Regional multi-stakeholder consultation on

“Financing access to basic utilities for all”

(Lusaka, Zambia, 23-25 April 2007)

Outcome of the first regional multi-stakeholder consultation on “Financing access to basic utilities

for all”

in Brasilia, Brazil, 11-13 December 2006

Meeting report and background information is available at:

http://www.un.org/esa/ffd

Overview:

I. Mobilizing finance: Stable and predictable financing mechanisms for utility providers at the sub-national level

II. Ensuring sustainable access for the poor through internal revenue generation – electricity

III. Ensuring sustainable access for the poor through internal revenue generation – water and sanitation

IV. Macroeconomic factors to be taken into account

Section I

Mobilizing finance:

Stable and predictable financing mechanisms for utility providers at

the sub-national level

1.1. Sub-national bonded debt

Municipal bonds as financing mechanisms

Few issues in Latin America despite heavy promotion by World Bank, USAID and others (Mexico is exception)

Fiscal Responsibility Laws limit debt of municipalities

Fiscal transfers from central government remain most important source of finance

1.2. The role of financial intermediaries

Some success with pooled financing arrangements through municipal development funds: Colombia: Financial institution “Findeter” South Africa: Infrastructure Finance Corporation Limited

Getting international credit rating is a challenge

Section II

Ensuring sustainable access for the poor through internal revenue generation –

electricity

2.1. Pre-conditions for Successful Sustainable Investment into utilities

Importance of local institutions and local context for sustainable investment into basic utilities

”LUZ PARA TODOS” (LIGHT FOR ALL)-initiative aims to extend electricity to the whole population in Brazil by the year 2008 Supply options: grid extension (urban areas) as well as local

renewable energy systems for more isolated rural areas, such as palm oil, photovoltaic (PV) cells for community and domestic use, and micro and small hydro plants

Section III

Ensuring sustainable access for the poor through internal revenue generation –

water and sanitation

3.1. Raising internal revenue generation through

participatory approachesThe experience of Porto Alegre, Brazil

Attempts to privatize public services in Porto Alegre were rejected; public provision has been successful

Residents of Porto Alegre take part in financial decisions of municipality through a participatory budget process

Financing through: Cross-subsidies from rich to poor households Multilateral loans

The experience of Buenos Aires and surrounding municipalities in Argentina

9,6 million people, 38% below the poverty line

“Social rate for water” is financed through cross-subsidies To identify the target groups for social rates correctly a

social survey was undertaken, assessing data on income, health and consumption related variables

Users of social rate had to take part in the social survey

3.2. Applying cross-subsidies

3.3. Increasing internal revenue generation through

minimizing losses

The experience of Mexico City

Inequitable distribution of water Ineffectiveness of consumption subsidies Problems: 35% of leakages, 50 years old distribution

network, tectonic movements 2001-2006 efficiency-enhancing measures:

822 km of secondary networks (6,7% of the total) were substituted with High Density Polyethylene Collaborative effort between state and central government (“Fideicomiso 1928”) increased the efficiency of the water and sanitation system.

Section IV

Macroeconomic factors to be taken into account

4.1. Appropriate fiscal and monetary policies for public investment

Incompatibility of privatization of public services with poverty eradication and MDGs

Rather than crowding out investment, prudent public spending increases the productive capacity of the economy and can attract private investment

Increased government spending on utilities is necessary but needs to be coordinated with adequate monetary policies.

51

7

68

30

98

51

0

20

40

60

80

100

%

Sub-SaharanAfrica

South Asia Latin America

Urban

Rural

Percentage of the Population with Access to Electricity (IEA 2002)

4.1. Appropriate fiscal and monetary policies for public investment

Tendency of Public Investment 1980-2000

10

7

12

3

0

2

4

6

8

10

12

14

Share of GDP, %

Asia Latin America

1980

2000

4.1. Appropriate fiscal and monetary policies for public investment

Macroeconomic risks

Key risks in financing utilities through international loans:

Maturity mismatches: borrowing from financial markets on a short term for long term infrastructure investments

Interest rate risk: difference in interest rates at the time between borrowing and refinancing

Exchange rate risk: international loans refinancing in foreign currency vs. local currency revenues

PPPs’ off-budget loan guarantees for the investor

THANK YOU!