Incentive Based Operating Contracts

Overview

The purpose of this library is to help USAID and other U.S. Government staff develop an understanding of effective incentive based operating contracts for infrastructure, and to access information about successful contracts.

This library presents a review of ten operating contracts that have been carried out in difficult operating environments for water, sanitation, and electricity services. In addition, it includes a variety of other studies on operating contracts, as well as some examples of the actual contracts that have been used.

Background

In 2007, USAID conducted a review of incentive based operating contracts to support continuing improvement in the methods and approaches that are available to USAID and other U.S. Government agencies in providing water, sanitation, electricity and other basic services during post-conflict, disaster and other difficult situations. Key aspects of the review are summarized in a presentation and key references are provided below.

The review was intended to help formulate USAID’s operational policies and help USAID staff identify the types of operating contracts and incentive features that are most appropriate for different post-conflict situations. Issues addressed in the review include:

• What infrastructure problems were addressed?
• How were operating contracts tendered and awarded?
• What responsibilities were given to the operator?
• What incentives did the operator have to improve performance?
• How well did the incentives work?
• How were services and cost recovery at the end of the contract?

Case Studies

The review analyzes a set of operating contracts for water, sanitation and electricity services that were used in countries that are either in a post conflict situation or are considered difficult operating environments. The following case studies can be accessed from the Table of Contents of the report.

• Cambodia: BOT, BOO Private Water Companies
• Cote d’Ivoire: SODECI
• Georgia: United Energy Distribution Company
• India: Bhiwandi Torrent Power Franchise
• India: North Delhi Power Limited
• Kosovo: Korporata Energjetik e Kosoves (KEK)
• Mali: Energie du Mali
• Senegal: SDC Contract with SONES
• Sudan: Yei Electric Cooperative
• Tajikistan: Pamir Energy
• Uganda: National Water & Sewerage Corporation

References

• Inception Note on Distribution Franchisee Options at Mazar-e-Sharief and Khayr Khana Sites, Presentation, Umesh Agrawal, The Credit Rating Information Services of India (CRISIL), April 2007
• Approaches to Private Participation in Water Services: A Toolkit, Appendix A, pages 157-199, Public Private Infrastructure Advisory (PPIA) and World Bank © 2006
• Argentina Reforming Provincial Utilities: Issues, Challenges and Best Practices, Report, World Bank
• Asian Water Supplies – Reaching the Urban Poor, Report, Arthur C. McIntosh © Asian Development Bank 2003
• Case Studies of Bankable Water and Sewerage Utilities Volume II: Compendium of Case Studies, Report, ARD, Inc.
• People and Power Electricity Sector Reforms and the Poor in Europe and Central Asia, Julian A. Lampietti, Sudeshna Ghosh Banerjee, Amelia Branczik
• An Update on the USAID Sponsored Management of the Georgian State Owned United Energy Distribution Company (UEDC), Presentation, Dean White, United Energy Distribution Company
• Utility Theft and Efforts at Prevention: The United Energy Distribution Company’s Experience Georgia Energy Security Initiative, Report, PA Government Services, Inc.
• Public Private Partnerships IFC’s Global Experience, Presentation, Martin Spicer, International Finance Corporation
• “Should We Bet on Private or Public Water Utilities in Cambodia? Evidence on Incentives and Performance from Seven Provincial Towns,” Report, Mike Garn, Jonathan Isham, and Satu Kähkönen
• Regulation by Contract: A New Way to Privatize Electricity Distribution? Report, Tonci Bakovic, Bernard Tenenbaum and Fiona Woolf
• Sustainable Power Sector Reform in Emerging Markets – Financial Issues and Options, Report, Deloitte Touche Tomatsu, Emerging Markets, Ltd.
• Sustainable Power Sector Reform in Emerging Markets – Financial Issues and Options, Case Studies, Deloitte Touche Tomatsu, Emerging Markets, Ltd.
• The Delhi Electricity Discom Privatizations: Some Observations and Recommendations
• The Design of the Manila Concessions and Implications for the Poor, Report, PPIAF/ADB
• Troubled Partnerships: Problems and Coping Strategies in Jakarta’s Water Concessions, Report, Olivia Jensen, London School of Economics
• Two Case Studies of “Domestic” Companies Active in Water Utility Management Eastern – Central Europe and Central Asia, Report, The OECD, World Bank & Bank of Netherlands Water Partnership
• Internally Delegated Area Management Contract, National Water and Sewerage Corporation, December 2003
• Short-Term Initiatives to Improve Water Utility Performance in Uganda: The Case of the National Water and Sewerage Corporation, Report, Silver Mugisha, Sanford V. Berg, and Gaddi Ngirane Katashaya
• Innovative Contracts, Sound Relationships: Urban Water Sector Reform in Senegal, Report, Clarissa Brocklehurst and Jan G. Janssens