What Water PPP Is
An umbrella term for Levels 4 and 3.5, its new name from FY2025, and how it differs from conventional outsourcing
Year sewage pipe renewal grants begin requiring a decided Water PPP adoption
FY2027
MLIT Guideline ver. 3.0 (April 2026), 3.7
Contract term for Level 3.5 as a rule
10 years
Packaged outsourcing usually runs 3 to 5 years
Estimated time until the Level 3.5 tender documents are published
2-3 years
Same, 3.2
Services run by the same company in Myoko (gas, water supply, sewerage)
3 sectors
Cabinet Office award document
Water PPP is the umbrella term for the concession method (Level 4) and integrated management of upkeep and renewal (Level 3.5). Since FY2025 the national government has called it Mizu no Kanmin Renkei (public-private partnership for water); only the name changed, not the content. This article keeps the name Water PPP, which remains in the wording of the grant requirement.
The Cabinet Office's PPP/PFI Action Plan (2026 revision) calls public-private partnership for water a priority area and sets a ten-year target of 100 projects each for water supply and for sewerage.
The main difference from conventional outsourcing is that upkeep and renewal are entrusted together to the same operator for a long period. The guideline says that bundling work that used to be split up and outsourced for short periods, and outsourcing it for the long term, aims to lighten the administrative load on both public and private sides and to run the service more effectively and efficiently.
| Conventional outsourcing | Water PPP at Level 3.5 |
|---|---|
| Level 3.5 runs ten years as a rule, longer than the three to five years usual for packaged outsourcing at Levels 1 to 3 | Ten years as a rule, long enough for renewal to pay off |
| Scope stops at repair planning and repair | The operator doing the upkeep also drafts the renewal plan (renewal-support type) |
| The municipality orders renewal works | Ordering renewal works can also be entrusted (renewal-implementation type) |
The table follows sections 2.1 and 2.3 of Guideline ver. 3.0.
Unlike Level 4, Level 3.5 needs no public facility operating rights, and the operator does not collect user fees directly (Guideline 1.2, 1.3). A municipality that chooses Level 4 (concession) must set its implementation policy as provided by ordinance and obtain a council resolution before setting operating rights.
Understanding the Level Taxonomy
Packaged outsourcing at Levels 1-3, the renewal-support and renewal-implementation types of Level 3.5, and the scope of Level 4
Water PPP means Level 4 (concession) and Level 3.5 (integrated management of upkeep and renewal), and nothing else. Levels 1 to 3 are multi-year, multi-service outsourcing and are not Water PPP (Guideline ver. 3.0, §1.1). The name "Level 3.5" comes from its position between outsourcing (Levels 1–3) and Level 4.
By scope of work and contract term (Guideline ver. 3.0, §1.2, 1.3, 2.1, 2.3):
| Category | Scope of work | Contract term | Water PPP? |
|---|---|---|---|
| Levels 1-3 (packaged outsourcing) | Water quality management, operation and routine inspection; procuring and managing utilities; drafting repair plans and carrying out repairs | Usually 3-5 years (as stated at §2.1) | No |
| Level 3.5, renewal-support type | Adds drafting the renewal plan to the Level 3 scope (whether to include construction management is up to the manager) | Ten years as a rule | Yes |
| Level 3.5, renewal-implementation type | Also entrusts the ordering of renewal works | Ten years as a rule | Yes |
| Level 4 (concession method) | Operating rights for the facility are set for the operator, who collects user fees directly | Free to set (the table at §1.3 notes that many precedents run 20 years or more) | Yes |
Level 3.5 is positioned as a method that can deliver effects close to Level 4, and as a step for water supply, sewerage and industrial water to move gradually to Level 4 (Guideline 1.1). Because it needs no public facility operating rights, the guideline describes it as easier to take on than Level 4 (1.2).
The four requirements of Level 3.5
An outsourcing arrangement qualifies as Level 3.5 only if it meets all four of the following (Guideline §1.2).
- Long-term contract (10 years as a rule)
- Performance-based procurement
- Integrated management of upkeep and renewal
- Profit sharing (when a proposal from the operator cuts costs during the contract, the savings are split between the public and private sides)
The guideline says Level 3.5 differs from Levels 1–3 in contract length, the degree of performance-based procurement, and whether work related to repair and renewal is set within the scope (1.2).
Implications of the FY2027 Subsidy Requirement
Which renewal works are covered, when adoption counts as decided, the preparation time, and routes when the deadline is out of reach
What the Requirement Says
This requirement is already settled. It was set in the PPP/PFI Action Plan (2023 revision) (Guideline ver. 3.0, §3.7), and MLIT's Guideline ver. 3.0 (April 2026) states it directly, in the same words as ver. 2.0 (April 2025):
To receive grants for sewage pipe renewal from FY2027 onward, Water PPP adoption must already be decided. For Level 3.5, "decided" means more than publishing an implementation policy — it means the tender has opened (the solicitation documents have been published).
"Decided" means different things at Level 3.5 and Level 4.
| When it counts as decided | |
|---|---|
| Level 3.5 | The tender opens (solicitation published). An implementation policy is not enough |
| Level 4 | The implementation policy is published (because a council resolution is required) |
| Selection outside a tender | Contract signature |
Level 3.5 is the easier route to start, but measured by when the grant requirement is met, Level 4 gets there sooner. This runs against intuition.
There is a second, separate requirement. From FY2027, pipe facilities eligible for renewal grants must have their facility and maintenance records managed in a database built on a geographic information system (GIS) (Guideline §3.7). It stands apart from the Water PPP requirement, so both must be met.
Which Renewal Works Are Covered
The requirement applies to national support for renewing sewage pipes, and the grants in view are the Comprehensive Grant for Social Capital Development, the Disaster Prevention and Safety Grant, the Okinawa Promotion Public Investment Grant, and individual subsidies (sewerage project costs and sewerage disaster prevention project costs). Section 3.8 sets no size threshold; what counts is the type of facility being renewed.
| What is renewed | Covered by the requirement? |
|---|---|
| Sewage pipes (pipe facilities) | Yes |
| Combined sewers | Yes |
| Pipe renewal under the stock management support scheme and the comprehensive earthquake countermeasures program, including planning, surveys and diagnosis | Yes |
| Seismic reinforcement of pipes under emergency transport roads and key logistics roads | No (exception) |
| New sewage pipes (for example, to extend service) | No (not renewal) |
| Treatment plants, pumping stations, manhole pumps, sludge pipes | No |
| Mechanical and electrical equipment | No |
The sewage pipe renewal that receives the grant does not itself have to be inside the Level 3.5 scope (3.8).
What Happens If Nothing Is Decided
To receive national funding for sewage pipe renewal from FY2027, adoption of Level 3.5 or Level 4 must already be decided. If it is not:
- Sewage pipe renewal gets no national funding (renewal of treatment plants and pumping stations is outside the requirement, so that funding is unaffected)
- Pressure grows to raise general fund transfers or user fees
- Long-term financial planning assumptions have to be revisited
Preparation Timeline
FY2027 begins in April 2027. The guideline considers that about two to three years are needed before the Level 3.5 tender documents can be published.
At the time of this review, September 2026, fewer than seven months remain. By the guideline's estimate, starting a study now and reaching a FY2027 grant application is difficult.
Three routes remain when the deadline is out of reach.
| Route | What it means | When it fits |
|---|---|---|
| Switch to Level 4 | Publishing the implementation policy meets the requirement, but the policy must be set as provided by ordinance and a council resolution is needed before setting operating rights (PFI Act, Articles 18 and 19(4)) | When council agreement looks achievable |
| Aim for FY2028 or later | Fund FY2027 pipe renewal without the grant, or defer it | When renewal is not urgent, or general funds can cover it |
| Procure jointly with neighbours | When several sewerage managers act together, for example through joint procurement, all of them can meet the requirement at once (Guideline 3.7) | When the project is too small to attract operators alone |
Whichever route you take, first check whether your renewal plans from FY2027 include covered sewage pipe renewal.
Policy Background
The challenges the Action Plan names, and how the guideline and the Water Supply Act developed
The Challenges the Government Names
The Action Plan (2026 revision) lists population decline, the ageing of the vast stock of water supply, sewerage and industrial water facilities, and staff shortages as present social challenges, and says public-private partnership for water should be promoted so that public and private sides together maintain and improve the service. The introduction to Guideline ver. 3.0 likewise names staff shortages, ageing facilities, and falling revenue from water and sewerage charges as challenges municipalities face.
The Institutional Build-Up
| When | What happened | Source |
|---|---|---|
| Promulgated December 2018, in force October 2019 | An amendment to the Water Supply Act required a municipal water utility to obtain national permission before setting operating rights for water facilities (Article 24-4) | e-Gov Legal Database |
| June 2023 | The PPP/PFI Action Plan (2023 revision) made a decided Water PPP adoption a condition for national support of sewage pipe renewal from FY2027 | Guideline ver. 3.0, §3.7 |
| April 2025 | MLIT issued ver. 2.0 of its sewerage guideline | ver. 2.0 |
| FY2025 | The national government renamed it Mizu no Kanmin Renkei (same content) | MLIT, Water and Sewerage: Use of Public-Private Partnership (PPP/PFI) |
| April 2026 | Guideline ver. 3.0. The wording of the requirement is the same as in ver. 2.0 | ver. 3.0 |
| June 2026 | The Action Plan (2026 revision) restated the requirement and said it will be designed so that small contracts let by each municipality do not get in the way of wider-area operation | Action Plan (2026 revision) |
Pioneering Case: Myoko City
Gas privatised and water and sewerage outsourced to the same company
Overview
Myoko City in Niigata Prefecture privatised its gas business by transferring it, and awarded the maintenance and repair of water supply and sewerage to the same company under a packaged outsourcing contract. The Cabinet Office selected the project for an Award of Excellence in the First PPP/PFI Exemplary Case Awards, in the category for municipalities under 200,000 residents.
The private operator is Myoko Green Energy Co., Ltd. The water and sewerage contract runs ten years, from April 2022 to March 2032; the gas business was privatised through a transfer contract signed in April 2022. The evaluation points cited by the Cabinet Office are the ten-year term and performance-based specification, and the plan to write facility renewal works and profit sharing into the packaged contract in order to reach Water PPP Level 3.5. Also cited: laying the gas and water mains at the same time so that design and construction were done once, and the fact that supply continued without interruption through the Noto Peninsula earthquake of January 1, 2024, which registered a seismic intensity of upper 5 in the city.
Toward a Stadtwerke-Style Model
Stadtwerke is the German term for utility companies that run local public infrastructure such as electricity, gas, water, transportation, and waste management together.
Because Myoko puts several services, gas and water and sewerage, with one company, this article reads it as close to that form. The Cabinet Office document, however, covers only the scheme and the evaluation points and says nothing about who owns the company, so it cannot tell us whether the arrangement is the same as a Stadtwerk.
What the Case Confirms
| Dimension | What the Cabinet Office document states |
|---|---|
| How the services are arranged | Gas was privatised by business transfer; water and sewerage upkeep and repair are under packaged outsourcing. Services under different schemes are run by the same company |
| How the works were combined | Gas and water mains were laid together in the same trench, making design and construction more efficient |
| Path to Level 3.5 | It began with a ten-year contract and performance-based specification, and plans to add facility renewal works and profit sharing to the packaged contract |
What Municipalities Should Do Now
A three-step approach: diagnostics, sounding, and stakeholder communication
1. Understand the Current State
The first step is to objectively map the current state of your water and sewerage operations. This means reviewing the asset register (stock management plan), the trajectory of operations contract costs, the outlook for renewal investment, and staffing composition including upcoming retirements. Without this information, meaningful dialogue with private sector partners is not possible.
2. Market Sounding
Sounding refers to the pre-procurement process of gathering private sector interest and feedback. Because Water PPP at a single small municipality often lacks the scale to attract bidders, municipalities may need to explore regional cooperation with neighbors or broader scope (adding gas or waste management) during sounding. The goal is to learn early what scope, duration, and structure the market considers viable.
3. Engaging Councils and Residents
Long-term contracts lock in operators for roughly a decade and therefore tend to raise questions from councils and residents. Municipalities should prepare thorough explanatory materials covering pricing, service levels, emergency response, and impacts on local employment. How to Brief the Assembly provides a practical reference.
Relationship with Other PPP Schemes
Positioning against Park-PFI, Small Concession, and the PFI Act
Water PPP is best understood not as a competitor to existing PPP/PFI schemes but as another tool selected based on infrastructure type and project scale.
| Scheme | Primary Target | Typical Scale |
|---|---|---|
| Water PPP (this article) | Water and sewerage | Medium to large |
| Park-PFI | Urban parks | Small to medium |
| Small Concession | Small public facilities | Small |
| PFI Act Concession | Large infrastructure | Large |
Water PPP is specific to water and sewerage, so it does not compete directly with other schemes. As in Myoko, gas and water and sewerage can also sit with the same company.
Challenges and Risks
Long-term risk sharing, investment forecasting, and local company participation
Risk Sharing in Long-Term Contracts
A ten-year contract must anticipate uncertainties in prices, interest rates, and regulations. Price escalation clauses, regulatory change clauses, and force majeure provisions need careful design.
Accuracy of Renewal Investment Forecasts
Because Water PPP integrates renewal works into the contract, the forecast of renewal investment during the contract period forms the core of bidders' proposals. If a municipality enters procurement without a mature stock management plan, the risk of unforeseen additional works and frequent contract amendments rises. The accuracy of asset surveys and baseline assessments before contracting is therefore a key determinant of project success.
Preserving Opportunities for Local Companies
Bundled contracts can favor large operators, potentially crowding out local construction and equipment firms. It is important to include local firm participation as an evaluation criterion, either as consortium members or as cooperating contractors, and to hold dedicated briefings for local companies.
The Difficulty of Building Public Consensus
Water and sewerage are services closely tied to daily life, and concerns about private sector involvement run deep. Addressing worries about pricing, water quality, and emergency response requires more than token public meetings; sustained, substantive communication is needed.
What to do next
When assessing the grant requirement, review renewal plans, pipe records and funding.
| # | What to check or consider | Responsible team or contact |
|---|---|---|
| 1 | Check whether renewal plans from FY2027 include sewage pipe renewal covered by the grant requirement. Treatment plant and pumping station renewal, new sewage pipes, and seismic reinforcement under emergency transport roads and key logistics roads are outside this requirement | Sewerage planning team; consult the prefecture or MLIT if unsure |
| 2 | Check whether pipe facility records are managed in a GIS database, as a grant requirement separate from Water PPP | Sewerage records team |
| 3 | Review the FY2027 sewage pipe renewal budget and its funding needs, including any shortfall if the grant is unavailable | Budget team |
| 4 | Compare Level 3.5, Level 4, joint procurement and revised scheduling in light of renewal plans, records and funding | Sewerage team and decision makers |
| 5 | If developing a project, ask operators about their interest and requirements. Consider cooperation with neighbouring municipalities if standalone scale is insufficient | Market sounding and neighbouring municipalities |
First ask the responsible team whether the renewal plans fall within the grant requirement. If they do not, distinguish compliance with this requirement from wider decisions about water and sewerage management.
Related Articles
PFI Act Revisions — Key Points of the 2024 Amendments and Impacts on Municipalities
An overview of recent PFI Act amendments and the Action Plan revision
Choosing the Right PPP Method by City Size
A guide to selecting PPP schemes based on municipal scale
Introduction to PPP/PFI — The First Article Municipal Officers Should Read
From the difference between PPP and PFI to the full landscape of seven methods
References
Guideline for Public-Private Partnership for Water in the Sewerage Sector, ver. 3.0, Level 3.5 Basics — MLIT (2026)
Guideline for Public-Private Partnership for Water in the Sewerage Sector, ver. 3.0, Introduction — MLIT (2026)
Water PPP Guideline for the Sewerage Sector, ver. 2.0 — MLIT (2025)
Water and Sewerage: Use of Public-Private Partnership (PPP/PFI) — MLIT (2026)
PPP/PFI Action Plan (2026 revision) — Cabinet Office (2026)
First PPP/PFI Exemplary Case Awards, list of winning projects, Attachment 2 — Cabinet Office (2024)
Water Supply Act (Act No. 177 of 1957) — e-Gov Legal Database (e-Gov)
Act on Promotion of Private Finance Initiative (Act No. 117 of 1999) — e-Gov Legal Database (e-Gov)
