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Results of the FY2010 "Survey on the Strategic Maintenance and Management of Social Capital Stock in the Future, etc." — Water Supply
— Problems with renewal of water supply facilities and severe fiscal and labor shortages increase momentum towards comprehensive outsourcing and concession —

October 18, 2010

  • Many water supply companies are conscious that future renewal of water supply facilities will face labor as well as fiscal shortages.
  • Among water supply companies, the momentum towards comprehensive outsourcing and the introduction of a concession system is increasing. The introduction of a concession system has the potential to create a new public-private partnership market worth ¥300-400 billion over the next 10 years.
  • In connection with the introduction of comprehensive outsourcing and a concession system, water supply companies have concerns regarding the ability of outsourcees to execute projects and to manage and allocate risk. Water supply companies also express serious concern that outsourcing will lead to a decline in staff skills.

In July-August 2010, The Japan Research Institute, Limited (JRI) conducted a survey among 777 water supply companies operated by prefectural and city governments around Japan (excluding private and small-scale private water supply facilities) around Japan, regarding issues surrounding the operation of water supply businesses in the future. The survey is part of the same series as the "Survey on the Strategic Maintenance and Management of Social Capital Stock in the Future, etc.: Roads", published on October 7.

Many of the water supply facilities (water purification facilities, water distribution pipelines, etc.) constructed during Japan's period of rapid economic growth are aging be reaching the point at which they require replacement at around the same time. However, not all water supply companies have made the preparations necessary to survive the time when facilities will require renewal on a large scale. The replacement of facilities will involve considerable fiscal expenditure, but the fiscal problems facing the local government bodies that operate the water supply companies mean that spending on maintenance and management has, in some cases, been cut. Moreover, maintenance and management work requires workers with technical skills, but few water supply companies have put adequate personnel systems in place.

The "New Growth Strategy — a Scenario for Revitalizing Japan" approved by the Cabinet in June notes that there is concern that Japan will be unable to replace its social capital in the future due to fiscal constraints at national and regional level and that there is a need for strategic maintenance and management of social capital stock. It also takes the view that, in light of Japan’s difficult fiscal circumstances, active use should be made of private finance initiatives and public-private partnerships to ensure effective and efficient maintenance and management, as well as the creation of new facilities.

Starting from the assumption that the use of public-private partnerships (specifically, an expansion of comprehensive outsourcing and the introduction of a concession system, involving performance-based contracts) would be an effective measure against the anticipated rise in capital expenditure in water supply businesses, JRI conducted a survey among water supply companies around Japan. The survey included questions on management issues facing water supply businesses, the use of outsourcing, use of comprehensive outsourcing and any issues this is expected to raise, intention to introduce concession systems, anticipated problems and likely outsourcees.

The results of the survey reveal that many water supply companies face issues not only fiscal but also manpower issues, that the intention to introduce or consider introducing comprehensive outsourcing or concessions is growing, that the introduction of a concession system has the potential to create a new public-private partnership market worth ¥300-400 billion over the next 10 years, and that in conjunction with the introduction or expansion of comprehensive outsourcing and concessions, water supply companies have concerns regarding the ability of outsourcees to execute projects and to manage and allocate risk, and the potential decline in staff skills.

For more information on the content of this report, please contact Koichiro Danno, the Japan Research Institute, Limited.

E-mail:200010-info@ml.jri.co.jp

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