BUCHAREST PRIVATIZES MUNICIPAL WATER SERVICES
L. Joseph
Phone: (202) 473-7700
Fax: (202) 974-4384
E-mail: ljoseph@ifc.org
BUCHAREST, ROMANIA, March 23, 2000 —
The French firm, Vivendi, has won the tender to privatize the Bucharest
municipal water services via concession, in the biggest privatization of
a municipal-owned water company to date in Central and Eastern Europe.
The contracts were signed today by Vivendi concluding a privatization for
which the International Finance Corporation served as principal advisor
to the Municipality of Bucharest.
At the tender opening on March 20, Vivendi's offer came in some 30 percent
below the next lowest bid, which was submitted by International Water,
and about 70 percent below the offer of Suez Lyonnaise. The concession
provides for the treatment and distribution of potable water and sanitation
services for the city of Bucharest. The Municipal Council will sign the
contract following ratification of the award on March 31.
Vivendi will implement a tariff structure with a 15 percent real tariff
increase in the first year of operation, no tariff adjustment for the next
four years, and a downward adjustment thereafter. Preliminary calculations
indicate that the average tariff over the life of the concession will be
about 35 percent below the current rate of approximately Lei 3162.80.
The quality and experience of the winning operator; the competitiveness
of the tariff bid, which will directly benefit consumers; and the transparency
of the tender evaluation process will contribute to reliable service, according
to the Bucharest Municipality.
The bidding process was designed to maximize transparency, said André Cracco,
Director for Corporate Finance Services which is IFC's privatization advisory
service. Only the four pre-qualified bidders were allowed to participate
in the final bidding. The winning bidder was selected on a single criterion:
the lowest real terms weighted average tariff applicable during the whole
concession period. The bidding process set high standards of transparency
by requiring bidders to submit signed contracts with their tariff bids.
The contracts were pre-negotiated with the prequalified bidders over a
period of four months in late 1999.
Currently, a state-owned municipal company, RGAB, provides water and sanitation
services to the 2.3 million population of Bucharest. In 1995 RGAB obtained
a US$25 million long-term loan from the World Bank to rehabilitate part
of the water supply system and modernize meters. But the company faced
low tariffs and relatively high non-payment of bills that made upgrading
difficult. Between one quarter and one half of all water produced is lost
due to leaks and waste in the distribution network. The water pressure
is so low in some parts of the city that residents in the upper floors
of apartment buildings routinely do not get any water.
The concession contract builds on IFC's worldwide water and sewerage concession
experience, especially that of Manila and Buenos Aires. The 25-year concession
will be supervised by a new independent regulatory agency for levels of
services and by the Office of Competition for Economic and Tariff Issues
in Bucharest.
The success of this tender is expected to provide a model and strong impetus
for the further privatization of municipal and state services in Romania.
This project received substantial technical assistance support from the
governments of Denmark, Japan, and the Netherlands.
The mission of IFC, part of the World Bank Group, is to promote private
sector investment in developing countries, which will reduce poverty and
improve people's lives. IFC finances private sector investments in the
developing world, mobilizes capital in the international financial markets,
and provides technical assistance and advice to governments and businesses.
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