing Countries: The role of the informal sector”.
http://www3.undp.org/pppue/index.html