Ok- Paper of PSP

Engineering Contract Strategy for Development of Water Supply Project Ari Sandhyavitri Civil Engineering Department, Faculty of Engineering, University of Riau, Pekanbaru [email protected] Phone: +62 761 7070556 ABSTRACT ABSTRACT A simulation application of various contract strategies was demonstrated by the use of the ‘Pendulum Obligation Diagram’ (POD) and a set of ‘Assessment Criteria’ (AC). The use of POD and AC are usef ul in comparing the relative merits of altern ative contrac t stra tegies in the developme nt of water suppl y proje cts. A case study ill ustrates the benefi ts tha t can be der ived fro m the sys temat ic collection of revenue. It also demonstrates that the probability of mee ting stakeholders’ objectives can be greatly improved by using these decision making tools. This paper undertakes a study of the development of a water supply scheme plann ed for Padang city (in Indon esia) . Vario us cont ract options were developed, it was summarized that a full concession contract strategy may best meet most of the project requirements (on the access of fresh capital investment and efficiency). This contract may also be attractive to investors as the projected IRR is relatively high (14.27%) and CPBT is relatively short (12.99 years) and a BOT contract strategy may meet partial project requirements on financing and opera tion of new water treatment plant facili ties and may also yield attra ctive economic parameters (e.g. the IRR is 14.42% and CPBT is 10.41 years). On the other hand, leas e and partial concessio n contracts were not reco mmend ed. A systematic procedure in the identification of all stakeholders requirements for the water projects in Indonesia, including key economic parameters, using the POD and AC tools may assist decision making process in the selection of ‘best value for money’ contract strategies. Key words: POD, AC, invest or s, st akehol ders, requirements, project, and economic parameters. INTRODUCTION INTRODUCTION The World Water Vi sion 2025 (WWV) has indicated that the annual capital investment requirement in the water supply and sanitation sector now, and up to 2025, will be in t he range of US$ 30 billion to US$ 75 billion (Owen, 2001). This level of financial commitment will only be achieved if the investment conditions and envi ronment are improved to the extent that the private sector will participate in the development of wa ter supply faci li ti es. Pr ivate sector participat ion (PSP) woul d si gnif icantl y reduce the burden on governments currently presented with the need to finance water projects. The development of a water supply scheme for Padang city in Indonesia was relatively slow, it was recoded that service coverage was limited to 54% of the population in 2000 and it was not significantly improved up to 2007, hence it is a need to find out an appropriate contract strategy to meet stakeholder objectives in terms of project financing, sustainability operation and maintenance. Pendu lum Obliga tion Diagram (POD) and Assessmen t Crite ria (AC) were used simulati ng decision-making process in selecting contract strategi es for development of a wa ter supply project in theoretical b asis. To what extend t hese approach may assist the selection process of contract strategy suit to a water supply project was demonstrated in this paper. 1

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