The water industry’s P3 has evolved into a performance-based agreement with advantages for both parties
The public-private partnership (P3) infrastructure delivery mode has recently become more common in the water sector for some very good reasons: Aligned goals, financial flexibility, and optimized risk management have all helped the P3 model rise in popularity across the planet.
As its name suggests, in a P3, a government body contracts with a private-sector entity to deliver a project, which can include some or all of the aspects of designing and building a plant, as well as operating it. In many jurisdictions around the world, rules have been established to outline the process, criteria, and timeline for selecting a private partner, with well-defined criteria making the selection process simpler for the public partner.
Aligned Goals and Long-Term Vision
One aspect of P3 contracts that makes them attractive to public entities is that they actually align the interests of public and private partners.
How does this work?
Under traditional infrastructure delivery models, the provider builds the assets and walks away, leaving the government agency to handle the rest. In contrast, in many P3 contracts, the water company is responsible for planning, financing, risk management, construction, commissioning, and long-term operations and maintenance (O&M), including compliance with regulations.
Because the company knows it will be responsible for virtually all facets of the infrastructure for decades, there’s a strong incentive to build reliable, trouble-free systems. Seven Seas Water Group, for instance, with Water-as-a-Service® public-private partnerships at the core of its business model, delivers a track record of 98.7% plant uptime.
Successful P3s have evolved into performance-based contracts with quality parameters and costs established upfront. Unlike in the privatization of utilities, in a P3, the public’s role continues throughout the partnership.
If the company does not perform up to standards, it does not get paid, which further aligns the interests of the company and the municipality. The contract also prevents the company from arbitrarily raising rates.
Flexible Financing and Optimized Risk Allocation
The P3 frequently uses popular build-own-operate, build-own-operate-transfer, and other contract models that keep ownership of the infrastructure asset with the water company for a predetermined length of time. That means the water company must secure the initial investment capital and assume the risk for the project.
Instead of relying on external lenders, Seven Seas provides and invests all necessary capital for its projects. This unique advantage is made possible by our ownership structure, which allows us to self-finance our operations. Unlike many other water companies that require partnerships with lenders, our fully integrated model (combining engineering, operations, and capital) eliminates the need for external financing. This streamlined approach offers several benefits, including faster project timelines and greater control over the development process. Seven Seas is owned by EQT, a purpose-driven global investment organization that partners with companies worldwide through its Private Capital and Real Assets strategies, providing Seven Seas with the financial resources and expertise needed to successfully execute our projects.
By delegating water management tasks to private partners, governments can redirect their resources toward revitalizing their economies, communities, and environments.
Is there a trade-off for lightening the load on government? Some decision-makers may assume that paying less on the front end means paying more on the back end, and that trusting a company with a resource as vital as water might compromise a municipality’s self-determination. However, one current Seven Seas P3 project in Alice, Texas, illustrates the contrary.
Alice was piping in water at a high cost from miles away to shore up its water supply, and droughts threatened even that distant supply. Alice had planned a desalination plant to tap its brackish aquifer, but the project had stalled. The need to secure millions in financing to complete the plant was about to saddle taxpayers with long-term debt and loan servicing.
City officials, however, looked into other options. Soon, a P3 put Seven Seas’ technical expertise and experience to work on completing the reverse osmosis desalination plant at no upfront cost. The cost of water will drop immediately on commissioning, not increase, and remain low throughout the long-term contract. No initial cost and lower continuing cost show the kind of win-win the P3 can deliver.
Seven Seas in the P3 Space
While some jurisdictions are standardizing P3 contracts to some extent, not all providers are created equal. Because a P3 is a long-term agreement, sometimes spanning decades, decision-makers must choose their private partner carefully. What does the private company’s record look like in terms of customer satisfaction, plant availability, and ESG commitment? Does it have technical expertise with the water treatment technologies that will be required? For large-scale or decentralized projects alike, will the provider be able to handle the size and complexities of the project?
Seven Seas is a pioneer in the P3 space and the first in Water-as-a-Service® (WaaS®), with roots in the early 20th century that have branched into more than 200 water and wastewater treatment plants in operation across the United States, Latin America, and the Caribbean. Seven Seas has put WaaS® at the core of its commitment to extending water and wastewater service to all, with decentralized options to fit any service area.
Our customers generally extend their agreements repeatedly once contract terms expire. And we have earned a GRESB Infrastructure Assessment maximum five star, 100/100 ranking on ESG criteria. Seven Seas is both humbled and proud to have earned such encouraging marks from those who know.
The Future of Public-Private Partnerships
With the Bipartisan Infrastructure Law’s P3 incentives and various U.S. states and nations worldwide rolling out legal frameworks to standardize and encourage the P3, the future of public-private partnerships looks bright. Seven Seas is committed to expanding P3s to address water scarcity and sustainability challenges wherever they occur, with a focus on decentralization to reach everyone.
P3s make capital available even where there is little access, offloading risk to a company better suited to manage it. They incentivize the private partner to perform with excellence while they work to encourage customers to extend agreements and relationships indefinitely. Perhaps most importantly, they allow municipal governments to forget about the complexities of water and wastewater treatment and refocus their energy on other pressing matters. Contact the experts at Seven Seas to explore the advantages a P3 can bring to your project.
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Erik Arfalk is the Senior Vice President of Business Development at Seven Seas, specializing in innovative and sustainable water and wastewater solutions in the US and the Caribbean. Previously, he was the Chief Commercial Officer at Fluence Corporation, where he launched MABR. Erik has held leadership roles at Atlas Copco and GE in Europe and the US, starting his career in strategy consulting. He holds a Master's in Business Administration and Economics from Lund University, Sweden. Erik's passion for water solutions and his talent for building strategic partnerships have established him as a respected industry leader.