Investment levels required to bring safe, secure water supply
and sanitation services to the world’s population are beyond the
means of available public sector funding. Mobilising private sector
resources is one way of bridging this funding gap and at Mott
MacDonald we have core skills in strategic planning for public
private partnerships (PPPs).
Whatever the source of funding, a clear vision is vital as to how
improvements to public services are to be developed and delivered –
and it must be supported by a sound economic rationale and the
identification of any existing legislative or policy impediments
that must be addressed. These issues are crucial in attracting
investment from international companies and funding agencies. And
this is where our skill in integrating technical and commercial
appraisals comes to the fore.
Proper cost recovery and robust financial modelling are critical.
We plan for tariffs to finance construction, operation and
maintenance as well as recurrent investment costs. There may be
access to donor or grant funding to support the private sector
investment and the transaction and regulatory structures must be
sufficiently flexible to facilitate access to such funds.
Covering every facet from life cycle costing to payment mechanisms
we can develop a fully justified business case supporting private
investment or a combination of private, donor and government
funding for public sector projects. We have a unique experience in
developing outline business cases to satisfy government treasury
requirements for risk transfer and to demonstrate added value
compared to the public sector alternative.
Whether our role entails developing projects for utility or
government clients, our experience of working in conjunction with
the private companies participating in these services or with the
banks and financial institutions that invest in the PPPs shows that
the transactions will only be sustainable it they are founded on a
thorough understanding of the following factors:
- uncertainties surrounding the existing infrastructure and
standards of service delivery
- timing of any legislative drivers, e.g. the EU Urban Waste
Water Treatment Directive
- magnitude of the investment in physical assets and in
delivering improved service standards
- existing legislative framework
- affordability and willingness to pay of the end user, be they a
water utility or customer.
Economic regulation is the primary focus for most PPP transactions
and a field in which Mott MacDonald has leading experience in
various countries. The regulator’s independence, or otherwise, from
political influence is a key factor in determining the commercial
risks and opportunities of a concession contract. Economic
regulators control the prices charged to customers, monitor the
service delivered by concession companies and take judgements on
the level of expenditure and the return on capital allowed for in
tariffs for specified outputs. In short, the regulator tests the
validity and robustness of the transaction to deliver long-term
improvements at an affordable price.
