Engaging the Private Sector: A brainstorming

among the Com Officers

Vangelis Constantianos, Executive Secretary, GWP-Med

GWP Communications Workshop: Communicating Impact 3-7 December 2012, Athens

You are in Greece… Would you recognize this motif?

Do you know how it relates to Water?

At a time of increasing challenges, including social and economic turmoil,

rethinking, ‘meandering’, and exploring new synergies are needed to get through and deliver effectively

River Meander

The private sector is such a recognized, yet rarely engaged,

potential partner

Is it money that makes the world go round…?

Is it too little…? or too difficult to secure…?

Is it too much that one cannot really handle efficiently ?

FINANCING…

OR

The answer one usually get is that ‘there is enough money but not enough bankable / financeable projects’

So, more support need to be provided to reach ‘bankability’.

But, what about the important projects that are not bankable ??

How do we secure investment?

What is the role of the

private sector?

- Massive infrastructure investment needs coupled with budget constraints make Private Sector involvement an attractive option for governments

- Increasing competition across countries and sectors to attract private investors.

- Increasing diversity of private actors: emergence of regional players, new businesses, mixed companies.

- Diversity of risk-sharing arrangements from full private to full public ownership, depending on levels & nature of risks.

Some key facts

Capital intensive, high fixed costs, long-term investments, technology-specific, inelastic demand, low returns and important asymmetry of information.

Monopolistic

Essential for life Basic need, important externalities on health, gender equality and environment.

Risky Commercial risk, contractual risk, forex risk, sub-sovereign risk, risk of capture by vested interest.

Many stakeholders and segmentation

Public sector, communities, users, employees, private sector, donors, NGOs. Responsibilities split between ministries & across national, regional & local authorities.

The Water Sector is a Complex Sector

Financing Sources (primarily for water and sanitation)

Who is in the ‘private sector’ ?

A range of entities, like:

- Private operators / service providers / utilities

- Major water users

- Constructors, suppliers, etc

- Private investors (banks, equity funds, etc)

- Insurance companies

- Private sector has greater incentive and ability to manage infrastructure & deliver services cost effectively

- Private sector brings the attention to cost recovery, which may encourage faster construction and better continued maintenance over the contract life of the assets

- Weaker argument: Fiscal constraint coupled with perceived infrastructure deficits inhibiting growth

- Once the decision to involve the Private Sector has been taken, making it work is essential

Argument for PPPs

G

“Good” environment for PPPs

“Good” contracts

Incentive Risk- sharing

Value for money

Institutional framework

Macroeconomic stability

Legal & regulatory framework

Competition

What does the private sector need to engage?

Optimising water financing to address sector issues: Objectives in the draft UfM Strategy for Water in the Med

Develop and implement sound financing strategies…. - establish clear institutional framework with clear allocation of responsibilities between actors; - ensure adequate (meaning: allowing sustainable cost recovery) and predictable streams of revenues (meaning: from tariffs, public budgets and ODA grants - 3 Ts) to enable the mobilisation of additional repayable finance (meaning: loans, private capital/ equity);

Optimising water financing to address sector issues: Objectives in the draft UfM Strategy for Water in the Med

…. And, improve sector efficiencies…. - optimise sustainable water resources allocation; - reduce costs of investment (meaning: realistic sector targets and appropriate / cost effective technologies) and cost of operation; - increase autonomy of utilities through performance contracts

Optimising water financing to address sector issues: Objectives in the draft UfM Strategy for Water in the Med

….To make investment/projects “financeable” - Apply shared criteria; - Create conditions to reduce cost of funds : lower sector risk and strengthen utility/promoters’ creditworthiness

Optimising water financing to address sector issues: Objectives in the draft UfM Strategy for Water in the Med A focus on the Climate Change agenda

- Incentives using market-based instruments and related financial services to ensure effective adaptation to protect investments against the impacts of water related extreme events. - Climate proofing of water infrastructure investments. - Integrate water resources adaptation considerations into bilateral and regional financial assistance programmes and initiatives

The importance of Strategic Financial Planning (SFP):

A consultation process to match supply and demand

Strategic financial planning (SFP) includes Stakeholder dialogue, supported by a financial model, to build consensus on what services the country can afford over 20-30 years & how to pay : - Assess current financing gap - Discuss policy options that could help close this gap - Develop alternative scenarios to improve targets - Select appropriate scenario and associated policy mix

• SFP can help - Improve coordination of sector actors - Increase financial resources, enhance their allocation - Facilitate implementation of more realistic sector plans

• Key ingredients - Local ownership, a champion, high level involvement (incl. MoF) - Stakeholder participation, at all costs - Credible and intelligible methodology

GWP-Med & OECD Programme

on

Overcoming governance challenges to the mobilisation of financing

for the Mediterranean water sector

Labeled under the Union for the Mediterranean

2,3 mil Euro (SIDA, EIB, more), 2013-2015

Objectives of the Proposal

To identify and provide operational guidance and a compendium of good practices on the governance challenges for the mobilisation of financing for the Mediterranean water sector, by - Assessing the opportunities and institutional and regulatory challenges arising from PPPs in water infrastructure, as a tool in the hand of policy makers. - Stemming from the assessment, providing a diagnosis of the key governance and capacity building bottlenecks that impede the efficient use and mobilisation of much needed financing and of the mechanisms to overcome them.

Activities and Outputs: over 3 years period National Level - Assessments using tested OECD methodology on (i) institutional & regulatory factors to attract financial resources and beneficial PPPs (ii) existing multi-level governance & capacity building gaps in managing complex interdependencies. Address 9 countries

- In-depth mechanisms review & technical support to overcome key bottlenecks, e.g. how to (i) strengthen the regulatory framework (ii) mobilize institutional cooperation mechanisms, such as performance indicators, contracts across levels of government, (iii) incentivize effective users’ participation. Address 3 countries

- Operationalisation of the guidelines in specific sub-sectors (e.g. in wastewater treatment or desalination). Regional Level: Share experiences, exchange best practices, build capacity, development regional guidelines advance networking.

In order to reach a functional PPP there is need for:

1. Establishing the enabling environment –entrusting regulatory functions to competent, well-resourced authorities

2. Building capacity at all levels of government

3. Ensuring financial sustainability over the life cycle of projects & government affordability

4. Building the accountability mechanisms

Lessons learnt from Water Dialogues in Egypt and Lebanon - on going in Tunisia

- How to meaningfully reach out and engage with the private sector? Is there a need for a special ‘code of conduct’?

- What is in common in the agendas of GWP and the private sector?

- How many private sector Partners in our regions? How many are active in our agendas?

- Examples of joint actions (successful or not) – with whom, why, for what, and what then?

- Has any Region undertaken to facilitate a platform of interaction among the private sector and with institutional partners?

Questions for debate: