ࡱ> dfe#` *bjbj\.\. \P>D>D"  X8T@,, gEtxxxxx.) = DDDDDDD$FhCI E!"!! Exxa!E>#>#>#!xxD>#!D>#>#=@xl Pyr"X>D,7E0gE>^9J"^9J4@9J@I L 6># , I I I E E(#I I I gE!!!!, , , D pD, , , pT6T(T|6  REGIONAL MILTISTAKEHOLDER CONSULTATIONS ON FINANCING ACCESS TO BASIC UTILITIES FOR ALL Mobilising Finance: Stable and predictable financing mechanisms for utility providers at all levels The Experience of the African Development Bank and the African Water Facility Discussion Points by Peter Akari, Chief Water Policy Officer Key constraints facing utilities: Insufficient financing levels; Poor governance; and Inadequate capacity. General Finding from ADB Study on Financing Water In most African countries, the opportunities for more market-based finance to support water utility operations are limited, due to real and perceived risks. These include the high capital costs with long payback periods, low rate of return for water investments relative to other infrastructure (e.g. power, telecom), contract and regulatory risk, and sub-sovereign risk, all limit the potential for international and domestic financing outside of standard government (sovereign) transfers. What the ADB offers in support of utility finance: The African Development Bank has a set of financial products enabling it to fund various financing requirements of utilities across the various windows available at the Bank. There are two main lending windows i.e. i) the public sector and ii) the private sector. The public sector is further divided in two sub windows ie African Development Bank (ADB) for lending on commercial terms to middle income countries and African Development Fund (ADF) for lending on concessionary terms to poorer countries. The other source of funding is the African Water Facility (AWF), which provides only grant funding at the moment to a broad range of stakeholders in the water sector. The Bank offers a variety of financial products to middle income and lower income countries, for public and private finance. A quick overview of the products and eligibility is presented in Figure 2 below.  Figure 2 Overview of ADB product offering and eligibility For countries that can borrow from the ADB window as well as the private sector window the ADB has a wide range of financial products, which include direct loans, lines of credit, guarantees, equity participations, risk management products to hedge risks including climatic risks and grant resources. The ADB has an additional dedicated window, the AWF (African Water Facility), which is used to finance, through grant only, water related activities. This fund can be used in various ways to support utility finance, such as capacity building to benefit from private finance. The AWF is currently exploring with the African Water Association mechanisms for rating utilities to enable them access commercial forms of finance. Inadequacies of ADB financing for utilities Unlike the ADB and Private Sector window, the Bank has limited financial products on offer through the ADF window: these are limited to loans and grants. Currently, the extent of ADB finance to support sub-sovereign and non-sovereigns for water sector infrastructure is limited indeed. Given the diversity of financial products available from the Bank, the reality is that there is limited usage of the Banks financial products to finance mainly water utility investment projects. At the Middle income and private sector windows, the main reason provided by borrowers for their reluctance to access the products for water utility activities is the cost of resources specifically to finance the water sector. Given that the water sector is considered relatively unattractive in terms of rates of return (compared to other infrastructure sectors), perhaps this problem can be addressed by reducing the cost of lending to water utility projects. The ADB is currently exploring price differentiation to increase funding to certain critical sectors such as water utilities. Another solution being explored is innovative use of a combination of loans and grants, with grants meeting the costs associated with, or due to, market failure. Some inadequacies on the ADB Products Currently, the extent of ADB finance to support sub-sovereign and non-sovereigns for utilities is limited. Rather, grants and concessionary loans tend to fund public sector projects, sector budgets, or are provided at a sovereign level. Funding to sub-sovereign entities is earmarked through sovereign-level debt, and is often associated with a sovereign guarantee. Water utility Financing The ADB study revealed that there is scope for increased commercial borrowing, with the growing trend towards commercialization with potential for private sector participation (PSP). However, water utility service providers are overwhelmingly underperforming, characterized by high political interference and weak administrative and financial management. This limits their potential for accessing long-term commercial finance. Considerable assistance and training is needed for management, as well as corporate governance structures that engage and empower stakeholders. Sub-sovereign and Municipal Financing The ADB is of the view that if it is able to lend to sub-sovereign entities (such as a municipality-owned water utility), and also to lend in local currency, then this can significantly increase prospects for long-term financing in water sector. One of the most considerable challenges to sub-sovereign finance is allocation of currency risk. Multilateral Development Banks (MDB) want the borrower to assume local currency risk, although decentralized levels of government that run utilities are too often unable to carry this risk. In countries where sub-sovereigns have capacity for municipal borrowing, as in South Africa, the financial services structure is such that donor-finance is less needed. Longer-Term Financing Amongst suppliers of finance, the attention in recent years has been on creating a range of project development and financing facilities to hedge risk and allow for longer term financing mechanisms for water sector. More concerted efforts are required to increase a bankable project pipeline, which requires more trained staff at a country level for the moment, water sector investments are too risky for pensions and other long-term instruments to consider. However, because of the variation amongst and between countries, there is potential to use intermediaries to pool risk, perhaps at a regional (Sub-Saharan Africa), or sub-regional (e.g. SADC) level, while providing capacity building to improve the risk profile of utilities. Role of MDBs in improving financing to utilities Expand use of local currency for guarantees and debt Grant financing will be used to support partial risk guarantees through the public and private windows. Specifically for non-networked/rural areas, the ADB is considering isolating a sum for grant funding, which could be used to create a local currency guarantee fund. Expand use of lines of credit Lines of credit can be a useful way to target specific sectors or areas, and build capacity within domestic banks. The ADB also has built capacity over the years for developing lines of credit and managing these. Innovation in the use of grants. Grants can be considered for use as guarantees to encourage commercial sources of finance to engage in the water utility lending. Innovation in the use of debt. In addition to debt finance to support government budgets, debt in the form of bonds can be issued by sub-sovereigns and utilities Introduction of equity products. Different forms of equity can be useful to promote expansion of water and sewerage services. Introduction of guarantee and risk-mitigation products. The role for guarantees has been highlighted as a means to attract non-traditional investors to the water sector. Guarantees can help to support projects or broader loan offerings, or enhance the credit of utilities, local banks, or other agencies to attract finance. They work to hedge the different types of risk posed Recommended Actions by MDBs The MDBs should increase efforts to provide knowledge management and facilitation for the water utility financing; Increase flexibility to operate in local currencies for debt and risk mitigation activities; The Multilateral Development Banks should work towards the use grant financing to support partial risk guarantees for water sector; The MDBS should work together to identify where existing and planned lines of credit can be earmarked for water utility business, including SMEs, SSIPs, supply chains, etc. Support a window through the existing Project Development Fund for municipal strengthening and bond market development in select middle income countries; Incorporate scope for microfinance as part of all country strategy for financing small utility operators Support APEX MFIs with some earmarking for water sector infrastructure/SME related activities     Z[   L M m n o ιs^L8&h"3_h4,5CJOJQJ\^JaJ#h,hx,_CJOJQJ\^JaJ)hx,_hx,_56CJOJQJ\^JaJh|-CJOJQJ\^JaJ hx,_5CJOJQJ\^JaJ&h"3_h|-5CJOJQJ\^JaJ#h,hq[/CJOJQJ\^JaJ)hrhq[/56CJOJQJ\^JaJ&h"3_h,5CJOJQJ\^JaJ&h"3_hq[/5CJOJQJ\^JaJhq[/CJ\aJZ[  L M o p   $a$gdq[/gdBygdSgdBy & F hgdq[/$a$gd"3_gdq[/***o p q K ^ ɺɺɩɩvvdVKV@hr5CJ^JaJh,5CJ^JaJh,hV 5CJ^JaJ#h"3_hS5CJOJQJ^JaJhr5CJOJQJ^JaJ#h"3_h,5CJOJQJ^JaJ#h,hBy5CJOJQJ^JaJ h"3_hq[/CJOJQJ^JaJhrCJOJQJ\^JaJ#h"3_hq[/CJOJQJ\^JaJ#h"3_h4,CJOJQJ\^JaJ#h,h,CJOJQJ\^JaJ    ' ` h   r oν|kk|k|kkkZ h,hV CJOJQJ^JaJ h,hCJOJQJ^JaJ h,h~;CJOJQJ^JaJhrCJOJQJ^JaJ h,h4,CJOJQJ^JaJ h,hq[/CJOJQJ^JaJ h,h$fyCJOJQJ^JaJ#h,h$fy5CJOJQJ^JaJ h,h|-CJOJQJ^JaJh,hV 5CJ^JaJ  Sar~$a$gdg $ & Fa$gdq[/gdV $a$gd"3_$a$gdq[/ow ADGHwιܨxxxxxxjX#hAX\hAX\5CJOJQJ^JaJhq[/CJOJQJ^JaJ h,hgCJOJQJ^JaJhgCJOJQJ^JaJ h,hCJOJQJ^JaJ h,hq[/CJOJQJ^JaJ)jh,hV CJOJQJU^JaJh"3_CJOJQJ^JaJ h,hV CJOJQJ^JaJ#h,hV 6CJOJQJ^JaJ$I(Ecku-.ᬚ{m{[#h,h;%B>*CJOJQJ^JaJhrCJOJQJ^JaJ h,h-CJOJQJ^JaJh"3_CJOJQJ^JaJ#h"3_h~;5CJOJQJ^JaJ#h"3_hc5CJOJQJ^JaJ)h,hg56CJOJQJ\^JaJhgCJOJQJ^JaJ h,hgCJOJQJ^JaJhAX\CJOJQJ^JaJ#-.GHmnc!$a$gdgd $ da$gdAX\$a$gdAX\$a$gd;%Bgd;%B$d^a$gd"3_ d^gd-$a$gdq[/gdg.:FGHegw̻}o}`N@hgCJOJQJ^JaJ#hghg>*CJOJQJ^JaJhAX\>*CJOJQJ^JaJhcCJOJQJ^JaJh"3_CJOJQJ^JaJ h,h~CJOJQJ^JaJ h,h;%BCJOJQJ^JaJh~CJOJQJ^JaJ h,h 9CJOJQJ^JaJ#h,h;%B>*CJOJQJ^JaJhg>*CJOJQJ^JaJ#h,h 9>*䴳ϴ$**6<]X!b!c!d!e!ﱠooooo^M h,h"3_CJOJQJ^JaJ hAX\hAX\CJOJQJ^JaJ h,hCJOJQJ^JaJ#hh>*CJOJQJ^JaJhCJOJQJ^JaJ hAX\h~CJOJQJ^JaJ hAX\h"3_CJOJQJ^JaJ h,h+7CJOJQJ^JaJh~CJOJQJ^JaJhgCJOJQJ^JaJ h,hq[/CJOJQJ^JaJc!e!!!!!""""##x$%%%%'''1'$a$gdq $a$gdWgdB$a$gd%Jugd%Ju$a$gd gd gdW$a$gdn $ da$gdAX\e!u!v!!!!!!!!!!!"6"j"m"u"x"""""Ͻϫsg[R[g[g[g[R[@#hWh CJOJQJ\^JaJh5CJaJhWh 5CJaJhWhW5CJaJ h,h CJOJQJ^JaJ)h,h 56CJOJQJ\^JaJ#hAX\56CJOJQJ\^JaJ#hAX\h 5CJOJQJ^JaJ#hAX\h5CJOJQJ^JaJ#hAX\hAX\5CJOJQJ^JaJh5CJOJQJ^JaJh5CJOJQJ^JaJ"""#####$d$s$x$$ %%%:%;%<%%%%%%&&'οΨ{{gS{&hW56CJOJQJ\]^JaJ&h,hB5CJOJQJ\^JaJhWCJOJQJ^JaJhCJOJQJ^JaJ h,hBCJOJQJ^JaJ,h,hB56CJOJQJ\]^JaJhWCJOJQJ\^JaJ#hWh CJOJQJ\^JaJhWh 5CJ\^JaJhWh 6CJ\^JaJ''''('0'1'6'9':';'''(((%(s(((((())*5*************зззззззззХh#h+r?jh+r?Uh]hCJOJQJ^JaJhMCJOJQJ^JaJh h,hq h,hq CJOJQJ^JaJh 9CJOJQJ^JaJ h,h CJOJQJ^JaJ&1'2''((3))6**************gdB & F gdq gdq 6&P 1h:pkc. 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