Water and Sanitation Program: REPORT Benin – Innovative public private partnerships for rural water services sustainability - A Case Study Sylvain Adokpo Migan with Tremolet Consulting June 2015 Author: Sylvain Adokpo Migan with Tremolet Consulting The Water and Sanitation Program is a multi-donor partnership, part of the World Bank Group’s Water Global Practice, supporting poor people About the authors: Sylvain Adokpo Migan, Senior water in obtaining affordable, safe, and sustainable access to water and and sanitation specialist, is the Country Work Program sanitation services. WSP’s donors include Australia, Austria, Denmark, Coordinator for Benin based in Cotonou (Benin - West Finland, France, the Bill & Melinda Gates Foundation, Luxembourg, Africa). He is leading Benin small scale piped water schemes Netherlands, Norway, Sweden, Switzerland, United Kingdom, United inclusive business support project, in establishing jointly States, and the World Bank. with IFC, innovative PPP concessions for water supply and sanitation service delivery. Disclaimer The findings, interpretations, and conclusions expressed herein He is leading the World Bank Group Water Global Practice are entirely those of the author and should not be attributed to the engagement in this country while contributing to Bank World Bank or its affiliated organizations, or to members of the Board strategic support for domestic private sector participation of Executive Directors of the World Bank or the governments they for sustainable service delivery, with the needed institutional represent. The World Bank does not guarantee the accuracy of the arrangements and regulatory mechanisms. This work is data included in this work. The boundaries, colors, denominations, and generating learning in terms of innovative uses of business other information shown on any map in this work do not imply any to business (B2B) options for water Business Service judgment on the part of the World Bank concerning the legal status of Development to the poor. any territory or the endorsement or acceptance of such boundaries. He is a team member, currently supporting similar initiatives Copyright Statement and operations in other countries in Africa and Latin The material in this work is subject to copyright. Because The World America. Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long Photo Credits: Sylvain Adokpo Migan (World Bank/WSP) as full attribution to the work is given. © 2015 International Bank for Reconstruction and Development/The World Bank Benin – Innovative public private partnerships for rural water services sustainability - A Case Study Sylvain Adokpo Migan with Tremolet Consulting June 2015 Foreword As the Millennium Development Goals (MDGs) come Benin is one of the countries that has sought participation of to a close and countries begin to consider Sustainable the private investors in the water sector, and this case study Development Goals (SDGs) moving forward, there is a demonstrates the potential impact of the Benin experience. certain urgency around making water supply services more Against the backdrop of a private-public-partnership (PPP) sustainable and their investments longer-lasting. This is the legal framework, piped rural water systems are increasingly case in many rural parts of Africa where today’s villages are being managed by private entrepreneurs under an affermage quickly becoming tomorrow’s small towns and an improved arrangement with municipal councils. Under the terms system for developing piped water schemes is needed. of subsidized concession contracts, these private sector entrepreneurs are providing service as well as re-investing Although 63% of the population in Sub-Saharan Africa their own private resources for significant system expansions continues to be rural, accelerated urbanization is underway and increasing household connections. In this way, Benin across the continent and many rural growth towns are has developed an arrangement for service provision that has quickly becoming denser. In the recent decades, the average the potential of moving rural water supply along the path Sub-Saharan Africa main city typically experience persistent towards sustainability as well as introducing a mechanism annual urban growth rates of 5 to 6 per cent, while some for capturing private resources for system expansion. cities saw annual growth rates in excess of 10 per cent, implying population doubling every decade. As these This case study provides evidence of the possibilities for populations increase, so does the complexity with regards to attracting private sector engagement in piped rural water the sustainable provision of water supply. This requires a shift systems, and also clearly lays out some of the on-going from the community water boards that were championed for sustainability challenges. There is an important learning rural water supply systems a decade ago, to a recognition that opportunity for the rest of Sub-Saharan Africa to develop more professionalized, dedicated management of piped rural similar PPP schemes to address the challenges with a greater water systems are becoming necessary in order to overcome emphasis on sustainable services that evolve together with hurdles of water treatment, network rehabilitation, expansion the changing demands of rural populations. in coverage, and cost recovery. In addition, the advent of the SDGs is also highlighting an important global debate around domestic financing for development. Increasingly, there is a recognition that development challenges will require a much broader effort in terms of domestic financing, including more strategic, Olivier P. R. Fremond, performance-based investment decisions by the public Benin Country Manager. sector, as well as the crowding-in of investments from domestic private sector and households. A World Bank study conducted in 2009 in sub-Saharan Africa highlighted promising contribution of the private sector in the water sector. The findings indicated that the private sector participation has resulted into a 54% increase of household connections per private sector operators, 18% increase of Glenn Pearce-Oroz the volume of water distributed, and a 41% increase in the Principal Regional Team Leader for Africa number of hours of service per day. Water and Sanitation Program (WSP). ii Acknowledgements The World Bank Global Practice Technical Assistance This case study is based on data and reports from the project upon which this case study was based was prepared implementation of “Benin small scale piped water schemes by a team from the World Bank made up of staff from inclusive business support project (P132114)” developed the Water and Sanitation Program (WSP)—a multidonor jointly with IFC C3P. The project Team members were partnership administered by the World Bank—and the Sylvain Adokpo Migan, Mehita Sylla (Senior Investment International Finance Corporation (IFC). Officer), Jane Jamieson (World Bank Group PPP Group), David Bot Ba Njock (IFC) and Monyl Toga (IFC). This report was written jointly by Sylvain Adokpo Migan (Sr Water and Sanitation Specialist World Bank Water The authors are particularly thankful to Benin Ministry Global Practice - WSP), and Consultants from Tremolet of Water representatives who shared their knowledge of Consulting, London Sophie Tremolet, Goufrane the sector with us, especially Mr Mamadou Gado (Chef Mansour and Fatahi Amoussa. Sylvain Adokpo Migan Service Développement Local) and Mr Thierry Helsens and Mehita Sylla (Senior Investment Officer, IFC) served (PPEA, COWI). We are also very grateful to all municipal as task team leaders. Study team members included representatives in Zogbodomey, Gogounou, Sakété and Jemima Sy (Sr Water and Sanitation Specialist, WSP). Pobè for the discussion we had and for sharing all relevant The report was prepared under the direction of Glenn documents. We are thankful to the private operators Pearce-Oroz, WSP Principal Regional Team Leader for who shared with us details about their activities and Africa, Olivier P.R. Fremond, Benin Country Manager, expressed their views on the project, particularly Delcos and Jyoti Shukla, Senior Manager, Water and Sanitation Consult, CoGeFi and Ogo-Olouwa-Kitan. We wish Program (WSP). to thank Ecobank staff for their time, particularly Mrs Sandra Chankouin (Head Value Chain). We also thank Peer reviewers within the World Bank Group included Mr Dorothé Gounon (General Director) and Mr Marius Carla M.N. Faustino Coelho, Senior Investment Officer, Kouchoelo (Head of Department) from CePEPE for their CASPA, Jean-Martin Brault, Water & Sanitation Specialist clarifications and all staff at the Dutch Embassy. and Philippe Marin (Senior Water & Sanitation Specialist, GWADR). Editorial support was provided by Eric Lugaka (Copyeditor). www.wsp.org iii Executive Summary Over the past decade, the Government of Benin has made will be mobilized from domestic private sources for the great strides to professionalize the management of piped 10 sites and create at least 1,071 new connections within water systems (PWS) in rural areas and small towns. Since two years of implementation. In total, an estimated 48,500 2007, the sector actively supported the implementation people should gain improved access to water services public-private partnership (PPP) contracts for operating through these contracts. These results went beyond the PWS. The sector introduced an affermage-type PPP model initial objectives that the sector had set. to connect decentralized municipalities and small-scale private operators (POs). The number of PWS managed This promising outcome is the result of four years of through an affermage contract went from 1 in 2007 to 269 activities designed to tackle the challenges that the (57% of the total number of PWS) in 2014. These 269 sector was facing. The GoB, through the Ministry of PWS under affermage deliver water services to an estimated Water (MERPMEDER) implemented these activities in 1.7 million people (28% of the population). partnership with WSP, International Finance Corporation (IFC) and the Dutch Embassy. Strengthening the Despite this rapid growth, the implementation of the professionalization of water services in small towns required affermage model faced serious challenges, as highlighted the following: in a 2010 diagnostic study commissioned by GoB with • Designing a PPP model adapted to local realities; funding from the Water and Sanitation Program. The • Building the capacity of stakeholders involved, both implementation of affermage contracts was hampered by a on the public and private side, for entering into an number of factors including: enhanced PPP; • Municipalities do not have an accurate knowledge of • Facilitating access to finance in order to strengthen their assets; POs’ financial basis and enhancing commercial rigour • Municipalities lack technical, monitoring and in the management of PWS; financing capacity; • Mobilizing public funds to carry out network • POs have limited technical skills, lack experience rehabilitation, extensions and densification (in addition with the tendering process and have limited access to to the funds required for designing the PPP model); finance to carry out required investments that would • Introducing an innovative monitoring tool that can make the management of PWS more profitable; benefit both the public and private sectors. • The contractual framework did not provide enough incentives for POs to perform; and At the core of these activities lies the strengthening of • The tender process was obstructed by political agenda the professional management of PWS so as to ensure the or personal interests. sustainability of investments carried out in the sector. The findings from this diagnostic provided the basis As part of the enhanced PPP model, the subsidized for launching reforms to enhance the sustainability of concession was introduced following due diligence studies rural water services, with support from WSP. The main that assessed the technical, legal and financial conditions objective of these reforms was to improve the contractual of PWS management on the selected sites. The subsidized arrangements between decentralized municipalities and concession model introduces investment obligations for POs and to test an enhanced PPP model on a number of the POs, which allows leveraging limited public funding, selected PWS over Benin. and therefore transfers a portion of the risks to the POs. Transferring such responsibilities to the POs can potentially The reforms led to the implementation of four 8-year improve service delivery as they can more closely match subsidized concession contracts for 10 PWS in three investments to actual demand, and therefore be more municipalities with three different private operators. WSP demand-responsive. The profitability of the contractual and IFC estimate that the four transactions will generate a arrangement is enhanced by the expected increase in water total investment of USD 1 million of which USD 277,000 sales volumes due to an increase in household connections. iv Benin – Innovative public private partnerships for rural water services sustainability- A Case Study | Executive Summary In these contractual arrangements, a cluster of several (2 These results support the recommendation that the rural to 3) PWS is tendered under one contract. Among other water sector in Benin should carry on with reforming the advantages, clustering enables reducing transaction costs, management of PWS and scale-up the enhanced PPP including within the cluster PWS that are less profitable, model beyond the pilot phase. The key recommendations making the transaction appealing to the POs who are for the scaling-up of these activities are: to strengthen attracted by bigger water sale volumes and attracting the monitoring framework of rural water services, commercial banks by proposing larger transactions. and introduce a robust monitoring of the subsidized concessions that will feed as lessons for the design of new The four contracts were successfully tendered following a PPP contracts; to strengthen the DG-Eau regulatory unit two-stage procedure: a prequalification stage to screen the in order to update the guidelines for tariff setting and candidates technically and financially able to enter into benchmarking POs’ performance; setting up a national a concession agreement (and carry out the investments water sector financing facility to channel CAPEX funding required) and a qualification stage. The RfP indicated that to municipalities and POs – the sources of funds for this candidates must finance at least 10% of the works and that facility should be a combination of tariffs and domestic the winning bid would be awarded to the PO requesting taxes (both at national and local levels); and to consider the lowest level of subsidies. Such a bidding method sanitation and hygiene as well as water supply - this will enables enhancing value for money on CAPEX as well as be particularly important for small-towns where access incentivizing POs to invest. to greater quantities of water is provided through an increase in household connections. In such circumstances, POs’ contributions reached an average of 27% of overall adequate solutions to deal with wastewater must urgently works costs, exceeding expectations. The overall subsidy be found in order to avoid health risks. requested by the POs was FCFA 368,441,735 (equivalent to USD 759,442 as of August 2014) when the Transaction Support Report (TSR) anticipated a GoB contribution of FCFA 475.7 million, representing 90% of anticipated works costs. www.wsp.org v Abbreviations and Acronyms AFD Agence Française de Développement O&M Operations and Maintenance AFEB Association Fédérative des gestionnaires OGEB Directorate of Planning and privés de réseaux d’Eau du Bénin Management of Water ANCB Benin National Municipalities’ PADEAR Projet d’Assistance au Développement du Association (Association Nationale des secteur de l’alimentation en Eau potable et Communes du Bénin) de l’Assainissement en milieu Rural BDI Base de Données Intégrée PO Private Operator BDS Business Development Support PPC Public Procurement Commission BPO Budget Programme par Objectifs PPEA Programme Pluri-Annuel Eau et CAPEX Capital Expenditure Assainissement CePEPE Centre de Promotion et d’Encadrement des PPP Public Private Partnership Petites et Moyennes Entreprises PRPP Individual Responsible for Public CONAFIL National Commission of Local Finance Procurement DANIDA Danish International Development PRSP Poverty Reduction Strategy Paper Agency PSP Private Sector Participation DG-Eau Direction Générale de l’Eau PSRC Poverty Reduction Support Credit DPS Domestic Private Sector PWS Piped Water Schemes DPSE Directorate of Programming and S-Eau Services de l’Eau Monitoring and Evaluation SAEP-MR Rural Water Supply Services EOI Expression of Interest SDCSAEP Community Development and Strategy FADeC Fonds d’Appui au Développement des Services Communes SHAB Service de l’Hygiène et de l’Assainissement FCFA Franc CFA de Base FONAGA Fonds National de Garantie et d’Assistance SHU Urban Hydraulic Services aux Petites et Moyennes Entreprises SMEs Small and Medium size Enterprises GoB Government of Benin SNV Stichting Nederlandse Vrijwilligers HC Household Connection (Netherlands Development IFC International Finance Corporation Organization) IFC Société Financière Internationale SONEB Société Nationale des Eaux du Bénin IVA Independent Verification Agent SSA Sub-Saharan Africa IWRM Integrated Water Resources Management STEFI Suivi Technique et Financier KfW Kreditanstalt für Wiederaufbau TA Technical assistance (Development Bank) TOR Terms of Reference LPCD Litres per Capita per Day TSR Transactions structure report MDG Millennium Development Goal UEMOA Union Economique Monétaire Ouest MERPMEDER Ministère de l’Energie, des Recherches Africaine Pétrolières et Minières, de l’Eau et du WBG World Bank Group Développement des Energies Renouvelables WP Volume of water produced MoF Ministry of Finance WSP Water and Sanitation Program MOHP Manually-Operated Hand Pump WSS Water Supply Services MWE Ministry of Water and Energy WUA Water User Association NGO Non-Governmental Organisation vi Table of contents Foreword...........................................................................................................................................................................ii Acknowledgements..........................................................................................................................................................iii Executive summary..........................................................................................................................................................iv Abbreviations and acronyms.............................................................................................................................................vi I. Introduction.............................................................................................................................................................1 1.1 Background and case study objective.............................................................................................................1 1.2 Case study structure.......................................................................................................................................1 II. Context for PSP in rural water services in Benin...................................................................................................3 2.1 Benin’s socio-economic background...............................................................................................................3 2.2 The state of water and sanitation services.......................................................................................................3 2.3 Administrative set-up: the decentralisation process.........................................................................................3 2.4 Legal and institutional frameworks for water services......................................................................................5 2.4.1 Legal framework..................................................................................................................................5 2.4.2 Institutional roles and responsibilities....................................................................................................5 2.5 Rural water sector policies..............................................................................................................................6 2.6 Supporting the professionalization of rural water services................................................................................7 2.6.1 Achievements under PADEAR..............................................................................................................8 2.6.2 The adoption of a programmatic approach in the 2000s......................................................................8 2.6.3 “Initiative Eau”: 2010 diagnostic and new management models for PWS.............................................9 2.7 Options for PWS professional management..................................................................................................10 2.7.1 Main features of the affermage contracts............................................................................................10 2.7.2 Early successes: the rapid spread of affermage contracts..................................................................11 2.7.3 Identifying the limits of the professional management models.............................................................12 III. Strengthening the PPP model for rural water services in Benin.........................................................................15 3.1 Overview of the approach..............................................................................................................................15 3.2 Key components for strengthening the PPP model........................................................................................15 3.3 Key activities to support the public sector.....................................................................................................18 3.4 Key activities to support the private sector....................................................................................................20 3.5 Mobilizing public funding and facilitating access to private finance.................................................................20 IV. Subsidized concession contracts: how did it work?...........................................................................................23 4.1 Preparing the transaction: site identification and due diligence......................................................................23 4.1.1 Pre-identification of pilot sites.............................................................................................................23 4.1.1 Technical due diligence and investment plans....................................................................................24 4.1.2 Institutional and legal due diligence....................................................................................................25 4.1.3 Financial due diligence.......................................................................................................................27 4.2 Contract design: the proposed “subsidized concession” model....................................................................28 4.3 Designing the tender procedure....................................................................................................................30 4.4 Conducting the transaction...........................................................................................................................33 4.5 Early results following contract signing..........................................................................................................34 4.5.1 Works progress..................................................................................................................................34 4.5.2 Managing the demand for household connections.............................................................................34 www.wsp.org Impact Assessment Report vii Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Table of contents V. Key lessons...........................................................................................................................................................36 VI. Recommendations for scaling-up........................................................................................................................40 6.1 The potential scope for a scale-up................................................................................................................40 6.2 Potential activities under the scale-up............................................................................................................41 6.2.1 Technical assistance or software component.....................................................................................41 6.2.2 Hardware investments........................................................................................................................43 6.3 Options for a project financing framework.....................................................................................................43 6.4 The main risks for the scale-up......................................................................................................................44 Annexes Annex A: Glossary of key terms....................................................................................................................................45 Annex B: Municipal responsibilities following decentralization........................................................................................46 Annex C: Key dates......................................................................................................................................................49 Annex D: Key materials and tools developed by the project...........................................................................................52 List of Boxes Box 1: CePEPE: a key actor in private sector development.........................................................................................8 Box 2: PPEA 2’s work for strengthening municipalities’ institutional capacity.............................................................15 Box 3: mWater: What is it and how does it work?.....................................................................................................19 Box 4: mWater: A difficult shift, especially for POs.....................................................................................................21 Box 5: Key differences between the subsidized concession and an OBA model........................................................31 List of Figures Figure 1: Drinking Water Trends in Benin (1990-2012).....................................................................................................4 Figure 2: Financial flows under the bipartite affermage contract....................................................................................11 Figure 3: Total number of PWS against number of PWS under affermage.....................................................................12 Figure 4: Overview of WSP’s inclusive technical assistance: main components.............................................................17 Figure 5: Timeline for designing and letting the subsidized concessions........................................................................23 Figure 6: Site selection: 10 PWS in three municipalities: Gogounou, Sakété and Zogbodomey.....................................25 Figure 7: Financial flows under the concession contract in the first two years of the contract........................................32 Figure 8: Extension and connection works in Makpohou (Sakété) in February 2015......................................................35 Figure 9: How FADeC works.........................................................................................................................................47 List of Tables Table 1: National guidelines for water infrastructure in rural areas..................................................................................5 Table 2: Project financing............................................................................................................................................21 Table 3: PWS selected for pilot testing the PPP model................................................................................................25 Table 4: The three investments options submitted to GoB and cost estimates............................................................26 Table 5: Winning bidders and their financial contributions............................................................................................34 Table 6: Activities for strengthening the PPP model in rural areas and potential challenges in the scaling-up phase.....37 viii I. Introduction 1.1 Background and case study objective which USD 277,000 will come from domestic private Over the past decade, the Government of Benin (GoB) sources for the 10 sites and create at least 1,071 new has made great strides to professionalize the management connections within two years of implementation. In of piped water systems (PWS) in rural areas and small total, an estimated 48,500 people should gain improved towns, including through Public-Private Partnership access to water services through these contracts, surpassing (PPP) contracts. Today, 269 out of 473 PWS, delivering original expectations. water services to an estimated 1.7 million people (28% of the population) across the country, are under affermage- The objective of the present case study is to extract lessons type contracts binding decentralized municipalities with from these pilots and the reforms implemented by the GoB private operators (POs). In 2010, a diagnostic study for improving the sustainability of rural water services. commissioned by the GoB revealed a number of challenges These lessons are relevant for stakeholders involved in Benin faced by POs and municipalities involved in affermage rural water supply as well as for an international audience contracts. The study highlighted the weak capacities of seeking to improve the delivery of water services in rural areas stakeholders involved (both on the private and public side), and small towns in other countries. the limited funds available for carrying out asset renewal and service expansion as well as an imbalance in risks and 1.2 Case study structure responsibilities in the contracts. This case study is structured as follows: • Section 2 presents the context for private sector Following the GoB’s request, the Water and Sanitation participation (PSP) in water services in Benin, including Program (WSP) initiated a pilot project seeking to the status of water and sanitation services, the recent implement innovative approaches to effectively engage decentralization efforts as well as the legal and policy the domestic private sector in the management of PWS. framework for water and sanitation. This section sets The program was implemented in partnership with the out the gradual progress towards the professionalized International Finance Corporation (IFC) and the Dutch management of PWS, the key feature of the affermage Embassy in Benin. It benefited from close collaboration with model that was introduced by the GoB and presents the the Ministry of Water and Energy (Ministère de l’Energie, de la findings from the diagnostic study carried out in 2010; Recherche Pétrolière, de l’Eau et du Développement de l’Energie Renouvelable Développement des Energies Renouvelables or • Section 3 presents an overview of the technical assistance MERPMEDER) and the municipalities. to the sector, what are the main components involved in strengthening the PPP model for rural water services The GoB, led reforms to introduce a new contractual and highlights how the technical assistance responded arrangement between POs and decentralized to the challenges faced by the sector; municipalities: a concession contract entailing investment obligations for the POs and a public subsidy to cover • Section 4 focuses on the design and implementation parts of the investments. In the present case study, this the subsidized concession contracts, from site selection new contractual structure is referred to as a “subsidized for pilot-testing to contract award attribution and early concession”. Four 8-year subsidized concession contracts contract implementation; for 10 PWS in three municipalities with three different private operators were signed between August 2014 and • Section 5 extracts the main lessons from the experience September 2014. It is estimated that the four transactions for developing a PPP model for small towns and rural will generate a total investment of USD1 million, of areas; and www.wsp.org 1 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Introduction • Section 6 formulates recommendations to key • Annex B presents the municipal responsibilities and stakeholders in Benin, particularly for scaling-up and organization following decentralization; ensuring the sustainability of professionalized rural • Annex C sets out key dates for the reforms and the water services. transaction structure activities; • Annex D contains an annotated list of key materials In addition, and tools developed as part of this project. • Annex A contains an assignment glossary of the key terms used in this case study; 2 II. Context for PSP in rural water services in Benin This section presents the overall context for PSP in the semi-urban areas. These small towns or “Centres Semi- rural water sector in Benin. It starts with a rapid overview Urbains” (localities with population from 2,000 to more of Benin’s socio-economic background, highlighting than 10,000) are of major strategic importance to Benin’s the critical importance of small towns. The section then socio-economic development, representing 35% of GDP examines the current status of water and sanitation services and approximately 30% of the country population. These in the country: water service coverage has remarkably small towns need improved services in order to continue to improved in recent years. This means that the country has support their growth. now entered into a critical zone, in which ensuring the sustainability of investments becomes crucial. This calls for 2.2 The state of water and sanitation services the professionalization of service delivery, particularly in According to JMP statistics Benin is on track to meet the small towns. MDG target for water by the end of 2015. By 2012, 76% of Benin’s population had improved access to drinking water 2.1 Benin’s socio-economic background against 57% in 1990. In urban areas, access to improved Benin is a small West African country with a population drinking water increased from 72% in 1990 to 85% in of 10 million. It shares borders with Nigeria to the East, 2012. Rural areas also experienced significant improvement Togo to the West, and Burkina Faso and Niger to the with a rise from 49% to 65%. These achievements are North. While Porto Novo is the administrative capital the result of sustained investments from the GoB and of the country, Cotonou (on the Atlantic coast) is the development partners and improved planning for the country’s largest city and a vital regional trade hub. sector. According to JMP figures, however, the rate of access to piped water into the premises remains low, with only 4% Despite economic growth, per-capita income levels in rural areas by 2012, whereas it stood at 12% in urban remain low (at USD 805 per capita and USD 1,500 areas. This means that consumption per capita are likely to in purchasing power parity terms as of 2013). Benin’s remain at relatively low levels and that Benin still has a long economy is largely dependent on agriculture and cotton way to go to achieve sustained universal access to safe water production in particular. In recent years, the improvement supplies, based on what is likely to be adopted as part of the of regional trade through the Port of Cotonou contributed Sustainable Development Goals. to improving economic growth. According to World Bank estimates (2014), real GDP grew by 5.4 % in 2012 and Access to improved sanitation remains dramatically low 5.6 % in 2013, up sharply from a previous 5-year average over the country, however. Access to improved sanitation of 3.68 %. Growth remained strong in 2014 at 5.5 %. only rose from 5% in 1990 to 14% in 2012. The needs Despite economic growth, about 50.9% of the population are particularly significant in rural areas. Between 2000 and lives below the poverty line according to the international 2012, access to improved sanitation in rural areas increased standard of USD1.25 per day (World Bank 2014). by only 2%, standing today at 5%. In urban areas, 25% of the population had access to improved sanitation in 2012. The majority of Benin’s population is rural. An estimated 57% of the population lives in rural areas, although the 2.3 Administrative set-up: the annual growth of the rural population is slowly declining, decentralisation process standing at 2% today. Urban growth stands at 4% and is In 1999, Benin initiated a decentralization and devolution in line with the average rate of accelerated urban growth process, which led to the country’s current administrative in Sub-Saharan Africa (SSA). A major source of such organization. Municipalities (“communes”) were urban growth takes place in rural growth centres and established as legal entities with financial autonomy. This www.wsp.org 3 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin FIGURE 1: Drinking Water Trends in Benin (1990-2012) Urban drinking water trends Rural drinking water trends Total drinking water trends 100 2 100 100 6 4 9 13 22 29 20 19 80 80 25 80 21 Coverage (%) Coverage (%) Coverage (%) 22 60 53 60 60 60 56 40 40 40 65 52 49 20 20 20 Surface water 32 Other unimproved sources 16 16 Other improved source 5 Piped onto premises 0 0 4 0 0 1990 2012 1990 2012 2012 Source: (WHO, UNICEF and JMP 2014) new set-up became a reality in 2002 as the first municipal Following decentralization, municipalities were assigned elections were held and elected mayors took office for the functions that were previously the responsibility of first time. the regional administrations representing the central government. Municipalities are now responsible for The country is now divided into 77 municipalities, ensuring water and sanitation services delivery to their including Cotonou. These municipalities fall under 12 populations. They are “maitres d’ouvrage”, i.e. they became “départements” or regions. Municipalities are divided the owners of water supply assets within their communes into “arrondissements”, which are themselves divided and are the contracting authorities in charge of planning, into villages for rural areas and “quartier de villes” for designing and overseeing all works on those assets. urban areas. Unlike municipalities, “départements” are not legal entities and do not have financial autonomy. Decentralization also had implications on municipal Départements are headed by “Préfets”, who represent the finance. Municipalities have their own budget, which is central government’s authority and are appointed by and voted annually by the elected municipal council. Sources accountable to the Ministry of Territorial Administration. of fund include local revenues from taxes, based on rates Préfets oversee and monitor municipalities’ activities fixed by the municipalities within the ceiling imposed by compliance with the legal framework: their role is to the Ministry of Finance (MoF). Municipalities’ budgets are provide “technical assistance and advice” and to validate supplemented by transfers from the central government the decisions taken by the municipalities. through a specific fund called the Fonds d’Appui au Développement des Municipalities (FADeC). FADeC channels two types of funds: general funds (FADeC non affecté) feeding into the municipal budget for operating 4 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin expenses and investments and “allocated” funds (FADeC In rural and semi-urban areas of less than 20,000, affecté) specifically allocated to a specific sector or an activity. the provision of water (and sanitation) services is the Development partners can channel funds directly to responsibility of municipalities. According to national municipalities for specific activities via the allocated budget guidelines for local planning, piped water systems (PWS) line. More details on FADeC and municipal organization should be constructed for agglomerations of 2,000 and are included in Annex A. over. Table 1 below presents the guidelines for water supply installations adopted by the Direction Générale de 2.4 Legal and institutional frameworks for l’Eau (DG-Eau). water services 2.4.1 Legal framework Table 1: National guidelines for water The main legal act for the water sector is the Water infrastructure in rural areas Resources Management Law, referred to as the “Code Type of installation Population size de l’Eau”, which was adopted in 2010 (Loi n° 2010-44). Modern water point: modern The law sets the fees or tax due to responsible authorities wells (PM) or manually-operated < 250 in application of the principle “user-payer”. The fees are handpumps (MOH) the financial contribution of commercial users calculated Standpipe < 500 on the basis of the volume of water abstracted (or used or mobilized). According to the law, these fees or tax should be Autonomous water station (‘’Poste < 1000 d’eau Autonome’’) used for financing water sector activities. This law also makes reference to the organization of water services but does PWS 2000 and over not spell out in detail the roles and responsibilities of the (DG-Eau 2010) different actors for water supply and sanitation services with respect to policy-making, regulation and service provision. At central level, responsibility for rural and small town The definition of roles and responsibilities therefore is services sits within the Ministry of Energy, Petrol based on several pieces of legislation, including the Water Research, Water and Renewable Energy Development Resources Management law and the decentralization law. (“Ministère de l’Energie, de la Recherche Pétrolière, de l’Eau et du Développement des Energies Renouvelables” Other relevant legal acts include the Creation of Basin or MERPMEDER) through the DG-Eau. Committees Act (adopted in September 2011), which defines the framework for planning and managing water Through its Directorate of Drinking Water Supply, DG- resources. The Drinking Water Quality Act (dated February Eau is responsible for proposing water policy, informing 2001) defines drinking water standards. national strategies for water services and overseeing their implementation at municipalities level. DG-Eau is also 2.4.2 Institutional roles and responsibilities responsible for monitoring the water sector. The main Central level monitoring tool is an integrated database (Base de Données Responsibilities for the provision of water services have Intégrée or BDI), shared with the municipalities, which been assigned to different entities in urban and rural areas gathers data on water resources and infrastructure. DG-Eau of Benin. The parastatal utility Société Nationale des Eaux du also provides technical assistance to the municipalities to help Bénin (SONEB) is in charge of providing drinking water them carry out their responsibilities for water and sanitation. in urban and peri-urban areas of more than 20,000 people. SONEB is present in 69 cities over 77 municipalities. The In 2013, a regulation unit was created within DG-Eau, utility provides water services to an estimated 2,354,000 with responsibility for regulating the rural water sector. people, through 197,000 metered household connections. The scope of these regulatory functions is yet to be fully According to SONEB, only 19,000 people have access to defined as discussed in section 3.3. water through standpipes managed by SONEB. DG-Eau’s regional offices are the “Services de l’Eau” www.wsp.org 5 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin (S-Eau). These were established in the 1990s to identify The rural water sector, which includes semi-urban areas, the needs for water infrastructure works and oversee is currently governed by one main strategy document construction. As municipalities became responsible for prepared in 2005 and the National Water Policy adopted this function in 2003, S-Eau’s roles shifted to that of in 2009. Since the first strategy for the rural water sector technical assistance to municipalities. S-Eau verifies that elaborated in 1992, the GoB has experimented with several the design and construction of water systems comply with approaches for carrying out investments and supporting the technical and legal standards. Their assistance is demand- delivery of rural water services. led: municipalities can ask for their advisory services for implementing their water supply program, from tender Until the early 2000s, the central government mostly focused documents preparation, tender evaluation and contracts on hardware investments, i.e. the construction of hand elaboration. In principle, S-Eau is mandated to ensure asset pumps and PWS, in its drive to achieve the Millennium knowledge transfer to municipalities. In practice, however, Development Goals (MDGs). Community management this transfer is limited by the poor state of knowledge on was the main model and Water User Associations (WUAs) the sector’s asset base. were created to manage those systems. From 2005, the sector strategy shifted to a greater attention on how the Other relevant ministries with respect to water services include: investments could be sustained and to professionalized • The Ministry of Health, which is in charge of management. overseeing water quality; • The Ministry of Finance, which is in charge of The 1992 National Strategy. In 1992, a National Strategy regulating public procurement and monitoring central was drafted to implement the PADEAR (Projet d’Assistance au government subsidies to municipalities; Développement du secteur de l’alimentation en Eau potable et de • The Ministry of Decentralization and Local l’Assainissement en milieu Rural) program (see section 2.6.1). Governance, which supports municipalities in ensuring compliance with the laws; The 1992 Strategy focused on demand-led planning • The Ministry of Development, which coordinates so that water systems construction would respond to central government activities. clearly identified needs within beneficiary communities. The strategy requested communities to make a financial Local government level contribution towards capital investments. The idea Municipalities are in charge of planning investments, was to create a sense of community ownership, so as to contracting works and ensuring the operation of water ensure better management of the assets. The strategy also systems. In order to identify the needs and communities’ called for bringing in the private sector, but mainly for demands, municipalities can be supported by “social construction and the provision of spare parts. Following intermediaries” (intermédiaires sociaux). These social from the strategy, the DG-Eau established regional offices intermediaries are usually municipalities’ own staff, although (the S-Eau) to identify and respond to demand for water an external NGO can be recruited to perform the task. systems. The approach, which is still in place in many parts of the country, started to show its limits by the mid-2000s. Municipalities are in charge of setting tariffs as well as fees and charges (redevances) paid by private operators The 2005 National Strategy for Rural Water Supply and (POs) for operating PWS. Tariffs are calculated based on a the National Water Policy. In 2005, a National Strategy methodology provided by DG-Eau, generally higher in rural for Rural Water Supply was adopted in order to reflect the areas and small towns than in urban and peri-urban areas. administrative reforms that made municipalities responsible for water and sanitation. The strategy clarified institutional 2.5 Rural water sector policies responsibilities for water services and financing sources for water systems construction. The objective of this new strategy was to accelerate 6 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin Sustaining coverage and improved access in rural and small towns. progress towards achieving the water MDG while National Water Policy. The policy states that, “the role ensuring that investments are sustainable. The strategy of the private sector should be strengthened by increasing places cost recovery and private sector participation (PSP) its responsibility in the delegated management of water as fundamental elements for the management of water infrastructure/systems (ouvrages hydrauliques) in rural areas systems: it called for delegated management of water and PWS in semi-urban areas in accordance with the 2005 services in order to ensure sustainability. Rural Water Strategy”. However, the Strategy retained a central role for WUAs The 2009 Policy emphasised the need for monitoring in the management of water services, stating that “in the water infrastructure and its management. Municipalities case of PWS and stand-pipes, the mayor will delegate ensure the monitoring and regulation of water services the management to a WUA, which will then delegate at the local level, with the main objective to ensure the to professionals under contracts (management, lease- viability and sustainability of PWS. Municipalities are affermage or concession contracts”. As will be shown tasked with ensuring compliance of service providers with later in section 2.7.3, an inadequate definition of the role the guidelines in place for pricing and tariffs revision. In of the WUAs in the contractual arrangements slightly principle, S-Eau provides assistance to municipalities for hampered the professionalization of water services and these monitoring tasks. the establishment of contractual arrangements between municipalities and private operators. This prominent 2.6 Supporting the professionalization of place of WUAs in the management of water services was rural water services partly explained by the fact that communities had partly The GoB has been working together with development contributed to the construction of water systems. However, partners since the early 1990s to improve and later on as the municipalities are ultimately the asset-owners, professionalize the management rural water supply the role of the WUAs was later changed to representing services so as to ensure sustainability. The strategy for consumers instead of sharing oversight of the assets with the rural water sector was initially implemented under the municipalities. a large donor program called PADEAR. In 2004, as the The need for greater PSP was reflected in the 2009 GoB adopted a programmatic approach for the sector, www.wsp.org 7 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin the “Initiative Eau” program emerged. Initiative Eau is a program specifically targeting the improvement of water BOX 1: CePEPE – a key actor in private services in semi-urban areas of 2,000 people or more. This sector development section reviews the initiatives that supported the sector prior to 2010, with a particular focus on how they contributed to CePEPE was formed in 1989 with support from the World Bank as business development support the professionalization of water services. (BDS) service provider for small and medium size enterprises (SMEs). Following full privatization 2.6.1 Achievements under PADEAR in 2005, CePEPE has established itself as a key Rural and semi-urban water services have been key focus resource for developing entrepreneurship and areas for the GoB since the early 1990s. Between 1994 supporting SMEs with developing their business. and 2004, the strategy for the rural water sector CePEPE offers a set of services including training on was implemented through the PADEAR program, business management and consultancy services to which stands for Projet d’Assistance au Développement help private actors respond to requests for tenders. du secteur de l’alimentation en Eau potable et de In addition, the CePEPE provides guarantees via l’Assainissement en milieu Rural. PADEAR was a the Fonds National de Garantie et d’Assistance aux Petites et Moyennes Entreprises (FONAGA) to help program for the entire water rural sector (including SMEs access commercial loans. This guarantee rural water supply, sanitation and water resources is provided based on a framework agreement management). Initially funded by DANIDA and between CePEPE and the enterprise, which allows KfW, the rural water component of the program later CePEPE to closely monitor the SME’s operations received funding from the Belgian cooperation and and financial situation. FONAGA’s guarantee covers the Agence Française de Développement. Overall, an up to 50% of the commercial loan contracted. estimated FCFA 65 billion (USD 114 million) were mobilized for the construction of 6,000 hydraulic CePEPE has developed strong links with the rural installations, including hand pumps, wells and PWS water sector over the years and played an important throughout the country. Approximately 130 PWS role in professionalizing the sector. Under PADEAR, CePEPE trained about 60 POs, including those were constructed under this program. involved in works construction as well as those managing water services. CePEPE’s expertise has PADEAR was a demand-led program that initiated a also been called upon under PPEA and, through shift from the community-based management model the WSP-led project, to provide additional BDS to a professionalized approach. The program included services to POs. interventions for increasing PSP, not only for building rural water infrastructure (such as borehole For more information: http://www.cepepe.org/ drilling) but also for managing the systems, and for improving the quality of services provided by private operators. PADEAR put in place a training program 2.6.2 The adoption of a programmatic approach in in coordination with the Centre de Promotion et the 2000s d’Encadrement des Petites et Moyennes Entreprises In the 2000s, the Poverty Reduction Strategy Paper (PRSP) (CePEPE) (Box 1). The program included Business made reforms in the rural water sector a key indicator for Development Support (BDS) activities and training sustaining donor support to the government’s budget. specifically focused on managing PWS. These reforms, oriented towards reaching the MDG, included four main components: • Implementing a sector-wide programmatic approach; • Improving budget planning, execution, and monitoring through a medium-term program budget; 8 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin • Increasing access to a reliable, affordable, and • Develop a policy for sustainable management of PWS; sustainable provision of water service; and • Rehabilitate and extend PWS and increase network • Improving the governance and management practices density; and for PWS through a local public-private partnership • Carry an audit of the sector and channel technical (PPP) arrangement. assistance to municipalities and the private sector. These reforms led to the adoption of a programmatic The diagnostic carried out by Initiative Eau in 2010 on approach implemented through the Budget Programme PWS’ management highlighted the issues related to par Objectifs (BPO). The BPO is a planning instrument WUAs’ involvement in the management of water services, setting clear targets and indicators for the sector, aligned as described below. with the country’s national development strategies. The approach contributed to improving communication and The diagnostic highlighted the discrepancy between coordination among development partners as well as the actual management model in place for PWS in the funding, based on harmonized donor objectives. country and the municipalities’ new responsibilities under decentralization. The dominant model was based on WUAs With increased funding and better planning for the sector, having the responsibility for contracting the management investments rose significantly: “In 2004, for the first time of PWS to private operators. Municipalities, now asset- ever, Benin constructed more than 1,200 water points owners, were excluded from this model. Furthermore, against a target of 700, and more than 2,000 in 2008. More the diagnostic found that in reality “the overwhelming than 500,000 people gained access to safe water in 2008, majority of WUA directly manage PWS and that delegated against fewer than 100,000 in 2001—an outstanding management had been tested only in a few rare cases in the performance in scaling up investment, since over the country.” (Cellule Initiative Eau 2006). previous two decades no more than 500 water points were constructed annually” (Prevost, Bea and Leroy- The diagnostic found a series of factors contributing to PWS malfunctions, including: Themeze 2009). • A systematic lack of arrangements for maintenance contract, The implementation of the reforms supported by the • Significant lack of skills and professionalism of some World Bank therefore accelerated hardware investments. stakeholders; As water systems spread over the country, it became crucial • Lack of rigor in the financial management; and to consider how they could be managed sustainably, • Lack of regular technical and financial audits from S-Eau. particularly in the case of PWS. It is in this context that in 2004, the Initiative Eau program emerged in order to Malfunctions were related to the low profitability support the sustainable management of PWS. of managing PWS and poor financial management, particularly for enabling asset repair and renewal: 2.6.3 “Initiative Eau”: 2010 diagnostic and new • Only 16% of PWS were profitable, partly due to low water management models for PWS consumption levels. Water sale were too low to cover Initiative Eau specifically targeted semi-urban areas of operating costs, as PWS were often built in low-density 2,000 people or more. An estimated 3 million people lived areas or where populations had access to competing in these semi-urban areas, deemed too small to be served by sources of water. However, the diagnostic also found SONEB. The initiative was developed in order to manage that some PWS could become more profitable if water services in the context of increasing population extensions were made so that the PWS would serve growth. Initiative Eau was co-financed by AFD, DANIDA, a larger population and if awareness campaigns were the Dutch Embassy, KfW, the European Commission and carried out to sensitize population to the benefits of WSP via a “Common Pot” (dedicated fund basket) feeding consuming water from PWS. directly into the BPO. Its aims were to: www.wsp.org 9 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin • Only 27% of PWS had made sufficient financial provision For the DG-Eau, the PPP model, or the affermage model, for asset renewal. was the favoured option as rural water PPP was a key trigger to World Bank budget support (see section 2.7.2.). DG-Eau These findings were presented at a national workshop designed an affermage contract-type for municipalities and gathering municipalities, private operators and POs and promoted the bipartite and tripartite models across WUs as well as representatives from the DG-Eau. the country. This promotion started with a pilot project in Based on these findings, the Initiative Eau called for one PWS. The affermage model rapidly spread across the improving the management of PWS through increased country, reaching 269 as of end 2014, from two in 2007. professionalization of stakeholders and a greater involvement from the municipalities. The POs that signed the contracts are generally SMEs working in the water supply sector, sometimes in addition To identify the best management options for rural Benin, to the construction sector. The most active SMEs selected by the Initiative Eau also carried out a review of experiences the municipalities and working as water operators in Benin in other countries (Senegal, Mauritania, Ghana, Niger, so far seem to be small consulting firms with experience Mali and Madagascar). Although this review found that and local knowledge of the water sector. These SMEs delegating the management of PWS to POs was still see the development of public private partnerships as an uncommon, it helped identify key facts and practices opportunity to develop their business and boost their profit. related to improved PWS management, including: Although they have limited capital, they can at least have a • Developing private connections is key to consolidate small office for representation, a motorbike and some office the financial position of the water service providers, equipment. Most of the SMEs are registered companies and as consumption from private connections is generally pay taxes. SMEs are well aware of the government’s policy higher than consumption from stand-pipes; and strategy for developing public private partnerships and • The lack of a permanent training platform for are starting to organize themselves with a view to raising stakeholders hinders the sustainability of the knowledge the service standards. An umbrella association of private gained in managing PWS; enterprises providing water services (Association des Fermiers • Financial sustainability should be a fundamental du Benin, AFEB) was created with the objective to lobby in criterion when making investment decisions so as to order to better organize this emerging group of enterprises lay the foundations of delegated management. and to speak with a common voice, particularly with respect to sector regulation issues. 2.7 Options for PWS professional management 2.7.1 Main features of the affermage contracts In response to Initiative Eau findings, the DG-Eau In an affermage contract, the municipality retains ownership recommended four options to municipalities for managing of the assets, while a PO is responsible for operating the PWS. These options were: PWS, in accordance with the contract’s specifications. The • Delegating the management of PWS to POs through PO receives revenues from the sale of water on the basis of bipartite affermage contracts signed by the municipality tariffs agreed upon with the municipality and is responsible and a PO (referred to in Benin as a “fermier”); for operations and maintenance (O&M) related expenses. • Signing tripartite contracts, whereby both the municipality and the WUA enter into an affermage From tariff revenues, the PO pays to the municipality two contract with a PO; types of fees and charges (redevances): • Partly delegating responsibilities to a PO, whereby • The “redevance communale”, which can be referred to the PO is responsible for water production while the as a municipal fee. This is a fee paid to the municipality WUA retains responsibility for distribution; or to cover the costs of service monitoring. This fee is • Delegating to WUAs, which is the traditional transferred to the municipality’s budget and can community-based management model. potentially be used for other purposes. 10 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin • The “redevance de renouvellement”, which can be As presented in Figure 2 below, municipalities are referred to as a capital maintenance and investment responsible for investing in asset renewal from the fees charge and is transferred to a separate account, perceived. They are also tasked to regulate POs’ services, the renewal and extension fund managed by the by setting tariffs and ensuring that the tariffs charged to municipality. their customers are those agreed in the contract, that assets are properly maintained and that fees and charges are paid The amount of fees and charges to be paid is calculated according to the volume of water produced. The PO is based on the volume of water produced, and not required to produce monthly operations reports, stating distributed. According to municipalities, this incentivises the volume of water produced, sales and expenses incurred. PO to minimize water losses. The tariff (T) amount is fixed by the contract. Fees and charges paid by the PO (FC) 2.7.2 Early successes: the rapid spread of are calculated based on a percentage rate that includes a affermage contracts percentage for the capital maintenance and investment In 2007, Ikpinlè was the first PWS for which management charge and a percentage for the municipal charge (in was delegated through an affermage contract. The principle allocated to contract monitoring activities) municipality of Adja-Ouere chose the tripartite contract which is applied to the volume of water produced. The following consultations with the communal council, the municipalities set the rates for the fees and charges. In a WUA and S-Eau. tripartite affermage contract, in addition to fees and charges paid to the municipality, the PO has to pay a fee to WUAs In 2007, as the first affermage contracts were signed, who are involved in overseeing water service. municipalities were under no obligation to launch a competitive tender procedure. Under D-Eau’s directives, FIGURE 2: Financial flows under the bipartite affermage contract MUNICIPALITY CAPITAL MAINTENANCE AND INVESTMENT FUND MUNICIPAL FUND MUNICIPAL CAPITAL MAINTENANCE FEE AND INVESTMENT charge PRIVATE OPERATOR REVENUES Profit TARIFFS O&M Margin Household MOHP Standpipes Connections www.wsp.org 11 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin municipalities could choose to sole-source their POs.1 At 2.7.3 Identifying the limits of the professional that time, affermage did not fall within the scope of public management models procurement rules. It is only when the Public Procurement Despite this rapid growth, many stakeholders (particularly National Code was developed in 2009 that municipalities for the POs) are of the view that the affermage model has were under the legal obligation to tender the contract. met its limits. Many of the POs had to manage PWS that needed to be rehabilitated in order to be profitable and The GoB made rapid progress in assisting municipalities municipalities were rarely able to mobilize these initial with introducing affermage contracts. By 2010, 157 AEV funds. A recurrent issue for POs is the breach of contract were under affermage contracts, representing 47% of the 340 by the municipalities, for unspecified reasons, despite the PWS that had been built at the time (Fichtner 2010). Such small investment that POs had made to maintain PWS. fast-paced progress was partly fuelled by the fact that in 2007 the World Bank budget support under the PSRC5 included In 2010, GoB decided to carry out a review of the sector the target of introducing PPP management model for 15% to evaluate the delegated management models in place, of PWS in the country, which represented 38 PWS in 2008. including the affermage contracts. This evaluation was carried out on the basis of a sample of 20 PWS across The introduction of affermage contracts continued at the country. Among the 20 PWS, eight were managed pace in the following years. In 2012, the management of through an affermage contract, seven were under tripartite an estimated 51% of AEV had been delegated through arrangements and two were partly delegated to a PO (for affermage contracts. In 2014, 57% of all AEV were production) and partly to a WUA (for distribution). Only reported to be under affermage contracts, as shown on three were managed solely by WUAs. Figure 3 below. FIGURE 3: Total number of PWS against number of PWS under affermage 480 Total number of PWS 460 440 Total number of PWS 420 under affermage 400 380 360 340 320 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 0 2007 2010 2012 2014 Source: (Fichtner 2010), (WSP 2012), (PPEA2 and DG Eau 2014) 1 (DG-Eau Cellule Initiative Eau 2007) 12 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin The diagnostic considered and assessed all areas of PWS’ The tender procedure was hindered by an overall lack of management, including: oversight, which meant that political interference was • Tender procedures and methods for PO selection; common practice. The study notes: “After the bids were • Contracts implementation, including technical, evaluated and the preferred bidder has been identified financial and business management; [by the Municipal Public Procurement Commission], the • Profitability of PWS under affermage; and Mayor has to endorse the choice of the Commission. This • Contracts implementation monitoring. choice is sometimes influenced by subjective considerations, which are motivated by political or family links. As an The results from the evaluation were clear: despite the example, in some municipalities and for some tenders, it is significant progress that the delegated management not uncommon to observe that the bidder who came third models represented in terms of professionalizing the following the Commission’s evaluation is retained as the sector, in practice, the management of PWS was facing successful bidder”. serious challenges, including inadequate tendering, POs’ weak technical capacity and lack of monitoring. This Bottleneck 2. Contract implementation issues conclusion related as much to delegated management via The evaluation observed that, in many cases, the POs did affermage contracts as to the other three forms of delegated not abide by their contractual obligations. For example, management. The diagnostic identified five key bottlenecks breakdowns went on for hours or even days, fees were for the implementation of PPP under current conditions, unpaid, water was inadequately treated, etc. At the same as presented below. time, municipalities were not able to ensure adequate monitoring of contractual obligations and could not receive Bottleneck 1. Tendering and contract design assistance from the S-Eau for this task. This was due to the In many municipalities, the calls for tenders for managing following factors: PWS had been unsuccessful and calls had to be launched • A lack of uniformity in the reporting tools used by several times before getting any type of response. There POs: although DG-Eau did provide a standard form were two main reasons for this situation: for monthly operational reports to be submitted by the • A lack of professionals who were technically able to POs, few POs were actually using these reports. POs take on the responsibility of managing PWS; staff were using different reporting tools for internal • The fact that municipalities were unable to prepare management. This created a lack of transparency in adequate tender documents and propose attractive POs’ activities; contracts due to their inexperience and lack of • The fact that the existing integrated database (accessible technical knowledge. to municipalities, S-Eau and DG-Eau) was not being updated: this was also due to the difficulties in transferring One critical issue was the absence of technical the data from POs to the S-Eau; documentation, including PWS network plans, which • Unclear allocation of responsibilities for carrying out meant that asset inventories prior to contract signing were water quality analysis. inaccurate. Other critical issues related to fee rates and the deposit amount, which were often deemed to be too high and Bottleneck 3. POs weak technical capacities acted as a deterrent for POs. The DG-Eau had provided the The diagnostic reported a number of issues related to POs’ software ANTEA to municipalities for calculating the tariffs lack of technical knowledge and business skills. A typical and charges. However, municipalities did not fully master its PO operates a small structure made of the following staff: use and it often proposed arbitrary fees and charges. • Water sellers at the standpipes, operators (exploitants), typically from the village where the PWS is located, In addition, contracts were generally too short ranging who are in charge of operating the pumps, maintaining from one to three years (renewable). Such short contracts the generator, signalling breakdowns and overseeing deterred POs from investing in asset maintenance. water sellers at the stand-pipes; www.wsp.org 13 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Context for PSP in rural water services in Benin • Managers overseeing the operators; levels that are more in line with adequate consumption • The Director (potentially assisted by an accountant). levels to maintain basic levels of hygiene) is to provide household connections, either within the house or in the A critical issue was that POs were often appointed without yard. However, POs were often not able to make these receiving any training. This meant that many did not have investments from their own funds, while the municipalities the technical skills to adequately operate PWS, including could not mobilize the required funds. carrying out routine maintenance (e.g. cleaning the generator). In some cases, they worked without contracts The diagnostic study therefore recommended that access to and were paid on the basis on the volume of water sold. finance, via commercial banks, should be made available, This precarious situation encouraged fraudulent activities. noting that related risks would be limited provided that In addition, managers often lacked the skills required POs would be able to track and control revenues and for keeping track of financial operations, including for charges from their operations. collecting revenues from water sellers at the stand-pipes. This also contributed to fraudulent behaviour at the Bottleneck 5. Unfavourable social environment standpipes being left unnoticed. Finally, the study pointed out that some social factors were contributing to making contract implementation difficult. The diagnostic study concluded that not enough activities Some communities did not accept the new delegated were taking place to support the professional development management models and in some regions of the country, of the POs. users were unwilling to pay for water services. Bottleneck 4. Limited financing capacity The diagnostic resulted in a number of recommendations The limited financing capacity of all actors, and of the POs to the GoB: in particular, was identified as a key issue in the diagnostic • Improve the contracting process (from contract design report. The situation was critical as many affermage to tender and PO’s selection); contracts were initiated for PWS that required extensive • Improve the regulatory framework and POs’ efficiency; rehabilitation in order to become technically optimal. • Facilitate access to permanent platforms to build the capacity of the POs; In addition, it was found that network extensions and • Strengthen financial capacities (e.g. via access to service improvements, could help increase revenues through commercial funds); and by increasing the number of individual connections. It was • Facilitate an enabling social environment. observed that consumption averaged 4 litres per person per day, which represents a low level of service and does The results of this study laid out some important realities not allow distributing fixed costs over a sufficiently and allowed the sector to adjust its approach and look for high volume of water service provided to reduce unit ways of improving the PO model for service delivery in costs. One potential way to increase consumption (to rural and semi-urban areas. 14 III. Strengthening the PPP model for rural water services in Benin 3.1 Overview of the approach Based on the findings from the diagnostic study, the BOX 2: PPEA 2’s work for strengthening municipalities’ institutional capacity GoB made a request to WSP for technical assistance for strengthening the PPP model for rural water services in PPEA is a Dutch Embassy funded program that has Benin. Strengthening of the PPP model was to be achieved been running since 2007. In its first phase (2007- through three main activities: the provision of Business 2012), PPEA’s rural water component focused Development Support (BDS) to the private sector, the on improving public finance management for the establishment of a PPP Financing Facility and Capacity sector and supported municipalities in planning and overseeing works construction and managing Building for Public and Private Sectors. One key element water services. The program channels funds to the to ensure the strengthening of the PPP model was to build DG-Eau and municipalities via the national treasury. capacities: to design attractive contracts and tender these contracts in a transparent manner (on the public side), to Working in close collaboration with DG-Eau, PPEA manage the services, technically and financially (on the contributed to building S-Eau’s capacity for their private side) and to submit proposals for bankable projects new responsibilities towards municipalities. The program facilitated skills and knowledge transfer (on the private side). from the central level to the newly decentralized municipalities. It also financed social intermediation The support provided by WSP complemented other activities aiming at identifying populations’ needs. development partners’ efforts in the sector in a coordinated manner. For example, the Dutch-funded Programme Pluri- In its second phase, initiated in 2013 and running until Annuel Eau et Assainissement (PPEA) continued to provide 2016, PPEA II has similar objectives, but with tighter control over central government and municipalities’ assistance to the DG-Eau for building a conducive social use of funds. Part of the program budget is allocated environment. PPEA was also contributing to building to the GoB, based on results achieved. The FCFA municipalities’ institutional capacity for implementing 43.7 billion program (which includes FCFA 9.7 their function as asset-owners, as detailed in Box 2. There billion contribution from the EU) provides technical was an opportunity, therefore, for WSP to provide support assistance to DG-Eau and S-Eau for planning sector to municipalities that were already fully equipped with a activities and building municipalities’ capacity for public procurement, public finance management, functional Public Procurement Commission, so as to focus quality assurance, monitoring and evaluation and on designing the adequate contractual arrangements in water services regulation. partnership with these municipalities and to accompany them in the tender process. 3.2 Key components for strengthening the PPP model combined with support from the IFC’s transaction advisory In order to strengthen professionalization of rural water team. The model that was put forward is one of subsidized services for sustainability, one main focus became the concession for groups of PWS, i.e. based on “clusters”. design of an innovative PPP contract form that could overcome the weaknesses identified with existing The concession model emerged as an alternative form management models for water services in rural areas and of contractual arrangement to the affermage because the small towns. The objective was to let these new forms of due diligence process identified important investment contract in at least two localities, so as to test the feasibility needs for rehabilitation works as well as for extending the and usefulness of the model. Because of the nature of the network. In existing systems, the levels of consumption were transactions being facilitated, WSP technical assistance was too low to enable a viable rate of return on investments. www.wsp.org 15 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin Empower local government capacity for planning, contracting works by leading the tendering processes, and ensuring the operation of water systems. It was deemed that additional investments in providing their activities. Commercial banks would likely be more individual connections would a) meet demand in rural interested in a larger loan rather than smaller ones (although areas for this level of service, and b) would increase they could also make a large loan for several small contracts, consumption and thereby revenues from water sales for so this assumption is only partially verified). the operators, which would then be able to recoup the costs of their initial investments. Up-stream and in parallel to these transaction-focused activities, there was an effort to strengthen sector The concession model was prioritized as it allows the stakeholders, both on the private and on the public side. operator to be responsible for carrying out the investments, On the one hand, WSP worked to strengthen the public thus carrying out greater risks but also retaining greater sector so that they would gain a better understanding of control over the schedule and the technical characteristics existing assets and monitor service levels. This was done for such investments: as such, the operator can be more through the introduction of a mobile to web application, demand-responsive. However, given the existing low mWater, which was used to conduct an asset inventory for levels of demand and the need for network extensions, a total of 150 PWS throughout the country. The project it was estimated that the concessionaires could not cover also provided training and capacity building to public all investment costs and would therefore need to receive a sector actors and supported the creation of a regulatory subsidy. The fact that the subsidy is paid based on results unit within DG-Eau, which can be seen as the embryo (i.e. once the connections have been made) reduces the risk for a future water services regulator in the country. On for the donor that the subsidy would be mis-spent. The the private sector side, the training private sector operators organization of a competition for the concession contracts on professionalized approaches to rural water service based on the amount of subsidy requested also allows management was provided by WSP, in general terms as reducing the total amount of subsidies disbursed. well as in the specific context of the introduction of the new PPP model and in the use of the mWater tool for the Clustering of PWS was proposed to enable enlarging the production of operation management reports. As a way of scope of the concession contract, which makes it more strengthening the PO’s over time, the AFEB (Association des attractive for POs (by creating economies of scope) as Fermiers de l’Eau du Bénin) was established. well as for commercial banks that are to finance some of 16 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin Another key component for PPP strengthening was Innovative PPP Contract design; Pillar 2: Support to the to identify and secure sources of funding for the sector. Public Sector and Pillar 3: Support to the Private Sector. There was reasonable success in identifying public sources In addition, a series of activities were deployed to support of funding for the subsidised concessions, even though the three main pillars and achieve the overall goal: ((i) it was not able to mobilise as much funding as originally Activities to facilitate access to private finance; (ii) Activities envisaged in the concept note and had to scale down to mobilize and channel public subsidy funds through fiscal investment ambitions as a result. This is discussed in more transfer from central to local government budget using the detail in Section 3.4.1, which presents how the project country public finance procedures; and (iii) Activities to mobilised public funds and access to finance was facilitated. develop innovative monitoring tools, such as mWater. Interestingly, however, the POs have yet to access the commercial funding facilities. In addition, initial plans to The implementation of the reforms for rural water services set up a financing facility for eligible private operators were spanned over four years, from 2010 (when the diagnostic not pursued further, at least during the pilot stage. study was carried out) until September 2014 (when the new PPP contracts were signed). A considerable amount of Figure 4 presents graphically the main interlocked work was invested up-stream by WSP and its partner IFC, components for strengthening the professionalization even prior to the formal start of the technical assistance, in of water services in small towns in Benin. Three main order to prepare the stakeholders, to finalise the components pillars were deployed to achieve this central goal: Pillar 1: of the technical assistance and secure partnerships, such as with the Dutch Embassy. The design of the enhanced PPP FIGURE 4: Main pillars and activities for strengthening the professionalization of rural water services PILLAR 1 Innovative PPP contract design • Subsidized concession • Clustering Activities to facilitate Activities to mobilize access to private Strengthening and channel public finance professionalization of funds rural water services PILLAR 2 PILLAR 3 Support to the private sector Support to the public sector • AFEB (association) • Mapping and asset inventory • Capacity building • Regulation unit Activities to develop innovative monitoring tools (mWater) Source: Authors. www.wsp.org 17 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin model spanned over one year, from early 2013 to until Improving asset knowledge: inventory and mapping via 2014 as IFC undertook a thorough due diligence to assess mWater the technical, financial and legal conditions of rural water An asset inventory and mapping for a total of 150 PWS supplies in selected sites. The sector witnessed a peak of in the country, representing 32% of PWS, using the activities between April 2014 (when the Prequalification mWater technology was conducted with the technical Notice calling for Expressions of Interest was published) assistance of WSP. mWater offers asset inventory and and September 2014 when (the four transactions were network cartography services, which were crucially needed finalized). A full schedule of these activities is presented by municipalities. mWater provides PWS technical and in Annex C. financial management features to the POs. In a pilot phase running from February 2012 to June 2013, 51 PWS were 3.3 Key activities to support the public sector geo-referenced and mapped out. The asset inventory and As mentioned above, an important part of the effort to mapping was scaled up in June 2014 and a further 100 strengthen the professionalization of service delivery, PWS are expected to be geo-referenced by April 2015. This supported by WSP, focused on the public sector. mapping is expected to benefit 45 municipalities in total. The added value of using mWater is that the tool registers Introduction and roll-out of mWater as a monitoring tool all assets with their depreciation value so as to enable the A key issue at project inception was to determine the anticipation of major rehabilitation works and investments. approach for improving the monitoring framework for During the asset inventory pilot phase, WSP financed the rural water supply. Two main options were considered. yearly subscription to mWater monitoring services for 13 On the one hand, the STEFI model (Suivi Technique et municipalities around the country. Coaching sessions were Financier) was considered, an approach to support the organized (which POs attended) and mobile phones were professionalization of rural water services through technical handed out to operators. and financial monitoring that was initially developed in Mali (and later on in Tchad and Niger) and had generated In December 2014, as part of the scaling-up of mWater’s efficiency gains at the level of the private operators, use, WSP organized a seminar gathering mayors in order including with higher network productivity, reduced to create buy-in and ownership so that mWater could water losses, better life expectancy of small piped schemes, become an integrated part of water services monitoring. and lowered tariffs due to improved efficiency savings. Should municipalities decide to adopt the tool, part of the On the other hand, a new mobile phone technology was municipal fee which is to be used for monitoring can be considered. This mobile phone technology, developed by used to finance these services. Manobi, a Senegalese operator, is referred to as “mWater”. Regulation unit created within the DG-Eau It is used in Senegal, Niger, Mali as well as in Benin. In September 2013, based on WSP’s advice, DG-Eau issued an internal memo creating a Regulation Unit The sector opted for the mobile phone technology, within the DG-Eau. The primary objectives of this unit which seemed to provide solutions to several challenges are as follows: in the sector. mWater facilitates the monitoring of POs • Reinforce the knowledge of rural water supplies activities through a shared data platform accessible by infrastructure, and particularly PWS; POs, municipalities and S-Eau/DG-Eau. mWater also • Monitor the sustainable management of rural enables harmonising reporting tools so as to enable stronger infrastructure, and PWS in particular; monitoring at local (municipality) and central levels (S-Eau/ • Enforce compliance with standards; DG-Eau). More details on the mWater technologies is • Support S-Eau in their assistance to communes in provided in Box 3. implementing the delegation of rural water services, particularly in relation to PWS; • Monitor PSP in the professionalized management of PWS. 18 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin BOX 3: mWater: what is it and how does it work? mWater is a “mobile-to-web” technology that can be used for three different type of services: • Asset inventory and mapping (from pipes inventory to user mapping); • Water services mobile management for optimizing operations’ efficiency; • Monitoring water services, via a web platform accessible to asset owners (the municipalities) and other authorized parties (e.g. central government). mWater services can be contracted by different types of users: municipalities and central government seeking to improve their assets’ knowledge (so as to enable sound investment decisions) or POs looking to improve the management of PWS, particularly through increased responsiveness to maintenance needs and regulatory authorities. In order to be functional on a PWS, mWater requires that the system be geo-referenced. The system also automatically registers the amount of bulk water that is produced. POs’ staff enter operations data in the system using their mobile phones (crucial data relate to meter reading and the maintenance work carried out). This data is instantly accessible to the management via the web platform. The same data is also visible to other authorized parties. Further, mWater enables the generation of the activity reports that POs have to be submit to the municipalities on a monthly basis. These reports can be generated “with a simple click” if the data is entered correctly and regularly, and include calculation of the monthly fees and charges due by the PO to the municipality. The municipalities can verify the amount submitted based on their knowledge of the amount of water that has been produced. This technology comes with a business to business cost model agreed with the stakeholders during the pilot phase supported by WSP: the asset inventory (network mapping and water points referencing) cost FCFA 400,000 (USD 800) per PWS and FCFA 100,000 (USD 200) per PWS for subscribing to the mobile phone configured for monitoring and management services including training on using the technology as well as the mobile phones that will be used by POs’ staff on the ground. POs contribute with base fees of FCFA 10,000 (USD 20) and variable audit fees per PWS each month for accessing the mobile management, user assistance and coaching services. www.wsp.org 19 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin However, an organisational structure and a detailed agenda support to improve their knowledge and management for this regulatory unit still needed to be elaborated as of capacity of PWS. Trainings and seminars were also organized the time of this publication. to explain the project’s bidding requirements. 3.4 Key activities to support the private sector A training package was developed between WSP and In addition to the public sector, the private sector side AFEB to address identified PO’s needs for training. required support as well. This support was provided by Training was provided by three institutions: Hydroconseil WSP through indirect support for the establishment of the (based in France), CePEPE (based in Benin) and Diversity AFEB and via training activities, as detailed below. Management Consulting (based in Cameroon). While the operational management course aimed at improving Support for the establishment of the Association des POs’ operations efficiency (e.g. controlling water losses, Fermiers du Bénin (AFEB) maintenance routine, etc.), the business management course POs were encouraged to form the Association des included accounting, marketing and financial planning Fermiers du Bénin (AFEB). This type of association exists modules, focusing on the requirements of a “bankable” in other Sub-saharan Africa countries, as in Mozambique project. The Business Edge training, designed by IFC and or in Uganda, to voice POs’ needs and concerns. Following provided by Diversity Management Consulting, addressed a learning visit for POs to Mozambique (organized by key issues around leadership, such as delegating tasks, WSP), a number of them decided to emulate these regional leading a team and directing a firm with authority. examples and form AFEB to represent their interests. The training sessions were all organized by AFEB (at a fee) AFEB was set up in 2011 with small funding support and were rolled out at national level. The 10-day training obtained via the CePEPE, which has some funding for sessions were organised in Parakou in July 2013 (in the supporting private operators in the water sector. Such an North of the country) and in Cotonou (in the South) in association can contribute to strengthening the sector in September 2013. These sessions were organised between many ways, including: July and September 2013. Altogether, the training attracted • AFEB can act as a focal point for channeling soft 25 individuals from 17 POs in Parakou and 50 individuals support to POs, in the form of training or knowledge from 40 different POs in Cotonou. In total, representatives transfer; of 50 POs received training. • AFEB can play an advocacy role for all private water operators professionals so as to voice their concerns and Promoting the use of mWater to generate efficiency give them a representation in the policy debate; gains for POs • AFEB can offer technical solutions to POs such as for As highlighted in Box 3, mWater can be used by POs to the supply of spare parts in bulk and storage. make operations efficiency gains. mWater offers a range of management services, including for billing, mobile As of February 2015, AFEB had 24 members payment, system breakdown signal, business planning, (representing about 29% of POs) who paid their annual etc. However, despite sustained effort to spread the use of membership. AFEB has an executive board, whose members mWater among POs and municipalities, mWater remains include a President, a Vice-Président, a secretary and an a marginal tool for all stakeholders, as discussed in Box 4. accountant). WSP has been providing limited technical assistance to AFEB over the years. 3.5 Mobilizing public funding and facilitating access to private finance Training of POs A key commitment from the project upstream (and Training to prepare POs for their potential new condition for its success) was to mobilize funding responsibilities started much before the start of the for associated hardware investments, to finance the transaction-focused activities. POs received training rehabilitation of existing systems and extensions. From 20 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin BOX 4: mWater: A difficult shift, especially for POs Despite this sustained effort to commit municipalities and POs to the use of mWater, by early 2015, the tool was not central to several of the POs interviewed in the context of this case study. POs gave a number of reasons for this relative lack of interest, including the following: • Weak phone signals that does not allow POs to send the data instantly on site as requested by the system; • Poor customer services on behalf of Manobi; • The FCFA 10,000 (USD 20) monthly cost per PWS for accessing the platform. It is not unlikely that one major reason for this lack of interest is a resistance to transparent management on the part of the POs. By agreeing on using mWater, POs accept to make all their activities transparent to municipalities and other authorized parties, a situation which they are not used to. Similarly, although municipalities recognized the benefits the tool generates, none of the municipalities were using the tool to renew their subscription. It has to be noted that different donors have been presenting Benin’s municipalities with different PWS management tools. The Dutch Embassy for example has been equipping some municipalities with the AkvoFlow tool for making an inventory of all water points. GIZ provided a management software that enables anticipating and budgeting for heavy repairs. This “overcrowded” situation may be contributing to municipalities’ relative lack of interest for mWater. Finally, although municipal services may be aware of the particular advantages of using mWater (in comparison with other services), they need to find the budget for it and therefore need to obtain the municipal council’s agreement for carrying out such investments. the start of the project, it was envisaged that funding would Donor funding that eventually came through was lower come from two main sources: donor funds to fund the bulk than what had been initially envisaged, which means that of the investments in rehabilitation and new extensions investments funded through the pilot were less extensive and private sources, either from consumer tariffs, POs’ than they could have been had all funding been provided. own investments or via credit mobilized through domestic IFC mobilized USD 1.1 million for the transaction structure commercial banks. It appears however that the project did activities and contribution to training POs. The Dutch not seek particularly to mobilize funding from the domestic Embassy maintained its involvement and funded the USD government sources, which is something that would need to 1 million requested for subsidizing the works. However, be actively considered in the context of a scaling-up phase. GPOBA withdrew from the project. Table 2 summarizes the actual financing for the technical and financial assistance of Mobilizing donor funding strengthening the PPP model in Benin between 2010 and WSP identified partners that could bring in public September 2014. funding with them, to complement funding brought in via WSP funders for technical assistance. WSP had secured Table 2: Project financing the participation of IFC, which brought funding alongside Purpose Amount its transaction advisory expertise. WSP partnered with, WSP TA to GoB USD 1 million the Global Partnership on Output-Based Aid (GPOBA), IFC TA to GoB USD 1.08 million a global partnership program housed in the World Bank which funds hardware investments on an output-basis Dutch Subsidy to POs for USD 1 million Embassy infrastructure works (mostly for pilot projects). GPOBA had indicated that it could provide between 1.5 and 3 million USD for Total USD 3.08 million hardware investment. WSP also secured a USD 1 million contribution from the Dutch Embassy. www.wsp.org 21 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Strengthening the PPP model for rural water services in Benin not been fully vindicated however, as the POs have already started work, as described in Section 4.5 but have yet to take on any loans with the commercial banks. These banks were targeted because they have branches all over the country and could be accessible for all candidates. The banks were formally approached in writing. Both banks answered promptly and expressed their interest in being a partner in the project. However, as the activities progressed, only Ecobank showed strong commitment. Ecobank had been involved with other development partners, such as USAID, in a health project and with SNV for financing sanitation microfinance activities. However, Ecobank had never been engaged with the rural water sector before. According to Ecobank, it is the involvement of the World Bank Group that made the rural water sector attractive for Ecobank. In particular, IFC’s due diligence work provided assurances that the financial aspects of the contracts had been thoroughly assessed. Ecobank is also in contact with K-Rep Bank, which had collaborated with WSP in a previous project in Kenya that had received funding from GPOBA. The Commercial Bank is expected to support POs who need commercial funds via two distinct lines of credit: one line of credit for pre-financing the subsidized works and one line for the works that are financed from the POs through commercial loans. As such, despite the subsidy, there are some risks for the bank associated with providing commercial loans to POs. WSP envisaged that POs could contract a guarantee from the FONAGA, the guarantee fund managed by CePEPE (see Box 1, on page 8). Despite Competitive tender incentivized the Private Operators’ its lack of familiarity with the rural water sector, Ecobank financial contribution to the works (rehabilitation and indicated strong willingness to support POs and to be a expansion of the existing asset. core partner in the potential scaling-up phase. Linking POs to commercial banks incentivizes them to adopt some commercial rigor in the management of PWS. Facilitating access to private sector finance In parallel, WSP and IFC reached out to two large The need for a potential financing facility that would be commercial banks in order to facilitate access to finance accessible by eligible private operators and managed by one for POs: Ecobank and Bank of Africa. This was done or two commercial banks selected on a competitive basis based on the assumption that the POs would not be able has not been fully confirmed. The volumes of investments to fund the investments up-front in rehabilitating networks required by POs remain too low right now to justify the and funding network extensions. Such an assumption has establishment of such a facility. 22 IV. Subsidized concession contracts: how did it work? This section focuses on a core component of making the making, particularly with respect to the transaction. The contracts work, which consisted of designing innovative establishment of the Steering Committee reflected the PPP contracts that responded to the realities of the engagement of the government, which had contributed situation in Benin and strengthened sustainability of USD 50,000 for IFC services. The committee assessed and service provision. The subsidized concession model was provided feedback on three key steps for the transaction: designed and implemented over the course of two years with PWS selection for pilot-testing, approval of the due diligence WSP technical assistance, from the identification of PWS reports and approval of the transaction structure (including suitable for piloting the model in February 2012 to signing clustering options). four contracts between late August and September 2014. 4.1 Preparing the transaction: site Key steps for the transaction are shown on Figure 5 identification and due diligence below. In July 2012, the GoB formed a Project Steering The sector benefited from IFC’s expertise as transaction Committee bringing together officials from various advisor to propose contractual arrangements that could ministries (water, finance and economic development,) at least partially address the gaps left by the affermage to monitor the implementation of the project. This model, especially with regards to investments needs for was to ensure coordination and facilitate decision- rehabilitation and network extension. Figure 5: Timeline for designing and letting the subsidized concessions www.wsp.org 23 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? The challenges for designing the contract were threefold: readiness conducted by WSP. Municipalities also had to technical, legal and financial. The new contractual have experience with public procurement, with a somewhat arrangements had to: functional Public Procurement Commission. Another • Enable poor populations to have better access to consideration was to choose sites that could be grouped affordable water services through network extension into clusters under single contracts. and rehabilitation. Although Benin had already made significant progress in achieving MDGs, many rural A sub-set of 21 sites was selected out of the 51 sites for districts within a municipality still do not have adequate which data had been collected through the m-Water tool access to water services. As a result, women have to based on five criteria: walk long distances to reach the nearest standpipe. It is • Availability of water resources: because network those living in remote areas that WSP/IFC’s approach extensions had to be made, it was essential to ensure intended to benefit in particular; that sufficient water resources would be available; • Fall within the scope of Benin’s public procurement • Geographic location: it was deemed essential to rules and be compatible with the country’s institutional test the approach in different geographical contexts arrangements; and and therefore to select sites in distinct geographical • Be financially viable for POs so as to allow them to earn locations; a reasonable return on equity. • End date of the on-going affermage contracts: that end date had to more or less coincide with the start of IFC undertook a due diligence process to start identifying the tender procedure so as to avoid having to terminate the most suitable contractual form to meet those criteria existing contracts early;2 and to identify the sites where this contractual approach • PWS potential for generating sufficient revenues in could be piloted. the long run: selected PWS needed to offer a minimum level of profitability and an interesting development 4.1.1 Pre-identification of pilot sites potential for the POs; and The 10 sites for pilot-testing the improved PPP model were • The possibility to cluster some PWS into single selected from an initial list of 51 pre-identified sites for contracts, particularly in order to increase profitability which technical information had initially been collected and make the contracts attractive to commercial banks through m-Water and for which an institutional evaluation for providing funding. had been carried out. The process ran smoothly and occurred under the supervision of the piloting committee headed by Site visits were conducted in the 21 pre-selected PWS, with the Ministry of Water. The Committee was involved at each the objectives to assess the sites’ hydrological conditions, stage of the process: the presence of competing water sources (wells or private • Initial selection of 51 sites (PWS and surrounding boreholes), network extension potential and, finally, PWS areas) potential profitability, which was also established through • Developing and finalizing the five selection criteria communities’ willingness to pay. • Selection of 21 sites for carrying out sites visits • Final selection of 10 sites and approval from the pilot Following this study, a total of 10 PWS in three committee municipalities were proposed for selection. As can be seen on the map below (Figure 6), these 10 PWS belong The initial selection of the 51 sites was based on a number to three municipalities situated in three different parts of of criteria: they had to be managed through an affermage the country. contract and municipalities’ mayors had to be committed to improving the contractual arrangements. This identification was based on an extensive review of current 2 In the end, it did not take place in that way because the contracts took longer to be water service management arrangements and institutional structured, which means that the contracts had to be terminated. 24 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? Figure 6: Site selection: 10 PWS in three 4.1.2 Technical due diligence and investment plans municipalities : Gogounou, Sakété and The objective of the technical due diligence was to identify Zogbodomey the technical feasibility of an enhanced PPP model. It assessed water resources availability (in quantity and quality), PWS technical parts, PWS management model, environmental and social aspects as well as the water consumption pattern (present and future). As presented in Table 3, the average volume of water consumed varied greatly from a PWS to another, including within a same municipality. One main finding of the study was that the water consumption average on the 10 sites identified was 4.1 litres per capita per day (lcpd), which is way below the optimal consumption recommended by the World Health Organisation (WHO) of 20 lcpd.3 This low consumption is due to the prevalence of standpipes (rather than household connections), which limits households’ water consumption. Low consumption was also found to be hindering the financial viability of PWS management as sales of water were too low to enable the recovery of investments and securing enough funds to carry out the necessary maintenance and rehabilitation works. Based on this finding it appeared crucial to design network extension and densification with the objective to increase the volume of water sales, including via an increase in household connections. The technical study identified the CAPEX and OPEX requirements for investing in the rehabilitation and Table 3: PWS selected for pilot testing the PPP model Pre-existing Municipality PWS Tariffs (FCFA/m3) Fees and charges (%) Average lpcd affermage contract Gogounou Gogounou tripartite 600 35 3.0 Gogounou Sori tripartite 600 35 2.7 Zougou Gogounou bipartite 600 36.3 4.6 Pantrossi Sakété Gbagla bipartite 550 25.9 2.1 Sakété Illasso tripartite 550 27.3 3.4 Sakété Makpohou bipartite 550 27.3 4.6 Sakété Yoko tripartite 550 25.9 2.7 Zogbodomey Akiza Denou bipartite 420 19 6.9 Zogbodomey Don Akadjamey bipartite 420 19 10 Zogbodomey Zado Gagbe bipartite 420 19 1.2 Average lcpd 4.1 Source: (Fichtner 2013) 3 This optimal consumption takes into account drinking water needs as well as the needs related to basic personal hygiene and food hygiene needs. www.wsp.org 25 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? densification of the PWS networks as well as providing 250,000 FCFA). In the subsidized concession model, new household connections. Household surveys established subscribers are expected to contribute only 20,000 FCFA whether there was demand for household connections (representing 2 to 4 months of saving) towards to cost of and the minimum number of connections that could be the individual connection, the difference being subsidized anticipated with the network’s extension. by external funding. The technical due diligence gathered data on current Based on the elements gathered from the due diligence, tariff and fees as well as on willingness to pay. In the three prepared a two-year investment plans for each selected municipalities, volumetric tariffs varied between FCFA site on the basis of three different options presented to 420/m3 (USD 0.71) and FCFA 600/m3 (USD 1.02), as the GoB: per the existing contractual arrangements. The capital • Option 1 included only network and infrastructure maintenance and investment charges paid by POs varied rehabilitation; between FCFA 60 and FCFA 90 (per m3 produced), while • Option 2 included reinforcing the existing network municipal fees varied from FCFA 20 to FCFA 78 (per m3 and installing household connections (HC); produced), depending on the percentage applied to tariffs. • Option3 included reinforcing the existing network and In one municipality, the combined fees and charges paid carrying out extensions towards populations situated by the PO to the municipality reached 35% of the tariffs. far from the existing primary network. These meetings were completed by surveys conducted in each site to consult with 30 to 50 households so as to Options 2 and 3 were by far the most expensive options, identify whether there was demand for water and whether as presented in Table 4 below. Based on government populations were willing to pay. objectives, commercial viability and the marginal difference of investment required between Option 2 and Option 3, Willingness to pay studies showed that in the concerned Scenario 3 was finally selected. This option was chosen as areas extending the coverage of individual connections to it enabled reaching the highest coverage rates of the three 60% of the users would be enough to saturate the market. and also leveraging the public funding over larger numbers The investment plan targets this rate of access by 2017. of people served. The studies also indicated that households are only able to pay FCFA 20,000 to FCFA 50,000. With an average The Government had to be convinced to transfer saving rate of 11,000 to 17,000 per month it would subsidies to POs but they then accepted the model given take at least 6-22 months for a household to be able to the fact that it enabled carrying out network extensions. pay for the cost of a standard connection (120,000 to To convince the GoB to approve the subsidized concession Table 4: The three investments options submitted to GoB and cost estimates Option 3 Option 2 Option 1 Rehabilitation, reinforcement Rehabilitation, reinforcement of   Rehabilitation of main pipe, extension and main pipe individual connections Cost Current HC Cost Additional HC Cost Additional HC Gogounou 56,683 73 193,524 330 210,668 356 Sakété 25,682 20 163,024 357 232,415 471 Zogbodomey 5,792 16 83,438 244 83,438 244 Total in FCFA ‘000 88,157 439,986 526,521 Total HC 109 931 1,071 Total (USD) 185,486 925,748 1,107,820 Source: Contracts and POs’ proposals. Exchange rates are those from October 2013 26 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? model IFC and WSP developed an economic analysis The legal analysis highlighted the lack of a distinction demonstrating the economic gains from adopting the between “owned assets” (bien propres) and “returnable model. The analysis established that the project would assets” (biens de retour), a situation that stopped some POs generate over FCFA 178 million in net economic benefits. from carrying any investment. For example, one affermage The benefits were calculated on the basis of health costs, contract stated that “infrastructure and equipment financed potential productivity gains and the increase in fees and by the PO from its own funds will become municipal charges received from the PO. property” once the contract ends. Despite such a risk, some POs do invest: in Gogounou for example, the PO had 4.1.3 Institutional and legal due diligence installed water meters bought from its own funds under the In parallel, an institutional and legal due diligence affermage contract. process was conducted in order to identify the key institutions with responsibility for water services in In addition, looking at the tender procedure, which had rural areas and to identify what contractual forms been used in the selected 10 sites, the legal expert found would be possible given Benin’s legal framework and that it did no conform to the recommendations of the DG- public procurement rules in particular. Eau. Furthermore, even the DG-Eau recommendations did not abide by the regulation implicated by West African The key guiding questions for the legal analysis were: Economic and Monetary Union (Union Monétaire Ouest • What PPP model is compatible with Benin’s legal Africaine or UEMOA), to which Benin belonged. Any framework? review of the contractual arrangements would have to • What are the key issues in the affermage contracts review the tendering process. hampering contracts’ implementation? • What are the conditions for legal termination of The role of WUAs was also found to be unclear, especially ongoing affermage contracts? in tripartite contracts. In practice WUAs were found to be informal groups, with no trace of meetings’ minutes. An assessment of the country’s legal framework for water Finally, the legal analysis also identified the procedure for services confirmed that concession contracts were possible terminating ongoing contracts in sites where the pilot within the country’s legislative framework. The legal PPP model would be introduced. One issue was that analysis also found that the new concession model would municipalities would have to return to POs their deposits. have to include mechanisms to avoid some of the difficulties Overall, however, as municipalities were keen to pilot the encountered in affermage contracts. model, all terminations were made The most problematic element found in the model 4.1.4 Financial due diligence affermage contract proposed by DG-Eau was that The financial analysis examined POs accounting and contracting parties’ obligations were unclear, particularly fiscal framework (i.e. all charges related to the PWS with respect to major rehabilitation (“grosses réparations”). operations) and established PWS financial performance Affermage contracts make POs responsible for O&M over two years (2011 and 2012). This performance was whereas municipalities are expected to carry out major established on the basis of POs’ activity reports that had rehabilitation investments. However, they do not specify been submitted to municipalities. These, however, were not what a “major rehabilitation” is, leaving too much room for subject to independent verification by municipalities and interpretation on this crucial issue. were sometimes inaccurate according to Mazars. This resulted in recurrent conflicts between POs and municipalities. www.wsp.org 27 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? The main conclusions from the financial analysis were the Clustering, which had not been done before for PWS in following: Benin, presents several advantages, such as: • POs would not be able to fund the required investments • Reducing transaction costs for the public side required themselves, due to the low profitability of (including for tendering the contracts as well as managing PWS under current conditions. This is partly overseeing their implementation); due, for some PWS, to high fees and charges paid by • Including within the cluster PWS that are less profitable the POs to the municipalities (sometimes reaching so that they could be delegated to the private sector; 35% of the tariff); • Harmonising operations, tariffs and performance • The current situation of the capital maintenance and monitoring; investment funds showed that municipalities did not • Making the transaction appealing to the POs who are have sufficient funds to carry out major rehabilitations; attracted by bigger water sale volumes; and • The profitability of each PWS varied greatly, including • Attracting commercial banks by proposing larger within municipalities: this was due to variable asset transactions and thereby reducing transaction costs for conditions, the presence of alternative water sources arranging financing. and different population densities; • POs’ maintenance costs increase with inflation, whereas The concession geographic scope includes all other water there was no mechanism for revising tariffs within their infrastructure, including hand pumps and autonomous existing contracts; water points (point d’eau autonomes). The PO is in charge • There was a strong need to impose tighter regulation, of ensuring water services at all these water points, despite so as to oversee POs’ activities but also to assist the fact that the control of the sales of water at hand pumps municipalities with setting tariffs and lease fees that is difficult to trace since there are no meters installed. would give PO reasonable profitability. Contract duration 4.2 Contract design: the proposed IFC initially proposed a 10-year contract. However, due “subsidised concession” model to municipalities’ reticence to enter into such a long Based on the findings from the due diligence process, IFC agreement (especially given that the model had not been proposed a model of “subsidised concession” contract, previously tested in Benin), the contract length was reduced assigning responsibilities to the POs to partially fund and to 8 years. This contract length is a strong departure from to carry out investments. The main characteristics of the the existing practice, as the standard contract length for the proposed contracts are set out below. affermage contracts was between 1 to 3 years. This duration also spans over several political mandate at municipal level. Clustering Allocation of risks and responsibilities The 10 PWS were clustered in four contracts: As per a standard concession contract, the PO is in charge • Cluster 1: Gogounou, Sori and Zougou Pantrossi (in of carrying out investments and to recover the costs of the municipality of Gogounou) these investments through tariffs. Major rehabilitation • Cluster 2: Gbagla and Yoko (in the municipality of works that may occur during the contract time frame but Sakété) that are not included in the contract are municipalities’ • Cluster 3: Makpohou and Illasso (in the municipality responsibilities. The concession contracts therefore transfer of Sakété) a greater share of the risks to POs than under an affermage • Cluster 4: Akiza Denou, Don Akadjamey and Zado contract, including those risks related to possible works Gagbe (in the municipality of Zogbodomey). delays, an unforeseen increase of works costs or poor designs. Because they are bearing greater risks, POs are The four PWS in Sakété were tendered in two clusters of incentivized to optimize their investments, to adopt a similar investment needs in order to reduce the risks involved demand-led approach and to foster a customer-oriented in the same PO bearing all the investment responsibilities. approach in order to increase revenues from tariffs. 28 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? For operations, the POs’ responsibilities (and associated • Maintenance standards for the generator, water tower, risks) are the same as for the affermage contract, although pipes network, valves, taps and water meters, as well as responsibilities are better defined. POs are in charge of for controlling pipes’ water losses. providing water services and bear all the risks associated with operating PWS, including those related to demand The contract also introduces performance incentives, in for water services. The PO is in charge of O&M and agrees the form of penalties imposed if the PO does not abide with the municipality the responsibilities related to major to its contractual obligations. The PO is expected to pay a rehabilitation works. financial compensation if works obligations are not realised within the contractual time frame. This penalty amounts Filling the legal gaps to 1/1000 of the works costs as per contract. The contract The proposed contract also addresses the legal gaps left by also introduces a penalty if water supply is interrupted for the affermage contract. more than 72 hours. This penalty is equivalent to 10% of estimated revenues from tariffs within the interruption The concession contract includes a clause on “returnable period. Penalties are also due if water losses (equivalent to the assets” (biens de retour) and “owned assets” (biens difference between water produced and water distributed) propres). This recognizes that some investments carried exceed 5%. Finally, the PO is subject to penalties for non- out by POs from their own funds will have to be returned respect of information obligations. If within one year of to them when the contract ends. It also specifies which contract’s end, the PO does not share technical documents assets belong to the municipality. The list of returnable and (including infrastructure plans/ plans des ouvrages), the owned assets is finalized based on an asset inventory carried municipality is entitled to ask for the performance bond out before contract signing. (garantie de bonne exécution). The PO is also held to present timely activities reports: for each week of delay, a penalty In addition, the concession contract clarifies issues related equivalent to revenues from 50m3 is applied. to capital maintenance and investments (renouvellement) and “major rehabilitation” (grosses réparations). The Financing rehabilitation, reinforcement and contract includes a clause on the use of the capital extension obligations maintenance fund, specifying that the fund should be All contracts specify that works have to be carried out used to replace the generator and the pump and fund within the first two years of implementation. The contracts other “major rehabilitation” works. The contract makes it include specific investment objectives, including assets to mandatory to include as an Annex the list of works falling be rehabilitated, number of HC to be made, extension under major rehabilitation and capital maintenance in order and densification targets. However, as POs are deemed not to clarify municipalities’ responsibilities. This list is drawn to be in a position to finance all the required investments, based on an agreement between contracting parties prior POs are eligible to receive a subsidy after they have carried to contract signing. In the four contracts that were signed, out the investments. The POs were nevertheless expected to “major rehabilitation” includes replacing the generators carry out some of the investments from their own funds. and associated pumps as well as some extensions and pipe replacements. The contract also specifies that municipalities This means that the POs have to pre-finance two types of are responsible for carrying out water quality controls from expenses: within the capital maintenance fund. • Some pre-financing is expected to be recovered via subsidies (within weeks or months of carrying out the The contract defines operations and maintenance standards. This concerns in particular: investments); • Service quality: the PO must ensure a 24x7 supply • Some pre-financing is expected to be recovered via of water to HC, in sufficient quantity. Water kiosks’ tariffs (within the duration of the concession contract). opening hours should be established in consultation with the municipality and users; www.wsp.org 29 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? In the transaction structure report (TSR) submitted to volume of consumption due to the additional household GoB, IFC estimated that the subsidy level would have to connections, which would enable a 16% internal rate of amount to around 90% of the investments. Based on the return on investment for POs. In order to boost demand for estimated costs established by Fichtner, they estimated that household connections, the concession contracts specifies a this would represent a total subsidy amount of at least USD number of household connections that should be offered 793,587 over the 10 sites. This estimation was done based by the POs at the subsidized rate of FCFA 20,000 (instead on the following key assumptions: of the normal cost of FCFA 100,000). The difference is • Tariffs could not be increased, due to political funded by public funds (subsidies) based on whether POs constraints and the already wide gap between tariffs in met their targets. The model anticipates that consumption urban and rural areas: the average tariffs set by SONEB will gradually increase from the present average of 4.1 to an is FCFA 458, while tariffs in place in the beneficiary average of 10 lpcd over the concession period. In addition municipalities are at an average of FCFA 510; POs will have a larger revenues base as they operate several • POs would seek to achieve a rate of return on equity clusters under one concession contract. The key assumption of at least 16%, based on borrowing costs and alternative was that tariffs could not be increased for political reasons, investment opportunities. as tariffs in rural areas are already higher than those applied by SONEB. The Dutch Embassy, which was already funding PPEAII (see Box 2), provided funding for hardware investments for The fees and charges paid by the PO also retain the same the programme, confident that WSP was addressing the key rates, except for municipalities which previously adopted bottlenecks in the sector. a tripartite affermage: the fees and charges paid by the PO decrease in the concession since they would not pay any fee The subsidy was allocated to network densification to the WUAs. and extension and financing household connections. According to the contracts, POs have to offer household The financial flows under the concession model in the connections at a subsidized rate of FCFA 20,000 instead first two years of the contract are presented in Figure 7. of the standard price of FCFA 100,000. A subsidy Following these two years, the model will remain similar, therefore needed to cover the difference between the without the subsidy. actual cost of making a connection and the subsidized price. The subsidy provided by the Dutch was also 4.3 Designing the tender procedure allocated to carrying out the network extension that will As previously mentioned, sector reviews carried out in enable connecting new customers. 2010, and then again in 2013, found that municipalities were not following the tender procedure in place in The subsidy is disbursed by the municipality to the PO, UMEOA. Conformity with UEMOA’s norms imposes based on results achieved, via the municipal budget, as per a two-stage procedure, with a pre-qualification and the FADeC circuit (see Annex B). Although by the time the qualification stages, for delegating public services. Other transaction was structured, it was clear that GPOBA would than conformity with norms that are in place, this procedure not be a funding partner, the project retained some of the presents a number of advantages particularly suitable in the features of a results-based financing mechanism as set out context of the proposed concession model, as presented the in Box 5. following sections. PO’s remuneration WSP and IFC assisted municipalities with following Despite increasing the investment and level of service, adequate tender procedures and prepare all necessary tender the concession contracts retained the same tariffs levels documentation. Technical assistance was also provided in place in the different municipalities. The financial to build POs’ capacity for responding to the new tender model assumed that investments are spread over a larger format. This was done through training as well as the establishment of linkages with commercial banks. 30 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? BOX 5: Key differences between the subsidized concession and an OBA model OBA is a type of Results-Based Financing instrument that has been put forward by the Global Partnership on Output Based Aid (GPOBA). OBA ties the disbursement of public funding (in the form of subsidies) to the achievement of pre-specified results that directly support the poor to access basic services. OBA subsidies cover a funding gap when poor or excluded households cannot afford such services. Service delivery is contracted out to a service provider, which can be a private enterprise, a public utility or a non-governmental organization. The disbursement of funds to this service provider is tied to the independent verification of outputs achieved, which is carried out by an independent verification agent (IVA). Although the subsidized concession contract structure proposed in Benin aims to improve water access to some of the poorest in rural areas, it differs in some key areas from an OBA funding model, as implemented by GPOBA: • Limited pro-poor targeting: there is no explicit mechanism to ensure that these improvements actually reach the poorest. More specifically, although the contract defines a target for the number of HC to be made, it leaves room for the PO to choose the type of customers that will be targeted for these HCs. Indeed, the contract only “indicates” where reinforcement and extension should be made – the PO and the municipalities can agree during implementation to provide extensions towards different areas. • No independent verification of outputs. In the subsidized concession model, the municipalities carry out the verification of the expected outputs – in other words there is not IVA, which would ensure that the poorest have been targeted. What are the advantages and disadvantages of the proposed model in comparison with OBA? OBA implies an expensive verification mechanism and can induce complexities in the disbursement of funds to the POs. The original concept note for the project had estimated that some USD 1 million would be needed for the IVA. The project as approved by the GoB did not include any funds for verification, as municipalities themselves would have to do it. This keeps monitoring costs down but also creates a risk of dispute between the parties over the amount of subsidies that can effectively be paid. One key issue, however, is to ensure that subsidized HC are offered to the poorest (and not those who could afford an unsubsidized rate). In the present contractual set-up, only strong monitoring of PO’s activities, with clear guidelines for allocating the subsidy, and municipalities’ commitment to serving the poorest can ensure that the project reaches the neediest. WSP included a post-transaction phase involving the services of a CePEPE for monitoring these key aspects of contract implementation. Screening candidates through a prequalification stage • Experience in PWS construction and rehabilitation; Introducing a prequalification stage enabled screening • A minimum of three years experience in managing potential candidates and retaining those who can meet PWS; and the technical and financial requirements to enter into • An annual turnover of more than FCFA 50 million concession contracts. Interested candidates had to purchase (USD 82,000): such financial capacity was justified the prequalification file at the price of FCFA 50,000 (USD by the fact that POs had to be able to pre-finance the 82) and had 45 days to submit their Expression of Interest investments and were expected to contribute from their from the notice publication date. The prequalification notices own funds a minimum of 10% of overall costs. briefly describe the main responsibilities of the PO and specified the bidder’s profile. Particular requirements included: www.wsp.org 31 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? Figure 7: Financial flows under the concession contract in the first two years of the contract Ministry of Finance Dutch Embassy Municipality Results-based Municipal subsidy charge Concession Holder Investments Revenues Tariffs Remuneration O&M MOHP Standpipes Household Connections In order for POs to be able to meet these requirements, Selection criteria the prequalification encouraged joint ventures to be All bidders were entitled to bid for one or several contracts, formed. This was crucial for many POs who did not but bidders could not win in different municipalities. As have both the construction and management experience the project was a pilot, the GoB wanted to see the model and did not have a turnover of more than FCFA 50 tested in several areas and by different operators. POs who million (USD 82,000) as standalone candidates. The bid for several contracts were therefore asked to rank their notice also specified that instead of reaching this turnover bids in order of preference for different sites. In the event requirement (as evidenced through financial statements), that a bidder would be preferred bidder for two contracts candidates could pledge assets of at least FCFA 25 million in two different municipalities, they would be allocated the in value (USD 41,000). contract that they had identified as their first priority. Qualification stage: finalize the contracts and The request for proposals (RfP) contained a detailed increase competition among POs methodology for preparing the financial proposal. The Bidders’ technical and financial proposals were submitted RfP detailed the nature of the works to be carried out during the qualification phase, based on requirements without specifying their costs. It was left to the POs to described in the tender package. The tender package (dossier propose a detailed costing of the works (based on unit d’appel d’offres) was only handed out to selected bidders costs) and to indicate how much subsidies they would from the prequalification phase. It contained, among other request for carrying out the works. The RfP indicated information on requirements, clarifications on the tender that candidates must finance at least 10% of the process, and the technical and financial proposals forms. works and that the winning bid would be awarded to 32 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? the PO requesting the lowest level of subsidies. This would use the same BDS provider, information would be bidding method enhances value for money on CAPEX shared around. and incentivizes POs to invest. It allows to eliminate candidates bidding too low (and therefore unrealistically) The bidding evaluations started in early August 2014. and increases competitiveness among bidders who have IFC assisted the municipalities for all key stages of the to consider investment plans carefully and propose the evaluation process and external witnesses were invited to contribution they are willing to make. attend the bid opening. Final decisions on contracts award were made on the 14th August 2014 at a meeting gathering 4.4 Conducting the transaction the GoB, municipalities and WSP/IFC in Cotonou. A In March 2014, the municipalities published the detailed timetable of the prequalification and qualification prequalification notices in national papers and made phases is presented in Annex C. announcements on the radio. All three municipalities did this in a coordinated manner so as to be able to progress the As a result of the deliberations, three POs (two of them transactions in parallel. Despite these announcements, the in joint venture) were awarded the four contracts, as municipalities had received no Expressions of Interest only presented in Table 5. One particular area that necessitated one week before the end of the prequalification phase. One deliberations was that the CoGeFI-led joint venture had potential reason for this is that the POs did not understand also bid for one of the cluster in Sakété and came first in the prequalification requirements: many thought that the the bid evaluation in that cluster. However, as CoGeFi had requirement to have a FCFA 50 million turnover (USD also won in Gogounou, municipalities had to choose which 80,000) or above meant that they could not bid for the cluster the joint venture should be awarded. The decision contracts. In response to this situation, a clarification was made on the basis of the CoGeFi’s preference order seminar was organised to explain that POs could submit and the grouping was awarded the cluster for Gogounou, EOI in joint ventures or with subcontractors. which was deemed attractive as it has the highest number of household connections. Following the clarification seminar, the three municipalities received a total of 25 EOIs. Of these, eight were selected for POs’ contributions reached an average of 27% of overall the qualification stage, based on whether they met the legal, works costs, exceeding expectations from the TSR.4 One technical and financial requirements. PO even proposed to finance 40% of the CAPEX from its own funds, even though this only happened in one case. The By June 2014, prequalified candidates received the tender overall subsidy requested by the POs was FCFA 368,441,735 documents. The deadline for submitting the proposal was (equivalent to USD 759,442 as of August 2014) when the 21st July, approximation 5 weeks after qualification start date. TSR anticipated a GoB contribution of FCFA 475.7 million, Shortly after POs received the tender package, clarification representing 90% of anticipated works costs. The total works sessions were organised to respond to bidders’ enquiries. A cost as budgeted in the proposals amounted to FCFA 502 two-day training seminar was held in Bohicon to explain million, whereas the TSR estimated construction costs all key documents from the tender package and ensure that amounting to FCFA 526 million. POs include in their bids all costs that could be anticipated during the network rehabilitation and extension. Site visits These contracts are expected to benefit the estimated 40,766 were organised to discuss the investments plans and inspect people living within the coverage area. Within the 8-year the current state of assets. contracts, some 48,000 will benefit from improved services. At least 1,071 additional household connections are expected CePEPE was mobilized for assisting POs with preparing to be realized in the first two years of the contracts. their proposals. Only one candidate made use of these services, however. For several other candidates, this support 4 The TSR estimates a total construction cost of about FCFA 526 million and that POs was unnecessary. Others were wary of the fact that if all at least will contribute 10%. www.wsp.org 33 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? Table 5: Winning bidders and their financial contributions Cluster 2 Cluster 3 Cluster 4 Municipality Cluster 1 Gogonou Sakété Sakété Zogbodomey CoGeFi-Bathys Delcos-Canal Winning bidder Ogo-Olouwa Kitan Ogo-Olouwa Kitan Consult-Climatel Eau Estimated works cost 156,575,009 185, 575,000 62,349,000 98,230,000 (FCFA) Requested subsidies 101,773,755 157, 738,750 49, 879,200 58,938,000 (FCFA) Bidder’s contribution (%) 35% 15% 20% 40% Minimum additional 356 293 178 244 household connections Note: In bold we highlight the lead PO in the joint venture. 4.5 Early results following contract signing 4.5.2 Managing the demand for household sInfrastructure development connections 4.5.1 Infrastructure development One key issue that emerged rapidly following contract By September 2014, all contracts were signed. Sites were signing is that demand for subsidized household transferred between October 2014 in Zogbodomey, connections is higher than originally anticipated. November 2014 for Sakété and and January 2015 for In Akadjamey in Zogbodomey, 113 households had Gogounou. Although all municipalities complained that registered for a household connection, when the target they had to send reminders to the POs for presenting a work was to reach only 25 households. This high demand is plan and starting works, two POs had started carrying out linked to the fact that households only have to pay FCFA investments in rehabilitation and extensions by February 20,000 for a connection, as opposed to the unsubsidized 2015. All POs had also started identifying households that cost of FCFA 100,000. would be interested in applying for subsidized connections. In Gogounou, the PO contracted an NGO for carrying By February 2015, Ogo-Olouwa-Kitan, Sakété’s out demand promotion and collecting the connection fee concession-holder, had already realized several extensions (FCFA 20,000), with an advance on consumption of FCFA and connected several new households (as well as a medical 20,000 to cover the non-repayment risks. In principle, the clinic) (Figure 8). In Zogbodomey, the concession holder initiative of hiring a NGO for stimulating demand should had invested in a new generator, as per the concession be welcomed. However, it seemed that the PO was receiving contract. In Gogounou, works had not yet started, due to the connection fee prior to agreeing with the municipality the delay incurred in the site transfer. Gogounou has the on the list of households who will receive the subsidized highest number of HC (among the three municipalities connection. This initiative entails the risk that subsidies are that entered in concession contracts) and therefore the site provided to households who may have been able to afford transfer was more complex. the unsubsidized rate and may potentially generate conflicts with the municipality. 34 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Subsidized concession contracts: how did it work? As demand is high and consumption is likely to increase for many households, POs are anticipating strategies for managing the non-repayment risk and adapting the bill collection methods. Some POs are considering introducing bi-weekly collections (as opposed to monthly collections) so that households do not accumulate bills they will not be able or willing to pay. However, adopting this new collection schedule will involve a reorganization of the POs’ operations structure. Currently, the collection method consists in collecting the fees house by house (generally by the operators travelling by bike). This method will not be easily implemented when the PWS will have 172 new connections, as in Gogounou. CoGeFi, the concession holder in Gogounou, is therefore considering opening an office in Gogounou (the company operates several PWS but is based in Cotonou). POs are also considering strategies to accompany their new customers in this transformation of their consumption habit. POs generally anticipate that households, who have been used to paying at the standpipe for a visible amount of water, will need an adaptation period to “water at home”and that some will not be able to repay their first bills. In Zogbodomey, the PO is working with the municipality’s water and sanitation services to carry out sensitization campaigns on the sound management of water consumption, Others as in Gogounou have hired the services of an NGO for preparing communities to this new consumption model. The introduction of the subsidized concession, which has household connections at the heart of its business model, entails a significant transformation of the profession of private water service providers. POs will need to adapt their operational organization to this business model. Moving people to further up service ladder from an already improved service using private sector (Extension and connection works in Makpohou (Sakété) in February 2015. www.wsp.org 35 V. Key lessons The pilot project has successfully demonstrated that letting • Comprehensive training programs were delivered to concessions to mobilize domestic POs to invest in water both public sector actors (particularly to municipalities, supply services in rural areas is possible, even in remote to strengthen their monitoring roles) and private sector and dispersed areas. The present section extracts the main actors (on business and technical management); lessons from the experience for developing a PPP model for • Throughout the reforms, the GoB and key donor small towns and rural areas partners’ approaches were well-aligned. Donors, and particularly the World Bank, provided incentives to the The implementation of the pilots built on the government to focus on water sector reforms (such as achievements of previous sector reforms and on a through the PSRC budget funding conditionality linked careful assessment of the weaknesses of such reforms. to the professionalization of the rural water sector). Prior to the project, the reforms initiated by the GoB to professionalize rural water services since 2007 had enabled A key component of the project was the development of the rapid development of POs, operating under different an alternative to the affermage contract, the subsidized types of PPP contracts. In particular, the number of PWS concession contract. This new contractual form sought to managed through an affermage contract went from 1 in 2007 address the shortcomings of the affermage contracts. Four PO operating under affermage contract to 269 (57% of the concession contracts were let out for the management of 10 total number of PWS) in 2014. As of February 2015, there PWS during the pilot. Although it’s too early to say whether were an estimated 77 “official” POs in operation throughout the subsidized concession model has had a positive impact Benin, most of which were fairly small enterprises. This on the ground, all actors agree to say that the proposed PPP demonstrated that it is indeed possible to “build” a private contract adequately attempts to respond to the challenges water supply sector virtually from scratch in a short period of the sector. of time (8 years). The activities that led to the implementation of the Such a remarkable achievement was made possible thanks subsidized concessions contracts correctly responded to to a concerted sector-wide approach, with the following areas of weakness in the earlier reforms and attempted key elements: to fill the gaps. Activities were aimed at building capacity • Institutional reforms, with an effective transfer of both the public and private sectors. A monitoring tool of responsibilities for water supply services to the (mWater), which can be used by both parties, was developed decentralized levels of government and the creation of and rolled out. Funding was mobilized from both the public support structures at the central level, both in terms of and the private sector. Table 6 presents the main activities providing technical assistance through S-Eau (in charge implemented for reforming the management of PWS of providing technical assistance to the municipalities) in rural and small towns, showing how they responded and funding (through the FADeC, a general funding to the weaknesses in the sector. The following table also mechanism for the municipalities that can act as a presents the challenges that could be encountered during channel for ear-marked investment funding for certain the scaling-up phase of the approach. This analysis provides sectors, including for water supply). the basis for recommendations for the next phase presented in Section 6. 36 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Key lessons Table 6: Activities for strengthening the PPP model in rural areas and potential challenges in the scaling-up phase Components Weaknesses of Activities to strengthen the Related challenges for scaling-up existing PPP PPP model Defining Limits of the bipartite • Designed and pilot- • The model is likely to require fine-tuning: contract affermage contract: tested the “subsidized to adjust tariffs over time, to improve the forms that concession” model, as an targeting of household connections subsidies encourage • POs have no alternative to affermage, and improve overall monitoring sustainability responsibilities for with a more realistic • Replicating the subsidized concession model investments allocation of risks and will likely be feasible only in municipalities • Municipalities do not responsibilities: that meet pre-requisites; invest o A subsidy is channeled o Municipalities need to demonstrate a • The service area to support investments knowledge of their assets, commitment to (one PWS) is too in rehabilitation, reforms in the tender procedure and ability small and not extension and to manage contract with POs attractive for raising household connections o Commercially viable environment: users commercial funds o The contract requires have to demonstrate willingness to POs to mobilize their pay and ability to increase their daily own funds consumption Role of WUAs o Clustering of several • The model requires the mobilization of public inadequately defined in PWS allows some funds for the subsidy: the tripartite affermage economies of scale o Where will the public funds come from? contract o Access to commercial o Could a sector level funding mechanism banks is facilitated via be envisaged? clustering and contacts • Clustering was done at a very small established with scale: market-based clustering should be domestic banks encouraged and bidders should be allowed to compete on several markets Supporting • Small POs, • Assistance to the • Sustainability of AFEB as a focal point for the inadequate technical establishment of AFEB reaching to the private sector: what is the development and management • Use of mWater for association’s business model? of the private skills improving operations’ • The use of mWater is marginal among POs: sector efficiency o Is mWater a viable tool? • Training on operational o What mechanisms can be put in place to management, business incentivize POs to use the tool? skills and preparation of bankable projects Supporting • Limited knowledge • Mapping and asset • There is a need to put in place a national the public of the asset stock inventory with mWater for benchmarking system sector for • Municipalities are 150 PWS • The regulatory unit is still embryonic: it needs monitoring unable to fulfill • Promotion of the use of to define its program of work and build its and their monitoring mWater for monitoring by capacity to implement it regulation responsibilities municipalities • In the long-run, a full-blown regulatory • Establishment of a authority may be needed but this will require regulatory unit within the legal changes DG-Eau www.wsp.org 37 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Key lessons The subsidised concession contract, which was Strengthening the private sector has proved critical to developed through the project, is a credible alternative ensure the implementation of the transactions. to the affermage contract and has the potential to be Support to the establishment of a national association rolled out in the scaling-up phase. of private operators greatly helped the GoB to better The subsidised concession carefully allocates the risks understand the private sector’s needs. The approach to between the POs and the public sector actors, including the private sector was demand-led, leaving POs to organize the municipalities. The PO is responsible for carrying themselves into an association and to identify the key areas out investments, but a public subsidy covers most of the where POs needed to be supported. investment requirements. The public subsidy is particularly necessary in context where tariffs increase could not be The support to POs was substantial during the contracts’ envisaged; although one could argue that tariff increases preparation and the entire transaction process. The should be considered in more detail in the future scale-up so participation of POs to the tendering process was the as to minimise the need for subsidies. Neither the concession result of a sustained assistance going beyond “the standard” nor the affermage contracts have clear mechanisms to procedure. In addition to clarification sessions on bidding adjust tariffs to reflect changes in cost structures, and such requirements (which is standard), the project provided tariff adjustments are expected to be “discussed” between training so that POs were able to present pre-qualification the parties as the need arises. This introduces significant documents and proposals in the requested format and could uncertainty for the POs (and the municipalities to a lesser form a better idea of what they were getting involved. One extent) and could give rise to conflicts going forward. objective of these activities was to ensure that POs were aware of all risks and responsibilities that the contracts entail, To limit the risk of non-performance, the public subsidy so as to reduce the risk of contract failure downstream. is disbursed based on results. This safeguards against the misuse of public funds and reinforces coordination between The design of the financing set-up for the subsidized POs and the municipalities, so that works can be planned concession was based included access to finance for with an agreement on the expected outputs. Works are POs from commercial sources. This was based on the planned in phases with subsidy disbursement triggers. assumption that POs would need assistance to invest. Such a mechanism can only function in a context where So far, this hypothesis has not been vindicated. municipalities have clear budget lines, budget is allocated The project lined up domestic commercial banks that regularly, and parts of this budget is specifically earmarked are interested in financing POs in the rural water supply. to a sector or to a specific activity (which is what can be Despite common assumptions that access to finance is a done via the FADeC). key hurdle for such operators, which prevents them from investing in the systems, the POs have so far initiated the To increase profitability of the contracts, POs are expected investments from their own funds without accessing such to build household connections as these have higher financing facilities. This may be due to the fact that such per capita consumptions than standpipes and generate POs have other activities that generate sufficient cash-flows. higher revenues. So far, demand for subsidized household This also suggests that, if POs are given the responsibility to connections has exceeded expectations, indicating that there invest and they see the benefits of doing so, access to finance is a strong pent-up demand for such connections in small may not be as significant an issue as originally envisaged. towns and rural areas. However, the subsidy is clearly having a (distorting) influence on such demand and it is not clear at this stage what volumes will be consumed through such connections and whether or not those new customers will be able to afford their bills going forward. POs should be encouraged to promote non-subsidised connections as well and the targeting criteria for subsidised connections should be tightened. 38 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Key lessons The sector improved the framework for monitoring In addition, if it is envisaged to improve the targeting and regulating water services in rural areas. However of subsidised household connections, then monitoring more work in this area is likely to be needed during should be designed so as to allow such targeting. The the scaling-up phase. A robust contract monitoring list of household connections to be made should be framework needs to be put in place from the onset of agreed between the municipalities and the POs, in the subsidized concession contracts. coordination with the communities. The primary criteria The asset inventory of 150 PWS that has been carried out for selecting the beneficiaries should be their social and through mWater is expected to benefit 45 municipalities, financial situation. In order to avoid any politicization by providing them with a sound basis for identifying their of the beneficiaries’ selection process, the selection panel needs and planning investments and asset renewal. The should exclude the participation of elected members. To asset inventory has proven very useful for site identification increase sales volumes, the POs should also promote non- and carrying out the technical due diligence for preparing subsidized household connections. the transactions. All municipalities will need to be trained to use such a tool for keeping track of their water assets, Finally, the sector greatly benefited from careful on- irrespective of whether or not they are considering letting a the-ground stewardship from the TA team, combined concession (as they will need to know the state of the assets with specialized skills to address key aspects of the even if they are responsible for investing themselves). transaction design. Buy-in and engagement from stakeholders were made The introduction of mWater as a monitoring tool has been possible by the presence on the ground a TA team with less successful however. Although particularly efficient, excellent knowledge of the sector and the ability to address mWater did not generate buy-in, especially among POs. key issues as part of a long-term strategy. This knowledge In the case of municipalities, most municipal technical and strategy enabled: services in charge of overseeing contracts with POs see the • Identifying whether the conditions in the country were benefit of the tool. However, the mayors and municipal ripe for introducing the reforms; council are not necessarily willing to approve funding for • Identifying the crucial components of the project; subscribing to mWater. As for POs, incentive mechanisms • Developing strong relationships with municipalities to should be put in place to encourage the use of the tool. accompany them in the reform process; Ways to reduce the costs of using the tool (by expanding its • Reaching out to the private sector in order to identify, use to other types of municipal infrastructure) should also with the POs, what their needs were and developing a be explored. training program to address such needs. It appears critical to set-up a strong monitoring framework of the subsidized concessions. The specific objectives of this monitoring are: • To ensure that POs are planning investments in the timeframe specified in the contract and in a schedule that will satisfying the borrowing terms; • To ensure that POs are meeting all requirements with regards to sustainable and efficient services. www.wsp.org 39 VI. Recommendations for scaling-up The present section sets out recommendations for scaling- choose between those models. If they decide to go up the approach for introducing the subsidized concession. for a subsidised concession, they should be able to These initial recommendations could be developed further apply for funding to the “financing mechanism” in subsequent discussions on reforms. (to be established) and obtain access to funding if they meet the eligibility criteria, which are discussed 6.1 The potential scope for a scale-up further down. Overall scope • Clear criteria for defining whether municipalities The scale-up should be focused on deepening and are eligible for receiving funding for the subsidised strengthening the professionalization of rural water and concession model should be set out. Lessons from the sanitation services so as to ensure sustainability and pilot project have shown that concession contracts are expanded coverage, in line with the upcoming Sustainable not necessarily applicable to all PWS or municipalities Development Goals. and that therefore clear criteria should be developed and applied. Geographical scope • All municipalities in Benin should potentially be eligible Clustering for follow-up assistance, both in terms of technical • Existing POs should be consulted about the scale of the assistance and hardware investments. However, this market that they would consider attractive from their assistance should be demand-led, which means that the point of view. The market for private management of type of assistance municipalities receive would depend PWS has evolved very rapidly over the last 8 years and it on their institutional and organizational capacity and is therefore critical to understand where they currently interest for receiving different types of assistance. stand in terms of ambitions for business development • There are currently 473 PWS in the whole country, and financing potential. One key lesson from the pilot of which 269 are under affermage contracts, while the project is that the POs have been able to invest more other 204 are either managed by WUAs or directly by than what was expected. the municipality. It is likely that in the next months, • More ambitious clustering than what was included in more PWS will be tendered for affermage (as indicated the pilot project should be considered: clusters could by 50 of Benin 77 mayors’ commitment to implement potentially include all PWS in a given municipality or affermage contracts over all PWS) whilst WUA- across several municipalities. Such clustering can be management is likely to gradually disappear. fostered in several ways: • Municipalities should be supported to carry out an o On the one hand, “market-led” clustering, whereby asset mapping and inventory for all existing PWS in the a single operator can win multiple contracts should country. Such an exercise should be carried out through be allowed (i.e. there should not be any rule stating a mobile-to-web tool that is jointly agreed upon by all that any operator cannot win contracts in multiple stakeholders, as discussed below. locations) and in fact explicitly encouraged. This • All PWS should be considered for the scale-up and not is likely to lead to “market consolidation” which only those that are currently managed through affermage is already taking place for the affermage contracts contracts, given that municipalities might be interested and much needed in Benin, as the market probably in applying a subsidized concession model for PWS cannot support 70 viable operators. Scaling-up of that are currently not under affermage. Howewer a past the most robust operators will allow them to build experience with affermage contracts could be a plus. technical competencies and increase their access to • Municipalities should be well-trained about the capital (both from their own resources and through different PO contracting models and enabled to commercial loans). This could also generate employment. However, such market consolidation 40 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Recommendations for scaling-up should be carefully monitored so as to limit the services, i.e. ranging from collection (of wastewater or faecal exercise of market power by POs. If one PO starts sludge), to transport, treatment and safe disposal /reuse. For winning all contracts, for example, such a situation example, professional operators could get involved in the could be investigated to ensure that there was no promotion and installation of improved sanitation facilities wrong-doing. and, in semi-urban areas, in the emptying and treatment of o On the other hand, incentives could be given to faecal sludge and wastewater. Prior to entering this area, it municipalities that wish to group together in order would be necessary to conduct a study to assess the extent to let out larger contracts. For example, this could to which such services are currently delivered, by whom be done by making subsidies available only above a (public or private), to which level and to identify how certain threshold in terms of the target number of professionalization of service delivery could improve the new household connections. Such threshold could quality and sustainability of such services. gradually be increased to encourage letting out larger contracts to POs and enable economies of 6.2 Potential activities under the scale-up scope and accumulation of technical expertise. The scale-up should continue to fund both hardware investments and “soft” components such as technical Clustering, whether large or small, entails carrying assistance, since the latter has proved critical to ensure the out a due diligence to assert the technical feasibility of success of the reforms. tendering PWS in clusters, identify whether there is scope for extending the network and increasing the number of 6.2.1 Technical assistance or software component household connections, and assess the financial viability of The government and its development partners should work the contracts that will be tendered. This due diligence could collaboratively to identify respective areas of focus for this be based on the methodology developed and implemented technical assistance. Technical assistance is likely to be during the pilots. Municipalities should be assisted for needed for the following activities: carrying out such studies. • Conduct an asset inventory and mapping for all PWS in the country – using the “nationally-accepted” Capaciy of eligigle Municipalitites monitoring tool. These asset inventories should form • In terms of capacity, municipalities will be assessed and the basis for asset renewal plans in all cases. selected based on: (i) Asset knowledge, (ii) Adequate • Coordinate around the use of mobile-to-web resources (and technical capacity) for managing applications and identify the most appropriate that water services (iii) Existing municipal procurement can later be rolled out. There has been a proliferation committee, (iv) Experience of regular payments of of such systems in recent years. It would be essential to fees and charges by POs in case of existing farm-out conduct an impartial review of the costs and benefits contracts (affermage). of the different mobile-to-web options that have been • Where these capacities are weaker, the scaling-up will used in Benin and to formulate recommendations as to include activities to strengthen municipalities’ capacity which system should be rolled out nation-wide, so as to to manage water services and enter into PPP. facilitate the task of collating data at national level for monitoring. Each system does slightly different things: Sector scope this review should identify the main features that are The scale-up should consider sanitation and hygiene as well needed and recommend whether a modified version as water supply. This will be particularly important for small- of existing systems could address all such needs or towns where access to greater quantities of water is provided whether further development is needed. If payment for thanks to household connections. In such circumstances, the system is limiting its use, it would also be necessary adequate solutions to deal with wastewater must urgently to examine alternative charging modalities. be found, so as to reduce the potential health risks. The • Facilitate on-going learning from the pilot experience scale-up should therefore explore the extent to which the (with the four concessions), so as to feedback lessons private sector can play a role in the delivery of improved into the design of the new contracts. Such learning sanitation services across the entire value chain of sanitation should be based on a robust monitoring and evaluation www.wsp.org 41 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Recommendations for scaling-up framework, based on an initial baseline of water access difficulties encountered can be fed into these model by income groups. If such baseline is not yet available, contracts. This can also improve predictability for the it should be compiled as part of the post-transaction private operators, who can get used to the “standard support in the existing project so as to enable full contract” rather than having to understand a new learning from the lessons of the pilot. In particular, contract form every time. Such model contracts should learning is needed on the impact of water consumption be prepared for various forms of delegation (including increase on households and on the POs’ activities. The the improved affermage model and the concession), baseline and subsequent data collection should seek to together with a guide to help municipalities select the answer questions as follows: will households be able to most appropriate contract and tailor it to their own pay for their consumption? How are POs managing circumstances. the increase in the number of customers? Have they • DG-Eau should continue its support to municipalities introduced changes in the bill collection method? Did in the procurement of private services for the they have to hire new staff for carrying out the payment management of PWS. In this respect the revision of collection? the tender documentation (in line with UEMOA5 • A culture of learning and experimentation in the Uniform Act on Contract Law) that was carried out in sector should be encouraged, so as to ensure that February 2015 is welcomed. it is institutionalised and not only donor funded. • Strengthen the regulatory framework. Much remains The regulatory body could play a critical role in this to be done for the sector regulatory framework to be area, but other sector institutions such as AFEB, the effective. In the short-term a number of actions should private training institution CEPEPE or the National be taken such as: Association of Benin Municipalities (ANCB) should o Spelling out the functions of the new Regulation be supported in such for contributing to capitalizing Unit; on the lessons gained from the reforms in the sector. o Determining its optimal staffing structure; Such learning should be accumulated at the level of o Identifying the tools that can be used to facilitate DG-Eau and particularly within the regulatory unit, the implementation of its tasks; but also shared with other sector stakeholders through o Assigning a budget to enable the unit to function a coordinating structure. Such learning culture should properly. encourage experimentation and learning loops. • Support DG-Eau for the development of an updated The regulatory unit, as currently set up within the DG-Eau, sector strategy. DG-Eau should be supported with the can already achieve a lot to regulate services provided by POs preparation of an updated sector strategy that would in rural and small towns. This can be done through issuing incorporate the subsidised concession contract and guidelines to municipalities, as these are ultimately in the new forms of affermage contract, as well as the charge of regulating the services and through benchmarking approach to rolling out these contractual forms. In service indicators collected at local level. Guidelines addition, the DG-Eau should be supported to prepare that are likely to be needed would include guidelines on model contracts that are updated on a regular basis. tariff adjustment mechanisms and on the definition and The objective of this exercise would be to facilitate tracking of minimum and guaranteed service levels. Simple the task of municipalities when they want to let out benchmarking systems will need to be developed (based a contract, so as to bring down transaction costs. on agreement on a set of “golden indicators” and weights The model contracts would provide only a basis for assigned to such golden indicators) so as to be in a position municipalities so that they can then tailor them to to compare POs’ performance in a transparent manner. their specific needs (preferably with the assistance of Such indicators should combine service level indicators “local” transaction advisors). This is something that with performance indicators (e.g. cost-recovery indicators). the Association of French Mayors has done in France, The regulatory unit can then become a major vector for for example, which has helped small municipalities channelling technical assistance to the municipalities and with limited experience to let out contracts. Regular updates, based on learning from best practice or from 5 Organisation pour l’Harmonisation en Afrique du Droit des Affaires (OHADA). 42 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Recommendations for scaling-up help them monitor services and better carry out their be funded through a mix of resources, including donor regulatory functions. support but also increasingly through tariffs and domestic resource mobilisation from taxes raised at the national In the medium to long term, in order to strengthen the legal or at the local level. Additional discussion of how the basis of the regulatory framework, a Regulatory Authority hardware component for the project could be funded is should be established by a legal act. This Regulatory discussed below. Authority could also take on responsibilities for regulating water and sewerage tariffs in the urban areas where SONEB 6.3 Options for a project financing is providing services. framework • Clarify the role of Consumers Association (ACEP). Scaling-up the approach will require substantial public As the rural water sector progressively generalized funds, which are limited. Based on the public subsidies the professionalized management of PWS, with the that will be disbursed for 10 pilot PWS, if the model were involvement of the private sector, the role of water to be applied to all remaining 463 PWS of the country, user associations (WUAs) is also gradually evolving this would require (roughly) FCFA 17 billion (equivalent and turning into Consumer Associations. In many to USD 34 million) for hardware subsidies only. PWS sites, WUAs’ are also involved in community mobilization and in the subsidized concessions in One option is to establish a financing facility that would awareness activities on the advantages of individual launch successive “funding rounds” ” to provide funding connections. The WUAs have now been transformed to the municipalities for CAPEX and potentially capacity- into consumer’s voice, but their roles still need to be building support. We would recommend a national better defined. A national debate on the role of ACEP financing facility for the sector be set up. This could be has been initiated in recent months. The ACEP’s role part of the national fund allocated to local governments, should include some local-level monitoring tasks, the FADeC, or could be a stand-alone “Water Sector helping to deal with customer complaints and acting as Development Fund”. Such a fund would initiate a series a forum to discuss and agree any proposed changes to of funding rounds (potentially with different criteria, so as customer service levels and tariffs. to facilitate experimentation) to provide subsidy funding • Conduct a communication campaign to educate mainly for the hardware components. The municipalities population on a variety of issues, including the need that want to bid out a subsidised concession model would to consume higher volumes of water (for personal need to meet a minimum number of criteria (such as hygiene) but also with key messages related to sanitation having done an asset inventory and having prepared an and personal hygiene. Water consumption levels are asset development and management plan; availability of currently very low: this might be a consequence of the management reports for the PWS if it has been in place lack of household connections. However, changing for some times; proofs of regular payment of fees and habits take time and will not “just happen” as more charges by the private operator; the presence of a water people get household connections. In addition, specialist in the municipality; the existence of an effective this should include strong emphasis on sanitation procurement committee, etc.). This fund should consider promotion, possibly through adapted versions of channelling CAPEX funding to both municipalities (if they CLTS campaigns, as access to improved sanitation is are responsible for investments and let out management to significantly lagging behind access to water at present. a PO via an affermage) and to POs directly (in the event of a concession). The rules for channelling funds would differ 6.2.2 Hardware investments and could be marginally more beneficial for concessions if “Hardware” (or CAPEX) investments should still be the idea is to encourage the concession model. funded largely through public funds, which means that funding will need to be made available particularly for One key issue, however, is to ensure that subsidized network rehabilitation and extensions, water treatment household connections (HC) are offered to the poorest facilities (where needed) and decentralised wastewater/ (and not those who could afford an unsubsidized rate). In faecal sludge treatment facilities. Such hardware should the present contractual set-up, only strong monitoring of www.wsp.org 43 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Recommendations for scaling-up PO’s activities, with clear guidelines for allocating the subsidy, Two sources of funding should be more actively tapped and municipalities’ commitment to serving the poorest can into for the scaling up: tariffs (which would need to ensure that the project reaches the neediest. This is an issue increase at least in line with production cost increases and given the high level of demand for subsidised connections, would need to increase comparatively more for the richer which indicates that people are willing to take on household consumers)) and domestic taxes, both at national and local connections even in small towns and that therefore, available levels. At present, there is a risk of over-relying of external subsidy amounts may be used up quickly. If operators cannot donor funding when available domestic funding should be meet this demand, this might affect their reputation so this is more actively mobilised. a substantial risk for the operators and for the public sector, which does not have unlimited resources. 6.4 The main risks for the scale-up A number of key risks have been identified for the scale-up To alleviate such issues, it would be useful to ensure that • The municipalities that have taken part in the pilot available subsidy funding is used in a more targeted manner. are well-managed and deemed to have promising This could be done in the following ways: markets (i.e. they were the “low-hanging fruits”), • Subsidies paid per connection for poor customers which means that concession contracts in “less could include a portion for the extension costs for the affluent” municipalities would be less viable. This entire system: subsidy payment could still be based on could be addressed through either transferring higher results for connecting poor customers but the subsidy levels of subsidies or requesting less contribution per connection would cover extension costs for all from the private sector, which amounts to the same customers. POs are also incentivised to connect “non- result. It could also be envisaged that PWS in less poor” households but at a price that is closer to actual attractive municipalities are clustered with PWS in connection costs (or slightly subsidised if that is seen as a more affluent ones. key way to increase connections)  • Demand for subsidised connections may widely exceed • Stricter  “pro-poor”  targeting criteria available funds for subsidies. This should be proactively for subsidised connections should be defined. Based on managed so that the POs are not deemed responsible international best practice, different systems can be used for a “fund shortage”. As mentioned above, this issue for improving pro-poor targeting. Lists can be drawn could be addressed through tighter eligibility criteria up together with community representatives and the for subsidised connections. municipality based on pre-defined criteria (this is an area • The WSP and IFC played a very important hand- where the ACEP mentioned above could potentially play holding role in the pilot, strengthening the capacity a role). Criteria that could be used to draw up these lists and acting as helpful transaction advisors. The (or as an alternative) could be the quality of the building involvement of IFC is unlikely to be replicated as such material, i.e. those who currently have a house built a level in the scale-up and therefore communes may with local materials could benefit from the higher level be left on their own for the bidding process. However of subsidies, whereas those with constructions “en dur” an external expertise could be called up for building (with solid material) would only benefit from a lower local stakeholders’ capacity to carry out the necessary level of subsidy or none at all. Other criteria could be due diligence and for structuring viable transactions. closely aligned with Benin’s social safety net programmes The World Bank Group could play a crucial role in if they exist. developing of a “local consultancy” culture, whereby • Third-party  verification mechanisms (potentially consultants provide advice to municipalities on limited to “spot-checks” rather than verifying each new contracting water services and monitor contracts’ connection) should be introduced to ensure that such implementation. Local private consultants, AFEB or criteria are applied and that connections that are claimed ANCB could channel this support to municipalities by the PO have effectively been made and are still and the private sector on the long run. functioning. A robust verification would come with a cost, however, and may introduce cumbersome procedures that can delay the disbursement of funds to the PO. 44 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex A – Glossary of key terms Annex A – Glossary of key terms Redevances: fees and charges paid by the PO Branchement particulier: household connection Redevance communale: municipal fee – paid to the Communes: municipalities municipality to cover the costs of service monitoring. This fee is transferred to the municipality’s budget and can be Pompe à motricité humaine: manually-operated potentially be used for other purposes. handpumps Redevance de renouvellement: capital maintenance and Borne fontaine: standpipe investment charge that feeds into a separate fund for renewal and extension Exploitants: operators of the PWS www.wsp.org 45 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex B – Municipal responsibilities following decentralization Annex B – Municipal responsibilities following decentralization This Annex describes municipal organization following • Preparing the communal budget and making it decentralization, including the main municipal bodies enforceable through a decree; responsible for procurement. It also presents the specific • Managing the municipality’s revenues; budget line (FADeC) that feeds from central government • Contracting and managing infrastructure works [passer into municipalities’ budget. The subsidy for the subsidized les marchés pour les travaux communaux et diriger les concession under the WSP-led technical assistance project travaux communaux] is channeled via this fund. B.2 Municipalities’ financing sources B.1 Municipalities’ organisation Being financially autonomous, municipalities have their Municipalities are administered by a communal council own budget, which is voted annually by the communal with elected members. Members of the communal council. Sources of fund include local revenues from taxes, council elect the Mayor, who is the executive arm of the based on rates fixed by the municipalities within the ceiling Council, and his assistants. Among other duties, mayors imposed by the Ministry of Finance (MoF). Municipalities’ are in charge of: budgets are supplemented by transfers from the central • Preparing and executing communal development government through the Fonds d’Appui au Développement plans (e.g. infrastructure construction); des Municipalities (FADeC). Box B.1 : FADeC: budget lines to support municipalities (MDGLAAT 2008) FADeC is a national funding mechanism established in 2008 as part of the decentralization reforms for transferring financial resources to the municipalities. The mechanism was set up to: • Mobilize resources for developing municipalities and inter-communal structures; • Transfer additional resources to municipalities so that they can exercise their powers and correct imbalances between municipalities; • Finance activities to strengthen municipalities’ institutions; and • Harmonize municipalities’ financing procedures. Administered by the National Commission of Local Finance (CONAFIL) under the Ministry of Local Government, FADeC is implemented through the GoB general budget. The GoB feeds two budget lines to support municipalities: • A budget line to fund operating expenses; • A budget line to fund capital investments. Within the budget line to fund investments, part of the budget is specifically allocated to a sector, whereas municipalities are free to use the other component based on their own investment priorities. As presented below, FADeC feeds directly into the municipalities’ funds. Funds are transferred from the national treasury into municipalities’ bank account as soon as the Ministry of Local Governments approves the provisional budget proposed by municipalities. 46 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex B – Municipal responsibilities following decentralization Figure 9: How FADeC works DPs GoB National Treasury Contribution FADeC CONAFIL Supervision Budget line 1 Budget line 2 Operations Investments Allocated Non-Allocated Communes B.3 Municipal responsibilities for Municipalities have to abide by the National Public procurement Code. According to the Code, the procedure for public The municipalities are responsible for identifying and procurement involves three distinct entities: a Person contracting infrastructure works as well as ensuring that Responsible for Public Procurement, a Public Procurement those services are adequately managed. More specifically, Commission and a Public Procurement Control Unit. municipalities are responsible for ensuring works (and These bodies’ functions are detailed in . services) feasibility, proposing a provisional budget for these works, providing financing and ensuring compliance with In recent years, substantial efforts have been made towards national procurement procedures that are embedded in building municipalities’ capacity in their new function as the “Code National des Marchés Publics” or National Public asset-owners, particularly for procurement. It is estimated Procurement Code prepared by the National Directorate that all municipalities in Benin have in place those three of Public Procurement Control (“Direction Nationale de procurement bodies, as this set-up is now a requirement Contrôle des Marchés Publics”). In order to perform these for receiving funds via FADeC. However, transparency tasks, municipalities can seek assistance from central and compliance with the National Procurement Code government’s regional offices (services déconcentrés). remains problematic in many municipalities, including for procurement relative to water services. www.wsp.org 47 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex B – Municipal responsibilities following decentralization Box B.2 : Public procurement bodies at municipalities level The Person Responsible for Public Procurement (PRPP) (“Personne Responsable des Marchés Public”) is the person responsible for implementing and overseeing public procurement procedures (from preparation of tender documents to contracts monitoring). In municipalities, mayors are responsible for fulfilling this role. The Public Procurement Commission (PPC) (“Commission de Passation des Marchés Publics”) is under the PRPP’s authority. Its responsibilities include: • Examining tender documents before transmission to Public Procurement Control unit (see below); • Opening proposals (dépouillement des offres). This is a public procedure and can be made in the presence of the bidders; • Setting-up a sub-commission (“sous-commission d’analyse”) for evaluating the bids and proposing a provisional award. Sub-commission members should have the technical competency for evaluating the bids; • Transmission of the proposals opening report (rapport de dépouillement) to the National Directorate of Public Procurement Control. In municipalities, the Commission should be composed as follows: the PRPP (or a representative), two communal advisors, the accountant (“le receveur-percepteur”) and a public procurement specialist. The PRPP can decide to add to the Commission individuals whose competencies are deemed necessary. The Public Procurement Control Unit is responsible for validating the procurement process, including: • Validating plans and tender documents before launching the call for proposals; and • Carrying out juridical and technical assessment of tender documents that have been approved by the Commission. The Control Unit should be composed as follows: a head of unit (“chef de cellule”), a specialist in public procurement, a public works engineer, two senior administrative staff and any other individuals with the right competencies. Source: Loi 2009-02 du 07 Août 2009 portant sur le Code des Marchés Publics et des Délégations de Service Publics en République du Bénin 48 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex C – Key dates Annex C – Key dates Table C. 1: Key dates for sector reforms Date Event 1989 CePEPE was formed 1990’s Establishment of S-Eau Drafting of the National Strategy to implement the Assistance Project for the Development of the Water 1992 Supply and Sanitation sector (PADEAR) 1994-2004 PADEAR program 1999 Benin initiated the decentralisation and devolution process 2001 Adoption of the Drinking Water Quality Act 2002 First democratic municipal elections and elected mayors 2004 Development of the “Initiative Eau” A new Strategy clarifying institutional responsibilities for water services and financing sources for water 2005 systems construction 2007 Start of the reforms to professionalize rural water services 2007 Ikpinlè is the first PWS with delegated management through an affermage 2007 First phase of PPEA is implemented 2009 Adoption of the National Water Policy The World Bank Group (WBG) starts supporting the Government of Benin (GoB) in carrying out reforms for 2010 improving the management of rural and small town piped water schemes (PWS) 2010 Adoption of the Water Resources Management Law (Loi n° 2010-44) 2010 WSP proposed to the GoB to carry out a review to evaluate the delegated management models in place 2011 Creation of the Basin Committees Act 2011 AFEB established 2012 The Water and Sanitation Program (WSP) initiated a three-year program 2013 Second phase, PPEA II, is implemented 2013 Another sector review is carried out 2014 Benin reaches the MDG target for water for rural and urban areas June 2015 End of WSP program of support to GoB – ongoing discussions on potential scaling-up www.wsp.org 49 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex C – Key dates Table C. 2: Key dates for the transaction process Key Activities Dates Prequalification doc discussion with municipalities 6 February 2014 - Zogbodomey 7 February 2014 - Sakété 10 February 2014 - Gogounou Invitation for Prequalification 6 March 2014 - Sakété and Zogbodomey 14 March 2014 - Gogounou Prequalification clarification seminar 9-10 -11 April 2014 Deadline postponing Prequalification Submission 21 May 2014 Prequalification Evaluation 21 May 2014 - Sakété 22 May 2014 - Zogbodomey 30 May 2014 - Gogounou RFP Draft Discussion with municipalities 23 April 2014 - Sakété 24 April 2014 - Gogounou RFP validation meeting with municipalities - Cotonou 4 June 2014 RFP submission to bidders 6 June 2014 Sites visit by prequalified Bidders 16 June 2014 - Gogounou 18 June 2014 - Zogbodomey 19 June 2014 - Sakété Bidders Conferences in Cotonou 20 June 2014 Transmission of revised RFP and Q & A final table to 6 July 2014 Prequalified bidders Training on Bids preparation 10 and 11 July 2014 Transmission of Final Bids 15 July 2014 Bids submission and Evaluation 4 – 5 - 6 and 8 August 2014 Results validation by the municipalities’ control committee 6 – 13 August 2014 Debriefing meeting 14 August 2014 Signing of the Concession Agreements 30 August 2014 – Gogounou 28 August 2014 - Zogbodomey 23 September 2014 - Sakété-1 23 September 2014 - Sakété-2 50 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex C – Key dates Figure C 1 - Overview of the activities that led to the implementation of the subsidized concessions from 2010 to 2014 www.wsp.org 51 Benin – Innovative public private partnerships for rural water services sustainability - A Case Study | Annex D – Key materials and tools developed by the project Annex D – Key materials and tools developed by the project The list below includes the main materials and tools that have been developed by the project and could potentially be used as a basis in the context of other similar projects. 1. Modèles de rapports de due diligence (technique, juridique, financier) ; 2. Outils de pré-qualification des candidats pour la mise en concession des AEV a. Dossier de pré-qualification pour la mise en concession des AEV ; b. Procédure d’évaluation des offres de pré-qualification ; c. Fiche de dépôt des dossiers de pré-qualification dans le cadre de la mise en concession ; d. Fiche de présence à l’évaluation des dossiers de pré-qualification dans le cadre de la mise en concession ; 3. Outils de qualification des candidats pour la mise en concession (firm selection award) a. Modèle de lettre de notification de pré-qualification et d’invitation à la participation à l’appel d’offre ; b. Dossier d’appel d’offres pour la mise en concession des AEV ; c. Fiche d’engagement de confidentialité par rapport au dossier d’appel d’offres ; d. Tableau de conformité des offres ; e. Tableau d’évaluation des offres ; 4. Modèle de convention de concession d’exploitation des AEV ; 5. Outils mWater (plan de recollement de certaines AEV) ; 6. Liste indicative des prix unitaires des pièces relatives à la réalisation de l’AEV ; 7. Tableau de durée de vie des pièces, fréquence d’entretien courant et lourd des équipements et prix des consommables d’entretien et de fonctionnement des équipements d’AEV ; 8. Mémorandum d’information sur la mise en concession des 10 sites d’AEV pilotes ; 9. Training materials of private operators (bidding process, business edge). 52 www.wsp.org 53 June 2015 Water and Sanitation Program The World Bank Group Avenue Jean-Paul II, Cotonou, Benin. Phone: +229 2136 3949 E-mail: wspaf@worldbank.org Web sites: www.worldbank.org/water www.wsp.org Design and Layout by Eric Lugaka