Senegalaise des Eaux

concluded

Senegalaise des Eaux (SdE) was awarded a ten year lease contract for the water utility of the capital city Dakar in December 1995 and took over management in April 1996. In 2006, SdE’s lease contract was renewed for an additional five years. In July 1994, a government committee concluded that the former state-owned utility Société Nationale d’Exploitation des Eaux du Sénégal (SONEES) should be dissolved and that a state asset holding company should be formed which would retain the assets and the right to extract water. The law implementing the institutional reform was passed by the National Assembly in March 1995. The law authorized the creation of a new asset-holding company, the Société Nationale des Eaux du Sénégal (SONES), authorized to manage the sector through a 30-year concession contract signed with the State, represented by the Ministère de l’Hydraulique. SONES also signed a sector development contract with the Ministry, which outlined its investment obligations and was included in the Request for Proposals for the affermage (lease) contract. The 10-year affermage (lease) contract governing operation of the system was signed between three parties: the Republic of Senegal, represented by the Ministère de l’Hydraulique, SONES, and a private operating company formed specifically for this purpose, Sénégelaise des Eaux (SdE). The contract for majority ownership of SdE was won in a competitive bid process (lowest tariff) by the Bouygues Group water sector subsidiary SAUR. The State took a nominal and symbolic 5% share, and former SONEES staff were granted 5% of the shares. Of the remaining 90%, SAUR owned 57.84% and private Senegalese investors owned 32.16% (instead of the planned 51% and 39%). In February 2005, Bouygues sold its water sector arm, Saur, to PAI Partners (a private French equity firm). However, the sale did not include Saur’s African and Italian interests, which was retained by Bouygues. Bouygues had started operating in Senegal through its former subsidiary Saur by providing technical assistance in 1971. When Saur took over the utility in 1996, the water system was suffering from a lack of investment with leaky pipes and broken infrastructure. Water cuts were common as supply could not meet demand and unaccounted-for-water was high. The lease contract included an obligation on the part of the private operator to finance some of the investment needed in network renewals, connection renewals, and electromechanical equipment. The obligations meant that the operator, over the 10-year contract, was to invest approximately US$20 million. The main responsibilities of SDE, as outlined in the affermage contract, were: • Extraction, production and distribution of water (Article 3); • Maintenance of all the materials used in production and distribution including the network (Article 49); • Certain renewals (Article 49); and • Some limited investment responsibilities: renewing 17 km of network, 6,000 connections and 14,000 meters every year (Article 50 of the affermage contract and Article 23 of the performance contract). The Senegalese government included a unique clause in the contract which allowed the government to fine SdE if it failed to hit performance targets. The two main targets related to leakage reduction (to bring losses to a maximum of 15% over a five-year period) and improvement in bill collection (up to a level of 97% bill collection in the third year of operations). SONES’s annual payment was calculated by multiplying the volume of water produced by the figure resulting from subtracting the operator price from the average tariff for that year. This was then multiplied by the two performance indexes. The World Bank provided a US$100 million IDA credit to the government (US$85 million equivalent of the IDA credit was to be provided by the Government to SONES, of which 45% would be onlent to SONES at IBRD terms and the remaining 55% was to be provided in the form of equity. The remaining US$15 million equivalent of the IDA credit was to be provided to the Ministry of Hydraulics through a budgetary allocation) as part of the funding for this project in 1995. The overall project had a total budget of US$290 million, of which almost 80% (US$230 million) was to enhance supply by rehabilitating the Ngnith treatment plant and increasing the capacity of the pipeline, the number of boreholes, and storage. In mid-1996, the project company was also funded by a line of credit provided in part by the Compagnie Bancaire de l'Afrique Occidentale (CBAO) and in part by Citibank. The two banks agreed to provide a maximum amount of US$21.4 million (11 billion F CFA) over six years, at an interest rate of 10%, with the condition that the state asset-holding company agree to make deposits from remittances made by the private operator into a special account out of which debt service payments would be made. The banks also asked for a letter of comfort from the government of Senegal and made the line of credit available only after the World Bank credit for the water sector project was effective. According to a report, between 1996 and 2003 water production increased by 20% with 81,000 new household connections (a 35% increase) and 400 new standpipes. Consumers were experiencing better service delivery in terms of response time to complaints, hours of service, and water quality. The utility was better run, with lower water losses and higher bill recovery. Both the private operating company and the state asset-holding company were healthy organizations, and their working relationship was good. The average tariff had risen steadily as planned at the beginning of the transaction. In 1996, the average tariff faced by consumers for both water supply and sanitation, including all taxes and surcharges, was 380.42 F CFA/m3, and in 2002 it was 464.84 F CFA/m3, an overall increase of over 22%. None None