BUILDING SUSTAINABILITY: PARTNERSHIPS AND FINANCE by S. Adrian Ross Senior Programme Officer PEMSEA

$80 – $180 billion for investment in environmental facilities and services 70% of which is needed for: Wastewater treatment Pollution abatement Nutrient reduction Water reuse/recycling The Need

Public sector has: legal authority law-making power monitoring and regulatory function mandate …but lacks funding technical resources business skills. The Situation Private sector has: experience expertise technology business skills access to financing …but faces a conflict between making long-term investments and reporting on short-term financial cycles.

The Situation NGOs have: an understanding of local needs ability to work with and influence people, including poor communities credibility organizational and communication skills …but lack sufficient and predictable funding staff and technical capacity experience in partnership arrangements.

Building Sustainability Set within a policy, regulatory and investment environment that is conducive to business participation An alternative delivery mechanism…not the only one Principles of multi-sector partnerships

Building Sustainability Bringing together government, private sector and civil society to better tackle the challenges of providing water and sanitation services, as well as other services to communities Recognizing two separate but related issues, namely: Partnership development and sustainability Project development and sustainability. Principles of multi-sector partnerships

Constraints to Private Sector Participation Political risk Regulatory risk Commercial risk Financial risks Design fault Construction and operational risks Revenue risk Tariff system Demand forecast/willingness to pay Failure to identify or lack of sound projects Bias against projects in small- and medium-sized urban and rural areas

Public-Private Partnerships Local Government Units

ICM Framework and Process Planning and Implementation Cycle

The implementation of ICM programs provide local governments with:  a management framework  institutional arrangements and mechanisms  long-term vision and strategies  action programs addressing priority concerns  local community participatory process  climate for investment. Political Risk

Public-Private Partnerships Local Government Units Local communities, NGOs and POs

Community awareness/participation Information dissemination Consultation/communication Issues, causes and effects Shared vision, roles and responsibilities Political Risk: Community support

Scoping the Needs/Capacities Socioeconomic considerations (services to poor communities) Community mobilization – as a partner in the project Expectations/benefits to be derived Willingness and ability to pay Monitoring and evaluation Revenue Risk: Affordability

Revenue Risk: Tariff Structure Information and education campaign ‘Full-cost’ pricing public’s attitude regarding ‘public services’ Implications on the poor and disadvantaged sectors of the population Efficiency of existing bureaucracies with regard to collection of fees and taxes Increasing block structure Lifeline price for the poor Strengthen local governance

Public-Private Partnerships Local Government Units National Government and in-country contractors, suppliers, financial institutions, banks and investors Local communities, NGOs and POs

Delineation of responsibility: authority of local governments in the investment area mandate local governments to form partnerships, raise funds and impose tariffs for environmental facilities and services stipulate standards against which performance can be measured. Regulatory Risk

Capacity building to fully implement delineated responsibilities by strengthening: technical/scientific skills regulatory and economic instruments monitoring and evaluation enforcement Regulatory Risk

Commercial Risk Financial risk Exchange rate fluctuations High interest rates High inflation rates Construction and operational risk Start-up delays Construction and operating cost overruns & delays Actions Access to domestic funds Innovative financial structures Financial commitment Performance standards Licensing/permit approvals

Public-Private Partnerships Local Government Units International operating companies, investors financial institutions, development agencies and donors Local communities, NGOs and POs National Government and in-country contractors, suppliers, financial institutions, banks and investors

Capacity building is a major bridge for overcoming barriers to private sector participation in environmental investments. Strengthening: capabilities in local governance (ICM) project development and management technical/scientific skills and support regulatory and economic instruments financial management monitoring and evaluation enforcement Commercial Risk

Financial Risk accessibility to multiple sources of financing project portfolio that is affordable, self-sustaining and attractive to private sector Actions Creation of innovative financial mechanism to meet the needs and capacities of local governments and their partners. Commercial Risk

Public-Private Partnerships Local Government Units Public-Private Partnership (PPP) International operating companies, investors financial institutions, development agencies and donors Local communities, NGOs and POs National Government and in-country contractors, suppliers, financial institutions, banks and investors

PEMSEA’s Guide to Environmental Investments

Is this a good time for environmental investments? 5 ICM sites and 2 hotspots : more than 40 investment opportunities identified priority environmental concerns screened 15 projects proceeding through pre-feasibility studies, lead by local stakeholders more than $600 million in capital investments local governments and local stakeholders providing concrete commitments

Is this a good time for environmental investments? Contingent valuation surveys : overall willingness to pay for environmental services correlates with household income <1% of monthly household income ability to pay is a factor, as is education and age of respondent unwillingness to pay <1% of respondents

What about the private sector? Challenges: Trust, transparency and confidence in the process and the other ‘partners’ Goals, expectations, verification of viability Roles and responsibilities Governance structure of partnership Communication

What are the critical features? Critical features: leadership concrete commitments of local government and local stakeholders private sector awareness and confidence innovative financial mechanism accessible by local governments and their partners