Closing the Financial Gap
Guangzhe CHEN
Senior Director, Water Global Practice
www.worldbank.org/water | www.blogs.worldbank.org/water |
@WorldBankWater
Water Impacts nearly every major sector….
INDUSTRY
AGRICULTURE
ENVIRONMENT
HEALTH
ENERGY
CITIES
CLIMATE
CHANGE
TRANSPORT
....Proper Management of Water is key to Building Water Security
Water impacts 15/17 SDGs
2
The challenge: MDG  SDG
SDG 6.1
MDG 7.8
continuity
Safely managed
drinking water
Progressive realization
Improved facility located on premises,
available when needed, and free from
contamination
Basic water
Improved facility within 30 minutes
round trip collection time
Unimproved
water
Unimproved facility does not protect
against contamination
No service
Surface water
…representing a quantum leap from MDG 7
3
Developing
Service ladder
Developed
Ensure availability and sustainable management of water and sanitation for all
SDG 6.1 ups the game even further…
SDG 6: Ensure
availability and
sustainable
management
of water and
sanitation for
all
Share of population by access level by MDG and SDG Standards(%)
100
90
80
70
MDG standard
60
50
40
20
SDG 6.1 requires an
“improved source, on
premises, available
when needed, and
free of E-Coli”
Less than 10% of
households currently
meet this
requirement
?
?
30
?
Partial SDG
standard
?
?
10
0
Urban
DRC
Rural
Urban
Nigeria
Rural
Urban
Niger
Rural
SDG safely
managed
ACHIEVING THE SDGS:
Status quo is not an option!
Current investment: a portion of future investment needs
Future investment needs: $114 billion per year
Danube State of the Sector - Access
Still millions lacking modern services at home
Danube State of the Sector - Sector Challenges
Financing gap in the Danube region
•
2.6B Euros gap annually
•
Space and need to increase financing
€2.6 B
Source: Authors’ elaboration based on SoS data collection, assuming country-projected investment needs.
‘WATER AND WASTEWATER SERVICES IN THE DANUBE REGION: A STATE OF THE SECTOR” (May 2015)
Tariffs and taxes can mobilize commercial financing
Water service provider’s finances
Costs
Funding
Capital
maintenance
Financing gap
Financial costs
Operation and
maintenance
Transfers
Taxes
Investment
costs
REPAYABLE FINANCING
Concessional
finance
Commercial
finance
Repayments
Tariffs
9
There is a lot of capital that can be raised.
$17 trillion
CONCESSIONAL
FINANCING
INVESTMENT
REQUIREMENTS
$18 billion/year
$114 billion/year
Official development
financing for water
SDG water supply
and sanitation
$1,300 billion
Total MDBs portfolio for
all sectors
PRIVATE
FINANCING
Global pension
funds, insurers,
and sovereign
wealth funds
$100 trillion
Global bond market
$15 billion/year
MDG for water supply
and sanitation
10
Sustainable infrastructure finance through a Cascade approach
1
2
3
Can commercial financing be cost-effectively
mobilized for sustainable investment? If not…
Commercial Financing
Upstream Reforms & Market
Can upstream reforms be put in place to
Failures
Capitalizing on WBG Knowledge
Support If not…
addressAssets
markettofailures?
• Country and Sector Policies
• Regulations and Pricing
• Institutions and Capacity
Global Public Goods
Public and Concessional Resources for
Risk Instruments and Credit Enhancements
Can risk instruments & credit
enhancements
cost-effectively cover remaining
risks? If not…
• Guarantees
• First Loss
4
Public and Concessional Financing, including SubSovereign
• Public finance (incl. national development banks and domestic SWF)
• MDBs and DFIs
Can development objectives
be resolved with scarce public
financing?
Options for commercial finance
Financing needs
Large
Bonds
Commercial
bank loans
Medium
Vendor / supplier finance
Microfinance
Small
Households
12
SSIPs
Communities
Medium sized
entrepreneurs
Size of borrowers
Utilities /
Municipalities
Blending helps transition to commercial finance
BLENDING: smart public finance to leverage private finance
Grants / subsidies
Results-based subsidies
Capacity-building and
training
Technical assistance
Support water sector
pooling / grouping
Concessional loans /
public finance
Provide liquidity to
commercial finance
providers
Blend concessional with
commercial finance to soften
lending terms
“First loss” agreements
“Patient capital”: equity
participations at below
market-rate return
expectations can signal
commitment
Credit enhancements
Guarantees
Revenue intercepts, escrow
accounts
WBG supports the transition to commercial finance
Less
commercial
Technical
assistance
for sector reform
and capacity-building
More
commercial
WB Lending
Blended
Finance
Risk
Instruments
Commercial
Finance
14
WBG supports water actors transition
Transition Slide: (Sophie will add content here)
15
To conclude…
Greater leveraging of
limited concessional
finance is necessary
Governments need
policies/tools to create
creditworthy Service
providers
Domestic finance is a
key element in the
financing strategy
An incremental
approach is
recommended
16
World Bank is gearing up to support clients with these strategies
Thank you
www.worldbank.org/water | www.blogs.worldbank.org/water |
@WorldBankWater
Danube State of the Sector - Service Providers
Significant gap to international best practices