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Financing Challenges of Water Investments. The World Bank. The Widening Funding Gap. The region is only funding 10% of their annual requirements. Water and Sanitation will require $800 billion over the period, or $53 billion annually.
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Financing Challenges of Water Investments The World Bank
The Widening Funding Gap • The region is only funding 10% of their annual requirements. • Water and Sanitation will require $800 billion over the period, or $53 billion annually. • 300 million people still do not enjoy safe drinking water and 1.5 billion lack basic sanitation services.
Most WSPs in LDCs Don’t Even Recover their O&M Cost *HIC–High income countries, UMIC–Upper middle-income countries, LMIC–Lower middle-income countries, LIC–Low income countries Source: World Economic Forum (2014).
Cost AverageCost LRMC Time The Financing Problem of Water Infrastructure
Many Utilities Struggle With: • Low coverage • High growth and investment needs • Little Financing Capacity
Infant Utility Challenge DEVELOPING COUNTRIES DEVELOPED COUNTRIES
Why Utilities Get Into Financial Trouble • Utility is Inherently Unviable/Overextended – Need for Operational and CAPEX Sustained Subsidies • Oversized System Carrying Too Much Debt – Are Cost Recovery Tariffs Fair? • Cost Structure and Balance Sheet Position Have Materially Changed – External Shocks • Utility is Fundamentally Mismanaged and Subject to Corrupt Practices – Governance • Combinations of the Above With No Corrective Intervention Taken Except Pressure to Reduce Costs
Whatever the reason utilities get into trouble, the end financial result tends to be same given the how each of the technical and financial variables interact with one another. If left unchecked utilities go into a “Vicious Performance Spiral”
Financial Accountability of Public UtilitiesHow they Differs from Private Enterprises • Limited Involvement with Private Bankers - Finance Relationship is mostly with Local or Central Governments - Few sanctions for lenders in case of default on debt. • Certain Remedies of Typical Workout Situations are Not Realistic for Utilities - Bankruptcy, Liquidation, Sale of Main Assets - Either a financial solution is found or the utility is relegated indefinitely to life support conditions. • Financial and Strategic Incentives of Main Actors May Be Quite Different - Profit motives are typically not the overriding concern or objective. Lack of true ownership values. • Resources May be Denied to a Utility Not Because of Its Own Limitations But Because of the Government’s Overall Fiscal Position - The issue of fiscal space has important bearing on the amount of public debt a government can assume to clean up balance sheets or inject fresh capital or initiate expansion.