1 Agence Agence Française Française de de Développement Développement – AFD AFD – www.afd.fr www.afd.fr Page 1 Task Task Team on water Team on water and and sanitation sanitation The challenge of The challenge of financing financing water water supply supply and and sanitation sanitation Experience Experience from from field field operations operations OECD, Paris, March 22, 2007 OECD, Paris, March 22, 2007 Alexis BONNEL Head, Infrastructure Division Agence Française de Développement Agence Agence Française Française de de Développement Développement – AFD AFD – www.afd.fr www.afd.fr Page 2 Water Sector Water Sector Financing Options Financing Options Few choices to finance sector investments
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 1
TaskTask Team on water Team on water and and sanitationsanitation
The challenge of The challenge of financingfinancingwater water supplysupply and and sanitationsanitation
Average performance of water utilities Today Reachable objectives*in developing countriesTechnical and commercial losses > 45% < 23 %Employees/1000 connexions > 20 < 6Revenue collection period > 18 months < 3 monthsOperating ratio (general expenditures / revenues) > 1 < 0,7Connexion cost (as % of GDP/capita) 5 to 60% < 20 %Continuity of service < 12h / day 24 h / day* corresponding to average performance of the 25% best performing operators in developing countries
Taylor ODA - funded programs according to performance
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 14
Advocating for more ODA funding in the sectorODA estimated to cover only 15% of funding needs, even after doubling
“Classic” ODA sovereign financing needed to stop erosion of existing infrastructure and cover upfront structural capital investmentsAccess to water services requires (source OECD):
USD 80 / inhabitant = average in developing countriesUSD 260 / inhabitant in Africa : 80% is rehabilitation (lack of self funding capacity, poor management and inadequate consumer financing through payment of services)
More grant financing for sanitation, so far poorly addressed by aid
Increase in “Increase in “good oldgood old” ODA” ODAfinancing tools requiredfinancing tools required
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 15
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 16
Advocating for more ODA funding in the sectorODA estimated to cover only 15% of funding needs, even after doubling
“Classic” ODA sovereign financing needed to stop erosion of existing infrastructure and cover upfront structural capital investmentsAccess to water services requires (source OECD):
USD 80 / inhabitant = average in developing countriesUSD 260 / inhabitant in Africa : 80% is rehabilitation (lack of self funding capacity, poor management and inadequate consumer financing through payment of services)
More grant financing for sanitation, so far poorly addressed by aid
Increase in “Increase in “good oldgood old” ODA” ODAfinancing tools requiredfinancing tools required
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 17
Advocating for more ODA funding in the sectorODA estimated to cover only 15% of funding needs, even after doubling
“Classic” ODA sovereign financing needed to stop erosion of existing infrastructure and cover upfront structural capital investmentsAccess to water services requires (source OECD):
USD 80 / inhabitant = average in developing countriesUSD 260 / inhabitant in Africa : 80% is rehabilitation (lack of self funding capacity, poor management and inadequate consumer financing through payment of services)
More grant financing for sanitation, so far poorly addressed by aid
Main source of funding = consumer payment for services
Increase in “Increase in “good oldgood old” ODA” ODAfinancing tools requiredfinancing tools required
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 18
• Access to water for all (MDGs)
• Sustainability
MultipleStakeholders
public, private, civil societyforeign, central and local
MultipleFinancingSources
ODA
Consumer financing
FDI
Migrant Transfers
NGOs
Local finance
Gvt budget
Goals Stakeholders Tools
ODA = catalyst of ODA = catalyst of water sector financing water sector financing
leverageleverage
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 19
GurriaGurria Task Force Report 2006Task Force Report 2006
Access to finance for local stakeholders
Shift of focus on financial issues : demand side
Develop innovative financing mechanisms : grass-root level, local currency finance
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 20
More financial engineering
Equity financing
Private sector loans
Partial risk guarantees
Guarantees on loans, including in local currency
Non and sub-sovereign loans (concessional or market conditions)
Sovereign loans (from very concessional to market conditions)
Grants (projects, study funds)
PrivatePrivateSectorSector
Public Public SectorSector
Matching financial solutions Matching financial solutions to stakeholder problemsto stakeholder problemsvs. finding problems that match your solutions…vs. finding problems that match your solutions…
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 21
ODA can and has to take more risks in support of innovative local financing solutions
Non and sub sovereign lendingFinancial vehicules to support local access to LT capital in local currency (eg. MFI support, local currency bond guarantees, …)
Guarantee and risk mitigation toolsSoft loans to private sector for projects with strong economic/environmental/social impact but deferred financial viability Output based aid mechanisms
Flexible loans allowing indexation of debt service or concessionality on given indicators (e.g. cash flow)
ODA has to take more risksODA has to take more risks
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 22
The tariff issue : raise awareness on payment for water services“Free” water services are not sustainable and expensive, particularly for the poorNo local financing solution without minimal financial viabilityA Communication strategy needed
The governance issue : building economic confidenceRegulated contractual arrangements improve transparency, governance and performance (eg. case of PPPs)
Improved governance and performance attracts financing, local and foreignImportance of transparent Monitoring and Evaluation mechanisms to :
set objectivesmeasure progressbenchmark aid effectiveness and disseminate best practice
What gets measured gets done
For that to happen : For that to happen : (1) need to assess & mitigate the risks…(1) need to assess & mitigate the risks…
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 23
Recognize ODA value of guarantee schemes(partial risk guarantees, guarantees in local currency, etc.)
For that to happen : For that to happen : (2) make sure new tools account as ODA(2) make sure new tools account as ODA
AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 24
Thank you for your attention...
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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 25
Merci de votre attention...Merci de votre attention...