Aguas de Mocambique (Maputo and Matola)

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A 15-year lease contract was awarded to Aguas de Mocambique (ADM) in September 1999 to supply water services in Maputo and Matola, the two largest cities in Mozambique. Separately, ADM also won a management contract for the four cities of Beira, Quelimane, Nampula, and Pemba. The international bid for the contracts was divided into two parts - 70% of the weighting of the bid was based on the operator tariff and the remaining 30% of the bid included unit rates for the delegated works, program fees, site supervision and procurement fees, and the management contract fees. The government body that signed the contract with the consortium was the newly established Water Supply Investment and Assets Fund (FIPAG). Under the lease contract, ADM became responsible for operating and maintaining FIPAG facilities, billing customers, and collecting the customer tariff at its own commercial risk. The private operator retained part of the customer tariff (the operator tariff). ADM had to pay a “fixed lease fee” to FIPAG, a variable rental fee on water sold and a “regulatory fee” to the Regulatory Council for Water Supply (CRA). Such fees paid to the government amounted to an estimated US$25.5 million. The operator tariff was bid out and then fixed for five years, but regularly adjusted according to a contractual cost index formula. Within five years, ADM committed to reduce technical water losses by 24% to 30% and commercial losses by 5% to 11%, and increase collection and overall efficiency to 58% and 81% respectively. Under the contract, the Mozambique government remained the owner of all infrastructure and water assets. Aguas de Mocambique was led by the French company Saur International, (38.5%), IPE-Aguas de Portugal (31.5%), and Mazi-Mozambique (30%). The latter consisted of a prominent NGO, the Community Development Foundation, headed by former education minister Graca Machel, and the local private companies Norte Investimentos, Florestas e Turismo (FLOTUR), and MG-Mocambique Gestores. In December 2001, Saur withdrew from ADM consortium and sold its equity stake to Aguas de Portugal, leaving it with a 73% share and Mazi-Mozambique with 23%. Saur wanted to declare ADM bankrupt following major floods, but the other shareholders disagreed. On December 15, 2001, FIPAG, together with ADM's other shareholders, signed a Memorandum of Understanding (MoU) that set out the basis on which ADM would continue to operate under the lease and management contracts while FIPAG and ADM continued to negotiate long-term financial and contractual arrangements. The MOU was initially to last 15 months but in fact continued until the end of October, 2003 for the lease and until mid November, 2003 for the management contract. During the implementation of the MoU, certain cost increases were negotiated between the FIPAG and ADM. These included the increases in the operator’s tariff, increases in the unit rates for the delegated works, and subsequent oversight costs for the PO including program management, procurement, and site supervision, and management fees for the four cities (management) contract. Among the sources of funding for the project were the World Bank (US$75 million IDA credit), the African Development Bank (US$29.6 million loan), and the Dutch and French governments. This money was split between this project and the Maputo and Matola water project and was intended to support the private sector management and financing for major capital works for five cities. In early 2004, the World Bank agreed to provide an additional US$15 million IDA credit and the government an additional US$1.5 million, also to be split between the two projects. In September 2005, the French government, through the French Development Agency (AFD), granted seven million Euros (about US$8.44 million) to Mozambique to further finance the project. The overall project implementation had been negatively affected by the withdrawal of the original private operator, Saur, and the subsequent protracted contract renegotiations. Dspite the difficult operational conditions implied by the temporary contract arrangements for almost 2 years, there had been significant positive progress on various technical and financial management aspects of the project, which were reflected in the key performance indicators. However, the ADM consortium including Saur International, had been unable to satisfactorily perform its required responsibilities under the contracts. The company therefore began to experience considerable cost overruns which were further exacerbated by the floods in the region in early 2000. In December 2010, the Mozambican government's Water Supply Investment and Assets Fund (FIPAG) acquired AdP's 73 per cent share in AdM. Noteworthy was the provision of water to both Pemba and Nampula on a 24 hour basis. Duration, quality and reliability of water supply service to all the cities continued to improve. Revenues had doubled due to tariff increases and improved collection performance in Maputo, Nampula, Pemba and Quelimane between 2001 and 2002, with revenues in Beira also increasing very significantly.