Public Private Partnerships (PPP)
March 2012, Nathalie Leroy
Overview
Slide I.
Why public-private partnerships?
II.
What we mean by public-private partnerships
III.
The public-private partnership in Berlin
IV.
Slide 2
I.
Why public-private partnerships?
Slide 3
Overarching objectives for the municipality
To ensure excellent public utility services for citizens, businesses and industries
To maintain municipal control over pricing and fees, as well as investment policy
To preserve and create competitive jobs
To modernize by means of capital investments in municipal infrastructure
Slide 4
Reasons for public-private partnerships
Reduction in public debt and/or deficits by obtaining an advantageous purchase price or by reducing municipal subsidies (e.g. in the area of public transport)
Sustained improvements in efficiency by drawing on the expertise of private partners (purchasing, IT, technology, marketing, communications, legal, etc.)
Involvement of the private partner to help expand the business operations of the municipality beyond municipal borders
Public engagement of the private partner in the municipality
Slide 5
Adapting the PPP model to meet specific requirements
Depending on the requirements of the municipality, public-private partnerships can be adapted flexibly. For example, at the time the partnership is created, decisions can be made about how to distribute the gains in efficiency resulting from reorganization to the various participants (the municipality, customers, employees, private partners): to
stabilize cash flows to municipal budgets despite ever more difficult market conditions. to
preserve competitive rates in order to maintain the viability of the utility business (long-term stability of prices and fees).
Slide 6
II.
What we mean by public-private partnerships
Slide 7
Our basic ideas about public-private partnerships (PPP) Veolia Environnement is a partner for municipalities
150 years of experience with public-private partnerships speaks for itself We have been active in Germany for over 20 years, and have some 22,000 employees engaged as service providers We assume business risks in order to assure the efficient provisioning of services Responsibility for public services remains in the hands of the municipalities
PPP model allows the systemic disadvantages of public organizational structures to be overcome By generating economies of scale By bringing in operational and technical know-how By leveraging market opportunities
Continuous efficiency improvement through incentive models Incentive models reward the private partner for good service and penalize poor service Building a foundation for long-term, high-quality services at affordable prices Veolia can be judged by the quality of its service Slide 8
“Fair play” is the foundation for successful public-private partnerships
Clear role assignments make for a trustful collaboration
“Public Sector”
The municipality has sole responsibility for setting objectives and conditions
Control for the performance of contracted services
Sovereignty over water rights and investment policy
Control for setting prices and fees
“Private Partner”
Brings its extensive know-how to the
collaboration
Assumption of operational risks (thus guaranteeing fixed fee proceeds)
Implementation of its labor management system with measurable targets
Establishment of incentive mechanisms is part of the cooperative model Slide 9
Level of operative responsibility for the private partner
Public-private partnerships are a flexible instrument – adapted to the needs of municipalities
Full privatization Full transfer Concession contract
PPP models provided by Veolia
With financing/ transfer of capital
BOT Model Lease/operational lease model
Operational management
Management Without financing/ transfer of capital
Service contracts Consulting 2
5
10
20
30
Contract period
Source: Water Guidelines, Document N°. 547, German Federal Ministry of Economics and Labor, Berlin 2005
Slide 10
Overview
Slide
III.
The public-private partnership in Berlin
Slide 11
The partial privatization model for Berlin’s water utilities company (BWB) was determined by the state of Berlin in 1999 Today’s partial privatization model was determined by the parties in power at that time and the responsible Senate administrations, and was approved by a majority of the Berlin Parliament.
Veolia and RWE won the international bidding process based on the partial privatization model defined by the state of Berlin.
Partial privatization solved major renovation and investment problems faced by the state of Berlin
The state of Berlin guaranteed the private partners that it would uphold the legal conditions of partnership over the long term.
*
* Der Spiegel, 40/1998
Veolia und RWE submitted the winning bid in an open bidding process Slide 12
Sources: Company Annual Reports
In the process of dismantling inefficient structures, it was in the best interests of all the Berlin utility firms to slim down
In accordance with its labor agreements (the so-called “contract of confidence”), BWB was barred from laying off workers for operational reasons
Slide 13
In Berlin, all guarantees related to services agreed upon in 1999 have been fulfilled or exceeded to date
Price moratorium: Cap on water rates through 2003
Employee commitment/ Contract of confidence: The private investors pledged to preserve employee rights and to refrain from layoffs for operational reasons. While this commitment was still binding, its term was extended to 2014
Center of Competence for Water: Founding of a non-profit research institution for assuring the highest levels of water quality and to undertake research projects
VEOLIA-Stiftung (The VEOLIA Foundation): Establishment of a non-profit foundation to support projects for preserving the environment, to create jobs, and promote social integration
Creating new jobs: Veolia Wasser Germany and Vivendi Universal Germany relocated their main headquarters to Berlin as a way of emphasizing the importance of the site for Veolia
SVZ (Schwarze Pumpe secondary recycling center): The private partners suffered significant debts during restructuring (as of December 31, 2009: €260 million)
Veolia has gone beyond the call of duty in providing contractually guaranteed
services and has taken on additional public and social responsibilities in Berlin Slide 14
Veolia takes social responsibility
Veolia has made good on it’s commitment to support Berlin with sponsorships and donations amounting to €17.8 million over the past 10 years
Slide 15
Research – Networking – Communication The Berlin Center of Competence for Water Objective: Applied research about water in cooperation with regional partners Veolia Wasser is the founder and majority shareholder of the Berlin Center of Competence for Water (KWB), an international center for water research and knowledge transfer in Berlin. At the center, scientists and experts work together with universities, research institutions, and corporations to identify practical solutions for water management. Since its inception in 2011, the KWB has over spent over €30 million on more than 50 projects.
Research areas: Groundwater:
well management and near-natural processes for water purification
Water
and wastewater technology: process optimization in biological wastewater treatment
Combined
wastewater and environmental effects: Monitoring, modeling, and prediction of contaminant input in surface water
Research budget: approx. €3 - 4 million per year
Since January 2006: Sponsorship of an endowed Professor of Urban Water Management at TU Berlin
www.kompetenz-wasser.de
Slide 16
The KWB in Figures Team 27 employees: from the fields of hydrogeology, process engineering, environmental technology, civil engineering, chemistry, and biology
Research volume: Project expenditures in the order of â‚Ź 31.2 million; Financing by Veolia: â‚Ź 1.8 million/year Over 50 Projects Research partners 50 national and international partner institutions Training 150 doctoral candidates, graduate students, and trainees Page 17
Berlin shareholding model
State of Berlin 50.1 % Veolia and RWE 49.9 %
RWE
Veolia
50%
50%
RVB
State of Berlin
50.1% 49.9%
100%
Silent Partnership I
BWH 49.9%
Silent Partnership II
BWB
BWB = Berliner Wasserbetriebe AÖR
BWH = Berlinwasser Holding AG
RVB = RWE / Veolia Berlinwasser Beteiligungs GmbH
Legal participation
Economic participation
100 %
Competitive business
Page 18
Partial Privatisation Key Points Key Points
Division between „regulated“ and competitive business
Instant payment of purchase price EUR 1.7 bn
Fixed prices until 2003 (in total: 4.32 EUR/m³)
Contractually guaranteed investments (EUR 250 m per year)
No dismissals until 2014
Founding of a centre of competence for water
Founding of a youth foundation (Veolia Foundation)
19
Management and control opportunities for the state of Berlin
The state and the private partners have an equal number of votes on the BWB Supervisory Board. The State of Berlin appoints the Chairman of the Board (currently, Senator von Obernitz) The State of Berlin nominates two of the four Management Board members. The remaining two members are nominated by the private partners. The Chairman of the Management Board is selected by the board and casts a vote in the event of a tie.
Increases in water prices can only be implemented with the agreement of the state’s representatives on BWB’s Supervisory Board. The rates must be approved by the Senate Administration for Health, the Environment, and Consumer Protection. The State of Berlin is under no legal obligation to compensate for water price increases that are not approved.
As majority owner, the state has substantial opportunities to participate in the management of BWB.
Supervisory Board
Management Board
Committees
Consortium Committee
Guarantors Meeting
Economic Committee
Personnel Committee
Mediation Committee
Directive Committee
Executive Committee
Committee Special Affairs
Investors
Employees
Berlin
Chair
Slide 20
Growth in tariffs for drinking water and wastewater has fallen significantly below projections made by BWB prior to partial privatization €/m³
Actual tariffs BWB vs. planned tariffs 1997 - 2010
6.00
5.60
Planned tariffs by 1997*
5.20
4.80
Actual tariffs since partial privatization
4.40
4.00 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
The actual lower real increase in the tariffs was only made possible by efficiencies initiated by the private partner
Rising tariffs are attributable to the negative growth in consumption and to major cost factors
* Forward projection of the planning only by inflation since 2007
Slide 21
Income in € / thousands
2007
2008
2009
2010
Special utilization fee (Concession fee)
14,800
14,800
23,955
17,855
Groundwater abstraction fees and wastewater fees
63,334
67,163
65,004
66,072
Profit distribution to the State of Berlin
148,849
110,141
132,675
121,582
Total income for the State of Berlin
226,983
192,104
221,633
205,509
Profit transfer to RWE and Veolia after taxes
169,115
118,484
122,259
112,340
* Source: Annual Reports BWB and Veolia data
Division of income between the state and the private partners
The State of Berlin is deriving substantial profits. Since partial privatization, it has gained profits of €3.5 billion from the public-private partnership
Slide 22
BWB has made a large contribution to relieving budgetary stress
Earning from all shareholdings held by the state of Berlin and shares in BWB* Millions of â‚Ź 600
400 200
Shareholding proceeds for Berlin (all investments)
0 2002
2003
2004
2005
2006
2007
2008
2009
-200 -400
Berliner Wasserbetriebe ** (Berlin water utilities company)
-600 -800
* Source: Shareholding reports of the state of Berlin ** After payment of dividends to the private partners and without taxes, concession fees, or water abstraction charges
Slide 23
Investments in the quality of water and wastewater treatment
800
In millions of €
700
future slight increases in the level of self-financed investments
600
500 400 300 200 100 0
1990
1992 Water
1994 Wastewater
1996
1998
2000
2002
2004
2006
2008
2010
Self-investment and outside investments
In the 12 years since partial privatization, €3.56 billion has been invested in water and wastewater treatment by BWB. All commitments for capital investments have been exceeded.
BWB continues to make larger annual investments per m³ of water than other German water companies
The investments become part of the fixed assets that remain usable over the long term and can be depreciated over long time periods.
At least 25% of annual revenues must be reinvested. Slide 24
Investments in water and wastewater systems create jobs and promote employment in Berlin
Most of the annual capital investments of €280-290 million in water and wastewater systems directly benefit contractors in the region
In 2009, under the management of the private partner, 85% of total goods and services purchased by BWB (amounting to €324 million) were obtained from within the region
BWB spending assures a steady income and employment for large numbers of individuals in the region
Slide 25
Berlin benefits from a high level of water-supply reliability
Ost Gesamt West
Source: WIK study
Pipe breakage rates at BWB
since the partial privatization the rate of pipe bursts within BWB's grid has sank by 27%
within the same time frame the quota of water loss has been decreased to an average of 5,2%
Maintaining the security of supply is in Veolia’s interest, because if unpurified water were to enter Berlin’s drinking water supply today, it would require expensive reprocessing Slide 26
Berlin’s drinking water and wastewater treatment are of the highest quality
Berlin enjoys drinking water of outstanding quality
BWB has invested over €900 million in the last 10 years in modernizing the drinking water infrastructure
Berlin’s wastewater treatment meets the highest quality requirements and has further improved since partial privatization
The purification processes used by BWB result in quality levels that far exceed European norms
Since partial privatization, BWB has grown into a leading utility company in matters of water quality and excellence in wastewater treatment
Slide 27
Since partial privatization, BWB has become a trendsetter in the training of young employees
Quelle: WIK Studie
Growth in the training rate and number of trainees
Training rate in %
Trainees
ďƒ¨ The training rate at BWB has steadily increased under management by the private partners
ďƒ¨ The training rate across all of Veolia Wasser’s firms in Germany is over 8% Slide 28
We have been able to mitigate price increases driven by falling demand for water
Drinking water Waste water
Increased expenses arising after reunification – due to higher capital investments – had to be covered through increased rates and fees. 80% of such costs were unrelated to the quantity of water consumed.
To calculate water prices, capital expenses were applied to the quantities of water consumed.
Since 1989, drinking water consumption has fallen by 45%. As a result, fixed costs (which account for 80% of BWB’s operational costs) have to be distributed despite a significantly smaller quantity of water, resulting in increased prices per liter or m3.
The annual per capita expenditures* for water and wastewater in Berlin has not risen since partial privatization.
*adjusted for inflation
Slide 29
Willingness to update the contractual agreements
For Veolia, the fact that contracts established for long periods might need to be adjusted in the face of new developments and the wishes of the partners is nothing unusual. Adjustments have already taken place on multiple occasions in Berlin.
When requests for modifications were expressed by the State of Berlin, the private partners offered to open negotiations with the State of Berlin in November 2009.
The BKartA (German Federal Anti-Trust Office) monitors the appropriateness of drinking water prices. Moreover, legal clarification is pending as to whether the Anti-Trust Office should be responsible in the first place for this kind of price monitoring at BWB.
New negotiations with the Land of Berlin are pending. The aim is to clarify the terms of
cooperation following the withdrawal of RWE, the other contractual partner. Veolia is broadly prepared to engage in dialogue and negotiations about this matter. Negotiations are to address, among other things, future changes in rates as well as the ongoing qualitative development of BWB – for example, in relation to sustainability and environmental protection.
Slide 30
Thank you for your attention! Kontakte: Veolia Wasser GmbH Lindencorso Unter den Linden 21 10117 Berlin Tel. 030 20 629 56-0 Fax 030 20 629 56-31 Berlin@veoliawasser.de
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