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Mobilizing local Financial Resources for Water and Sanitation

Finance High Level Panel

5th World Water Forum

March 17, 2009

Kazushi Hashimoto

Japan International

Cooperation Agency (JICA)

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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

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Two success stories in managing water supply (Asia-Pacific)

• Cambodia - Phnom Penh Water Supply Authority (public sector)

• Philippines - Manila Water Company (private sector)

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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

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19931993 20062006 IndicatorsIndicators

Performance Change (PPWSA)Performance Change (PPWSA)

2222

65,00065,000

25%25%

10hr/d10hr/d

0.2 bar0.2 bar

26,88126,881

72%72%

48%48%

150%150%

SubsidizedSubsidized

Staff/1,000 connectionsStaff/1,000 connections

Water productionWater production 　　 m3/d m3/d

Service coverageService coverage

Service hoursService hours

Water pressureWater pressure

Number of connectionsNumber of connections

NRWNRW

Collection rateCollection rate

Running cost/revenueRunning cost/revenue

Financial statusFinancial status

44

235,000235,000

90%90%

24hr/d24hr/d

2.5 bars2.5 bars

147,000147,000

8%8%

99.99. ７７ %%

22%22%

IndependentIndependent

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Private concessionaire of the Manila East Area

Winner of 2005 ADB’s Water

Award and 2007 IFC ‘Client

Leadership’ Award

Manila Water Company

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Manila Water Company

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Manila Water Company

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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%)

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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 ISO24512 ･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.

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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.

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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.

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DBP

administers the Philippine Water Revolving Fund

credit enhancement and lending

reflows

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.

Creditworthy Water Service Providers

LGUGC

provides partial credit Risk

guarantees for the PFI loan

PFIs/MFIs

co-lends through PWRF/DBP to Water

Service Providers

GRPprovides a sovereign guarantee for a JICA

Loan

USAID/DCA

co-guarantees LGUGC

JICA

lends to DBP

PWRF Special (Revolving) Account

for re-lending, stand-by credit line or additional credit enhancement

Lenders

Credit enhancers

Borrowers

Co-Financing

PrincipalRepayment

Financial Structure of the Philippine Water Revolving Fund (PWRF)

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　　　　　　　　　 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.

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　　　 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.