FINANCING WATER & ENERGY PROJECTS IN THE ERA OF CLIMATE CHANGE

Grammatiki Papadopetrou-TsingouEUROPEAN INVESTMENT BANK

The Nexus of Water & Energy

Water for EnergyHydropowerGeneration coolingExtraction & RefiningFuel Production (ethanol, hydrogen)

Energy for WaterExtraction & TransmissionDrinking Water TreatmentWaste Water TreatmentOther Water uses (urban, agricultural, industrial, …)

Beyond sector barriers → coherence in policies

The Climate Change Challenge

Impacts: - Frequent droughts & floods- Increase in water shortages- Sea level rise- … ………….

“The science is indisputable – global warming is real…Human activities are causing glaciers to melt and sea levels to rise, putting water and food resources at risk.”UN Secretary-General

Efforts: - Stabilisation of GHG emissions(Mitigation)

- Climate Change resilience(Adaptation)

Critical issues for water management

Mainstreaming Climate Change

Challenges for Sustainability

Encourage activities to increase water use efficiency and improve water resources allocation

Consider Climate Change in designing investment programmes and projects (prioritisation & sizing of investments, choice oftechnologies)

Reinforce the importance of demand management, «no-regret» & «non-conventional» solutions & management

Highlight & understand the links between water and various economic activities

Stakeholders need to play their role

SYNERGY: Complementary roles, resources, skills …

Grants

IFIs

GOVERNMENTS UTILITY Private Sector

PUBLIC

NGOsMUNICIPALITY

(w)hole greater than sum of parts

SUSTAINABLE

PROJECT

Financing Climate Change → Water

Seven key areas of intervention:

• Integrated Water Resource Management

• Consolidation of Institutional Framework

• Adaptation to Climate Change• Water efficiency• RDI• Development of new water supply• Wastewater and sanitation services

Supporting Sustainable Investments

Developing worldachieving WSS MDG targets

Population not yet connected new infrastructure Systems in poor condition rehabilitation

Developed worldinvestments for environmental compliance

Security of supply expansion/ new infrastructure Ageing infrastructure maintenance and replacement

Key Drivers for Investment

Meeting the Challenges …

ChallengesCapital intensive sector and dependent on long-term borrowing against future revenue streamsAccess to credit constrained by risk (poor performance)Demand on public expenditures is likely to increase

Sustainable Financing for the Sector

Efforts requiredAppropriate combination of loans/capital grants (external resources, donors’ coordination) Sustainable cost recovery combining all sources of revenue (tariffs, taxes, transfers)Sound criteria in the allocation of public fundsDe-coupling affordability from subsidisation

Meeting the challenges …

What can be done? Sector level

Develop or improve an enabling environment (policies, institutional & regulatory frameworks)Define realistic investment programme on the basis of an agreed long-term strategySet clear tariff policy allowing operational autonomy of utilitiesConsolidate industry structure, strengthen capacities

Meeting the challenges …

What can be done? Provider/Project level

Improve access to credit by demonstrating:Commercial management & financial disciplineEfficiency & Creditworthiness

Improve absorption & accelerate investment by:Supporting project preparationWorking sound/affordable financing plansIntegrating operational costs

Ensuring the resources

•Where does the finance come from?

Public funds (grant/subsidy transfers ) limited by competing sector demands, lack of sector prioritisation, and ad-hoc nature of transfers

Own/ user sources (tariffs) limited by poor cost recovery; politicised tariff setting, affordability constraints

Debt finance (incl. bonds)

Other (e.g. PPP, equity, risk sharing facilities)

INC

REA

SING

CO

ST

No single source is large enough to fill financing gap

Financial Instruments

Support to client throughout the project cycle;Loan due diligence on the basis of technical, financial, environmentaand social criteria. Special focus on recovery & sustainability Loans for sovereign, sub-sovereign, and corporate clients;Long tenors and adequate grace periods;Investment, programme, framework and global loans;Funding of 50 (-75)% of total project cost;Co-funding with Commission, IFIs, commercial banks;Facilitation of PPP models – and dissemination of lessons learned;

EIB lending in 2008

Promoting EU policy objectives

Direct loans of some € 15 bnfor environmental sustainability,incl. climate change mitigation and adaptation

Floods in the Czech Republic

Prague Metro, co-financed by EIB

Prague, 14 August 2002

EIB loans for Flood prevention & Flood damage recovery:~ € 1 billion

Approved by the Parliament in year 2000Two phases: 2002-06, and 2007-12Increased protection for more than 800,000 peopleFlood risk mitigation for major agglomerations and key infrastructureMain responsibility: Ministry of Agriculture, five River Boards and Agricultural Water Management AuthorityTotal costs of CZK 18.5bn (EUR 750m)EIB loans of EUR 360m

Legend:Schemes implemented by the River

BoardsSchemes implemented by Agricultural

Water Management Authority, and State Forests

Studies

Czech National Flood Prevention Strategy

Major project to protect Venice lagoon from sea level rise;System of flexible gates that are operated with compressed air in case of floods;Implementation ongoing, total construction time 10 years (2005-14);Total costs EUR 4.7bn;EIB loan EUR 1.5bn.

Venice Flood Protection

Main objective iscompliance with the EU Urban WastewaterTreatment Directive;EIB has co-funded five projects in all major Cyprus cities with direct loans to UrbanSewerage Boards;Project scope encompasseswastewater collection and treatment;Full cost recoverythrough tariffs and land property charges; Government subsidisestertiary wastewatertreatment, and re-uses wastewater for irrigation.

Wastewater Treatment Plant in Limassol

Sewer construction in LarnacaWastewater Treatment Plant in Nicosia

Urban Wastewater Projects, Cyprus

Disi South-North Water Conveyor Project, Jordan

Largest Water PPP in the region with total cost of EUR 810m;Project provides 100 MCM water p.a. through a 325 km pipeline from Disiaquifer in desert to Greater Amman;25 years concession with a DBFOT model by Turkish company Gama;Project is co-financed by OPIC, AFD, PROPARCO and EIB (lending both to public and private sponsors);Disi aquifer is non-replenishable and Jordan’s last fossil water resource;Government commits itself to terminate commercial irrigation in desert and use Disi resource only for drinking water purpose;Two environmental and social management plans (ESMPs) in place;Post concession, the pipeline can beutilised for pumping desalinatedwater from the Red Sea to Amman.

Schematic project layout by IEEE Spectrum

Disi area, Jordan-Saudi desert Pipe material ready for laying

Overall Objectives

To contribute towards achieving the H2020 goal of de-polluting the Mediterranean Sea by the year 2020;

To identify and prepare high priority, sustainable investment projects that will make a significant contribution to the de-pollution of the Mediterranean Sea and have a demonstrative effect on target sectors; and

To promote effective industrial water management, urban wastewater management and solid waste management.

Mediterranean Hot Spot Investment Programme -Project Preparation & Implementation Facility (MeHSIP- PPIF)

Horizon 2020 – Pollution Reduction Component

Main achievements so far:

A consolidated list of projects, which will be shared with the main stakeholders;

Use of a Project Fact Sheethas enabled focused discussion with the promoters on the purpose and eligibility of potential projects;

An analysis of gaps and deficiencies for the projects has been made.

73 projects in the short list (€ 5.26 bn)of which 45 with “secured” finance (€ 3.56 bn)28 projects in the Horizon 2020 pipeline of which 16 projects (divided into 2 waves) in the MeHSIP – PPIF Pipeline (~ € 800 million)

Thank you for your attention

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