Tuesday, May 19, 2009

privatization of waste facility

Public-Private Partnerships (Privatization)
For approximately 40 years, the federal government has been a full partner with the states and local governments in meeting the nation's wastewater treatment needs. Since 1972, more than $67 billion of federal funds have been invested in wastewater treatment works through the EPA's Construction Grants program. In 1987, Congress phased out the Construction Grants program, replacing it with the Clean Water State Revolving Fund (CWSRF) program.
The CWSRF program provides low-interest loans to communities for the construction of water pollution control infrastructure projects. Federal and state investments to date of more than $23 billion ensures that the CWSRF program will play an important role in funding water pollution control projects into the future. However, even with continued capitalization, the CWSRF program will not address all local government water pollution infrastructure needs, which have been estimated to be about $200 billion. This estimate excludes the costs required to replace aging pipes and plants. As a result, it is important to fully explore other approaches to meet funding needs at the state and local level.
One approach to consider is the use of public-private partnerships that utilize private sector resources to finance wastewater treatment needs. The private sector has historically been involved in providing wastewater treatment related services to local governments. Whether providing basic wastewater treatment supplies (e.g., chemicals), maintaining a portion of the collection or treatment system under a contract, or providing contract operation and maintenance for all of a municipality's facilities, the private sector has served an important role in the effort to control water pollution across the country.
The generic term privatization encompasses a broad range of private sector participation in public services. Partnerships between the public and private sectors in the water and wastewater industry range from providing basic services and supplies to the design, construction, operation, and ownership of public utilities. The basic reasons that the public sector historically privatized services were to realize cost savings, utilize expertise, achieve efficiencies in construction and operation, access private capital, and improve the quality of water and wastewater services.
Although the vast majority of municipal wastewater facilities are publicly owned and operated, there are many examples of successful private operations of municipal facilities. Privatization should be viewed as an option for providing wastewater treatment services. The decision to privatize should be made by local governments and reflect a balanced evaluation of the financial and non-financial issues with the needs of the community.
Executive Order 12803 was issued in 1992 to simplify federal requirements related to the disposition of the federal interest in grant-funded infrastructure facilities. The Executive Order defines privatization as "the disposition or transfer of an infrastructure asset, such as by sale or by long-term lease, from a State or local government to a private party." The generic term privatization includes the Executive Order privatization definition. Where federal grants have been used to fund a facility, the privatization transactions of federal grantees must comply with federal construction grant and property disposition regulations. When non-operational revenues (e.g., concession, site access, host, transfer or other types of payments) are received by federal grantees from a private entity as a result of a privatization agreement, these revenues represent a disposition or transfer of a part or all of the grantee's interests in the asset under the Executive Order meaning of privatization. As a result, the grantee must request and receive approval from EPA for the proposed privatization agreement ("disposition agreement") and obtain a deviation from the federal grant regulations to dispose of and end the federal interest in the asset.
The Executive Order allows state and local wastewater treatment investments to be recovered from the proceeds of disposition agreements prior to any claim by the federal government for the funds provided by EPA construction grants. Repayment of federal grants only occurs to the extent that the non-operational revenues received by the grantee exceed local, and possibly the state, investment in the assets. The Executive Order allows grant funds to be recouped at their depreciated value. In the event that all EPA construction grants are fully depreciated, there is no federal grant recoupment. However, even when grants are fully depreciated, Executive Order 12803 and federal grant regulations requires EPA to approve disposition types of privatization agreements and issue deviations from the applicable grant regulations.
Privatization agreements are classified by EPA as either contract operations or disposition types of agreements. Contract operations agreements involve operations, maintenance, equipment replacement and management services. Contract operations agreements can allow infrastructure investments by the private entity under specific contract provisions. Contract operations agreements are not subject to EPA review and approval under Executive Order 12803 or the EPA's grant regulations.
Disposition agreements, as defined by the Federal government, occur when a private entity encumbers the asset's title or other interest and usually involve the payment of non-operational revenues to the local government in various forms such as, for example, concession fees, site access fees, or the transfer price. Under the federal definitions governing grant programs, any non-operational revenue received from a private entity constitutes an encumbrance, transfer, or disposition of the grantee's interest in the grant funded asset. The grant regulations do not allow a grantee to encumber, dispose of, or transfer its interest in the asset to a private entity without federal approval. As part of EPA's review and approval of disposition agreements, the Agency issues deviations from the federal grant regulations that protect the federal interest in the asset.
For further information on EPA's privatization requirements, please Contact Us

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