Mobilizing local Financial Resources for Water and Sanitation

Mobilizing local Financial Resources for Water and Sanitation Finance High Level Panel 5 th World Water Forum March 17, 2009 Kazushi Hashimoto Japan International Cooperation Agency (JICA) 1

What is required to attract private funding for water and sanitation? 1. The right management 2. The effective monitoring of the performance 3. A workable financing mechanism 2

Two success stories in managing water supply (Asia-Pacific) • Cambodia - Phnom Penh Water Supply Authority (public sector) • Philippines - Manila Water Company (private sector) 3

Phnom Penh Water Supply Authority (PPWSA) Cambodia Prize winner of 2004 ADB’s Water Award, 2005 JICA Award, 2005 World Bank Award, 2006 Ramon Magsaysay Award 4

Performance Change (PPWSA) 1993 Indicators 2006 22 Staff/1, 000 connections 4 65, 000 Water production　m 3/d 235, 000 25% Service coverage 90% 10 hr/d Service hours 24 hr/d 0. 2 bar Water pressure 2. 5 bars 26, 881 Number of connections 147, 000 72% NRW 8% 48% Collection rate 99. ７% 150% Running cost/revenue 22% Subsidized Financial status 5 Independent

Manila Water Company Private concessionaire of the Manila East Area Winner of 2005 ADB’s Water Award and 2007 IFC ‘Client Leadership’ Award 6

Manila Water Company 7

Manila Water Company 8

What are the common factors in the management of PPWSA and Manila Water? • Reduction in water losses due to a comprehensive Non Revenue Water reduction program • Thereby, increasing both water resources and financial resources • Thereby, increasing investment for new connections • Their method of water management is similar to that of Japanese utilities (NRW of Tokyo Waterworks is 3. 6%) 9

How to monitor the performance of water projects and water utilities? • In Japan, 137 Performance Indicators (PIs) were set for the Guidelines for the Management and Assessment of Drinking Water Supply Services (JWWA Q-100) in 2005. • This Guideline is referred to in the ISO 24512･ 2007 Guidelines for the management of drinking water utilities and for the assessment of drinking water services. • PIs can be utilized to monitor and regulate the performance of both public and private operators. 10

Mobilization of local financial resources (public and private) for water projects • In the Philippines, JICA and USAID provided technical and financial support in establishing the Philippines Water Revolving Fund (PWRF) as a mechanism to mobilize the resources of local private banks for water and sanitation projects carried out by the local municipalities through the capacity development of both the central government and the municipalities. 11

What is the challenge in mobilizing local financial resources for water? • Water utilities in local municipalities are not normally creditworthy borrowers from the viewpoint of private banks. Therefore, credit risk enhancement by local guarantee agency, backed by USAID’s co-guarantee is required. • The maturity of the loans from private banks is not long enough to finance water projects, even if a guarantee is provided. Therefore, it should be blended using ODA loans with a longer maturity. • Ring-fenced Revolving Account is established to ensure sustainability of funds. 12

Financial Structure of the Philippine Water Revolving Fund (PWRF) JICA lends to DBP PFIs/MFIs co-lends through PWRF/DBP to Water Service Providers USAID/DCA co-guarantees LGUGC GRP provides a sovereign guarantee for a JICA Loan DBP administers the Philippine Water Revolving Fund LGUGC PWRF Special (Revolving) Account provides partial credit Risk guarantees for the PFI loan for re-lending, stand-by credit line or additional credit enhancement DBP/ MDFO provides Stand-By Credit Line to cover liquidity risk of the PFI loan (if 20 year tenure) The Stand-by Credit Line will be used to refinance the PFI loan if it is decided not to extend the tenure beyond the original seven years. Credit enhancers Lenders Borrowers Co-Financing Principal Repayment Creditworthy Water Service Providers credit enhancement and lending reflows 13

　　　　　New move in Japan Team Water Japan， Water Security Council of Japan • Team Water Japan has the will to support water security activities around the world. • Water Security Council of Japan will serve as the catalyst for coordinating Japanese expertise and resources towards achieving water security, in Japan and worldwide. 14

　　　New move in Japan ODA Reform – Creation of new JICA (Japan International Cooperation Agency) • JICA will implement Japan’s ODA program comprehensively, Including ODA Loans, Grant and Technical Assistance (T/A). • JICA is fully equipped to support developing countries’ investment in water while strengthening their capacity in managing water. • JICA’s support is world-wide. 15