P-P-PARTNERING
Water sector woes
by Michael Wilson
With the tragedy in Walkerton, Canadians are, more than
ever before, aware of the issues, challenges and risks facing
municipalities in the delivery of safe and affordable water. Following the
report of the Walkerton Inquiry, due next spring, public debate will shift
from issues to solutions to Ontario's, and by natural extension, Canada's,
water sector woes.
In Canada, the dominant service provision model has water
and wastewater systems owned and operated primarily by municipalities. In
many other developed countries, the private sector is involved to a much
greater extent. Several large multinational private water companies have
served this worldwide market for decades. Many invested in Canada in the
1990s after a few pioneering municipalities such as Moncton, Hamilton and
Dartmouth initiated public-private partnership (P3) projects. Despite
successful projects in these and a handful of other communities, adoption
of the P3 model was not widespread.
There appear to be several inhibiting factors - most
recently, an anti-privatization campaign launched by public sector labour
unions, which attempts to raise fear and cast doubt on the private
sector's ability and motive to deliver safe and affordable water and
wastewater services.
In reality many municipalities worldwide have found that
involvement of the private sector better meets its obligations to operate
highly efficient and technically sound water and wastewater systems. The
World Bank and the IMF have actually specified the use of the private
sector with respect to a number of utility projects they are directly and
fiscally supporting. A few key differences between a private water company
and a public sector operator lie at the root of the benefits being found.
The first difference relates broadly to the nature of
private enterprise in general but also specifically to private water
companies. Non-performing water companies fail to thrive. There is no
second chance when a water company fails to deliver of safe drinking water
- they go out of business. There is no tolerance for error, either
internally within the company or externally from clients. Everything
within the company is designed to ensure continued survival starting with
their governance structures.
Municipally run water and wastewater facilities are
commonly overseen by a body consisting of political appointees or the
political representatives of the municipality - people elected to oversee
the activities being performed by their municipal organizations or boards,
but not necessarily expert in any individual area. Typically those serving
on oversight bodies have no technical background in water systems.
However, standing in sharp contrast, management boards of
private water companies typically have expertise from both the technical
or management side of the water business. Charged with the responsibility
of ensuring that the company thrives and its clients enjoy a superior
level of service, these boards are professionally able to judge the
quality of the service being delivered in their company's contracts.
The private model carries a higher degree of professional
competence than the government model. It is positioned, from a governance
perspective, to achieve a higher quality operation and greater assurance
of water quality provision. To support this, the detailed service contract
spells out the performance standards, the extent and manner of risk the
company assumes and penalties it will suffer for non-performance. No
similar document exists for monitoring the performance of the government
model.
A second difference is how the private sector evaluates
and manages risk compared to the public sector provider. Anything
jeopardizing a company's ability to perform is considered a risk.
Inadequately trained staff, malfunctioning equipment, faulty
infrastructure, etc., are unacceptable risks. Operations and standards are
monitored continuously to ensure that top performance is being achieved
and that the potential for failure is minimized or eliminated.
Risks in the public sector are often not given the same
consideration. There is an inherent cost to any organization that assumes
risk - be it public or private. When the public sector delivers a service,
either directly or through an agency of the government, risk is being
assumed and should be valued and treated as an expense of operation.
Consistent with the objective to reduce and minimize risks
while at the same time building efficiencies, many private water companies
invest heavily in research and development activities, bringing
improvements on a technical and operational level to all operations
throughout the network of contracts worldwide.
These two sets of factors - the nature of enterprise and
the management of risk through all factors including governance, research
and technology and training of staff - in combination compel private
sector operations somewhat differently than public sector operations and
bring benefits to municipalities that have selected private sector
partners.
Michael Wilson is Chairman of the
Canadian Council for Public-Private Partnerships. This article has been
prepared drawing on the expertise and advice of Mark Hodgson, Vice
President, PricewaterhouseCoopers Securities Inc.
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