Private and Public Roles in Water: Partners or Competitors? Declan Duff Director, International Finance Corporation Water: Dispute Prevention and Development Washington D.C., October 1998

Water shortages affect half the planet u nearly 2 billion people in the developing countries lack safe water and sanitation u half the developing countries provide safe water for less than 65% of citizens u over 200 million with connections are subject to persistent shortages

Barriers are on the supply side u fast urban growth erodes coverage gains u poor management at the utility level u slow progress on privatization u climatic events

Half the world will live in cities Source: World Resources Institute

And water shortages will proliferate Population subject to water shortage (billions) Source: World Resources Institute

Poor efficiency in public utilities u Minimum water losses of 30% – Philippines 53% –Thailand 33% to 48% –Bangladesh, Ghana 47% –Burundi, Turkey, Nepal 44% –Pakistan 40% –Colombia 38% to 40% –Brazil, Indonesia 30%

Private participation in infrastructure (1984-present) Source: World Bank

Concentration of PPI among developing countries Source: World Bank

Climatic factors affect water supply u Resource variations among countries u El Niño u Global climate change

Users can pay for water u vendors typically charge times utility tariffs for basic supply u private tanks to improve reliability and quality cost householders 3-5 times the utility tariff u consumer surveys indicate willingness to pay for quality service

Privatization is key to meeting water needs u 640,000 new connections to safe water in Buenos Aires –and 340,000 connected to the sewer system

Issues in financing private water u Water as an economic good u Limited real assets u Municipal risk

Water as an economic good u Economic value of water connections u Externalities and universal service u Patterns of use u Links to other services

Concession financing u Operating contract is the principal asset –changes to the contractual terms change the investment’s value –not observing contractual terms will alter the investment’s value –if the contract is repudiated, value is destroyed

Municipal risk u Variability among cities and towns –riskier than the national government u Gap between delegated responsibilities and resources u Limited track record

Options for reducing municipal risk u National support u Insurances/ guarantees u Risk pooling u Policy and financial reform u Improved management practices u Use of GAAP accounting Short TermLonger Term