# **4 – Data and Methodology**

# _The WATSAN Database_

The data currently available on global private investments in the water sector are barely adequate for statistical analysis of the sector. The key reference point, the World Bank PPI Database records only a subset of the contracts awarded in the sector. While it has good coverage of large projects and those involving international investors, it does not cover smaller projects or those involving domestic investors. While this might be a little impact on the observation of PSP in the power or telecom sectors, smaller projects without international involvement constitute a significant proportion of projects in the water sector and small capital investments (below US$20m) often are enough to lead to significant changes in sector performance at the municipal level.

We were prompted by the limitations of the existing data to develop a new dataset. The WATSAN PSP dataset covers both water and sanitation projects in lower and middle-income countries for the period 1990-2005. The data has been collected from multiple sources and cross-checked.<sup>16</sup> Data was collected on the extent and nature of private involvement, the origin of private partners, investment volumes and contract type. This information was not available for all projects. Despite the distinctions that are often drawn between types of divestitures, concessions, leases and management contracts, in practice these distinctions may often be blurred. For the purpose of this research, we classify the contracts into broad categories.<sup>17</sup> A subset of data, including only signed projects from a sample of 60 developing countries is used for the analysis. It contains 460 project observations in 45 countries. We also build control group of 15 other developing countries with no active PSP projects in the water and sanitation sector. The countries included in the control group have all indicated a willingness to consider PSP in the water and sanitation sector, either by introducing a national policy to that effect or engaging in negotiations with one or more private investors for a project in the sector. Countries in which PSP in the water sector is expressly forbidden by law or policy are not included.<sup>18</sup>

# _The Dependent Variable_

We use the count of PSP contracts signed as our dependent variable (DV) for the regression analysis. Other papers on PSP employ investment volumes as the dependent variable. While this offers obvious advantages, non-the-least linearity, we refrain from using investment volumes as our dependent variable.

We have concerns about the quality of the data available for private investment volumes in the water sector. A first problem arises in the way that the figures are collected. For divestitures, the recorded investment figures refer to the purchase price of equity. For concessions, the figures refer to the investment commitments made by the concessionaire under the contract. In the World Bank PPI Database, equity sales are recorded in the year of the transaction, while investment commitments for concession are recorded in the year of financial closure, or in the year of the transaction, where the investments are phased and only if this information is known. However, after the initial transaction, information on investment levels for concessions is often not made available publicly. Where information is available, it seems that the actual level of investment by the private firm may diverge widely from the commitments made in the contract. Additionally, a large proportion of PSP contracts in the water sector are renegotiated

> 16 The sources of data are: World Bank, Thomson Financial, Global Water Intelligence, Water Market China (BlancBrude and Jensen 2004), Water Market Asia (Blanc-Brude and Jensen, 2006) and numerous media and company releases. These data are cross-checked in interviews with operators, financiers, legal advisers and international institutions.

> 17 ‘BOT-type’ includes BROT, BOOT, ROT and DBO contracts. Lease-type contracts include TOT and DBL. O&M type includes all contracts that do not require the private party to make any capital investment. See section 2 for a discussion of PSP contract acronyms and their limitations as proper economic concepts.

> 18 Uruguay introduced a constitutional amendment in 2004 to prevent private provision of water services. However, as this decision was made only at the end of the period that we are considering (1990 and 2004), we include Uruguay in the dataset.

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