Private Provision of Water: the Challenges

Transcription

1 NTF-PSI: Improved Access to Water & Sanitation Private Provision of Water: the Challenges Denis Clarke Oslo, May 20,2008

2 Outline International private investment not enough Harnessing domestic investment through PPPs A role for small scale service providers Supporting new technologies IFC approach 2

3 International investment won t solve this Minimum infrastructure/institutionalinfrastructure/institutional platform Broad investment needs Water supply Waste water treatment / Re-use Demand-side infrastructure improvements Watershed/ Governance Bulk water Delivery (rehabilitation, extension, conveyance) UV & filtration Chemical processes Commercialized technologies Technologies Demand-side management WUSCOs water use service companies Clean Tech Investment in maintenance Governance better management practices Consensus points to about $180 billion per year to meet investment needs and MDGs Not including cost of reform and governance And climate change impact expected to increase needs by 40% traditionally financed in the public sector Private investment typically 5 10% only Is that a gap private investment can fill? 3

4 International investment not enough By Sector : Flows to PPI Projects Nominal US$ Billions 120 Telecom Electricity 100 Transport Water & Sewerage 80 Total Source: World Bank PPI Database, May

5 Private Investors avoided water even in boom years Private investment in Infra Sub-sectors W ater Road Railway Airport Gas Port Telecom Fixed W ater Airport Transport Telecom mfixed unications Electricity Energy G eneration Electricity Distribution E lec tric ity Generation Telecom Mobile 5 0% 25% 50% 75% 100% Proportion of c ountries w ith PPI Projects

6 International investment not enough 12 Investment commitments US$ billion Projects large concessions Johor becoming rare privatizations concession 25 Buenos A ires concession Manila concessions Chile Syabas concession Other investment commitments Large commitments Projects 0 Private activity experienced both slowdown and greater concentration. 6 Slowdown dramatic if exclude China.

7 International investment not enough Key issue: Mispricing preventing bankable projects Source: World Bank Global water tariff per cubic meter Source: Veolia Environment 7 Source: Global Water Intelligence / OECD Global Water Tariff Survey 2007

8 International investment not enough Willingness to pay higher tariffs:clear Urban Water Pricing (US$) Dhaka Source: World Bank Jakarta Karachi With connection Inform al vendor Phnom Penh Source: Veolia Environment Ulanbator Source: Global Water Intelligence / OECD Global Water Tariff Survey 2007

9 Domestic investment through PPPs What do we need? Governance & regulatory issues Poor project preparation Financial risk State of affairs Low priority - central governments Political / social sensitivities Weak institutional capacity; untested regulation Lack of incentives to bring-in private sector Government perception of high political risks Weak institutional capacity Lack of baseline information Limited replicable models Capital intensive and slow asset turnover Local currency revenues Poor credit-worthiness of water utilities Public sector counter-party risk What is needed Regulatory reform Capacity building Cost reflective tariffs Openness to private sector participation Private sector know-how Advisory support Government co-operation operation More programmatic approaches Long-term local-currency currency financing Credit enhancement of public utility Recognition of need for targeted subsidies The emerging PPP model combines the strengths of both the public & the private sector 9

10 Domestic investment through PPPs Public Private Partnerships Privatisations/ private concessions: far too few PPPs require less private capital at risk But can incorporate private expertise &discipline Cost recovering tariffs are not a pre-requisite requisite a challenge to structure the initial transactions Escape 10 from tyranny of cost recovery : a breakthrough

11 Domestic investment through PPPs Attracting local capital Capital and Expertise can be unbundled Local consortia can incorporate international partners Local investors : greater tolerance for certain political risks Less tolerance for forex risks domestic lending essential Low risk water: domestic institutional capital That may need legal / regulatory changes And confidence an affordable tariff regime which won t t trigger opposition 11

12 Small Scale Service Providers: Filling the Gap SPSPs already play an important role filling the gap in underserved urban and rural areas where utility service is disrupted / inadequate quality Mini-busses replace bus networks; trucks replace rail networks; SPSPs: est. 85 % of new investment in water Unlicensed, seen as temporary, even gougers 12 Many communities: unserved without them

13 SPSPs: How widespread are they? Electricity: 7000 identified in 32 countries Water: 10,000 in 49 countries Probably underestimates true number Prevalent where utility coverage low/ weak Particularly in failed / post-conflict countries Serve up to 25% of urban pop. in LA, 50% in Africa 13

14 Estimated SPSP Coverage Percentage of households relying on SPSPs e Source: SPSP presence: database * For locations documented (country, region, city) 14

15 Unit Cost of Water from SPSPs $5.00 $4.50 US$ per Cubic Meter $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 Public Private Piped Unitized $0.50 $0.00 Public Utilities Private Networks Point-source Vendors Tanker Trucks Carters K ey: = Median to Average 15 Source: Kariuki, Schwartz, SPSP Global Mapping Initiative, PPIAF, BNWP, WB.

16 New technologies Decentralized water purification systems Affordable potable water to communities Mostly rural and peri-urban water stores Mexico, Philippines, India, Sri Lanka e.g. an ultraviolet process to kill micro-organisms Low capital & operating cost Easy to deploy & operate Supporting other systems to re-use water Current market dynamics: opportunities for such innovation 16

17 How IFC approach is evolving Advisory: Preparing a balanced PPP proposal Complementing local financing: long maturities, sub.debt Providing detailed terms in advance of PPP bids Output- based aid including for SPSPs. Support SPSPs through lines with local banks InfraVentures : seed capital & commitment for start-ups Aim to substantially increase business in the water sector To move from 9 projects FY to 21 FY Own capital committed from $271m. to $800 m. Bigger effort through financial intermediaries 17 Concentration in IDA countries