Struggles to finance public to public partnerships

Inclusive Economy03 Nov 2011Evert-jan Quak

Capacity building is not enough to make the not-for-profit partnerships between water utilities called Water Operators’ Partnerships (WOPs) by the United Nations successful to achieve the Millennium Development Goals. This peer-to-peer cooperation between water professionals to learn how to solve problems through experiences elsewhere is just scratching the surface.

The success factor for water utilities doesn’t depend on capacity building alone; far from that. As during the WOP-conference in Amsterdam Pak Subekti, president of the Indonesian Association of Public Water Supply Organisations (Perpamsi Banten), illustrated by saying that thanks to the WOPs his organisation was much more healthy and better organised, but still 11 percent of the households in his constituency had access to safe water connections – just a two percent rise in four years time.

His organisation is ready now, Pak Subekti says, for the investment needed to improve the accessibility and quality of water and reduce water loses. Investments and especially innovative investments suitable for the local conditions are needed. But who is to pay for that? The finance of such huge investments is complicated in the current financial model. Water utilities have to turn into efficient and financially sound water operators first. Performance based incentive schemes may provide focus and yield desired results and make partnerships more bankable, as in one workshop was discussed.

The WOPs has been financed mainly with regional development banks through WOPs progarmmes. In some countries like in the Netherlands and France a 1% solidarity levy of public water utilities is allowed as autonomous finance for partnership projects abroad. A new financial scheme is the ACP-EU Water Facility of 40 million Euros of the European Commission. But this is barely enough for all the challenges and investments needed.

A successful WOP can trigger the interest of financial partners to invest in the future of the project with more emphasis on investments. But there is a problem as Gerhard van den Top of Vitens-Evides International says. Experience from Mongolia was that the WOP was successful to change the water utility into a more efficient and financially sound organisation – for the Asian Development Bank reason to invest in the infrastructure needed.

But there was no place anymore for capacity building of the water operators. And that is tricky regarding to Van den Top as only the skills of operators can guarantee that the investment is well implemented with local knowledge and to maintain it for the future. But instead competitive procurement rules take over the decision-making on the investment where is no place for a more holistic approach.

Public water utilities, as from Africa, Asia and Latin America, don’t want to be prone to the rules of the financers as they have to serve the citizens. They ask: what is bankable? Banks or other financers want to invest in projects that are economic and financial reliable. The World Bank or regional development banks may also be interested in the economic spin off of the projects they finance.

David Boys of Public Services International, UN Secretary General’s Advisory Board on Water and Sanitation (UNSGAB): ‘Don’t let bankers drive water sector investments. Their needs are different from societies and don’t fit in the public water utilities’ challenges.’ Also Samir Bensaid (ONEP) says that ‘we’re talking about water like a commodity, but water is a human right’.

But the question remains: how can investors be interested to finance not-for-profit water projects? This is a big problem for the public water companies and their partnerships as the commercial and international financial institutions aren’t interested (yet) in what they are doing. In the words of Luis Babiano, director of the public water utility based in Sevilla (AEOPAS): ‘Why there is lot of funds to PPPs and not to Public-Public Partnerships?’

So how can the not-for-profit principle of WOPs be guaranteed in the search for money? A performance-based contract can be the solution, but this includes bonuses and penalties otherwise bankers continue not to be interested. A penalty can be an increase of interest rates on loans or a change of management. But what performances are we talking about? One provocative performance-based measure was that banks should only invest in water companies with less than 25 percent of water lose. One African participant said that this will fade away all incentives for accessibility of safe drink water to the poor and a solely focus on better performance of the existing infrastructure, what is not in line to meet the Millennium Development Goals.

Others want to emphasize that the idea of a partnership is complex for such a performance measure. Who is responsible for what? It’s not always clear why a project isn’t working well. And you cannot always blame the receiving side for not achieving the goals, as a lack of knowledge from the mentors side can be blamed for as well.

May the conclusion of this finance discussion be that research is needed to find new and innovative ways to finance public-public partnership projects.