Escolar Documentos
Profissional Documentos
Cultura Documentos
Government of Egypt
Governorate of Alexandria
Feasibility Study for Private Sector Participation (PSP)
in the Operation & Maintenance of the Alexandria
Water & Wastewater System
FINAL REPORT
By
November 2004
FINAL REPORT
Table of Contents
Chapter
Title
Page
i
1
4
6
7
7
11
Executive Summary
1
2
3
4
4.1
4.2
5
5.1
5.2
6
A1
A2
A3
Attachments
AWGAs Financial Statements
Table A1-1. AWGAs Balance Statements
Table A1-2. AWGAs Cash Flow
AGOSD Income Statement
Partial List of Individuals Contacted
32
32
33
34
35
18
18
21
29
Copies of the above deliverables have been submitted to USAID and Government of
Egypt (GOE) authorities and final versions of the same were produced for easier use in
CD format. The project was initiated in close coordination with the Governorate of
Alexandria (GOA) and the top management of the utilities.
A significant event in connection with this project was the enactment of Presidential
Decree No. 135 of April 27, 2004, which establishes the "Holding Company for Water
and Wastewater" and converts fourteen (14) organizations and public companies in the
sector into wholly owned subsidiaries. When the SOW for this project was prepared, the
Governorate of Alexandria was the main GOE policy decision-making entity. However,
the new Holding Company is now the organization in charge of the sector and significant
Government of Egypt
reforms are beginning to take place. Given the period required for the new entity to start
operating in earnest, this event had a direct impact on the proposed feasibility study.
In light of the above developments and after presentation of the Policy Statement Report,
and based on discussions held with USAID, the Chairpersons of AWGA and AGOSD,
and the Secretary General of the Governorate, the team was instructed to focus on
specific "service contracts" as prospective PSP activities: a) billing and collection for
AWGA; and b) PSP options for septage management, as well as for the operation of Site
9-N, and transport of waste materials for AGOSD. As a result, SEGURA IP3 consultants
focused on evaluating the feasibility of these service contracts and estimating the
potential impact they could have on the overall operation of the utilities.
As described in more detail in previous separate reports and summarized in the following
chapters, the potential impact of introducing PSP in the metering billing and collection
functions at AWGA is likely to generate significant additional revenues. In the case of
AGOSD, the evaluation had to be done at a pre-feasibility level due to shortcoming in
basic information; however, from the analysis conducted it becomes apparent that
important cost reductions can be achieved via licensing of septage collection and
disposal, in leasing out the operation of site 9N including composting and service
contract for transportation of dewatered sludge and other wastewater by products to this
site.
Government of Egypt
The consultants considered two basic alternatives to promote private sector participation
in the collection and safe disposal of septage: service contracts; and licensing of private
operators.
Service contracts. Under this alternative, AGOSD would delegate the collection and
disposal of septage to private operators. The contracts can be structured along two basic
options: 1) each area (or branch) is served by a pre-determined number of contractors; or
2) contractors are free to operate anywhere in the city. Under both options, a minimum
number of operators should be selected to insure competition. Service fees are
determined by AGOSD and operators collect them on its behalf.
SEGURA / IP3 JV
Government of Egypt
Under both options contractors would operate under exclusive service conditions.
Therefore AGOSD has to strictly enforce control of illegal operators, and to develop
regulatory and supervisory functions to ensure that service contracts perform as intended.
AGOSDs organization has had severe difficulties in managing the existing collection
and disposal of septage by its own forces, including rent-seeking opportunities that affect
its revenues. Therefore, it is unlikely that it will be successful in implementing and
monitoring these service contracts whose characteristics mirror, to some extent, existing
operations. Moreover, AGOSD lacks adequate operational data on the number and
location of septic tanks and frequency of service to make an informed decision on the
optimal size of the trucking fleet and thus on service fees to be charged to ensure the
financial viability of the operation.
Licensing. This policy-based approach, widely used in other countries, involves the
transfer of responsibility of septic collection and disposal from AGOSD to licensed
operators. Operators would keep the fees collected but should be required to pay in
addition to the licensing fee, a tipping fee (determined by AGOSD) to compensate
AGOSD for the costs incurred in processing these wastes.
Under this alternative, a pre-selected number of licensed contractors would operate in any
area of the city. It is important to promote adequate competition in the market to ensure
reasonable prices for service. This competition would eliminate, to a large extent, the
need to control prices.
Pre-selection of contractors can be carried out on a competitive basis and based on the
initial premium bidders are willing to pay over a minimum preset license fee. Licenses
could be granted for two-three years and the license fee established (including the
premium in the initial bidding), to cover as a minimum, AGOSDs regulatory and
supervisory functions. At the expiration of the license, AGOSD can use the opportunity
to ascertain if additional operators are needed to foster competition and keep prices at a
reasonable level.
AGOSD regulatory and supervisory functions include: a) licensing operators; b)
monitoring their performance; and c) exercising the right to revoke licenses if operators
do not comply with service standards. Under this alternative, AGOSD supervisory
functions will be simplified, as it will not be directly involved in the collection and
disposal of septage or with the collection of fees.
AGOSD should consider granting licenses to employees now working in this activity in
exchange for retiring from service. Such employees could purchase or lease trucks from
AGOSD under special terms and conditions. USAID may be able to assist with the
financing through its Development Credit Authority (DCA) facility.
The consultants recommended the licensing option as it would eliminate AGOSDs
operating losses and reduce illegal dumping. However, this option would require the
creation in AGOSD of a supervisory unit and the training of this staff. This unit would
SEGURA / IP3 JV
Government of Egypt
There are two basic alternatives to delegate the operation of site 9N to a private operator:
a management contract and a lease contract. These two alternatives are quite similar in
scope but differ in the way decisions are made to price and sell compost and other byproducts, on the risks assumed by the contractor on the sale of compost and on the
bidding strategy.
Management contract. This contract can be structured for a 5 to10 year period and
interested contractors bid on the fee to manage the operation. Under this contract, pricing
decisions are made by AGOSD, and the main responsibility of the contractor is to operate
the facilities as specified in the bidding documents. Marketing decisions can be delegated
to the operator including incentives to reward its efforts to improve sales and reduce
costs. Investments, replacement, and maintenance costs are the responsibility of AGOSD.
It is possible however, to structure the transaction assigning some of these costs to the
operator, but this decision is likely to extend the length of the contract, increase the
management fee or both.
Leasing contract. This contract can be structured for a 10 to 15 year period, and
interested contractors will bid on an annual fee to be paid to AGOSD for the use of this
facility, including the equipment. Leasing fees can be tailored to benefit AGOSD in
response to the financial performance of the operator.
Under this alternative, sales and price decisions are the responsibility of the private
operator as well as investments (like reception facilities to handle septage and other
improvements deemed necessary) and maintenance costs.
Consultants recommend to AGOSD the lease alternative as it gives more incentives to the
private operator to fully optimize the use of this facility, to be more proactive in the
search for new customers and products (such as enhancing compost by adding nutrients
such as potassium) and to tailor prices to competitive products. These advantages, in turn
should benefit AGOSD as it can expect higher financial returns from the leased
operation.
The consultants also recommend that AGOSD makes an effort to improve the
information including projections of the supply of different waste materials to site 9N.
The consultants estimate that about 7-8 months are required for the full implementation
of this option.
c.
Transportation of waste by-products and operation of site 9N are two different types of
businesses that require different managerial skills and equipment. Moreover,
SEGURA / IP3 JV
Final Report -v
Government of Egypt
transportation costs of dewatered sludge, scum and grit are significant compared to the
operating costs of Site 9N.
Consultants recommend not to incorporate the transport of these materials into the
operation of site 9N, since this could make the combined contract not financially
attractive and will likely limit competition to the detriment of AGOSD.
Nonetheless, AGOSD has two basic options to deal with the transport of these materials
from the wastewater treatment plants, sewage pumping stations, and sewer cleaning
operations to Site 9N: 1) transporting these materials using its own resources; and 2)
delegating this activity to private operators under separate service contracts.
In both cases, there is a need to develop contractual operational arrangements between
AGOSD and the Site 9N operator; for instance, minimum quantities of materials
delivered to the site and hours of delivery.
Alternative one is a continuation of present practices where the possibilities of cost
reductions are not obvious. Alternative two presents coordination issues between the
operator and AGOSD. AGOSD needs to decide on the use of transport and handling
equipment that contractors would be operating. AGOSD can also delegate maintenance
costs of the vehicles to operators. Option two offers the potential for cost reductions
through competition for and within the market and therefore, the consultants recommend
it.
Government of Egypt
SEGURA / IP3 JV
Government of Egypt
The original Scope Of Work for this project stated as main objective - " to provide advice
to the Governorate of Alexandria on all economic, tariff, and regulatory matters related to
the preparation of a feasibility study for private sector participation in the water and
wastewater sector in Alexandria, concentrating on a management contract/concession
option. This feasibility study will take into full consideration the implications of the state
of water and wastewater sector reform (corporatization and creation of a regulatory
agency) currently underway in Egypt".
The tasks and deliverables agreed upon, were the following:
1)
2)
3)
4)
5)
6)
7)
8)
In this report, the consulting team summarizes the key elements of the project and present
their conclusions and recommendations of the study conducted, covering each of the
above activities and reports.
The services
Drinking water supply. AWGA provides services to Alexandria, Marsa Matruh, and
parts of the Beheira Governorate. The area of service is quite extensive as it stretches
340 kms from east to west and 125 kms to the south.
AWGAs sources of water are the Mahmodia and Noubaria canals fed by the Rosetta
branch of the river Nile. Water is treated in eight treatment plants with a total design
capacity of 3.5 million m3/day (mM3/day). Drinking water quality meets government
standards. However, intermittent supplies and low pressures in some areas and the use of
house storage tanks compromise drinking water quality.
Water production varies seasonally, being the highest in the months of July to September
and the lowest in January to March. The Water Master Plan indicates that projected
population growth in Alexandria and other cities points out to an increased competition
for water in the Nile and its canal system and that water withdrawn by AWGA being
SEGURA / IP3 JV
Government of Egypt
downstream of almost all other users is seriously threatened from both a water quality
and quantity perspective.
Close to 99% of the population is connected to the water distribution system; but some
areas of the city receive water less than 24 hours a day or at low pressures. The
distribution system is a network that includes 6,500 kms of water mains with diameters
from 75 mm to 1,500 mm; 43 pumping stations and 250,000 m3 of storage capacity.
Most of consumption is metered but it is estimated that about 5% of meters are
inoperative. In the last four years (2000-2003) water losses have remained at about 37 %
of production. This system was serving some 978,000 accounts in 2003. Table 1 shows
some of the main operational indicators of the water distribution system.
Table 1. Water Distribution Network Operational Indicators
Indicator
Mts of pipe/account
Storage capacity/account; m3/user
Water losses; %
AWGA
6.7
0.3
37
630
Other cities 1/
6 24
0.7 3.0
< 20 (best
practice)
<20 (best
practice)
During the period 2002-2004 AWGA has done a good job in balancing its cash flows so
as to be able to service most of its debt3 and to cover its cash operational expenditures.
Most AWGA investments are financed with loans from the National Investment Bank. A
smaller portion is financed by grants and customer contributions to investment. AWGAs
bill collection effectiveness varied from 85% (2002) to 74% (2003) and 78% (2004).
Sewerage. AGOSD (Alexandria General Organization for Sanitary Drainage) was in
1979, to provide wastewater collection, treatment and storm drainage system for the city
of Alexandria and its surrounding areas. AGOSDs wastewater collection and disposal
system serves some 83% of Alexandria population and includes:
A pipe collection network of 2,390 kms with diameters between 200 and 2,750
mms
Seventy two (72) pumping stations; and
Two primary wastewater treatment plants with a design capacity of 1.20
million m3/day.
Site 9N for the reception and disposal of waste by-products. Composting
operations also take place at this facility
Yepes, Guillermo & Augusta Dianderas. Water and wastewater utilities. Indicators. TWUWS, The World
Bank. 1996.
2
Based on information on ten branches. Not including Borg El Arab and Sahel.
3
A portion of the interest owed by AWGA to the National Investment Bank is converted into long-term
debt. Of an average yearly interest of L.E. 41 million, L.E. 13 million/year has been converted into longterm debt between FY 2002 and FY 2004.
SEGURA / IP3 JV
Final Report -2
Government of Egypt
Treated and untreated wastewater flows are discharged into Lake Mariout, south of the
city, without complying with the provisions of Law 48, which establishes standards for
wastewater effluents and mandates secondary treatment, chlorination and post aeration4.
Lake Mariout is a shallow body of water with a total area of some 5,000 hectares.
Population living close to Lake Mariout is affected by foul odors.
AGOSDs cash flows have been clearly insufficient to cover its cash requirements. This
is the result of tariff levels, which are insufficient to cover even its cash operational
expenditures. AGOSDs cash deficits have been covered by government contributions to
finance current expenditures and by arrears on its debts with the National Investment
Bank. As in the case of AWGA, AGOSD finances its capital expenditures program with
loans from the National Investment Bank.
Demand growth
The Water Master Plan projects a significant growth along the periphery of Alexandria
City, in Ameriya and west of Alexandria. New highways around the city, new industrial
zones in Ameriya and Borg El Arab City, and tourism development to the west will all
drive future growth. The projected population and water production growth is presented
in Table 2.
Table 2. Population and Water Production Projections
Population (millions)
Average
Peak summer
day
2000
4.14
5.22
2007
5.07
6.30
2012
5.65
7.09
2017
6.25
7.88
2022
6.86
8.45
Source: CDM Master Plan (cited)
a/ Average production (AWGA)
Year
Maximum day
demand
(000 m3/day)
1,950 a/
2,800
3,200
3,600
4,040
Recent updates of investment needs indicate that in order to meet full service levels by
2022 AWGA will need to invest some L.E. 4,900 million. Similarly AGOSD will need to
invest L.E. 3,300 million over the same period.
Based on these recent investment estimates, Consultants have estimated the economic
costs (Average Incremental Cost)5 at:
SEGURA / IP3 JV
Final Report -3
Government of Egypt
Clearly, both AWGA and AGOSD face a daunting challenge to recover all costs, meet
projected demand and improve the quality of services.
2.
Implementation Schedule
This project covered a period of time of about 40 weeks, starting on March 18, 2204, and
schedule to deliver the final report and presentation on the first half of November 2004.
SEGURA/IP3 expatriate team worked on-field several times with an average of 2-week
visit period. The project had permanent support from the local team on data collection
and validation. This activity extended through mid October. Consultants prepared a total
of six reports (including this one) and presented them to representatives of AWGA,
AGOSD and USAID for further discussions.
Four main tasks were performed covering policy considerations statement, scope of work
adjustment, feasibility studies, and to conclude with the transaction and implementation
plans. A more detailed description of the activities and timing can be found in Table 3. as
a result, consultants presented seven reports (including this one) to representatives of
AWGA, AGOSD and USAID. These reports were thoroughly discussed with these
agencies.
SEGURA / IP3 JV
Final Report -4
Government of Egypt
- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42
March
April
May
June
July
August
September
October
November
SEGURA / IP3 JV
5
Final Report -
3.
Government of Egypt
The recommended policies, consistent with Decrees 135 and 136 of 2004, center on six
priority areas:
a)
Governance. To promote efficient and high standards of service throughout the
country local differences are recognized. Local government authorities and the public at
large, as main stakeholders, can play an important role in defining priorities to meet
particular local needs and in increasing accountability of service providers. To promote
this participation local and central government sector agencies should strive to:
b)
Pricing of services. Pricing of water and sanitation services will aim to reconcile
four important objectives:
c)
Personnel management. Service providers should have discretion, within labor
laws, to manage their personnel and to provide incentives to encourage higher levels of
efficiency and better response to users needs.
d)
Financial Viability. Service providers should have incentives to promote the
gradual implementation of tariffs that reflect financial requirements to cover operational,
rehabilitation and expansion costs and debt service obligations.
SEGURA / IP3 JV
Final Report -6
Government of Egypt
The government will promote the development of reliable long-term financing for the
sector while avoiding distortions to capital markets and undue fiscal pressures.
e)
Private sector participation. Participation of the private sector will be promoted
as a means towards achieving sector development goals. Participation of the private
sector will be sought to serve two main goals:
Efficient and sustainable services. Through the know-how, and more agile
private sector management systems, practices and decision making processes.
Financing. To provide the capital to expand services and to promote a more
efficient use of existing infrastructure.
f)
Regulation. To promote high levels of efficiency in operations and investments
and better customer relations, the regulatory system will make use of complementary
instruments such as: i) Command and control, or explicit directives to influence
behavior of sector agencies and to promote desirable sector outcomes; ii) Policy
incentives designed to achieve higher productivity gains and service standards; and iii)
Benchmarking to promote competition by comparison of performance among service
providers.
4.
4.1
Final Report -7
Government of Egypt
some detail in the Policy Statement Report). Most domestic customers are billed bimonthly based on the results of meter readings. Further, many domestic customers live
in apartment buildings and are billed based on the results of a master meter for the
building and individual apartment sub-meters. The difference between the master meter
reading and the total readings of all sub-meters is prorated to all sub-metered customers
in the apartment building.
Table 4. Pilot Project Customer Base
(End of FY 04)
Item
Ameriya
Branch
Borg
El Arab
72,490
640
710
73,840
1,800
41
Sahel
Total
22,700
1,170
330
24,200
26,440
300
270
27,010
121,630
2,110
1,310
125,050
1,300
19
500
54
3,600
35
Large customers are defined as those that have a meter 2 or greater. Large customers
represent 2% of the total customer base in the pilot area, 39% of water volume billed and
50% of the total billings. Government customers only include government agencies.
Public companies, including state owned enterprises, are classified as large customers.
Government customers represent 1% of the customer base, 17% of water volume billed
and 19% of the total billings.
Contract options and feasibility
Consultants considered two basic alternatives for a contract with a private operator: i)
Metering only, and ii) Comprehensive metering, billing and collection.
Metering only
Under this alternative, AWGA would delegate to a private operator the metering
function, including installation, replacement, and meter reading. The operator could read
the meters with its own staff or directly supervise AWGAs staff. AWGAs branches
would continue being the primary contact with the customer, as well as being responsible
for billing and collection.
The consultants consider that a metering contract with the appropriate incentives would
lead to a significant increase in the volume of water billed, particularly for large and
government accounts. The effectiveness of the contract to increase the volume of water
billed to domestic customers is, however, dependent to a large extent on the authority
SEGURA / IP3 JV
Final Report -8
Government of Egypt
delegated by AWGA to the private contractor to purchase the most cost-effective meters
available in the domestic or international markets.
The private contractor could achieve the expected improvements in water billing through
the implementation of:
Alternative metering technologies.
Systematic meter replacement and repair programs.
Strict control of meter readers.
To provide adequate incentives for good performance, the contract should include a fix
payment to the contractor for achieving the targets established in the contract, penalties
for non-meeting the targets, and bonuses for exceeding the performance targets.
Comprehensive metering, billing and collection
Under this alternative, AWGA would delegate to the private operator all the metering
function plus billing and collection. Under this alternative, the operator should be given
full control over staff hiring and firing matters and preferable over staff compensation.
The consultants consider that a comprehensive metering, billing and collection contract
with the appropriate incentives has the potential to significantly increase the volume of
water billed and the collection rate. The effectiveness of this contract to achieve the
desired goals is dependent, however, on the authority delegated by AWGA to the private
contractor to:
Purchase the most cost-effective meters available in the domestic
or international markets.
Enforce bill collection through appropriate penalties to delinquent customers,
including shutting-off the services and fines.
Experiment with alternative billing and collections practices with domestic
customers.
As in the case of the metering-only contract, the operators remuneration would be based
on a fix payment for achieving the targets established in the contract, plus penalties for
non-meeting the targets, or bonuses for exceeding them.
Actions common to both contract alternatives
To achieve the full benefits under both contracts is necessary to:
Conduct a user census to determine that customers are accounted for and properly
classified and to refine the information on the need for additional meters.
Provide incentives to implement alternative meter technologies, such as
automated meter reading6.
Replace broken meters in the pilot area (about 5% of all meters).
Conduct accuracy test on most meters to determine a cost-effective replacement
program.
6
The selection scope of alternatives depends on the relative price charge to different consumers. Better
meters are more accurate but cost more. Therefore, AGOSD needs to balance these higher costs against
additional revenues (benefits) in order to decide on the most cost-effective technologies.
SEGURA / IP3 JV
Final Report -9
Government of Egypt
These contracts would most likely be of interest to a joint venture that includes a meter
manufacturing company and an information technology company. Given the relatively
small size of the contract it is most likely that the interested companies will have already
a significant presence in Egypt. Egyptian companies interested in these contracts should
be given incentives to enter into long-term technical assistance agreements with
international companies to improve their opportunities and know how to enter into these
contracts.
As shown in Table 5 the results of the financial feasibility of the service contracts are
positive:
A metering only contract has the potential of increasing annual collections in the pilot
area by about L.E.11.2 million or about 20% of current annual collections and net
revenues by L.E. 7.6 million. The consultants believe this is a reasonable estimate based
on the current meter conditions in the pilot area and the results achieved by other utilities
that have implemented similar metering programs.
The alternative of comprehensive metering, billing and collection has the potential of
increasing annual collections in the pilot area by L.E. 16.8 million or 30% of existing
annual collections, and increasing net revenues by L.E.11.0 million
Metering
Comprehensive
11.2
2.8
8.4
-
16.8
2.8
8.4
5.6
3.6
2.9
0.7
-
5.8
2.9
0.5
1.8
0.6
7.6
11.0
14%
20%
SEGURA / IP3 JV
Government of Egypt
AGOSD has identified three operational activities where it would like to assess the
viability of private sector participation (PSP) through service contracts: i) Collection and
SEGURA / IP3 JV
Government of Egypt
disposal of septage; ii) Operation of Site 9N waste disposal facility for wastewater byproducts and sludge composting; and iii) Transport of waste byproducts to site 9N.
These projects can be structured to provide incentives to the private operators to reduce
AGOSD costs and/or increase revenues, while affecting AGOSD labor force as little as
possible.
CH2MHILL. Privatizing the AGOSD Septic System, Cleaning & Hauling Program. January 2000.
SEGURA / IP3 JV
Government of Egypt
a)
Service management contracts
Under this alternative, AGOSD would delegate the collection and disposal of septage to
private operators. These contracts can be structured along two basic options: Each area
(or branch) is served by a pre-determined number of contractors8 and trucks to foster
competition; and Contractors are free to operate anywhere in the city.
Under both options contractors charge the price defined by AGOSD (under clear and
specified criteria), operate under exclusive service conditions and collect fees on behalf
of AGOSD. Contractors, in turn would be paid by AGOSD for services rendered.
AGOSD main responsibilities would be to: a) control illegal operators; and b)
supervise operations and enforce applicable laws and regulations to ensure that service
contracts perform as intended, including the safe disposal of septage.
Under present conditions, service management contracts can be problematic to
implement as:
AGOSDs organization is not adequately prepared to monitor payments to
contractors and thus to ensure that it will receive all the proceeds from this
operation.
AGOSD lacks adequate operational data on the number and location of septic
tanks and frequency of service to make an informed decision on the adequate
size of the trucking fleet. However, this decision will affect the financial
viability of the operation. Moreover, AGOSD is also in a weak position to
determine, ex-ante, the service fee operators can charge in each area. In
particular, if fees are too low it risks that some zones will not receive service,
thus encouraging illegal operations or rent seeking.
b)
Licensing
Under this alternative, a pre-selected and adequate number of licensed contractors, to
promote competition for services, operate in any area of the city. This competition is
essential to ensure good services and to eliminate, to a large extent, the need to control
prices9. Service fees are collected and kept by the licensee and AGOSD receives the
license fee.
The license fee can be established to cover as a minimum, AGOSDs regulatory and
supervisory functions. Selection of contractors can be carried out on a competitive basis
and based on the initial premium bidders are willing to pay over a minimum preset
license fee. Licenses could be granted for two to three years.
AGOSD should have the right to revoke the license at any time for lack of compliance
with operating norms. At the expiration of the license, AGOSD can use the opportunity
8
Contracting this service with only one operator for the whole city or for one particular zone will remove
any competition in the market to the detriment of service.
9
The exception could be in the initial 2-3 years of the contract to ensure a smooth transition and wider
acceptance of users to the license system.
SEGURA / IP3 JV
Government of Egypt
not to renew the license of poor performers and to ascertain if additional operators are
needed to foster competition and keep prices at a reasonable level.
Under this alternative, AGOSD supervisory functions will be simplified, as it will not be
directly involved in the collection and disposal of septage or with the collection of fees.
Its primary role will be as grantor of the licenses and regulator and supervisor of service
quality.
AGOSD should consider granting licenses to its employees working in this activity, in
return from them leaving the company, and to lease or sell them the vehicles under
special terms and conditions. USAID may be able to assist with the financing through its
Credit Development Facility (CDF).
Under both alternatives AGOSD needs to define:
The number of trucks, if any, that it is prepared to lease or sell to interested
operators, and
The relocation of staff working in this service, or the conditions imposed on
operators for the incorporation of this manpower in their labor force.
For the latter, the private operator should have full control over these employees.
Otherwise, protracted discussions are likely to occur, as inadequate control of personnel
is detrimental to the efficiency and quality of service.
Septage wastes pose several environmental risks that require careful handling and
disposal. Septage, particularly from industrial or commercial activities can contain
harmful or toxic substances to humans, crops and the environment at large. Similarly
wastes from hospitals can contain highly infectious viruses, bacteria and/or radioactive
materials10. Nonetheless, a program for the systematic characterization and monitoring of
septage from these institutions needs to be developed and enforced (law 37 of 1967)11
and non-approved establishments should be mandated to dispose these wastes at specified
sites and under tight and controlled conditions.
Consultants were not able to obtain information on the characterization of septage
material in Alexandria.
Existing AGOSD sewerage infrastructure provides several non-exclusionary alternatives
for the proper disposal of septage; they include:
Addition to both wastewater treatment plant head works.
o At a point immediately upstream of the screening and grit removal
processes, or
o At selected manholes to large drainage pipes upstream of the treatment
plants (current disposal practice in Alexandria).
10
The factor that differentiates commercial and industrial from domestic septage is not the type of
establishment generating the waste; rather it is the type of wastage being produced.
11
The Ministries of Agriculture and of Environmental Affairs regulate the disposal of these wastes.
SEGURA / IP3 JV
Government of Egypt
Direct addition of septage to the dewatering facility reduces the loading to the primary
treatment process thus eliminating potential problems that could affect the quality of the
primary treatment system. However, as septage is resistant to dewatering, it can also
complicate the operation of the MDF and increase the wear of pumps, if septage is not
previously screened and de-gritted.
The first two alternatives are the most promising and should be studied in more detail to
determine the location, characteristics of receiving facilities and loading parameters.
Consultants cannot recommend alternative 3 at this time for lack of adequate operational
information. If this alternative is of interest to AGOSD, consultants suggest field tests for
a representative period of time (3-6 months) to assess its overall feasibility.
A cost-benefit optimization is particularly sensitive to the distance between septage
collection and disposal, the number of septic tanks and volume emptied per year.
Therefore with the scant information available, the financial viability of the two proposed
alternatives and the impact on potential private operators and AGOSD cannot be
developed with any degree of confidence.
SEGURA/IP3 considers that the licensing alternative is the most desirable option for
AGOSD. This alternative has major advantages over a service contract approach,
including:
AGOSD will be able to cut operational losses of over L.E. 6 million per year
almost immediately.
AGOSD does not need to control prices, as the presence of an adequate number of
certified operators will promote competition in the market and thus fair pricing.
AGOSD needs only to create a supervisory unit to provide information to
potential users and receive feed back from them, and to ensure that that licensed
operators meet required standards of service, and customers receive a satisfactory
service.
The licensing fee can be easily adjusted to cover the cost of the supervisory unit
and even produce a surplus for AGOSD.
Illegal operators can be brought under control, as licensees will likely report them
to proper authorities.
The period of time between license renewals can be set to promote healthy
competition
If this alternative is selected AGOSD needs to:
Develop a regulatory framework and operating policies and the organization and
functions of the supervisory unit.
SEGURA / IP3 JV
Government of Egypt
Determine the level of tipping fees that private operators should pay at points of
discharge to cover handling costs at receiving stations.
Make an informed decision about the possible auction or leasing of unneeded
service trucks to potential licensees.
Develop a political acceptable policy to deal with staff working in septage
collection activities.
Operation of Site 9N
Site 9N is located some 40 kilometers south west of WWTP and has an area of about 150
hectares (360 feddans). Facilities at the site include administration building, warehouse,
maintenance area, operational equipment and pilot green areas. Some 60 staff works at
this facility.
Site 9N receives dewatered sludge, grit, scum and screenings from the two major
wastewater treatment plants (East and West) and sewage pumping stations, as well as oil,
grease and screenings from industries and commercial establishments. Grit and scum
loads represent about 25 percent of the total handled at this site. Site 9N could also be
adapted to receive and compost septage.
Operations at Site 9N include: a) composting of dewatered sludge transported by truck
from the mechanical dewatering facility (MDF) at the West wastewater primary
treatment plant (WWTP); b) grit treatment; and c) sanitary landfill of for industrial
wastes. One of the local uses of compost and treated grit is to improve the conditions of
calcareous soils, common in the area.
The manager of Site 9N operations indicated that during FY 2004, this site received from
AGOSDs operations about 300 tons/day of dewatered sludge, 30 m3/day of grit, 20-30
m3/day of screenings and 20 m3/day of scum. It also received about 20m3/month of
industrial wastes, mainly from three companies. The volume of septage is not known as
there is no reliable information on the number and volume of septic tanks in the area and
how often, on average, they are served.
There are two basic alternatives to delegate operation of site 9N to a private operator: a) a
management contract, and b) a lease contract. These two alternatives are quite similar in
scope but differ in the way decisions are made to price and sell compost and other by
products, and on the bidding strategy.
a)
A management contract can be structured for a 5 to10 year period and
interested contractors bid on the fee to manage the operation. Under this alternative,
pricing decisions are made by AGOSD.
The main responsibility of the contractor would be to operate the facilities as specified in
the bidding documents. Marketing decisions can be delegated to the operator including
incentives to reward its efforts to improve sales and reduce costs. Investments,
SEGURA / IP3 JV
Government of Egypt
Government of Egypt
5.
Government of Egypt
billing and collection efforts through internal efforts and does not wish to pursue the
more comprehensive metering, billing and collection option.
SEGURA / IP3 JV
Government of Egypt
Potential Bidders
The companies to bid on a metering only contract will probably include a joint venture
between a meter manufacturer and a local service provider and /or international water
companies. The consultants believe there are several companies that will have a keen
interest in this opportunity.
The level of interest and ultimate costs of the metering-only contract will be influenced
by the bidders understanding of the potential size of this opportunity. If the bidders
believe this is an opportunity limited to one pilot area in Alexandria, the level of
competition will be limited and thus the costs higher than it might otherwise be.
AWGA could also consider a requirement in the contract to install meters in the
distribution system (technical meters) to measure the amount of water delivered to the
pilot area. This type of activity would allow the volume of unaccounted for water to be
monitored and measured and provide valuable information to help solve the continuity of
service issues described in the needs assessment and feasibility report. At least in the
Sahel area, the installation of technical meters requires minor changes in the distribution
network. In the other two areas more extensive modifications are needed.
It is worth mentioning that some utilities that have contracted-out services, like metering,
allow their employees to bid on the contract. In AWGAs case some of the managers in
the pilot area branches could organize themselves as a local company and pursue a joint
venture with one or more meter manufactures. AWGA would need to support this type of
initiative and possibly provide some technical assistance to get it started.
Transaction Activities
Table 6 includes a Gantt chart of the major tasks that will be involved in securing the
services of a qualified contractor for a metering only contract.
Moreover, evaluation of proposals and contract signature is likely to take more than one
month. The Transition can start on month 10.
As shown in Table 6, the transaction process will take up to nine months to complete
from the date a transaction advisor is retained. The first three months of the transaction
process includes activities to gather and refine information and to make decisions on
policy matters that will have an impact on employees in the pilot area. Once these matters
are resolved, the transaction will take an additional six months of elapsed time to
complete.
SEGURA / IP3 JV
Government of Egypt
Months
5
6
10
Contract Costs
The total value of the metering only contract over a ten year term to the winning
contractor is estimated at L.E 36 million. By international standards this is a small
contract. Further, considering the fact that the contractor will not be able to fully control
all of the metering operations, most contractors will be reluctant to accept contract terms
that base too much of their compensation on incentive payments for increasing the
amount of annual billings. The contractor will most likely be paid a fixed fee for every
meter read and a fixed payment for every meter replaced based on meter size. In the
consultants' opinion, a small performance bonus ranging from 5% to 10% of increased
annul billings would be an appropriate performance bonus. If this is done the estimated
fixed payments would be reduced.
Level of Effort
The consultants estimate the costs of the transaction process, including an estimated
value of AWGAs efforts to gather and refine information, at L.E. 2.1 million, or
approximately 6% of the total contract value. The estimated cost of the transaction
advisor is L.E. 1.8 million and the estimated values of AWGAs efforts are L.E. .3
million
5.2
The consultants developed, at the request of AGOSD, the pre-feasibility analysis for
contracting three operational activities with private operators, namely12: i) septage
collection and disposal; ii) operation of Site 9N; and iii) transport of wastewater
operational by-products to site 9N.
12
SEGURA / IP3 JV
Government of Egypt
Government of Egypt
initiative in a fair and transparent basis and balance its interests with those of the
staff and operators. Towards this goal, AGOSD should consider several options
(and combinations):
Staff can be offered the opportunity to join the private operator. Staff would
be allowed to take a leave of absence without pay but with the option to be
reincorporated, say after two years, if the staff so decides. It is in the interest
of a private operator to hire some, but not necessarily all, AGOSD staff
working in these activities. However, the operator needs to be given full
authority over this staff, as otherwise accountability of the operator will be
compromised. Therefore, AGOSD needs to reconcile its own and private
operators concerns to reach a workable and effective solution.
Staff not willing to take a leave of absence or not selected by the operator can
be transferred to other positions within the organization.
Consultants were informed that the first two options have been recently
successfully implemented in Alexandria in the context of the solid waste
management initiative delegated to the private sector.
d.
Condition of the equipment
There are no updated records on the condition of the equipment utilized in these
operations. Therefore, is important for AGOSD to determine:
The equipment that is not worth repairing; this equipment could be sold as
scrap.
The equipment that it would like to retain for other operations.
The equipment that it would like to lease or sell to operators.
2.
Pre-transaction activities
a. Creation of the implementation unit within AGOSD, which should have the
mandate to carry these projects successfully to completion. The head unit
should report directly to the Chairman to ensure that the requests for
information from other departments are carried out promptly. The main
functions of the unit will be:
To liaise closely with and supervise the work of the TA advisors;
To contact prospective bidders and invite them to participate;
To prepare public announcements and call-for-bids documents;
To answer in writing, following proper internal consultations, the
questions that interested operators may pose; and
SEGURA / IP3 JV
Government of Egypt
3.
4.
Transaction
These activities include the preparation and issuance of:
Request for proposals. In local newspapers and international trade magazines.
This information often includes a general description of the contracts, cost of
documents. It indicates the date for presentation of documents and the form
and time limits for clarifications.
Field visits and pre-bidding conference. Interested bidders should be invited to
visit the project sites under the guidance of AGOSD and for formal
discussions to foster comments from interested bidders on the bidding
documents.
Pre-qualification documents. In general, it is customary to pre-qualify
interested contractors. However, care should be taken to avoid an early
SEGURA / IP3 JV
Government of Egypt
Depending on the overall approach to the bidding process, final contract negotiations
may or not be part of the transaction process. In some instances, consultations with
prospective bidders are sought in earnest to accommodate, to the extent possible, their
concerns to the contract. If this approach is followed, it is customary to request that all
bidders sing the pro-forma contract to signal their acceptance to all contract conditions.
5.
Transition period & Contract Monitoring
It is important to plan for an orderly transition of operations to private operators.
Therefore, the transition needs to be developed with an adequate level of detail to avoid
disruptions in service. This transition includes the legal possession of sites and equipment
by the operators and the transfer of AGOSD staff to contractors. During this process
operators begin a more thorough familiarization with the service they will be in charge
of, and AGOSD staff should be attentive to promptly iron out any glitches in the transfer
process.
The supervision of the service contracts entails:
Periodic reporting by operators in accordance with pre-established rules and
formats set in the contract;
Validation of this information by the Supervisory Unit;
Monitoring and evaluation of contracts;
Spot and random checks to assess operators performance;
Comparison of performance when several contractors are involved in similar
operations (collection and disposal of septage and transport of waste materials to
site 9N);
Periodic meetings with operators to discuss matters of common interest; and
Applying remedial actions when necessary.
6.
i)
13
SEGURA / IP3 JV
Government of Egypt
SEGURA / IP3 JV
Government of Egypt
SEGURA / IP3 JV
Government of Egypt
Phase / activity
Time, months
5
6
10
1. Feasibility
Information enhancement
Septage
Site 9N
Transport of materials
Selection of transaction advisors
Staff deployment
Assessment of equipment
2. Pre-transaction activities
Creation of transaction unit
Information memorandum
Organization of data room
3. Public relations and promotion
4. Transaction
Bidding documents
Bid evaulation
5. Transition period
One week =
Continuous but not full time activity =
SEGURA / IP3 JV
28
Final Report -
Government of Egypt
Phase / activity
1. Feasibility
Information enhancement
Septage a/
Site 9N
Transport of materials
Selection of transaction advisors
Staff relocation
Assessment of equipment
T. Advisors
Unit costs
Staff-days
Ex-pats
Local
Ex-pats
Local
AGOSD
T. Cost
T. Cost
T. costs
1473
6000
6000
6000
1000
1000
1000
15
40
10
20
80
20
110
320
80
6000
6000
1000
1000
5
5
5
10
40
2. Pre-transaction activities
Staffying of transaction unit
Base-line
Information memorandum
Organization of data room
6000
6000
6000
1000
1000
1000
30
10
50
5
230
65
6000
1000
40
100
340
4. Transaction
Bidding documents
Bid evaluation
6000
6000
1000
1000
180
20
120
30
1200
150
355
440
2535
335
50
50
50
50
200
50
18,000
160
80
40
30
60
900
8
4
2
6
3
50
1,800
90
385
b/
b/
b/
340
b/
1350
5. Transition period
Sub-totals
Direct costs and incidentals
Totals
Notes; a/ Includes employing university students to do the census
b/ Included in operation of transaction unit
SEGURA / IP3 JV
2870
20,170
1013
317
3548
652
1330
4200
6.
Government of Egypt
From the consultants point of view merging water and sanitation services could be a
desirable but not a necessary condition to improve services. The merger would demand
substantial involvement of senior government officials to overcome resistance to change
both in AWGA and AGOSD, which is likely to distract their attention. Therefore, it is
necessary for government authorities to assess the benefits and costs of embarking on this
aspect of reform when it appears that there are other reforms that can have a more
significant impact on the quality of service and operations.
When the GOE issued the Presidential Decrees No. 135 and 136 of the year 2004,
establishing a Holding Company for water and wastewater companies the consultants
analyzed the implications of the modified legal framework and incorporated their views
into the Policy Statement Paper, along with feedback from GOE officials.
Its highly desirable to right size the work force at both entities, not only to reduce
operational costs but also to facilitate reaching a more balanced skill-mix. The
government needs to assess the political and social implications of staff reductions and
determine a plan to achieve the desired targets. Staff reduction by attrition only will not
be adequate, as it will take a long time to produce meaningful results. Likewise, reaching
the desirable levels of productivity through service growth will require at least 25 years
(assuming 2.5 % growth per annum).
Regarding the service rates, the consultants believe that additional tariff increases are
certainly needed. It is also important to revise the tariff structure to improve targeting of
subsidies to the poor, and substantially reduce or abolish subsidies to many consumers
that do not need them, which can facilitate the tariff adjustment process.
It is still not clear at this stage how the Water & Wastewater Holding Company will
operate in practice. Nonetheless, the consultants made two recommendations:
o Local service agencies should be given substantial operational and financial
autonomy, including the management of their internal cash generation; and.
SEGURA / IP3 JV
Government of Egypt
A settlement of the outstanding debt of these entities it an urgent issue to be solved by the
government, as it is an essential element of the sector restructuring plan. It is highly
unlikely that a private operator, under any of the PSP options considered, will assume
part of this debt. In similar situations in other PSP contracts, the outstanding debt has
been serviced by a special surcharge on the tariff, with the private operator acting as
collecting agent on behalf of the administration.
After the creation of the Holding Company, the GOA and USAID agreed that we should
concentrate on the feasibility of service contracts. In the case of AWGA, the consultants
considered two basic alternatives: i) Metering only; and ii) Comprehensive metering,
billing and collection. In our view the comprehensive metering, billing and collection
contract is the most desirable alternative. This alternative has major advantages over a
metering-only contract: a) Net revenues for AWGA will be higher; and b) It will have a
more profound and lasting impact on commercialization practices as it will help to
substantially improve performance of AWGAs branches.
AWGA expressed an interest in pursuing the metering only option. AWGA has also
indicated that it believes it can improve its billing and collection through internal efforts
and does not wish to undertake the more comprehensive metering, billing and collection
option at this time.
The consultants have prepared a Draft Transaction Implementation Plan for the selected
alternative (presented separately)
AGOSD sought advice on how to structure service contracts for (a) septage collection
and disposal; (b) operation of Site 9N including composting; and (c) transportation of
dewatered sludge and other wastewater byproducts to this site. The pre-feasibility of
AGOSDs potential service contracts is developed in this report.
SEGURA / IP3 JV
Government of Egypt
o Licensing to private operators the collection and disposal of septage. These licenses
should be granted for two to three year periods;
o Leasing the operation of Site 9N that handles the safe disposal of waste byproducts
and produces compost from dewatered sludge that is sold to local markets. This
leasing contract should be 10 years, to allow the recovery of likely investments by
the private operator, related primarily to the production of compost;
o Service contracts with several operators for the collection and transport of wastewater
byproducts (dewatered sludge, grit, scum and grease) from the two waste treatment
plants and 72 pumping stations to site 9N. These service contracts should be granted
for three to five years, to stimulate competition and to lower future costs associated
with re-bidding.
The consultants presented a separated report outlining the Steps Toward Transaction
Implementation for the above service contracts options.
The consulting team has clearly indicated to USAID/ Egypt and GOE authorities that
although "service contracts" of this nature are steps in the right direction, they will not
address the structural problems facing the two utilities (especially in the case of
AGOSD). These problems include primarily: adequate maintenance of existing
infrastructure, capital investments to meet new demand, settlement of accumulated debt
and extremely low service rates, which do not make full cost recovery operation a
realistic expectation for the Alexandria W & WW utilities in the near future
Given the significant steps undertaken by GOE with the creation of the Water & Wastewater
Holding Company and the Egyptian Regulatory Authority (EWRA), we strongly recommend to
include more comprehensive PSP alternatives in the reform program and to undertake the
proposed service contracts at AWGA and AGOSD as part of the implementation of the sector
reform.
SEGURA / IP3 JV
Government of Egypt
Attachments
A1
FY 02
111
284
-12
38
26
108
262
-13
22
26
124
214
-13
52
23
447
405
400
1,038
-394
645
266
911
1,358
950
-362
588
258
846
1,250
900
-327
573
205
778
1,178
307
27
334
283
7
290
272
8
280
43
424
467
31
374
405
31
349
380
528
29
0
557
1,358
364
390
-198
555
1,250
364
353
-198
518
1,178
SEGURA / IP3 JV
Government of Egypt
FY 04
FY 03
FY 02
31
33
5
70
28
37
-11
54
52
35
-3
84
Debt service
Principal
Debit interest
Debt Service (B)
19
32
51
63
45
108
58
45
103
19
-54
-19
57
12
4
73
75
13
5
92
57
13
6
76
Capital expenditures
90
102
83
1/ Excluding cash.
2/ NIB: National Investment Bank
SEGURA / IP3 JV
A2
Government of Egypt
Operating revenues
Operating expenses (excluding depreciation)
Operating profit before depreciation
Depreciation
Operating profit
Interest
Profit before taxes
Income taxes
Net income
SEGURA / IP3 JV
L.E.
Million
42
61
-19
56
-75
56
-131
0
-131
A3
Government of Egypt
Title
Head of Administration/
Commercial Affairs
Chairman (March/04)
Legal Counsel
Associate Mission Director
General manager
Chairman
Consultant
Chief of Party
AWGA
AWGA
AGOSD
USAID Cairo
Hydro-Comp Enterprises
AGOSD
Saur International
Entity
CH2MHill
National Organization For
Potable Water & Sanitary
Drainage NOPWSD
Chemonics
Planning and Development
Collaborative International.
Middle Egypt Utilities
Institutional Strengthening
Project
USAID
Severn Trent International
Metcalf & Eddy
Arab Soft
USAID
Executive Director
SEGURA / IP3 JV
IP3
Name
Title
Chief of Party
Secretary General
Deputy Chairman
President
Head of the Administration
Affairs
Engineer
Chairperson
Representative
Government of Egypt
Entity
Metcalf & Eddy
Governorate of Alexandria
Water & Wastewater Holding
Company
IP3 MENA
AWGA
AGOSD
AWGA
ABB
PA Government Services
Representative
Infrastructure Policy Advisor
Project manager, Office of
Environment & Infrastructure,
Water & Waste Water Sector
Representative
University of Alexandria,
Institute of Graduate Studies and
Research, Dept. of
Environmental Studies
Severn Trent International
USAID
USAID
SEGURA / IP3 JV
Badger Meters
Sargent International