Regional multi-stakeholder consultation on Financing access to basic utilities for all (Lusaka, Zambia, April 2007)

Outcome of the first regional multi-stakeholder consultation on Financing access to basic utilities for all in Brasilia, Brazil, December 2006 Meeting report and background information is available at:

Overview: I. Mobilizing finance: Stable and predictable financing mechanisms for utility providers at the sub-national level II. Ensuring sustainable access for the poor through internal revenue generation – electricity III. Ensuring sustainable access for the poor through internal revenue generation – water and sanitation IV. Macroeconomic factors to be taken into account

Section I Mobilizing finance: Stable and predictable financing mechanisms for utility providers at the sub-national level

1.1. Sub-national bonded debt Municipal bonds as financing mechanisms Few issues in Latin America despite heavy promotion by World Bank, USAID and others (Mexico is exception) Fiscal Responsibility Laws limit debt of municipalities Fiscal transfers from central government remain most important source of finance

1.2. The role of financial intermediaries Some success with pooled financing arrangements through municipal development funds: Colombia: Financial institution Findeter South Africa: Infrastructure Finance Corporation Limited Getting international credit rating is a challenge

Section II Ensuring sustainable access for the poor through internal revenue generation – electricity

2.1. Pre-conditions for Successful Sustainable Investment into utilities Importance of local institutions and local context for sustainable investment into basic utilities LUZ PARA TODOS (LIGHT FOR ALL)-initiative aims to extend electricity to the whole population in Brazil by the year 2008 Supply options: grid extension (urban areas) as well as local renewable energy systems for more isolated rural areas, such as palm oil, photovoltaic (PV) cells for community and domestic use, and micro and small hydro plants

Section III Ensuring sustainable access for the poor through internal revenue generation – water and sanitation

3.1. Raising internal revenue generation through participatory approaches The experience of Porto Alegre, Brazil Attempts to privatize public services in Porto Alegre were rejected; public provision has been successful Residents of Porto Alegre take part in financial decisions of municipality through a participatory budget process Financing through: Cross-subsidies from rich to poor households Multilateral loans

The experience of Buenos Aires and surrounding municipalities in Argentina 9,6 million people, 38% below the poverty line Social rate for water is financed through cross- subsidies To identify the target groups for social rates correctly a social survey was undertaken, assessing data on income, health and consumption related variables Users of social rate had to take part in the social survey 3.2. Applying cross-subsidies

3.3. Increasing internal revenue generation through minimizing losses The experience of Mexico City Inequitable distribution of water Ineffectiveness of consumption subsidies Problems: 35% of leakages, 50 years old distribution network, tectonic movements efficiency-enhancing measures: 822 km of secondary networks (6,7% of the total) were substituted with High Density Polyethylene Collaborative effort between state and central government (Fideicomiso 1928) increased the efficiency of the water and sanitation system.

Section IV Macroeconomic factors to be taken into account

4.1. Appropriate fiscal and monetary policies for public investment Incompatibility of privatization of public services with poverty eradication and MDGs Rather than crowding out investment, prudent public spending increases the productive capacity of the economy and can attract private investment Increased government spending on utilities is necessary but needs to be coordinated with adequate monetary policies.

Percentage of the Population with Access to Electricity (IEA 2002) 4.1. Appropriate fiscal and monetary policies for public investment

Tendency of Public Investment Appropriate fiscal and monetary policies for public investment

Macroeconomic risks Key risks in financing utilities through international loans: Maturity mismatches: borrowing from financial markets on a short term for long term infrastructure investments Interest rate risk: difference in interest rates at the time between borrowing and refinancing Exchange rate risk: international loans refinancing in foreign currency vs. local currency revenues PPPs off-budget loan guarantees for the investor

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