Oikos Student Reporters Eva Papadimas and Aishwarya Nair got a chance to interview the Secretary General of the Organisation for Economic Co-operation and Development, Angel Gurría, on the opening day of the 6th World Water Forum in Marseille. They discussed some of the challenges facing the financing of water projects.
Mr. Gurría identified sustainable and equitable financing as one of the fundamental conditions for successful water policy reform, regardless of whether the country in question is a member OECD state or a developing country; the only difference is the target of the investment. In developing countries, the financing would go to the development of infrastructure to improve access and connectivity of people to water and sanitation services because ironically, it is the poorest people in the world who pay significantly more than those connected to water mains. For OECD countries, however, the challenge that must be addressed is the expensive modernisation of an extensive network of aging and leaking pipes.
The amounts needed for financing such as this range between 1-4% of national GDPs. Equally important, therefore, is the realisation that this financing must come with a long-term plan. There must be flexibility to handle the challenges that may arise in the future while still including the concerns heard both at the national and grassroots levels. Effective governance is the only way to achieve this balance. “Strengthening the capacity of governments and utilities to better manage water is essential to attracting investment,” said Mr. Gurría. “Effective institutions coupled with a strong regulatory framework will help to reduce the risk profile of the sector and provide public utilities with a firmer foundation for seeking financing.”
Mr. Gurría also reiterated the importance of engaging the private sector to ensure the success of water financing projects. With private sector participation levels dropping, it goes to show that it’s not enough for governments to set up a good mix of tariffs, taxes and transfers – the 3Ts of the OECD – to raise the capital required to provide sustainable water and sanitation services.
“The real problem is the sharing of the costs, the costs of extraction, sourcing and (eventual) remediation of the area. This is all very expensive and not always possible through a simple tariff. This is off-putting for companies as they do not like risks,” Mr. Gurría said. “So, there are two solutions. The state or government pays for the initial infrastructure costs, or we help protect the risk to the company by paying a projected deficit that will steadily narrow over the years. That is more of a contractual issue however. Then there are also issues of the pipelines: who will build them and who will manage them? In Mexico City, where I’m from, there are a lot of earthquakes that break the pipelines – who pays to fix them? The older pipelines also leak and, while we have the technology to detect leaks now, it’s not integrated into these old city systems and to do so is very expensive. So who pays for that and monitors it? And which government – the state, regional or municipal – is going to take the lead?”
These are the questions that will be debated over the coming week and we’re excited to see where it goes. One of the key topics on the agenda at the Forum is to get international organisations and countries to work out how strategic financial planning can become central in the loan approval process for water projects. It’ll be interesting to see how this theme will develop, especially in light of the driving theme of the Forum being a call to action and not discussion.