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OECD Global Forum on Sustainable Development Financing Water and Environmental Infrastructure for All. Opening Speech by Jamal Saghir Director, Energy and Water, The World Bank OECD Headquarters, Paris, 18 December 2003. TO KEEP IN MIND - PowerPoint PPT Presentation
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OECD Global Forum on Sustainable Development
Financing Water and Environmental
Infrastructure for All
Opening Speech
by
Jamal Saghir
Director, Energy and Water,
The World Bank
OECD Headquarters, Paris, 18 December 2003
TO KEEP IN MIND
Over 1 billion people without safe water, 2 b without sanitationPervasive under-pricing and mismanagement of WSS services10% of the world's food is grown with water from aquifers which are being depleted faster than the rate of recharge.What does this mean for ordinary people in the developing world?
A farmer in Kenya: "Water is life and because we have no water, life is miserable."
A young man in Russia: "How can we sow anything without water? What will my cow drink? Water is our life."
An old woman in Ethiopia: "We live hour to hour, wondering whether it will rain."
In many parts of the world, access to water distinguishes the poor from the non-poor.
In the next 15 minutes about 90 children in developing countries - six children per minute - will have died from disease caused by unsafe water and inadequate sanitation.
In 1990, 3 million deaths worldwide were attributed to diarrhea but there were over 4 billion episodes, or more than a thousand times as many. Children under five are the most vulnerable, accounting for 55% of all episodes but for 85% of the deaths from diarrhoeal diseases.
Mortality is high but morbidity is higher still.
AND
Overview of Presentation
The Water Financing Challenge Towards Realistic Solutions Innovative IFI Financial Instruments:
Follow-up of Camdessus/G8- June 2003 Evian meeting
What More Needs to be Done
The costs of not investing in water are very large
-10.0
-5.0
0.0
5.0
10.0
15.0
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
Years
Real
GD
P g
row
th (
%)
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Vari
ab
ilit
y i
n R
ain
fall
(M
ete
r)
Real GDP grow th (%)
Variability in Rainfall (Meter)
Correlation between GDP and Rainfall in Zimbabwe
Correlation between GDP and Rainfall in Zimbabwe
Governments must raise the priority of water investments (including through the PRSP)
The MDGs – A Startling Reminder of the Financing Challenge Ahead
Halve by 2015 the proportion of people without sustainable access to safe drinking water
Halve by 2015 the proportion of people without access to basic sanitation
Translates into a doubling of investment needs from $15 billion to $30 billion per year for water supply & sanitation alone (as part of 180B a year for all water)
Investment needs per annum (B USD)
0
25
50
present MDG needs
wastewater treatmentsanitation
water supply
?
?
The finance challenge - an uphill battle for developing world and infant sectors
35%
50%
75%
100%
CurrentCoverage
Years to Full Coverage at Annual Growth Rates
5% 10% 15%
30 years
20 years
8 years 4 years 2 years
6 years9 years
13 years 8 years
Less Than One Year
Assumes 1.3 population growth rate.
The WSS market poses special challenges
Limited number of developers/operators Generally low margins Complexity and risks in the contractual
and regulatory framework
Sub-sovereign risk Limited pool of bankable
projects (size, condition, readiness)
most# of population centres
attractiveness
more medium less least
Siz
e of
pop
ulat
ion
cent
re
rural (<500)
cities (>1m)
villages (>500)
towns (>10k)
secondary cities
(>100k)
high potential for private financing
medium potential for private financing
low potential for private financing
Household µ-financing
Need for public investment
Word Development Report 2004 Main Messages
Services are failing poor people They can work, the question is how? By empowering poor people to
Monitor and discipline service providersRaise their voice in policymaking
By strengthening incentives for service providers to serve the poor
How are services failing poor people?
Public spending benefits rich more than poor Money fails to reach frontline service providers
Uganda: only 13 percent of non-wage recurrent spending on primary education reached primary schools
Service quality is low for poor peopleBangladesh: absenteeism rates for doctors in primary
health care centers: 74 percentZimbabwe: 13 percent of respondents gave as a reason for
not delivering babies in public facilities that “nurses hit mothers during delivery”
Guinea: 70 percent of government drugs disappeared
Overview of presentation
The water financing challenge Towards Realistic Solutions Innovative IFI financial instruments:
follow-up of Camdessus/G8 What more needs to be done
Are we Realistic?
Investment needs are enormous Public funding stable or even decreasing International Aid is (and probably will remain) small
percentage of WSS financing Thus how to fill the gap? The private sector? Taxpayers? Tariff? A combination?
LET’S DISCUSS THOSE ISSUES
Domestic public finance remains the dominant source for water & sanitation
Financing flows into water in 2000
0
20
40
60
80
public private
international
domestic
Billion USD
Estimates from “GWP Framework for Action”
Domestic is dominant ~ 85%Public is dominant ~85%
Recent collapse of private flows to infrastructure
Annual Private Investment in Infrastructure in 1990-2002, in US$ billion
0
20
40
60
80
100
120
140
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Private investment in water supply and sanitation has been low
0
50
100
150
200
Energy Telecom Transport Water & Sewerage
East Asia and Pacific
Europe and Central Asia
Latin America and the Caribbean
Middle East and North Africa
South Asia
Sub-Saharan Africa
Total (interternational) private investment in infrastructure in 1990-2002
by sector and region, US$ billion
Degree of cost recovery
Reasons NOT to invest in the water business…
Telecom Gas Power Water0%
50%
100%
150%
200%
Financial autonomy
The financing paradox must be resolved
Consumers
Taxpayers
Who Pays How Financed
User Tariffs
Govt. Subsidies
Public or Private Debt
Overview of presentation
The water financing challenge Towards realistic solutions Innovative IFI financial Instruments:
Follow-up of Camdessus/G8 What more needs to be done
Risk mitigation instruments
Partial risk guarantees
Partial credit guarantees
Political risk insurance
Breach of contract coverage
• Currency risk – Dollar debt and local currency
earnings
• Regulatory risk– Regulatory framework not
implemented or untested
• Payment/performance risk– Government fails to pay amounts due
• Sub-sovereign risk– Water investments are often at the sub-
sovereign level
IFI risk mitigation instruments 2001 - 03
$4,972
$2,825
$39$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
Total value ofguarantees
Of which,infrastructure
guarantees
Of which, waterguarantees
To
tal
Val
ue
of
gu
aran
tees
($
mil
lio
ns)
123
51
3
0
20
40
60
80
100
120
140
Total value ofguarantees
Of which,infrastructure
guarantees
Of which, waterguarantees
To
tal
nu
mb
er o
f g
uar
ante
es
Number of Guarantees Issued Value of Guarantees Issued
Risk Mitigation Instruments Could Be Effective
Adequately Creditworthy – Do Not Require Risk Mitigation
Near Creditworthiness Marginally Creditworthy, but Reforming Non Creditworthy and Low Performing
Where risk mitigation can make a difference
Guarantees and subsovereign financing:Application in the WSS sector: How to increase effective demand?
Lithuania1 Project
Russia4 Projects
Romania3 Projects
Croatia1 Project
Mexico1 Project
Ecuador1 Project
Colombia1 Project
Poland3 Projects
Risk mitigation instruments
Direct subsovlending
Overview of presentation
The water financing challenge Towards realistic solutions Innovative IFI financial instruments:
follow-up of Camdessus/G8 What More Needs to be Done
1. Going Forward: Long-Term Sustainability: A Must
Improve Sector Performance – Closing the Revenue Gap is Key
With Decentralization, There is a Need to Bring in Local Governments as Key Stakeholders in the Financing of Water Investments – (ie. contributors of equity, guarantors, or direct borrowers)
Cost Recovery Critical: But At A Realistic Pace
The Use of Subsidies Should be Transparent and Primarily Aimed at Serving Poor Communities.
Make Use of All Sources of Financing – Public or Private and Create Framework Where Risks Are Properly Allocated and Bound By Enforceable Contracts.
Effect of Loan Maturities on Tariffs
0
10
20
30
40
50
60
70
80
90
0 5 10 15 20 25
Maturity in Years
Tarif
f Sugbon
Bohol
Malabuyoc
OBA Cambodia
2. Change to longer term financing
Only if sustainable cashflows, investments for expanding services can be attracted
Only few choices to finance investmentsTariffs (consumers)Taxes (tax payers)Bilateral and multilateral aid – limited extend
So Move to cost-recovery: but at a realistic pace
3. Closing the Revenue Gap
Predictable cash flow secure debt service investment loan better services
4. Effectively demand international funding
The needs are obvious, but how to translate “needs” into “effective demand”
Lobby to get water into your PRSP Develop bankable projects Develop creditworthy utilities Engage with public, private, communities and
stakeholders Nobody has “A or THE solution”. Look at various ways and learn by doing
5. Redirect funds to the poor
Stop subsidizing the rich, they can pay for themselves
Target subsidies better (subsidize connections rather than consumption)
Invest in differentiated service levels, giving consumers a choice
Decentralize funds (not only responsibilities) to local governments
5. Improve Creditworthiness
Agreed programme of tariff increases, taking into account social considerations
Clear / predictable allocation from central/local tax revenues
Improved operational management/collections
Increase data availability to make informed decisions
Management
Fin
an
ce
Public Private
Pu
blic
Pri
vate
6.6. Unbundle Finance And Management -Looking at Unbundle Finance And Management -Looking at Sustainable Hybrid SolutionsSustainable Hybrid Solutions
Leases/Affermage
Concessions
Divestitures
BOTs
Municipal Department Mgnt. Contracts
CorporatizedMuni. Service
Mixed Company
Operating Company plc
Public & Private sector roles in the WSS sector:Public & Private sector roles in the WSS sector:
An World Bank evolving model for Water Service Delivery
Targeted Subsidies OK
• For Connections
• For Usage Charges
Cost Recovery Critical
But At A Realistic Pace
World Bank Group Combine Instruments
IBRD/IDA Loans, Credits and Guarantees
IFC Loans and Investments
MIGA Guarantees
Engagement Anywhere Along the SpectrumPrivatePublic
7. Increase sustainability of Infrastructure (and thus Investments)
Before building new infrastructure, make sure that you have $$s for both construction and O&M
Lagos State Water Corporation in 1999: 96%
unaccounted-for-water
8. The Instruments: Needed, Available ? Used? Issue of Effective Demand?
Do not require risk mitigation, Adequately credit worthy
Risk mitigation instruments will be ineffective:Non-creditworthy and low performing or instruments too expensive
Risk mitigation instruments could be effective: Nearly/marginally creditworthy & reforming
most# of population centres
attractiveness
more medium less least
Siz
e of
pop
ulat
ion
cent
re
rural (<500)
cities (>1m)
villages (>500)
towns (>10k)
secondary cities
(>100k)Expand Application of
Risk Instruments
The instruments in greatest need may be least available
• Contractual/regulatory instruments• Foreign exchange risk instruments
The instruments available may be tailored for the wrong kind of current investment
• Limited current capital investments
• Increase in management , lease and service contracts
Recapping (1)
The Water Sector is Facing an Uphill Battle to Expand Coverage. The Debate is Not Between Public or Private, But Improving
Sector Performance and efficient quality service delivery to the poor at lowest cost
There is No Magic Solution! Cost Recovery is critical and Should Be the Foundation to A Sustainable Tariff Policy but At Realistic Pace
Targeted Subsidies OK
• For Connections
• For Usage Charges If Utilized Prudently targeted subsidies and Long-Term Financing
Can Contribute Significantly Towards Expanding Investments and service delivery
Public funding to shift from input based to output based financing
Recapping (2) Mobilizing balanced mix of public and private funding sources –
more innovative use of public funds and subsidies Powered by sustained cashflows instead of taxes Private funding to increasingly comprise local currency alternatives Make PPI contracts "pro-poor". A Fund Channeling and Governance Framework Based on the
Appropriate Allocation of Risks and Third Party Agreements is the Mechanism Needed to Align Incentives and Improve Governance
Partial Risk and Partial Credit Guarantees, IFC loan and Guarantees and MIGA instruments
Hybrid Models Mixing Public - Private Finance and Management Options Offers a Pragmatic Approach in An Environment of Increased Perceived Risks.
And.... grow the economyw
ate
racc
00
lynppp006.17379 10.0579
24
100 CyprusHungary
Thailand
TrinidadMexicoBrazil
Chile
Gambia
Gabon
India
Malawi
Bahamas
Turkey
Mongolia
Togo
Malta
Venezuel
IndonesiCote d'I
Saudi Ar
Uruguay
Papua Ne
ArgentinParaguay
Romania
Jamaica
Costa Ri
Guinea
Morocco
Guyana
Zimbabwe
Sierra L
Mozambiq
Jordan
CameroonZambia
Senegal
Vietnam
Colombia
Ghana
Tanzania
Ecuador
China
Bolivia
Panama
Nicaragu
South Af
Dominica
Egypt
KenyaGuinea-B
Sri Lank
Niger
Peru
Angola
Nigeria
Algeria
HondurasPakistan
Syria
Congo
Banglade
Philippi
Mali
Ethiopia
Uganda
Madagasc
Sudan
Guatemal
Suriname Iran
Lebanon
El Salva
Haiti
Namibia
Nepal
Belize
Macedoni
Vanuatu
Kazakhst
Croatia
Central
Eritrea
Rwanda
Benin
Uzbekist
Belarus
Yemen
Cape Ver
Antigua
Grenada
Lesotho
St. Luci
Chad
Turkmeni
Comoros
Samoa
Kazakhst
Cambodia
Moldova
St.Vince
Georgia
Slovakia Slovenia
Kyrgyzst
Equatori
Maldives
Bhutan
Lao
BarbadosSt.Kitts
Mauritan
Solomon
Fiji
MauritiuRussia
Source: UN Millennium Project
Access to water and GDP
Water high on the agenda: CSD 12 Selected thematic cluster: water, sanitation and human
settlements No more assessment and problem identifications and more
promises The political and substantive outcomes of CSD 12 need to be
transformed into specific Actions Provide Realistic Guidance and Actions on the Ground to
improve efficiency and coherence of policies Focus on implementation, including identifying constraints
and obstacles at the country level and possible approaches for implementation and scaling up
Review and forward looking session; not a negotiating session ~ government and other stakeholders
New York City, 19-30 April
Thank you