P3s Save Money Over Traditional Water Treatment Delivery

Partnerships can make infrastructure happen even where access to investment capital is limited

Governments are reshaping their roles as providers of water and wastewater services to tackle the growing challenges of increasing demand, limited financial resources, and stricter environmental regulations. By forming partnerships with private companies, the public sector can access financial, operational, and technological efficiencies that traditional asset delivery methods lack, positioning public-private partnerships (P3s) as effective solutions.

A P3 is an agreement where a private sector company delivers, operates, and maintains an infrastructure asset, while the public sector agency pays for the services provided. Modern P3s are typically performance-based, with payments tied to meeting specific performance goals. The benefits of these agreements generally include:

• Reduced or eliminated CAPEX
• Lower overall lifetime costs
• The private partner assumes financing, risk, cost of repairs, compliance, and long-term operations and maintenance (O&M) over extended contract terms
• Simplified budgeting through regular billing
• Freed organizational resources for the public partner
• Consistent, predictable income for the private partner
• Aligned interests between public and private partners

Traditional Project Delivery and its Legacy

Traditional design-bid-build infrastructure delivery served the world well throughout the 20^th century. Governments raised tax revenue and issued general obligation bonds, funding projects to be built by the lowest qualified bidder. In the United States, however, most of that infrastructure now needs replacement within a relatively short time, creating an investment gap that will reach nearly half a trillion dollars.

At the same time, demand has skyrocketed from burgeoning populations worldwide. Climate change has made water harder to come by. And increasing environmental regulation has created costly engineering challenges.

Complicating matters, fatigued taxpayers often resist large capital expenditures and even significant repairs, making it attractive for elected officials to kick the can down the road. This lack of political will can lead to an expensive build-neglect-rebuild cycle. Infrastructure that could have served far longer can become prematurely irreparable if it is not maintained properly. Then replacement infrastructure must be built on emergency timelines. It is far less expensive to prevent a crisis than to respond to one.

The Structure and Benefits of Public-Private Partnerships

Private water sector companies can make infrastructure happen now with P3s, even where access to capital is lacking. They bring several advantages:

• Better ability to handle repairs and keep up with O&M
• Readily available capital
• Quicker project timelines
• Lower costs
• Specialized expertise and resources.

Private companies are often better equipped to manage project risk due to their extensive experience, and infrastructure companies specializing in P3s typically have strong relationships with lenders. For example, Seven Seas Water Group is a portfolio company of EQT, a purpose-driven global investment organization that partners with companies worldwide through its Private Capital and Real Assets strategies, supporting them in achieving sustainable growth, operational excellence, and market leadership. This robust backing helps eliminate delays and obstacles. P3 contracts reduce or even eliminate initial capital expenditure, with governmental agencies usually paying only for water services, which simplifies budgeting.

At the same time, the public entity is better able to manage the fiscal and community impacts of a project, as well as opportunity costs, and can marshal public support. Generally, the public partner assembles a team to oversee feasibility, predevelopment, design, construction, and occupancy.

Together, the public and private partners decide upon a well-defined goal to promote development, aligning the interests of both parties. The company is invested in long-term community growth because a growing community needs more of the services the company provides.

Financial Advantages of P3s

P3s can reduce the life cycle cost of a project by up to 20% and reduce the chance of going over budget by 70%. Generally, P3s keep project schedule overruns down by 65%. One Australian study found that only 1% of its sample projects went over budget and 3% of projects were completed ahead of schedule, whereas 24% of traditional projects took longer than planned. On one Colorado highway project, an analysis shows that the P3 option would complete the project two decades earlier than the traditional method.

In the water sector, consider a hypothetical scenario where the traditional delivery method has an internal production cost of $3.20 per kilogallon produced. Comparatively, a P3 method, with increased production and lower total life cycle costs, might have a cost of $2.25 per kgal, resulting in a savings of $0.95 per kgal. This means the P3 sales price could be 30% lower than the traditional project delivery’s internal cost of production.

Seven Seas showed that by using private sector capital to finance a desalination plant and state revolving funds for the source wells and pipelines, the city of Alice, Texas could reduce water supply costs and shift the risks of construction and operations to Seven Seas.

While customers might suspect that the initial savings will be paid for on the back end, the P3 can lower both capital and operating expenditures. For example, the residents of Alice, Texas, will receive a desalination plant with zero upfront cost that will lower their existing water costs and keep them that way. Annual O&M costs for traditional delivery can also run 10% higher than P3 O&M costs.

Working with an experienced water company opens sustainability opportunities for efficiencies in reuse and other forms of resource recovery. Likewise, water companies have experience meeting complex compliance requirements for environmental regulations. The EPA has long advocated for P3s to address compliance, noting that public operations failed to comply with the Clean Air Act and Safe Drinking Water Act much more often than privately held assets.

Additional Benefits of P3 Agreements

With all the tangible advantages of P3s — aligned interests, lower CAPEX and OPEX, fewer budget and schedule overruns, and lower lifetime production cost — there are strong intangibles as well. As David Spector, director of the Colorado Department of Transportation High Performance Transportation Enterprise, explained:

You don’t do a P3 because you don’t have the money. You do it because you’ve looked at the life cycle cost of the asset, and you’ve looked at benefits and costs that go beyond the financial side.

Less tangible benefits include the peace of mind that comes from knowing that drinking water treatment is in the hands of the experts. They include the ability to refocus governmental resources on serving the public in other ways. They include the satisfaction of knowing that vital water infrastructure will be a legacy that continues far beyond the current administration.

Yet any P3 agreement is only as good as the water company that provides it. Seven Seas offers an innovative solution called Water-as-a-Service® (WaaS®), which aligns perfectly with the P3 model. With WaaS®, municipalities can benefit from advanced water treatment technologies and expert management without the burden of upfront capital costs. This service ensures that communities have access to clean, reliable water while maintaining fiscal responsibility.

That is why Seven Seas urges decision-makers to consider our stellar 97% plant availability at the more than 2,000 plants we have installed since 1970, and to consult the customers that keep renewing contracts with us. Contact Seven Seas to find out more about how a public-private partnership can work for your municipality.

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