Booz Allen Hamilton: Public-private partnerships keep Middle East water flowing (page 3 of 3)

"Governments also need to cultivate an attractive investment environment for the private sector," says Youssef. "They need to ensure that it's easy to do business in their country by relaxing taxation requirements, providing financial assurances to investors and offering private operators additional financial incentives related to strong performance, among other things. Understanding the current state of the utility is key to identifying areas for possible efficiency gains and developing realistic performance standards, asset rehabilitation plans, and service enhancement programs—some or all of which may need to be specified as KPIs in partnership contracts. Having a comprehensive understanding of the current state will also help in discussions with key stakeholders, such as Ministry of Finance representatives, regarding the possible need for continued government subsidies."

On the demand side, programs to drive water conservation should be pursued, such as launching awareness campaigns and adopting new conservation technologies. "For example, Saudi Arabia is one of the leading countries in developing awareness programs and distributing conservation kits to urban centers," says Dr. Fayad.

In addition, redesigning tariffs to better manage demand and improve cost recovery is still a taboo subject carrying significant political and social risks. Generally though, the more sophisticated the tariff structure, the better a government is able to manage demand and fully recoup costs.

"Successful implementation of tariff restructuring often combines several key ingredients," says El-Husseini. "Namely, a thorough assessment of consumers' ability and willingness to pay for services, the timing of tariff changes in tandem with significant and visible improvements in service, and a communications campaign that explains the rationale for and benefits of tariff changes and disassociates tariff increases from private sector participation."

Ultimately, governments pursuing private-public partnerships must reform their entire institutional setting and reorganize their existing institutions. In many new frameworks, the government focuses on planning and policy setting and hands over operation of physical assets to the private sector and responsibility for tariff setting and regulation development to an independent regulator.

The transition to a new framework can't happen overnight. "Introducing private sector participation into the water sector is a journey, not a single event," says El-Husseini. "And its success is contingent on how well governments prepare for it."