1 José Frade European Investment Bank Water and Sanitation EC-EIB Seminar Session 1: What constraints access to finance Financing the Maputo water supply project. Going beyond the classic approach Brussels, 5 July 2010

2 José Frade European Investment Bank Maputo water supply situation before the project (2006) Institutional framework: (1) Regulator; (2) Public asset holding company; (3) intern. private operator, lease contract till 2014 but Only 38% of the 1.8 million population is served by the system Of 0.7 million served, about 80% are in the urban cement area with water 12 hr/day, 20% in peri-urban with standpipes UFW = 65%, due to physical losses, illegal connections (25%) Investment needs to increase coverage of more than 100 M No capacity to pay the cost of services (aver. tariff < 0.6 /m 3 ) Lack of sewerage and basic sanitation, groundwater at risk A nightmare, no easy solution, standard approach not feasible, need to think out of the box, innovate

3 José Frade European Investment Bank How to conceive, finance the project? The main objectives Increase availability of water (24 hr) to served population Expand services to larger population (MDGs) Reduce UFW both technical and commercial losses Make the services affordable to all the users The main challenges The majority of un-served population live in peri-urban who might not want standpipes and cannot afford full CR tariffs The promoter and operator think that water services to the poor will impact negatively on their financial sustainability About 300 small scale informal private providers

4 José Frade European Investment Bank The initial Action Plan The project concept Three main components: 1) increase production (expand treatment plant and additional trunk main); 2) improve efficiency of system (rehabilitate network, commercial action); 3) expand network and new sources (boreholes) to peri-urban The finance concept Co-finance with EDFIs present in the country (NL, FR) and interested to support peri-urban supply (AFD) Access to grants (EU WF, AFD, FMO), soft loan (EIB/IF) The initial studies Feasibility study & proposal to EUWF paid by EIB Beneficiary assessment: W&Ctp+service provided to the poor

5 José Frade European Investment Bank The Project signed in Some key data The log frame (some key indicators) Increase coverage from 38 to 73% = million population served of which 0.4 million in poor areas UFW reduced to 40% + collection rate increase (77 => 83%) The financing plan Co-finance with partners present in the country (NL/FMO) and interested to support peri-urban supply (AFD) Access to grants (EU WF, AFD, FMO), soft loan (EIB/IF) 95 M funded by EIB (31), EC (25), ORET (19), AFD (7), Gov The initial studies Feasibility study & proposal to EUWF paid by EIB Beneficiary assessment: W&Ctp+service provided to the poor

6 José Frade European Investment Bank Some innovative actions (1) The cooperation among donors/financiers A MoU signed by all donors in 26/7/06 (high level ceremony), aim at coordination and harmonisation: joint management, funding, disbursement, monitoring & evaluation EIB (lead donor) procurement guidelines; i) Single approval of tendering; iii) joint missions; (iv) pari-passu disbursement v) a Steering Committee; vi) local support;vii) joint mid-term review The involvement of NGOs working in the sector & country Meeting with NGOs in all monitoring missions Identify investment opportunity in Maputo poor/peri-urban area Incentive/facilitate their access to grants: WaterAid/EUWF, WSUP/Bill Gates Foundation = More funding to the project (tertiary network, connections) + sanitation + waste collection

7 José Frade European Investment Bank Some innovative actions (2) Developing the capacity of local private sector About 350 small scale informal providers ( borehole, tank, pipes, meters) Some SSIP have been licensed for small lease contracts of peri-urban autonomous systems. OBA support, maybe microf. Leverage more finance and prepare next investment phase Create an anchor project to leverage finance and investment Production increase + Efficiency improv. covered by project Design & tender of expansion of network goes beyond project limit (95 M ), construction contract has an optional part Anchor project, well designed & known financiers attract other donors: i) OBA from WB, ii) more grants from NGOs; (iii) AFD; and enable more investment immediately (network expansion)

8 José Frade European Investment Bank The current situation Design & tender completed, construction contracts awarded Disbursement made or requested = 60% of total project cost Substantial completion scheduled for end of 2011; Likely (i) increase of coverage rate (85% instead of 73%) and (ii) reduction of UFW (28% instead of 40%) but Financial sustainability of the asset holding company still at risk due investment in more new cities at the request of the Government and funded by other donors (WB, AfDB) with whom coordination has been difficult Role of the European financiers. Need to cooperate and enhance our leverage, blending grants & loans