Public-private partnerships are a collaborative approach to the challenges of municipal water treatment
Municipal water treatment facilities are critical to public health and environmental sustainability. But these systems often face major challenges, including aging infrastructure, rising costs, and the need to modernize to meet increasingly stringent regulatory standards. Public-private partnerships (P3s) offer a way to combine the strengths of the public and private sectors to improve the quality, efficiency, and sustainability of our water.
The Challenge of Municipal Water Treatment
Time and tide wait for no man or treatment plant. Because many water treatment plants are decades old, they require extensive maintenance and upgrades in order to continue functioning effectively. At the same time, growing populations and expanding industrial activities are placing greater strain on water treatment infrastructure, and many areas simply lack the capacity to cope with the additional demand.
Moreover, increasingly stringent water quality standards require municipalities to adopt new technologies and processes to reduce pollutant levels and to deal with such emerging contaminants as pharmaceuticals and PFAS chemicals. All of which can be costly — and technically challenging — to implement.
Enter Public-Private Partnerships
Public-private partnerships enable municipalities to meet these challenges by taking advantage of private-sector expertise, financing, and innovation. In a P3, the government retains control and oversight of water treatment infrastructure while the private company is typically responsible for the financing, design, construction, operation, and maintenance.
A major advantage of P3s is the access that they provide to private capital, particularly beneficial for municipalities that are unable to invest in large-scale upgrades or new facilities on their own. P3s also allow local governments to share or transfer the risks associated with municipal water treatment projects, like construction delays, cost overruns, or operational problems, thereby making projects more viable.
Private companies that specialize in water treatment bring professional expertise and, often, innovative solutions to the table. The resulting cutting-edge technologies and processes may improve operational and maintenance practices, in turn producing more reliable service, higher-quality water, greater efficiency, and lower operating costs.
Four P3 Models
Different public-private partnerships offer different degrees of private-sector involvement.
Build-own-operate (BOO). In a build-own-operate approach, the private partner designs, builds, owns, and operates the water treatment plant for a specified period. At the end of the period, the partners can sign a new contract or end the partnership; they can also arrange that the contract be automatically renewed at the end of each period until one of the parties gives notice to terminate. With a BOO contract, the private partner is responsible for the performance of the facility, which gives it every incentive to build a high-quality, efficient system. The private partner assumes responsibility for the day-to-day operations of the water treatment plant and takes care to meet standards of quality of service and environmental standards.
Build-own-operate-transfer (BOOT). A build-own-operate-transfer contract resembles a build-own-operate contract except that at the end of the contract term, ownership of the infrastructure is transferred to the public sector; the contract is not renewed. The public sector thus benefits from private investment and expertise while retaining long-term ownership.
The city of Alice, Texas, has partnered with one such private partner, Seven Seas Water Group to create a more resilient, drought-proof alternative water supply that can meet growing demand. Under a BOOT arrangement, Seven Seas privately financed the construction of a plant for desalinating brackish water while using public-sector funding to complete the source wells and pipelines. The company agreed to design and build the desalination plant and to operate and maintain it for 15 years, providing a guaranteed volume of raw water at a guaranteed price. When the contract term ends, ownership of the plant will be transferred to the city, which will continue to benefit from it for years to come.
Concessions. Under a concession model, the private partner finances, builds, and operates the water treatment facility for an often lengthy period, perhaps 20 or 30 years, with the public sector owning the infrastructure from the very beginning. The private partner recoups its investment through user fees or public-sector payments. Concessions can attract significant private investment, making them suitable for large-scale projects. But concession agreements must be carefully structured to balance the private company’s need to earn a profit with the public’s need for water services that are accessible and affordable.
Lease agreements. Because they provide the flexibility needed to scale up or down at a later stage, lease agreements are suitable for small or temporary water treatment systems. With a lease agreement, the private partner is responsible for the design and construction of the water treatment facility. Then, once it’s built, the public sector takes over to operate it. This financing method requires no up-front payment by the public sector. Instead, a government entity makes regular lease payments to use the facility for the term of the agreement. Lease agreements work only if the municipality has the capacity to operate and maintain the facility, which may entail additional training or resources.
The success of public-private partnerships demonstrates the potential of these arrangements to deliver clean, reliable water to communities without significant up-front investment by municipalities. As local governments look for better and more feasible ways to cope with water treatment challenges, P3s are likely to play an increasingly important role in ensuring that water services are sustainable, affordable, and of the highest possible quality.
