Medellín -...

Empresas Públicas de Medellín

PublictoPublic Partnerships in Utility Businesses for small Towns

by

Federico Restrepo CEO

Washington DC, February 18, 2009

Empresas Públicas de Medellín E.S.P. 2

Agenda 1.Objective

2.About Empresas Publicas de Medellín EPM

3.Colombian Facts

4.Seeking a Solution: EPM’s Proposal 1. Outlines of the Proposal 2. Initial Reactions from Municipalities 3. Addressing those Reactions

5.Results: Welfare & Development

6.Success Stories


Objective

The objective is to present the Public toPublic Partnerships’ experience undergone by EPM, that have been implemented in some of small towns in the region of Antioquia. They aim to solve in a sustainable, participative and structured way, the deficiency in potable water supply, sanitation and waste water management.

Empresas Públicas de Medellín (EPM). • EPM: is a Stateowned Industrial and Commercial Company. Owned by the City of Medellín and based in Medellín.

• Founded in 1955. • EPM has three Strategic Business Groups: Energy, Water and Telco.

• EPM is the holding company of the Business Group, which owns nine direct subsidiaries and holds investments in ten other public utilities companies involving the areas of Electric Energy, Gas, Water and Telecommunications.

Main Market: Metropolitan Area of Medellín and the Department of Antioquia Population: 5.2 million

Other National Markets: Population served: 21 million, 50% of Colombia´s total population

International Presence: An undergoing hydropower plant in Panama, and Telco businesses in USA and Spain, through UNE Telecommunications


Financial Indicators 2007 – 2009 Empresas Públicas de Medellín

Financial Results


Agenda 1.Objective


3.Colombian Facts



6.Success Stories


• Colombia has 1,120 municipalities

• 93% of municipalities have fewer than 200,000 inhabitants.

• 24% of Colombia’s population live in those towns

• 78% of towns do not provide WHO standards services for potable water and basic sanitation, despite charging for those services

• 60% of towns lack potable water

• DANE: “Every 24 hours, 2 children die of gastrointestinal illnesses”

• Between 1996 and 2003, Colombian government invested US$4.9 billion in the water sector in many towns, without having substantial improvement in the water supply and waste water systems quality

• Poor condition of the distribution networks resulting in high operating costs

• There is a clear lag in the provision of sewage collection and treatment

Water & Sanitation in Small Towns: The Challenge


Incomplete corporate transformation:

• Despite a National law requiring administrative separation of water system and sanitation utilities from the municipalities, 60% of them still provide those services directly, thus negatively impacting the assignment of financial resources in the sector

• Regional distribution of national funding for water projects is not equitable because it may done by the Mayor´s Town with other criteria different from those of water needs.

• There are substantial deficiencies in the application of the water supply subsidies thus limiting the utilities’ access to financial markets

Water & Sanitation in Small Towns: The Challenge


The “Departmental (State) Plans of Water and Sanitation” (or PDAS) for management of water supply and sewage collection and treatment systems, formulated by the National Government in 2008 ensure:

• An adequate financial management of the systems.

• Involve the municipalities in the solution to the problem, while the Departments (States) coordinate the execution of the PDAS.

• Establish complete investment plans under a regional perspective.

• Assembly of different income sources.

• Transparent financial resources management through fiduciary schemes and submission of regular accounting reports.

EPM had an active role in the formulation of the PDAS to assure consistency with EPM’s own proposal for PublictoPublic Partnerships in Utility Businesses for small Communities

Conpes 3463 de 2007

Background of the Proposal


Agenda 1.Objective

2.About Empresas Publicas de Medellín

3.Colombian Facts



6.Success Stories


EPM’s Proposal for Regional Water Systems

• Makes its experience in financial capacity and reliability in operating water systems and in executing investment projects, available to its partners towns.

• Provides access to financial markets. • Guarantees efficiency and confidence to attract and maintain partners. • Seeks economies of scale by promoting regional systems, instead of relying on single municipal solutions.

• Looks for groups of neighboring towns to joint EPM as shareholders of the new companies.

• Involves the National and Regional Governments financial resources to solve infrastructure problems.

• Engages the population in the sustainability of the solution by having educational programs about rational use of water, abandonment of non legal practices and timely payment of the invoices.

• Hence, the proposal is to be part of the virtuous cycle: “improved service timely and honest payments based on consumption – improved service”, which begins with the financial contributions coming from the National Government, the Regional Government and EPM.


Initial Reactions expected from Municipalities to EPM’s proposal

What municipal administrations and the population fear:

• Giving up autonomy.

• Loosing local control over service pricing and management and compensation of the company bureaucrats.

• Relinquishing “ownership” of the system.

• Loosing the bureaucratic influence from the Mayor in the utilities company.

• Having a specialized operator may imply an excessive price increase without having significant improvements in the quality of the service.

• That financial profit is the sole purpose of the company’s actions.

• Lack of coordination between the municipal plans and the utility plans.


Addressing Reactions

To reach an open dialogue regarding this proposal, EPM focused on:

• Demonstrate that the goals of EPM and the Municipalities are aligned: i.e.,

“Supporting the development and improvement of each town by providing a reliable, efficient and safe provision of water supply

and sewage collection and treatment services ”.

• Guaranteeing Municipalities that infrastructure ownership will never be transferred. The regional companies are concessionaires.

• Developing financial tools that enable the municipalities involved in the regional company to have at least 22% of its equity.

• Agreeing with all the parties involved the principles for the creation of the regional companies.

• Illustrating with real examples how a regional company will support specific needs of each Municipality involved.


Basic Principles for the Discussions Held by the Parties Involved

Community and Administrative Participation

Recognition and

Respect Tow

ards

Municipal

Autonom

y

Betting on

the Long

Term Future

Sustainable Solutions

Clear Objectives

Convergence of

Interests

EPM and

Municipalities


• Financial and operating capacity • Financial management • Technical capacity to reach, at the lowest cost:

• Service continuity • Potable water quality • Overall service coverage • Operating and commercial efficiency

• Water basins conservation • Corporate Social Responsibility

• Preservation of public health conditions for the communities where it is involved

• Environmentally responsible behavior

• Creation of jobs • Working with organized social groups

EPM provides to the regions:


The Partnership Model

Regional Company

Investment Management Investment Management

Municipalities

• Transfer of Operation Agreements in effect.

• Contribution for investments, that not affect prices

• Use of the infrastructure, remunerated with equity.

• Transfer of Operation Agreements in effect.

• Contribution for investments, that not affect prices

• Use of the infrastructure, remunerated with equity.

Department Regional

Governments

Capitalization for investments, partially recovered through prices

Capitalization for investments, partially recovered through prices

Operational Management Operational Management

Systems with distributed sources, not interconnected and with a sole administration

Water System

Sewerage systems

Municipality Municipality Private Operator Private Operator

Municipality Municipality Private Operator Private Operator

Municipality 1 Municipality 1 Municipality 2 Municipality 2 Municipality n Municipality n

National Government

Contributions for investments, NOT included in prices

Contributions for investments, NOT included in prices

Private Operator Private Operator

Municipality Municipality

EPM

Management capacity: •In operations •In INFRA investments •Control of the regional company

Management capacity: •In operations •In INFRA investments •Control of the regional company

Partnership Model in Regional Companies


Agenda 1.Objective

2.About Empresas Públicas de Medellín EPM

3.Colombian Facts



6.Success Stories


Definite Solutions for the Present and Future

“We give back in benefits what you pay for your utilities”:

• Prices economically efficient

• Minimum Government contributions

• Effective infrastructure investments

• Efficiency through operations based on results

• Welfare and Development

• Competitiveness and Efficiency


Agenda 1.Objective


3.Colombian Facts



6.Success Stories


100% Public Capital

38 employees and 2 students from Sena were hired. Of these persons, 37 are from the region.


22 employees were hired, of which 18 are from the region.

100% Public Capital


8 persons currently work at this company, all from this region.

100% Public Capital


InterAdministrative Cooperation Agreement with the Ministry of Environment: Purpose of the Agreement: Management of investments and comptrollership, maintenance and operation of the water, sewage and waste management systems, in the urban area of the municipality of Quibdó (Chocó)

73 employees were hired, of which 69 are from the region.

¡Thanks! We are right there. Federico Restrepo

[email protected] www.epm.com.co

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