Water and Wastewater Engineer (CAPEX Review)

The Asian Development Bank’s Office of Private and Public Partnerships (ADB / OPPP) has recently been 
accorded a mandate to advise a confidential client (“the client”) on a number of long-term water and 
sewerage concessions in Southeast Asia, particularly Indonesia, Philippines and Viet Nam (“the 
concessions”).

The advice will focus on the structuring of water and sewerage service concessions, and preparation of 
regulatory arrangements and contractual terms of concession agreements that are bankable and equitable, 
and  which meet the long-term water and sewer service needs of the populations served by the concessions.

To this end, ADB will assemble a small team of consultants, who, in conjunction with ADB staff, will 
consider the future service and price projections, the extent to which the contract aligns the 
objectives of the client and the concessionaires, and also the extent to which the contract creates 
incentives to deliver a quality, reliable service in an efficient manner. 

The team will be expected to identify the scope for improving the alignment of incentives by reviewing 
the concession technical and commercial performance, noting the extent to which performance improvements 
should be incentivized and rewarded in the contract (i.e., risk allocation), and comparing the risk 
allocation to similar long-term water concessions internationally and locally.

The consulting team will bring their wider regulatory experience to advise the client on the 
international experience of utility regulation and identify potential lessons for Southeast Asia.

Specific tasks will include:
• Review of capital programs and operating budgets / actuals, relative to service levels achieved.
• Scope for capital and operational efficiency going forward for given service level scenarios, 
including those proposed by the concessionaires and existing contractual service level targets.
• Advice on the implicit risk allocation under existing concession contracts, and the extent to which 
this could be improved to i) better align incentives between concessionaire and the regulating authority 
and ii) improve capital and operating efficiency of the utilities.
• Advice on changes to the regulatory regime and / or concession contracts that could better reflect 
international practice and contribute towards stability, bankability, predictability of economic 
regulatory outcomes, and avoid contractual disputes.
• Identification of service risks for which allocation between parties has been (or is) unclear – if any 
– potentially leading to misunderstandings or different interpretation of responsibilities, and 
proposals for clarification (with costing of implication).

The most recent regulatory price review will be considered in detail, and although a new price review is 
not a required output of this project, recommendations for improvements to the price review process is a 
key deliverable. In particular, advice on a price review process which ensures better alignment of 
incentives and is less prone to disputes, drawing on international regulatory experience.

The Water and Wastewater Engineer (CAPEX Review) will work with the Project Director and other experts 
to provide advice on:

(i) potential improvements to alignment objectives between concessionaires and regulator; 

(ii) changes to the price review process which will increase the incentives for efficient and prudent 
expenditure, and decrease scope for (and likelihood of) disputes arising; 

(iii) international experience of economic regulation and alternative regulatory models; and

(iv) capital and operating efficiency incentives within the existing concession contract, and economic 
regulation options, including contractual changes or new contractual clauses, to improve capital and 
operating efficiency.

The following outputs are expected from the team:

1. An Inception Report summarizing the existing contract and regulatory arrangements and data available 
in the dataroom. Analysis of concession performance to date, both technical and commercial (i.e. opex / 
capex and revenue analysis). Financial analysis including a review of assumptions, regulatory and 
statutory accounting approaches used, changes in methods of rate rebasing over time, effectiveness of 
the contracts in achieve service improvements and efficiencies. Discussion of regulatory effectiveness, 
approaches, identified weaknesses and summary of sources of disputes as detailed in concession and 
regulatory correspondence / submissions. Identification of points of agreement and consensus in the 
interpretation of the concession agreements.

2. A Preliminary Findings Report to include (i) potential improvements to alignment objectives between 
concessionaires and regulator; (ii) a view on the efficiency and prudence of the current approved 
business plans, scope for efficiency and improvements to the price review process (iii) international 
experience of economic regulation and alternative regulatory models or improvements to the existing 
model; and (iv) potential capital and operating efficiency incentives to be included in the contracts 
and price review process economic regulation options;

3. A Final Report updating the findings of the Preliminary Findings Report, following feedback and 
advice from ADB (which may reflect market soundings in the form of feedback from potential parties to 
such concession agreements). 

The Water and Wastewater Engineer (CAPEX Review) should have experience on:

(i) Transaction advice, BOT type concessions
(ii) Economic regulation of utilities; 
(iii) CAPEX efficiency reviews;
(iv) Procurement, cost estimating; and
(v) Water / wastewater demand projections.