As discussed in my previous post, there are a number of ways to finance water projects. However the topic of what options cash-strapped municipalities with low or non-existent credit ratings have for financing their water projects requires a more intensive look. This is a big concern for municipalities around the world because they need to somehow finance expensive water and sanitation projects, such as putting in new pipes to expand water and sanitation coverage and maintaining and updating aging infrastructure. Following the session on “Where Does the Money Come From? Moving Forward on Strategic Financial Planning for Water” at the 6th World Water Forum, I sought to find the answer to this question.
How can municipalities finance their water projects? The short answer: taxes, tariffs, transfers, bonds, loans, and grants. The long answer was divulged yesterday by a panel of finance experts who discussed strategic financial planning for water at the World Water Forum in Marseille, France. The crux of the issue was best outlined through a post-panel interview with Richard Torkelson – Managing Director, ButcherMark Financial Advisors LLC and Board Member for UNSGAB. I asked him “How can you effectively adapt a strategic financial plan in countries where the governments are working on cumbersome, if not outdated, laws and policies?” He responded that “the awareness of the need to change has almost gone off the curve.
“The only way water reform will be successful,” warned OECD Secretary General Angel Gurría; “is if policy combines sustainable financing, effective governance and coherence. Without major policy changes, we risk high costs to economic growth, human health, and the environment.” This is the takeaway message from the latest OECD synthesis report, Meeting the Water Reform Challenge, that was released at the World Water Forum on Tuesday. Also showcased was the chapter on the outlook for water from the upcoming OECD Environmental Outlook to 2050: The Consequences of Inaction, where water is a major focus. The chapter on water and water reform was launched in Marseille at the World Water Forum on Tuesday and takes stock of what the next four decades will bring to a world that already has seven billion people on it.
One of the first sessions on the opening day of the sixth World Water Forum was an introductory panel discussion about the financial needs for water management entitled Mobilizing Finance for Water: Needs and Challenges. It was no surprise that finance was the first topic on the table. According to an OECD report, water is the “hungriest” sector in terms of investment needs. By 2020, 600 billion USD will be needed for water management. In comparison, electricity will only require 80 billion USD and roads will only need 160 billion USD.
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.