Structural Comparison of Three Water Concession Cases — Divergence Conditions of Operational Transfer in Miyagi, Hamamatsu, and Susaki

This note is the twelfth installment in the structural analysis series from the Public Asset Utilization Research Lab (ISVD-LAB-005). It compares three leading domestic water and sewerage concession cases from a design-structure perspective and clarifies the conditions and limits of private operational transfer.

Water and sewerage infrastructure is one of the largest categories of public asset held by municipalities across Japan. The number of municipal water supply undertakings nationwide is 1,299[1], and a substantial share face a double burden: declining tariff revenues from population loss combined with aging infrastructure requiring replacement.

In response, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), which oversees sewerage, and the Ministry of Health, Labour and Welfare, which then oversaw water supply, have promoted the adoption of concessions — the operational rights-setting model. In April 2024, responsibility for water supply development and management was transferred from the Ministry of Health, Labour and Welfare to MLIT and the Ministry of the Environment. Under a concession, ownership of the infrastructure remains with the municipality while a private operator is granted a concession right (jiei-ken), enabling that operator to recoup its investment from operational revenues.

MLIT has developed the regulatory framework for sewerage concessions since 2015, and Hamamatsu City launched Japan's first sewerage concession in April 2018. Miyagi Prefecture subsequently implemented an integrated water, industrial water, and sewerage concession (launched April 2022) that far exceeded the earlier model in both scale and structural sophistication.

Why Are Concessions Needed for Water and Sewerage?

Capital expenditure for water and sewerage infrastructure renewal is rising sharply as pipes and treatment facilities installed during Japan's high-growth era (1960s–1970s) simultaneously reach the end of their service lives. Sewer pipes past their standard 50-year service life extend some 30,000 km, about 7 percent of the national total, and are projected to reach roughly 90,000 km (about 19 percent) within ten years[2].

At the same time, municipalities experiencing sustained population decline face shrinking tariff revenues, making it increasingly difficult to secure financing for renewal. This structure — rising renewal costs against declining revenues — is the backdrop for concession adoption.

Under a concession, a private operator acquires the operational right under a long-term contract of around 20 years and takes on the maintenance and renewal work defined in that contract. The municipality receives a consideration for the operational right, and the private operator recovers its costs and investment from operational revenues. How much of the renewal burden the private operator carries, however, differs case by case. Of the three cases below, the only renewal work sitting with the operator is Hamamatsu's mechanical equipment.

Overview of the Three Cases

Hamamatsu City: Japan's First Sewerage Concession

The Hamamatsu City case launched in 2018 as Japan's first sewerage concession. The designated assets are one treatment plant and two pumping stations in the Seien service area, the city's largest at roughly 10,500 hectares, and the administrator (Hamamatsu City) granted the concession right to the private operator Hamamatsu Water Symphony Co., Ltd., led by Veolia Japan Co., Ltd. The concession fee was 2.5 billion yen.

The defining design feature is performance-based contracting. Hamamatsu City specifies minimum standards for treated water quality and facility maintenance in the contract, leaving the method of achieving those standards to the private operator. The operator's profit comes from efficiency gains above that minimum threshold.

Hamamatsu City runs three layers of oversight: self-monitoring by the operator, task-by-task monitoring by the city, and third-party monitoring by the Japan Sewage Works Agency[3]. City monitoring and third-party monitoring are stacked as a double check, so the operator's own reporting alone is not accepted as evidence that a standard has been met.

The challenge the Hamamatsu model exposed is that "for a single municipality operating a single utility, the private operator's investment recovery is thin." In a mid-sized city with limited processing volume, the margin available to a private operator is small, and the pool of willing private entrants is correspondingly narrow.

Miyagi Prefecture: Integrated Design Across Three Utilities

Miyagi Prefecture's project transfers operational control over three utilities — water supply, industrial water supply, and sewerage — to a single private entity. Known as the Miyagi-Type Management and Operations Model (Miyagi-gata kanri-un'ei hōshiki), the concession right was acquired from Miyagi Prefecture in April 2022 by Mizumusubi Management Miyagi Co., Ltd., led by Metawater Co., Ltd. Maintenance is handled by Mizumusubi Service Miyagi Co., Ltd., led by Veolia Jenets Co., Ltd.

In terms of scale, it substantially exceeds Hamamatsu. Three utilities are bundled as nine undertakings and handed to a single operator for 20 years at once.

The Miyagi Prefecture model incorporates two key design elements.

First, revenue stabilization through three-utility integration. By bundling water supply, industrial water, and sewerage under one contract, the private operator diversifies its revenue base. If water demand declines, revenues can be supplemented by strong industrial water utilization — a built-in cross-subsidy structure.

Second, tariff-setting authority retained by the prefecture. Miyagi Prefecture states that "the private company has no authority to revise tariffs", and water tariffs continue to be set through consultation between the prefecture and its municipalities and decided by a vote of the prefectural assembly. The operator's revenue comes from lowering costs within the tariff the prefecture has set.

Susaki City: A Sewerage Concession That Extends to the Foul-Water Pipes

The Susaki City (Kōchi Prefecture) case is the Susaki City Public Sewerage Facilities Operation Project, launched in April 2020. The contract runs 19 years and 6 months, and the operator is Clean Partners Susaki Co., Ltd. What distinguishes it from Hamamatsu, whose scope stops at one treatment plant and two pumping stations, is that the operational right covers the foul-water pipes as well as the treatment plant.

Fees are split in two. Sewerage users pay a usage fee to the city and a user fee to the operator. The user fee is the statutory usage fee under the Susaki City Sewerage Ordinance multiplied by a rate the city sets, capped at 80%[4]. The city reviews tariff revisions on its own schedule; the operator may propose a revision to the city once every five years, but the city decides.

Renewal costs sit with the city. The request for proposals states that design and construction work for renewal is "carried out separately by the city on the basis of proposals from the operator". Repairs are also capped by the performance requirements, and pipe repairs and treatment plant repairs above the cap are carried out by the city. The operator's cost exposure ends at maintenance and repairs within the cap; the cost of rebuilding the assets stays with the city.

At an administrative population of roughly 20,000, total tariff revenue is small, and a model in which the private operator funds renewal from its own capital is difficult to sustain. The cost allocation is designed around that constraint.

What emerges from comparing these three cases is that the label "concession" is shared while the design underneath is not. Where the scope stops — at the treatment plant or out into the pipes — changes how much the operator is responsible for; who carries renewal, the city or the operator, changes how much it costs them. Whether the operator gets a say in tariff revision is where Miyagi and Susaki plainly diverge.

As the 2030s approach and renewal costs for water and sewerage infrastructure are certain to increase, the first thing a municipality decides is how far the operational right should reach. Cost allocation and tariff design follow from that decision.

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References

Guidelines on Implementing Public Facility Operation Projects in the Sewerage Sector — MLIT, Water and Disaster Management Bureau, Sewerage Division. Ministry of Land, Infrastructure, Transport and Tourism

Miyagi Prefecture Integrated Water, Industrial Water and Sewerage PPP Project (Miyagi-Type Management Model) — Miyagi Prefecture. Miyagi Prefecture

Japan's First Sewerage Operation Concession: The Current State of the Hamamatsu City Model — Hamamatsu City Water and Sewerage Bureau, General Affairs Division. 23rd PPP/PFI Study Group, Material 4 (MLIT)

Current State of Water and Sewerage Services (Reference Material 1) — Ministry of Land, Infrastructure, Transport and Tourism. Ministry of Land, Infrastructure, Transport and Tourism

Susaki City Public Sewerage Facilities Operation Project: Project Selection and Request for Proposals — Susaki City. Susaki City