Strategic Moves - Regional Environmental Center for Central and ...

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C H A P T E R 6
WAT E R A N D WA S T E U T I L I T I E S I N S E E — S TAT U S A N D R E F O R M
BOX 18: Build-operate-transfer agreement for Zagreb wastewater treatment plant
In Croatia, the city of Zagreb has a build-operate-transfer (BOT) contract for its wastewater treatment plant. The BOT
contract is for 28 years. The project also includes the construction of supporting infrastructure.
A special-purpose company — Zagrebacke Otpadne Vode d.o.o. — was set up for the project. The company is owned
by a sponsor consortium comprising RWE AQUA GmbH (owned indirectly by RWE AG) and SHWHolter-
Wassertechnik GmbH (a fully owned subsidiary of Berlinwasser Holding Aktiengesellschaft).
The EBRD provided around EUR 55 million out of the total cost of EUR 270 million.
Co-financing of EUR 115 million was provided by the German bank Kreditanstalt fur Wiederaufbau (KfW). By lending
directly to the concessionaire, the EBRD is allowing the city to use its own credit capacity for other important projects.
The city will control the private company through a long-term concession contract, which sets out the discharge standards
with which wastewater must comply. The project is an example of how public-private partnerships work.
The private consortium agreed to build the plant in line with EU environmental standards, to operate it, and to transfer
it at the end of the concession period to the city of Zagreb. The city assumes risk in terms of the volume of water
used and risk regarding the collection of the wastewater tariff.
This allocation of risk ensures that the private operator constructs the plant and operates it efficiently in order to comply
with EU environmental standards, while the city has the incentive to collect tariffs to pay a fee to the operator.
(EBRD website).
S T R AT E G I C M O V E S
Implementation of PSP options
Private sector involvement in water utilities is dependent on several conditions.
The higher the level of PSP, the greater its dependency on each of these conditions.
Waste
Although, as in the water sector, there are a number of alternatives for PSP in the
waste sector, based on international experience only contracting and concession are
suitable in the field of solid waste management services. Contracting is usually suitable
for collection activities and will usually have a duration of between three and five
years. Under certain circumstances — for example if big investments are required —
this may be extended to seven years. A concession is appropriate if investments in
buildings (i.e. transfer stations) or facilities (i.e. a landfill) are envisaged. The relatively
long depreciation period for these investments requires a longer-term agreement
(15 years or longer). In addition, attention must be paid to conditions for the
handing over of assets after the concession ends. There are several examples in SEE
of private companies providing collection and transportation services.
Potential risks of PSP
There are a number of potential benefits when introducing PSP, including better
access to capital, greater efficiency etc. Nevertheless, potential risks are also present.
When considering PSP, a municipality should assess both benefits and risks
before making a final decision.