(Luận văn) public private partnerships in urban water supply a case study in ho chi minh city

i t to ng hi CERTIFICATION ep I certify that this work has not been submitted and is not being currently submitted for any w degrees other than the Master in Public Policy of Fulbright Economics Teaching Program, n lo MPP4 ad I certify that at my best knowledge, I conducted myself in an ethical manner in all aspects of y th ju my research and all sources used have been acknowledged in the thesis yi The research does not necessarily reflect either the views of Ho Chi Minh City University of pl n ua al Economics or Fulbright Economics Teaching Program va n Author ll fu oi m at nh z Ngo Minh Phuong z k jm ht vb om l.c gm an Lu n va ey t re th ii t to ng hi ACKNOWLEDGEMENTS ep This thesis has found its ways with the support of many people First, I would like to express w my sincere gratefulness to Dr Huynh The Du who supervised my performing this thesis He n lo has continuously spent his valuable time and given me helpful advice without those I would ad have hardly been able to finish my study Also I thank Dr Jan Hoffer for his initial guidance, ju y th literatures and review, Mr Ly Chung Dan for his professional knowledge sharing, Mr Le Huu yi Quang for experience and information sharing, Mr Gerard Soppe for his proof reading and pl contribution Last, I am very thankful for the study at Fulbright Economics Teaching program n questions and support ua al and all the teachers and friends who have made themselves available to all the academic n va ll fu Ngo Minh Phuong m oi Ho Chi Minh City – May 2013 at nh z z k jm ht vb om l.c gm an Lu n va ey t re th iii t to ng hi ABSTRACT ep The study analyzes the effects of private sector involvement in Saigon Water Corporation (Sawaco) through equitization with an aim to draw a picture on lessons learnt from Sawaco for w n future PPP activities in Vietnam’s urban water supply Sawaco equitized six out of eight water lo ad supply branches into joint stock companies However, two years after the equitization, the y th People’s Committee of HCMC guided Sawaco on plan for re-buying the shares in JSCs to ju achieve ownership of 75% In addition, the two remaining branches were transformed to one yi pl member limited liability company Sawaco Parent Company has transformed to One Member ua al Limited Company under parent-subsidiary company model since 01 October 2010 n The privatization was one of the efforts in correcting the government failure Nevertheless, va n very little evidence showed the positive influence of equitization on Sawaco Except for ll fu political criteria like annual new household connections, there was no improvement observed oi m in NRW or financial situation On the contrary, the joint stock companies embraced the new nh institutional form well Yet, there is no share of responsibilities between the public (Sawaco) at and private (joint stock companies) sectors In term of the population accessing the drinking z water network, despite the expansion of network connection, not much attention was paid to z ht vb the water provision for poor people The incentive to give connections to the low-income jm group goes down due to commercial characteristics of the equitization process k Although the equitization has realized the policy to socialize urban water services in Vietnam gm l.c in general and in HCMC in particular as well as seeded the market orientation for the water sector, it has threatened the political priority targets and could have achieved better with om forethoughts and baseline analytical work an Lu Following the findings, generally it is vital to produce baseline analysis on the situation and va prepare a favorable business and policy environment before involving the private sector n Second, a balance between commercial achievements of the private sector and societal gains is ey th transparency, accountability and efficiency t re required Last, active involvement of all stakeholders is essential in the increase of iv t to ng hi For Sawaco, it is recommended that private engagement should be bounded to non-core ep operation and maintenance activities of the utility Water supply affiliates need to stay with the parent utility as long as network ownership is involved, therefore efforts to gain full control w over tertiary networks are necessary It may be executed through the collection of sufficient n lo shares in JSCs or negotiation for buying back the tertiary network currently owned by JSCs ad y th Another option is to complete the equitization meaning privatization of the entire Sawaco and ju subsidiaries with asset ownerships in hands of the government This shall transform the yi corporation into an operator of the water system Last, better preparation on asset evaluation pl n ua al and hydraulic network separation could have helped avoiding problems n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th v t to ng hi CONTENTS ep CERTIFICATION i w ACKNOWLEDGEMENTS ii n ABSTRACT iii lo ad CONTENTS v y th ABBREVIATIONS vii ju LIST OF TABLES viii yi pl LIST OF FIGURES viii ua al Chapter 1: INTRODUCTION n 1.1 Problem statement n va 1.2 Research objective ll fu 1.3 Research questions oi m 1.4 Research structure Chapter 2: UNDERSTANDINGS ON WATER AND PPP IN URBAN WATER SUPPLY nh at 2.1 Water is special goods: z 2.1.1 Nature of the water product and market failures in water supply: z ht vb 2.1.2 Government failures in urban water supply: jm 2.1.3 Assessment on performance of a water utility k 2.2 Public – Private Partnerships in urban water supply 10 l.c gm 2.2.1 Theory on PPP 10 2.2.2 Empirical findings 13 om 2.2.2.1 Experience in developed and developing countries 13 an Lu 2.2.2.2 Case Cancún, Mexico 14 2.2.2.3 Case Manila, the Philippines 14 n va 2.2.2.4 Experience in Vietnam 15 3.2 Problems of water supply in Ho Chi Minh City 19 th 3.1 Overview on water supply activity in Ho Chi Minh City 18 ey Chapter 3: WATER SUPPLY IN HO CHI MINH CITY 18 t re 2.3 Research method 16 vi t to ng hi 3.3 Public policy in water supply sector 20 ep 3.3.1 General management and guidelines 20 3.3.2 Water tariff in Ho Chi Minh City 20 w 3.3 Policy framework for private engagement in HCMC water supply 22 n lo Chapter 4: PRIVATE ENGAGEMENT IN SAIGON WATER CORPORATION 24 ad y th 4.1 Sawaco’s history and existing situation 24 ju 4.2 Equitization and impact on governmental performance 28 yi 4.2.1 Sawaco parent company operation 28 pl al 4.2.1.1 Operational figures of Sawaco 28 n ua 4.2.1.2 Financial situation 31 va 4.2.1.3 Technology innovation 33 n 4.2.2 Impact of the equitization on HCMC People’s Committee 33 fu ll 4.3 Equitization and joint stock companies’ performance 34 m oi 4.4 Impact of the equitization on customers of the water services 36 at nh Chapter 5: THE RIGHT PATH FOR URBAN WATER SUPPLY IN VIETNAM 38 5.1 Major findings 38 z z 5.2 Policy implication and recommendation 39 vb ht 5.2.1 Recommendation for Sawaco 39 k jm 5.2.2 Other recommendations 41 gm 5.3 Study limitation and avenues of further research 42 l.c REFERENCE 43 om Appendix 1: WATER SYSTEM PRIVATIZATION IN CANCÚN, MEXICO 48 Appendix 2: NETWORK MANAGEMENT AT JSCs IN HO CHI MINH CITY 50 an Lu Appendix 3: OPERATIONAL RESULT OF JSCs AFTER 2007 51 va Appendix 4: SHARE OWNERSHIP IN JSCs 54 n Appendix 5: PRIVATE SECTOR PARTICIPATION IN WATER SUPPLY AND ey th PRACTICE 55 t re SANITATION: LESSONS LEARNED AND GUIDELINES FOR PUTTING LESSONS TO vii t to ng hi ABBREVIATIONS ep Asian Development Bank HCMC Ho Chi Minh City ADB w n lo Household ad HH ju Non-revenue water yi NRW Joint Stock Companies y th JSCs pl One Member Limited Liability Company ua al One Member LLC Private Participation in Infrastructure PPIAF Public – Private Infrastructure Advisory Facility PPP Public Private Partnership Sawaco Saigon Water Corporation SOE State-owned Enterprise WB The World Bank WS Water Supply WTP Water Treatment Plant n PPI n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re th viii t to ng hi LIST OF TABLES ep Table 2.1: PPP models in the water sector 12 Table 4.1: Equitization of Sawaco’s Subsidiaries 27 w n Table 4.2: Sawaco Coverage and Connections 2004 - 2010 28 lo ad Table 4.3: Sawaco NRW 2004 - 2010 29 y th Table 4.4: Sawaco Employees/1,000 Connections 2004 - 2010 30 ju Table 4.5: Sawaco Operational Figures 2004 – 2010 30 yi Table 4.6: Loans of Sawaco to JSCs till 31 Dec 2008 32 pl n ua al n va LIST OF FIGURES fu ll Figure 2.1: Natural Monopoly and Deadweight loss m oi Figure 2.2: Positive externalities and Deadweight loss nh Figure 2.3: Vicious Spiral Performance Declines of Utilities at Figure 2.4: Thesis analysis structure 17 z z Figure 3.1: Urban Water Supply in HCMC 18 vb ht Figure 3.2: Average Water Tariff of HCMC 2009 – 2013 21 jm Figure 4.1: Corporate Chart of Sawaco 26 k Figure 2.2: Key performance data of Joint stock companies 35 om l.c gm an Lu n va ey t re th t to ng hi Chapter 1: INTRODUCTION ep 1.1 Problem statement w Following the trend on Public-Private Partnerships (PPPs) for infrastructure, Saigon Water n lo Corporation (Sawaco) was equitized under the issuance of decision 131/2005/QD-TTg dated ad 02 June 2005 by the Prime Minister and Decision 141/2005/QD-UBND instructing the y th socialization of water services in HCMC Sawaco who was the front-runner among water ju yi utilities in Vietnam piloted the equitization of six out of eight branches The results, however, pl have yet to meet the expectation, and problems arose in network management and n ua al development activities va Equitization of Sawaco was the ultimate effort for PPPs in the Vietnam water sector after n several successful attempts PPPs are understood in Vietnam as the cooperation between the fu ll governmental bodies and private enterprises in investing to the infrastructure, and delivery of m oi public services.1 As assessed by the Southeast Asia Water Utility Network, there are some at nh successful PPP models in Vietnam like Phu My Water Supply Joint Stock Company in Ba Ria – Vung Tau province, the water supply systems in Lim Town (Design-Build-Lease) and Tu z z Son Town (Build-Own-Operate), Bac Ninh Province In HCMC, the percentage of water vb ht produced by private firms in the total water production of the city increased from 0% in 1995 k jm to 12% in 2000 and 28.9% in 2011 There are also a few attempts to incorporate private gm partners in the distribution work of Sai Gon Water Corporation (Sawaco) including services in l.c Phu My Hung urban area (district 7), Trung Son area (Binh Chanh district), the Nonperformance5 (HIDS, 2012) om Revenue Water (NRW) project4 and Contract for management and leakage reduction based on an Lu ey t re th There is no common agreement on definition of PPP in Vietnam This explanation comes from the Decree 71/2010/QD-TTg regarding regulations for pilot investments under PPP model Water is bought from Nha Be water supply company – a privatized branch of Sawaco Water is bought from Cho Lon water supply company – a privatized branch of Sawaco This type of contract aims to encourage the private engagement in construction, management and maintenance of the network Majority of the project finance comes from IDA credit for four-year length This contract was signed with Manila water for zone of NRW project n va t to ng hi It could be seen from the above-mentioned cases that PPPs may be effective for the water ep sector in Vietnam under some circumstances However, when the involvement of the private sector was enhanced to the privatization level like in Sawaco, problems arose In such case, w whether PPPs can support solving the dilemma of growing demand in infrastructure and n lo shortage of governmental funding and imbedding the professionalism, efficiency, and ad y th technology innovation of the private sector to the poor performing public utilities is still a ju question The troubles in the equitization process of Sawaco are worth further study in the yi context of Vietnam where more pilot PPP projects are promoted pl ua al 1.2 Research objective n This study analyzes the branches’ equitization of Sawaco in order to draw a picture on lessons va learnt from Sawaco for future PPP activities in Vietnam’s urban water supply It aims find out n ll fu if private sector engagement solves the primary troubles of water sector like lack of finance, oi m low effectiveness, etc Moreover, the study also scans examples of successful PPP for urban nh water supply in similar areas As this case is one remarkable sample of privatization, it shall be at useful for other water utilities to know what the flaws are and how to deal with them z jm ht Does private participation help to solve major problems in the urban water sector in k vb This study aims to answer the following questions: z 1.3 Research questions l.c gm HCMC? How does private engagement influence Sawaco and the city water supply? What is the policy implication for private engagement in Vietnam urban water supply in om n va 1.4 Research structure an Lu the coming time? Chapter Two Chapter Three describes the overview and problems of water supply in HCMC, th analysis framework and successful examples of PPPs in water companies are elaborated in ey pursuing the thesis topic, followed by the research objectives Theoretical background, t re The study is divided into five chapters Chapter One works on policy context and reasons for