75801 January 2012 PPIAF Assistance in the Republic of Mauritius The Republic of Mauritius (Mauritius) is an island located in the Indian Ocean, east of Madagascar. Its reputation as a stable and democratic country plays an important role in attracting considerable foreign investment. In 1968 Mauritius graduated from a low-income, agriculturally-based economy to a middle- income diversified economy with growing industrial, financial, and tourist sectors. To mitigate the effects of external threats such as the 2008 financial crisis, the government of Mauritius continues to find innovative ways to maintain the pace at which the economy is growing. Doing so entails strengthening the enabling environment to ensure private investors remain in the country. At the request of the government of Mauritius, PPIAF has provided technical assistance to scale up public-private partnerships (PPP), to strengthen the public utilities regulator, and to enhance private sector participation in the water sector. Technical Assistance for Enabling Environment Reform in Mauritius In 2003 the government of Mauritius decided to reform the country’s public utilities, with a view of increasing coverage and efficiency, by promoting commercialization and private sector participation (PSP). One of the key elements of the reform was the introduction of a modern regulatory framework for public utilities services. The policy to create the Utility Regulatory Authority—an autonomous entity with jurisdiction for water, sanitation, and electricity—was adopted by the government, but was not implemented at that time. The regulatory body was identified by the government as an essential part of the enabling environment for the introduction of PSP in water and sanitation services, which was a key objective of the government, given the low level of service quality and coverage and issues with the sustainability of public services on the island. PPIAF was approached by the government of Mauritius in 2003 to support the establishment and institutional strengthening of the Utility Regulatory Authority through assistance to develop the strategy, policies, and operational procedures, and to build the capacities of the regulatory body. The objectives of the activity were three-fold: creation of the Utility Regulatory Authority with key organization and structure in place; incremental strengthening of the institutional capacity of Utility Regulatory Authority, in terms of technical expertise, public credibility, sustainability, and autonomy from governmental interference; and, in the medium-term, successful closing of the proposed transaction for water PSP will provide a useful test of the credibility of the new regulatory framework with international investors and the financial community. A strategy paper was delivered and approved by the government of Mauritius. However in 2005 the government chose not to set up the regulatory agency. As a result, the outcomes of the activity were only partially achieved. Results of PPIAF’s Support to Enabling Environment Reform in Mauritius Category Outputs Enabling environment reform  Strategy for the establishment of the Utility Regulatory Plans/strategies prepared Authority, January 2004 Category Outcomes Enabling environment reform  Strategy for the establishment of the Utility Regulatory Plans/strategies adopted Authority was adopted by the government, July 25, 2005 1 Technical Assistance for the Water and Wastewater Sectors in Mauritius Following an unsuccessful attempt to establish a management contract with a consortium Vivendi/Suez- Lyonnaise des Eaux in 2000, the government of Mauritius decided to conduct a wide-ranging analysis of the various options for water and wastewater services to identify the best long-term PSP option. PPIAF approved a follow-up grant in 2003 to support the government’s efforts to enhance PSP in the water and sanitation sectors. The overall objective of the PPIAF activity was to complement and provide specific demand/tariff inputs to the due diligence process for water and sanitation PSP, to be carried out under the coordination of the International Finance Corporation (IFC), which was selected by the government to serve as lead transaction advisor on strategic options to pursue in the water and sanitation sectors. To foster the sustainability of PSP, the government of Mauritius committed to set water and sanitation tariffs at reasonable levels for the population, while ensuring a satisfactory return on investment for the future private operator. Establishing the right balance was particularly challenging in Mauritius, given the high level of investments needed for the near future. In this regard, some form of public subsidy was necessary to smooth out the impact on tariffs for the required investments and to ensure that people benefit from sustainable and reliable access to high-quality water and sanitation services. The PPIAF grant paid for a willingness-to-pay study for water and sanitation services in Mauritius, using a combination of revealed preference and contingent valuation surveys. The study aimed to assess the potential impact of adjustments in tariff levels and structures on demand, which would be instrumental for the design of potential subsidy schemes (including output-based aid) to be introduced into the proposed PSP transaction. This activity sought to provide comprehensive information for establishing an optimum tariff structure within the PSP option to be selected, that would be widely accepted by the population, and could include some innovative PSP schemes built around channeling public funds within an output-based aid framework. Considering a scenario where tariff levels were increased, the main findings of the study included:  Over half of the domestic users were willing to pay more for their water services if they received water that was always safe to drink directly from the tap, 24 hours a day, with good pressure and no seasonal variations  The willingness-to-pay analysis indicated that only the households in the highest income bracket were better off with the reform, whereas the households in the lower income bracket would have to pay more than they were willing to  The demand for water would likely decrease by 30% because of the increased tariff, and the total billable amount for water and wastewater services would increase by 55%  Households would get better access to water and easier disposal of wastewater Based on the results of the due diligence process conducted by IFC, and the findings of the willingness- to-pay study funded by PPIAF, it was concluded that the best option for the wastewater sector was a management contract between the government of Mauritius and a private sector operator. The best feasible option for the water sector was an enhanced affermage or concession contract. These recommendations were adopted by the government in February 2004. However, no PPP arrangement has been implemented in the water sector since the activity concluded in 2005. In September 2008 Berlinwasser International, Germany’s leading service provider concentrating on water supply and wastewater disposal systems, won a seven-year management contract (operations and 3 1 maintenance) for a 70,000 m /d wastewater treatment plant in Mauritius. The total size of the management contract was 463,579,247 Mauritian Rupees or US$16 million. 1 http://www.gwpsa.org/docs/FFA/GWP%20-%20FFA%20Proceedings%20MAURITIUS.pdf 2 Results of PPIAF’s Activities in the Water and Wastewater Sectors in Mauritius Category Outputs Enabling environment reform  Analysis of Willingness-to-Pay and Demand for Water and Analyses/assessments prepared Sanitation Services in Mauritius, February 2004 Category Outcomes Project cycle-related support  2 Seven-year, $16 million contract awarded to Berlinwasser International in 2008 for the operation and maintenance of a Transactions facilitated 3 70,000 m /d wastewater treatment plant in Mauritius, September 2008 Technical Assistance to Support PPPs in Mauritius In the 1990s Mauritius tried to implement numerous PPP projects and establish a strong legal and institutional framework for PPPs. Pilot PPP projects were promoted in a number of sectors including independent power projects, a private flour mill, and a wastewater plant. Additionally, the Mauritian government took important steps to establish a legal and institutional PPP framework, including the passing of the Concession Projects Act in 1997 (repealed in 2001 and replaced by the PPP Act in 2004). The PPP Act was amended in June 2008 to set up a PPP Committee and provide for unsolicited bids. In 2008 the Mauritian government requested follow-up assistance from PPIAF to help improve the framework for PPPs and strengthen the pipeline of PPP projects in strategic sectors. The objective of the activity was to conduct a full assessment of the institutional and legal framework for PPPs in Mauritius, and to assess the financial and commercial viability of a list of potential PPP projects identified by the Mauritian authorities. The activity also aimed to support the PPP Unit in the development and management of PPP transactions. PPIAF support was well-appreciated by the government of Mauritius as it helped uncover and address weaknesses in the existing legal and institutional PPP framework. The study found significant confusion within the government entities and local private sector about the goals, roles, and overall process for the development of PPPs. This led to major constraints to the implementation of PPP projects in Mauritius. The PPIAF-funded report not only described and analyzed the major PPP-related issues, but also identified potential options for addressing each issue and recommended an action plan for implementing these options. Two options were recommended to improve the PPP framework: design and pass a new PPP Act, or issue ministerial amendments to the 2004 PPP Act through administrative procedures such as the issuance of a ministerial decree. Although it would be more challenging and time-consuming to complete, the passing of a new the PPP Act was selected as the best option for addressing both the immediate legal constraints to current PPP projects, as well as for addressing the longer-term obstacles to the development of PPPs in Mauritius. The following recommendations were also made to improve project preparation and evaluation processes: remove the Central Procurement Board from the PPP procurement process to eliminate a layer of decision-making constrained by limited experience with PPP output standards and evaluation criteria; strengthen the PPP Unit with ready access to professional advisers to better manage projects from preparation through completion; enhance capacities within the PPP Unit on techniques such as capital appraisal and cost-benefit analysis; and develop a 2 Based on procurement document: http://www.gov.mu/portal/goc/pposite/file/dec0409.pdf 3 comprehensive PPP manual of procedures, guidelines, and instructions, including template forms and standardized contract provisions to streamline and accelerate steps in the PPP project cycle. Given the government of Mauritius’ high interest in PPP projects and the constraints that PPP projects currently face, the report also recommended the development of a general legal framework including clear and consolidated regulations, procedures, and guidelines for implementing PPP projects. The second output of the activity consisted of a n assessment of a ―long list‖ of ten potential PPP projects in various sectors. Each project was reviewed and analyzed to assess if it would make suitable candidate for further preparation and implementation through a PPP arrangement. The assessment recommended strategic actions for undertaking the next steps for the detailed analysis, risk-structuring, review, and possible tendering of each PPP candidate project. Some of the candidate PPP projects identified through this activity are now at procurement phase, and are expected to be implemented in the 2012–2015 period. For instance, the construction of the fish market at Fort Williams was completed in June 2011, and a private operator is expected to be selected in mid-2012 to lease and operate the facility. A training program on PPPs was delivered in August 2009 to staff from the PPP unit, Ministry of Finance and Economic Development, and technical ministries. Results of PPIAF’s Support for the Development of PPPs in Mauritius Category Outputs Enabling environment reform  Review and analysis of the legal and institutional framework for Analyses/assessments prepared PPPs in Mauritius, March 15, 2010  Strategic plan for the development of ten potential PPP Plans/strategies prepared projects, March 15, 2010 Capacity and awareness building  Training program on PPPs delivered to staff from the PPP unit, Workshops/seminars Ministry of Finance and Economic Development, and technical ministries, August 2009 Category Outcomes Enabling environment reform  Strategic plan for the development of ten potential PPP projects Plans/strategies adopted adopted by the PPP Unit and government officials, May 2010  Mauritian PPP Unit was strengthened to improve the Institutions created or institutional processes for the development of PPP strengthened transactions, August 2009 to May 2010 Capacity and awareness building  Capacities of staff from the PPP unit, Ministry of Finance and Economic Development, and technical ministries were Technical capacity enhanced enhanced on how to develop and implement PPP transactions, August 2009  Consensus reached on the choice of ten potential projects to Consensus achieved be implemented as PPPs, May 2010 4 Looking Ahead: PPIAF and the PPP Agenda in Mauritius Mauritius has one of the most successful and competitive economies in Africa. In 2010 gross domestic 3 product at market prices was estimated at $9.5 billion and per capita income at $7,420 . To build on this good economic performance, the Mauritian government plans to improve the country’s infrastructure to attract more businesses and boost its tourism sector. Since PPIAF has supported the strengthening of Mauritius’ PPP enabling environment, it can provide technical assistance to ensure good preparation and implementation of PPP projects in the transport and energy sectors, both of which are priorities for the Mauritian government. 3 http://www.state.gov/r/pa/ei/bgn/2833.htm 5