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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.