Financial Sustainability and Public-Private Partnerships, or Back to Basics

At a session at the IWA conference in Busan, Korea, panelists debated the current thinking about public and private roles in supply chain management.  All agreed that any sense of dichotomy was, as dichotomies often are, completely false.  All utilities operate on a continuum.  Even wholly public utilities subcontract some aspects of their work, whether it's the coding of their billing system or their catering services.  And even so-called wholly private models rely on public agencies for some functions. 

Paul Reiter of IWA encouraged us to "optimize in the grey zone."  He emphasized the importance of public procurement issues in allowing this optimization to happen.  Lucia Cade from  Melbourne Australia, director of strategy and development for water and infrastructure at AECOM,  told us about promising developments in "alliancing" or risk sharing in public private contracting, building off a UK initiative for collaborative business relationships. The idea here is that the public sector used to see public-private partnerships (PPPs) as a way to pass risk to the private sector but has come to realize that this is not possible for many functions, including many aspects of water supply and sanitation services.  "The contractor didn't deliver" just won't cut it if the water system breaks down.

However, these new ideas all require a political consensus to provide and finance good services and strong empowered public agencies who can effectively partner with private players.  Those last two conditions are, in my opinion, absolute pre-requisites for sustainable services, whatever the contractual arrangements.  If conditions are right, there are many creative solutions out there.  But if they are not right, what then?

I presented three ideas.  One, look at the public finances from a public governance perspective rather than seeing the utility finance in isolation.  If public finances are so unclear that debts are passed from public agency to public agency without clarity about who pays for what, as they are in many countries it is very hard to manage sustainable water and sanitation services.  If utility heads do not know how much money they will get from the government, they cannot make realistic spending plans and cannot focus on serving their customers.  Two, reassess how much to invest in network solutions until the political and institutional environment is in place, and calibrate the expenditure to the capacity of the utility to maintain it.  Three, think about ways to use public information and ICT technology to encourage an open discussion about policy priorities between utilities, governments and users.