On May 3, 2002, following a nine-month international bidding process (the
"Bidding Process"), the Puerto Rico Aqueduct and Sewer Authority (PRASA) entered into a
ten-year service contract with Ondeo de Puerto Rico, Inc., an affiliate of the French company
Suez, for the operation and management of the Puerto Rico water and wastewater system. The
approximately U.S.$4 billion contract represents the largest operation and management contract
ever awarded for water and wastewater services.
Although the outcome was successful, the result was not always certain. The
environment in which the Bidding Process took place was a challenging one. At the time of the
bidding, PRASA faced serious and escalating financial difficulties. The assets comprising the
Puerto Rico water and wastewater system were in need of significant capital improvement. The
assets were also the subject of hundreds of administrative consent orders from various U.S.
federal regulatory agencies. Bidders complained that they had not had an adequate opportunity
to inspect and assess the system's facilities, which numbered in the thousands. The existing
private operator of the system had less than a year left under its existing contract and relations
between PRASA and this operator had badly deteriorated. The heavily unionized workforce and
the general public were vehemently opposed to future private sector participation in the water
and wastewater sector.
Not surprisingly, participants in the Bidding Process focused early on the risks
that they would be asked to assume under the service contract to be entered into by PRASA and
the winning bidder (the "Service Contract"). One of the principal reasons that the process was
successful was because PRASA was able to identify and prioritize at the outset the risks that it
would accept and those that it would not. Ultimately, PRASA was able to structure the Service
Contract in a manner that achieved its objectives but also addressed the concerns of most of the
bidders.
This article addresses the manner in which the risks associated with the longterm
operation and management of the Puerto Rico water and wastewater system were allocated.
The article first describes the objectives that PRASA sought to achieve through the Bidding
Process and briefly outlines the manner in which the Bidding Process was conducted. The article
then discusses the principal risks that bidders were asked to assume under the Service Contract,
their reaction to such risks and how these risks were effectively allocated between PRASA and
the operator of the system.
| Edition : | Vol. - No. |
| File Size : | 1
file
, 280 KB |
| Note : | This product is unavailable in Ukraine, Russia, Belarus |
| Number of Pages : | 13 |
| Published : | 06/15/2003 |
