Urban Infrastructure Provision and Urban Infrastructure Provision and Management Master’s ProgrammeManagement Master’s Programme

Week-2Week-2Session-4Session-4

Role of Urban Infrastructure Role of Urban Infrastructure and Its Environmentand Its Environment

Institute of Urban Development Studies

RecapRecap

By InstructorBy Instructor

Session ObjectivesSession Objectives

By the end of session Participants will By the end of session Participants will be able to:be able to:

Recognize external costs of urban Recognize external costs of urban infrastructure provision.infrastructure provision.

Describe and analyze contemporary Describe and analyze contemporary debate on Urban Infrastructure.debate on Urban Infrastructure.

Distinguish different options for Public Distinguish different options for Public Private Partnerships for Urban Private Partnerships for Urban Infrastructure Provision and Infrastructure Provision and Mnagement.Mnagement.

External Cost (Benefits)External Cost (Benefits)

A cost that is not borne directly by the A cost that is not borne directly by the person who decides about incurring it. person who decides about incurring it.

For ExampleFor Example if someone decide to play if someone decide to play loud music at night and another loud music at night and another person who is living next door; he will person who is living next door; he will definitely bear the cost of lost sleep, definitely bear the cost of lost sleep, but he will not decide about the but he will not decide about the playing of loud music.playing of loud music.

The External Cost of Urban The External Cost of Urban Infrastructure in Urban AreasInfrastructure in Urban Areas

Better Water Supply

Less likely contract a waterborne disease

Scenario-Scenario-11

Scenario-Scenario-22

If one contract a waterborne disease

Dispose excreta in a sewer

Sewer opens into nearby lake

It put the neighbors at risk

Even if the person above use a modern sanitary system, still disease

Can be spread through food handling or some other form of accidental contact.

Or the sewer system could be overwhelmed in a flood.

Conclusion

The Higher the quality of the water an individual use, the lower probability of the neighboring community of

contracting a water-borne disease and thus the community are comfortable and healthy.

The Externality argument was more The Externality argument was more relevant for nineteenth-century cities relevant for nineteenth-century cities in industrialized courtiers.in industrialized courtiers.

Externality concerns are also still Externality concerns are also still relevant today in developing relevant today in developing countries. About 1.1 billion people countries. About 1.1 billion people lack access to clean water, and 2.4 lack access to clean water, and 2.4 billion lack access to sanitation.billion lack access to sanitation.

(water Supply and Sanitation (water Supply and Sanitation Collaborative Council, 2004).Collaborative Council, 2004).

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Contemporary Debate of Contemporary Debate of InfrastructureInfrastructure Public Private Participation (PPP) in Public Private Participation (PPP) in

Urban Infrastructure works.Urban Infrastructure works. Eco-efficient and sustainable urban Eco-efficient and sustainable urban

infrastructure provision.infrastructure provision. Urban Infrastructure and Crosscutting Urban Infrastructure and Crosscutting

issues like gender, HIV/AIDS etc.issues like gender, HIV/AIDS etc. Urban Infrastructure Asset Urban Infrastructure Asset

Management /IT assisted Urban Management /IT assisted Urban Infrastructure record keeping.Infrastructure record keeping.

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Public Private Participation Public Private Participation (PPP) in Urban Infrastructure (PPP) in Urban Infrastructure works.works.Basic OptionsBasic OptionsService contractService contractManagement contractManagement contractLeaseLeaseBuild-operate-transfer (BOT)Build-operate-transfer (BOT)ConcessionConcessionDivestiture (Asset Sell)Divestiture (Asset Sell)

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Private Involvement

Public Involvement

Service contract

Management contracts

Lease

Concession

BOT

BOO

Divestiture (Full Scale Privatization)

PPP

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Definition: specific tasks are contracted to the private Definition: specific tasks are contracted to the private sector, but overall utility management remains with sector, but overall utility management remains with the public sectorthe public sector

Typical duration: 6 months - 2 yearsTypical duration: 6 months - 2 years Pros: Pros: can inject good technical expertisecan inject good technical expertise Cons: Cons: unlikely to improve performance greatly where unlikely to improve performance greatly where

overall management is weakoverall management is weake.g. Mexico City: divided into 4 zones, each allocated to e.g. Mexico City: divided into 4 zones, each allocated to

a private service contractor for a private service contractor for 1010 years, beginning in years, beginning in 1993. Contracts are in 3 stages, and cover:1993. Contracts are in 3 stages, and cover: mapping the network, consumer census, meteringmapping the network, consumer census, metering regularization of billingregularization of billing loss detection and reductionloss detection and reduction

Service ContractService Contract

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Definition: a private company is paid a fee to operate a set Definition: a private company is paid a fee to operate a set of municipal services with a typical duration of 3 to 5 of municipal services with a typical duration of 3 to 5 yearsyears

Pros: Pros: gains in managerial efficiencygains in managerial efficiency Cons: Cons: gains can be difficult to enforce; city remains gains can be difficult to enforce; city remains

responsible for investmentresponsible for investment

e.g. e.g. Solid Waste CollectionSolid Waste Collection. Common in Caracas, Seoul, . Common in Caracas, Seoul, Bangkok, Jakarta, Lagos.Bangkok, Jakarta, Lagos.

Contractors are often medium-size enterprises (100 Contractors are often medium-size enterprises (100 contractors in Lagos, 85 in Seoul)contractors in Lagos, 85 in Seoul)

Cost savings can be significant (in US - pvt sector is 10-Cost savings can be significant (in US - pvt sector is 10-30% cheaper, In UK & Canada - private sector is 20-40% 30% cheaper, In UK & Canada - private sector is 20-40% cheaper)cheaper)

Management ContractManagement Contract

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Definition: Definition: a private company leases the assets of a utility, a private company leases the assets of a utility, and maintains and operates them, in return for the right to and maintains and operates them, in return for the right to revenues within a typical duration of 10 to 15 yearsrevenues within a typical duration of 10 to 15 years

Pros: Pros: commercial risk borne by the private sector, giving commercial risk borne by the private sector, giving strong performance incentivesstrong performance incentives

Cons: Cons: administratively demanding; government remains administratively demanding; government remains responsible for investmentsresponsible for investments

e.g. e.g. Water in Guinea: Water in Guinea: Guinea instituted a lease contract for Guinea instituted a lease contract for water supply in Conakry and 16 other towns in 1989. water supply in Conakry and 16 other towns in 1989.

Other issues: Other issues: Continuing difficulties inContinuing difficulties in: connection rate below expectations, : connection rate below expectations,

high unaccounted-for water, high priceshigh unaccounted-for water, high prices Institutional issues: Institutional issues: problems in clearly allocating problems in clearly allocating

responsibilities and risks; problems in coordinating responsibilities and risks; problems in coordinating investment and operationsinvestment and operations

LeaseLease

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Definition: Definition: private sector develops, finances and operates private sector develops, finances and operates bulk facilities with typical duration of 15 to 30 yearsbulk facilities with typical duration of 15 to 30 years

Pros: Pros: good way of getting efficient delivery of bulk good way of getting efficient delivery of bulk services, with private investmentservices, with private investment

Cons: Cons: not a good solution if supporting distribution not a good solution if supporting distribution systems are poor, or traffic levels are uncertainsystems are poor, or traffic levels are uncertain

e.g. e.g. Solid Waste in Hong Kong: Solid Waste in Hong Kong: DBO (Design-build-operate) for refuse transfer stations DBO (Design-build-operate) for refuse transfer stations

and a chemical waste plant. For waste plant, capital cost and a chemical waste plant. For waste plant, capital cost paid over 5years in monthly installments;paid over 5years in monthly installments;

DBO for landfills (including restoration and after care)- DBO for landfills (including restoration and after care)- capital costs paid in lump sums at milestonescapital costs paid in lump sums at milestones

Build Operate Transfer Build Operate Transfer (BOO)(BOO)

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Definition: Definition: city owns the assets, but contracts with the city owns the assets, but contracts with the private sector for operations, maintenance and private sector for operations, maintenance and investment with a typical duration of 25 to 30 years.investment with a typical duration of 25 to 30 years.

Pros: Pros: potential for high efficiency in operations and potential for high efficiency in operations and investmentinvestment

Cons: Cons: requires considerable commitment and requires considerable commitment and regulatory capacityregulatory capacity

e.g. e.g. Water & Sanitation Manila (South Asian):Water & Sanitation Manila (South Asian): - - A 25-year water and sewerage concession began in A 25-year water and sewerage concession began in

Manila in 1997Manila in 1997 requires increase in water connections from 65% to requires increase in water connections from 65% to

100% of households within 10 years100% of households within 10 years requires increase in sewerage connections from 8% to requires increase in sewerage connections from 8% to

83% of households within 25 years83% of households within 25 years

ConcessionConcession

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Definition: the assets of a municipal Definition: the assets of a municipal utility are sold to the private sectorutility are sold to the private sector

Typical duration: indefinite, but may Typical duration: indefinite, but may be limited by a licensebe limited by a license

Pros: Pros: potential for high efficiency gainspotential for high efficiency gainsCons: Cons: requires credible regulatory requires credible regulatory

frameworkframeworkExample: England and WalesExample: England and Wales

Divestiture (Asset Sale)Divestiture (Asset Sale)

ConclusionConclusion

By ParticipantsBy Participants