Unlocking Commercial Finance for Urban Water and Sanitation in Developing Countries
Investments in water and sanitation are essential to reach United Nations Sustainable Development Goal 6 (SDG6). And commercial finance is an important option to help close the capital gap for water service providers. But commercial financing has been difficult for the water and sanitation sector in developing countries to attract.
In this webinar, our panel of WASH finance experts discuss the different forms of commercial finance, the challenges associated with obtaining this type of funding and realistic solutions to overcome financing obstacles.
If you're seeking answers to specific questions, a table of contents with timestamps can be found beneath the video.
Don't have time to watch the entire discussion. Quickly find answers to the questions that interest you most.
|QUESTION||TIME (PANELIST ANSWERING)|
|Joel, do you have any recent relatable examples of utilities or municipalities in Southern Africa or elsewhere in the developing world who have successfully financed a water sanitation project? How do they manage to secure this commercial repayable finance?||5:09 |
|Are there lessons to be learned from self-financing with a private investor?||8:19 |
|Why would my water service provider/utility want to borrow money and take on debt?||16:51 (Gorelick)|
|Hypothetically, in my country the banks all charge unaffordable interest rates. How can I ever repay the loan or make that affordable in my financial planning? On the other side of that, I want to upgrade my reticulation network or some of my capital infrastructure and they have that infrastructure has lifetimes of thirty, forty, or fifty years, but the bank wants me to repay that in seven to ten years. Would it be easier if i had a longer tenure on that loan, a longer repair payment period? How can I access that?||21:30 (Thorsten)|
|How can utilities improve their credit worthiness and therefore lower their barriers to injury, lower their interest costs?||30:26 (Landel)|
|I am a utility in Southern Africa and my advisors keep telling me to get the private sector involved. A couple of big firms have approached us to say that we should set up a partnership and they will pay for everything and the IFC even came in and did a workshop for us to tell us how triple P's work. How does this really give me better access to commercial repayable finance? Is this a path that I might want to go down?||40:04 |
|There is a lot of talk about green finance or climate finance, but I have only seen this happen in the energy sector. Can we use it in the water and sanitation market? How does water and sanitation relate to climate change or how can I create that linkage? How can I find green finance for my projects and who can help me?||54:30 (Gorelick)|
|There are lots of different mechanisms out there that I can access to finance a project through commercial lending. You have given us a framework of the key underlying fundamentals but what are the concrete steps that I need to do in the short, medium, and long term if I am a generic utility somewhere in the developing world?||65:57 (Thorsten)|
|My utility has recently gone to commercial lenders and others looking for financing. However, they have come back and said that we do not have bankable projects. We have done studies on these projects and hired consultants and we have pre-feasibility studies that says these are the right project to do Is there some way I can access funding to pay for these projects?||77:48 (Gorelick)|
|So much of my mandate is getting better water services to the poor, whether they are in rural areas or peri-urban areas. However, often they cannot afford to pay even cost recovery tariffs, let alone pay enough to cover debt servicing. Where do I find this revenue to pay back debt if I want to go the commercial lending route?||84:45 (Thorsten)|
|All our wastewater treatment works need upgrading. But in the absence of sanitation tariffs, how do I link this or ring fences? What other mechanisms do I have to access financing for sanitation projects?||92:30 |
|Say I am a lender interested in lending to water utilities in the developing world who have poor credit ratings, bad looking accounts, or a long list of accounts payable--is there reliable cash revenue and what is my motivation for Additionally, where can i look for investments that meet my needs as an investor?||108:58 (Gorelick)|
General Questions and Answers
Q: How do you prevent users bypassing the smart meters?
A: You don’t anymore than you would a regular meter, but with data you can identify ‘deviant’ behavior (deviant from the norm), which can identify attempts at water theft, and then you can send someone to do a focused intervention.
Q: How do we balance low water tariff with the cost of the loan mostly in low-income countries?
A: What matters IMHO is the average revenue per subscriber. If the loan relies on X subscribers to be repaid, and the monthly repayment amount is more than the total revenue that they generate, then the deal can go through. Please note that the total revenue can include the recovery of outstanding arrears.
Q: What do the panelists see as the primary role of government in terms of supporting utility and municipal managers making a shift to nontraditional sources of capital?
A: If you are a government official and want to help your water utility do anything that’s innovative, such as what you’re talking about but also technology-related, it’s important IMHO, to give them the right to fail. If they have job security when taking risks, they are more likely to agree to take risks and look for innovative or non-traditional solutions to their problems.
Q: What do you think are the opportunities/barriers for DFIs such at the World Brank to help bring in more commercial finance?
A: I would say that as commercial investors enter the sector, they will look for guarantees or other credit enhancement, or risk reduction tools from the DFIs.
Dr. Jeremy Gorelick
Q: You said every utility needs a long-term investment plan. Do you think that countries with lots of utilities (like Kenya) are in need of standards for all these utility investment plans, and someone who aggregates them to a sector capital investment plan (that can be used for the dialog with the treasury e.g.)? Is there a role for TA for the development such investment planning standards?
A: Hi Daniel. Great question. I'm not sure whether there are going to be opportunities for me to answer questions, so I would be happy to have a chat about this separately. There are some DFIs that have originated loans, but they pass this through national government and haven't really been as helpful as one would hope. But, again, would be happy to discuss further - please feel free to write me at firstname.lastname@example.org.
Q: We need to hear much more detail about Gregoire's technology - and the detail of the customer contracts with the utility.
A: You can email me at email@example.com if you would like more information. I will be glad to answer you.
Q: First-time borrowers are often perceived as not-creditworthy by private investors because of lack of credit-history. But to build a credit history, you need to be able to borrow. How can this barrier be overcome?
A: Talk to us at CityTaps. That’s why we use our technology to de-risk first projects.
Q: What is the estimated investment per HH?
A: Please reach out to me at firstname.lastname@example.org.
Chris Serjak | General Manager – ROCKBlue Chris is General Manager of ROCKBlue and technical advisor for USAID's Water, Sanitation and Hygiene Finance (WASH-FIN) program in South Africa. In 2006, he led the WATSAN component of USAID's $2.3 billion Iraq Infrastructure Reconstruction Program, managing $500 million of water and sanitation infrastructure projects. Chris holds a master's in Sustainable Development from the University of London School of Oriental and African Studies and a bachelor's in Geological and Environmental Science from Stanford University.
Joel Kolker | Program Manager - GWSP
Joel is the Program Manager of the Global Water Security and Sanitation Partnership (GWSP) – the World Bank’s Trust Fund supporting analytical work, including research, technical assistance and capacity development, across all aspects of the water sector. He previously coordinated the World Bank (WB) Water Practice’s global effort to meet financing gaps in the sector. He facilitates increased creditworthiness. He advises on project finance, PPP, credit enhancements, financial enhancements and institutional, regulatory and governance arrangements. He holds a bachelor's from George Washington University and master’s in Urban Planning and Public Administration from the University of Pennsylvania.
Dr. Jeremy Gorelick | Sr. Advisor, GFI
Jeremy is a development finance practitioner with 20 years of experience in preparing and closing transactions in infrastructure in emerging markets. He has been responsible for raising over $1.3 billion for infrastructure projects through roles on Wall Street and as municipal/infrastructure finance advisor with various aid agencies and DFIs. He is Head of Special Initiatives at the Green Finance Institute, Head of Origination for a WASH-focused impact investment fund and is on the faculty at John Hopkins University.
Dr. Rich Thorsten | CIO - Water.org
Rich is Chief Insights Officer at Water.org. Over the past fourteen years, Rich has led the evolution of Water.org’s global water and sanitation financing initiatives for impact, managed global teams across Water.org’s regions and practice areas, and contributed to the organization’s leadership as a member of its executive team. Among other duties, Rich currently serves as interim lead for the water supply and sanitation (WSS) global practice. In a career spanning more than 25 years, Rich has also served in research, program, and leadership capacities at the World Bank, U.S. Environmental Protection Agency (EPA) and the University of North Carolina, among others. He holds both a master's and a doctorate degree in planning, with a focus on water and sanitation in developing countries.
Grégoire Landel | CEO - CityTaps
Grégoire, who founded CityTaps in 2015, is a French-American social entrepreneur who studied engineering at Princeton, MIT and Columbia University. After working in software in San Francisco and Kampala, Uganda, he moved to Paris in 2005, where he established himself as an expert on the intersection of water and finance in developing countries.
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