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3 Water and Sanitation Services Coverage National Progress in water supply and sanitation coverage. Source: SIP and JMP 2010 report Nearly two thirds of households (64 percent) dispose-off excreta through pit latrines which have to be emptied on a regular basis (but are often not). Only 19 percent of Nairobi’s informal settlements households had access to a supply of piped water, in the form of either an in-house water connection or a yard tap (2006 study by the World Bank)
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Financing Alternatives in WSPs
Patrick Nduati Mwangi,
WASPA Conference, September 2011
Water and Sanitation Program
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Understand the Financial and Institutional arrangements required for Alternative Financing
Carefully indentify and analyze projects that increase coverage, efficiency, resources and revenue
Review various Financing Alternatives based on their suitability Leverage use of any subsidies available to improve viability of
projects using the Financing Alternatives
Key Messages
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Water and Sanitation Services Coverage
National Progress in water supply and sanitation coverage. Source: SIP and JMP 2010 report
Nearly two thirds of households (64 percent) dispose-off excreta through pit latrines which have to be emptied on a regular basis (but are often not).
Only 19 percent of Nairobi’s informal settlements households had access to a supply of piped water, in the form of either an in-house water connection or a yard tap (2006 study by the World Bank)
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What is the Goal of the Publicly – Owned Water Company?
To make money? To provide important social services (potable water,
and sanitation) To protect the poor? To conserve limited environmental resources
(ground water) & minimize pollution?
Should a publicly-owned water authority earn a profit?…
Can a water authority achieve the rest of itsgoals if it does not make a profit (surplus)?
What needs to be done
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Manage the delivery of water services more like a business (performance-based governance) not a bureaucracy (approvals-based governance). Apply commercial principles (cost-recovery targets & output-based performance indicators)
Introduce competition whenever feasible:Competition FOR the market (competitive tendering)Competition WITHIN the operator (incentives for managers & staff
and among the operator’s suppliers)
Involve users and other stakeholders in the decision-making process
Selection of Water Authority Board MembersConsumer protection strategies & Lifeline tariffs for the PoorMeasure & monitor quality of service
The increased economic benefits to consumer of having needed water service available NOW because of the Alternative Financing, rather than having to wait until Govt. could provide the services much later.
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PPP Investments in Water & Sewerage in Developing Economies (1990-2009) Source: WB PPI Database
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
PPP
Inve
stm
ents
(USD
$M
illio
ns)
The Record of Private Investments in Water
Key Challenges in Financing
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Water’s key role in public health, a “public good” Limited affordability to pay for the full cost of water Water as a “Local-level” service: Limited Local Funds to Prepare PPPs/Financing Models Limited Local-level capacity to Administer PPP/Financing
Contracts Attracting private investment will require more risk-sharing
($/Kshs) by Govts and Stakeholders. Water user-fees will not be enough
Benchmarking & Monitoring Sector Performance Funding Environmental Challenges: The need to pay for more water treatment Limited water resources available The need to pay for more wastewater treatment
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The “Waterfall” of Cash Flows for Public Utility
1. O & MCosts
2. Debt Service(Prin. & Interest)
4. Profits/Surplus?
(Wages, Electricity,Chemicals, Spare parts,Board Exp., etc.)
101. O & MCosts
2. DebtRepayments
3. “Surplus”
In THEORY a Public Water Authority’s Cash Flows Should look like this: FULL Cost Recovery
Reinvestment in ASSETS(replacements &Expansion)
(Wages, Electricity,Chemicals, Spare parts,Board Exp., etc.)
Understanding the challenge to public water authority financial performance:
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1. O & MCosts
2. DebtRepayments
3. Taxes= 0
4. Surplus= 0
Govt.Subsidies
OperatingSubsidies
CapitalSubsidies
In REALITY they Usually Look like this:…
OccasionalInvestmentsIn New Assets?(Crisis-based…)
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1. Sovereign/Public Finance2. Corporate Finance3. Limited-recourse “Project
Finance”
Infrastructure Financing Methods:From the Lender’s Perspective
Attractiveness of Financing Strategies
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Public Finance
Corporate Finance
Limited-Recourse Project Finance
Governments
Private Developers & Contractors
Lenders
Kayole Soweto – 89,000 residents
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Financial Analysis Kayole Soweto
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SummaryItem Cost Notes
Number of connections 10,000 Total connection cost per HH 5,000 NCWSC connection fee + depositTotal connection fee payable by consumer group 50,000,000 Financed by:Customer payment upfront 10,000,000 Equal to KES 1,000 per HH or affordable feeK-Rep Bank loan 40,000,000 Financed under Maji ni Maisha loan programOBA subsidy 22,756,333 Monthly fee payable per HH to achieve Break even point (KES) 99
Resulting amount payable per HH per month over 5 year loan repayment period
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Target prime activities i.e. increase consumer base (including low income areas), resources, efficiency, revenue etc.
Analyze Financial –Institutional Implications of Proposed Projects
Carry out Risk analysis of the Financial Alternatives selected
Identify available subsidies Leverage alternative financing options
Way Forward
www.wsp.org
