1. CURRENT SITUATION, STRATEGIC PRIORITIES, INSTRUMENTS AND PORTFOLIO IDB ON WATER BUSINESS OPPORTUNITIES WITH THE IDB ON WATER Winnipeg, September 2007

2. OVERVIEW OF PRESENTATION SITUATION Water Challenges, Needs and Achievements in LAC International water commitments IDB STRATEGIES IN THE WATER SECTOR Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) INSTRUMENTS IDB-Netherlands Water Partnership Program (INWAP) InfraFund IDB ACTIVITIES IDB Water Portfolio at a Glance Water Activities in Pipeline (2007-2008)

3. SITUATION: EXTERNAL CHALLENGES Latin America and the Caribbean has the most freshwater in the world with more than 55 percent of the world’s total renewable water resources. Unprecedented population growth. 167 million in 50s, 519 in 2000; 732 in 2030. Significant urban concentration of the population. 42% in 50s, 75% in 2000, and 84% in 2030. Some among the largest of the world. More than 60 transboundary watersheds Scarcity. Great majority of counties water rich, yet many countries face severe water problems in arid and semi-arid territories. Worsening water quality. Less than 10% of wastewater is treated. Accelerated groundwater depletion. Climate stress. PHYSICAL

4. SITUATION: EXTERNAL CHALLENGES Decentralization and stakeholder participation at all levels. How to ensure accountability. Lack of capacity of local governments. Harmonization of institutional, legal and policy frameworks. Globalization and FTAs. GOVERNANCE

5. SITUATION: EXTERNAL CHALLENGES Compared to other regions of the world, the coverage levels achieved in the Latin American and Caribbean countries may generally be considered as reasonable, with the possible exception of wastewater treatment. But there are some caveats to these statistics….. CHALLENGES: WATER SUPPLY AND SANITATION

6. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The disparities in access to the service Access versus connection Rural versus Urban coverage. Latin America and the Caribbean Water Supply Coverage in 1990 and 2004 Source: JMP, UNICEF/WHO 2006. CHALLENGES: WATER SUPPLY AND SANITATION

7. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The disparities among countries Water Supply Coverage through Public Networks by Country in 2004 CHALLENGES: WATER SUPPLY AND SANITATION

8. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The quality of the service Poor Quality. Even for the 0.5 billion people who has access to water supply, quality of service is often poor. This is evidenced by intermittent supply, low pressure and poor drinking water quality. More than 219 million people have intermittent water supply and only 24 percent of the urban popullation benefits from effective water quality monitoring systems (PAHO, 2001). “ The most important impacts of coverage deficits are related to human health” (Regional Document of the Americas, IV WWF, 2006). “ Unsafe water supplies and poor sanitation hygiene places 10 th among the 20 leading causes of mortality in the region” CHALLENGES: WATER SUPPLY AND SANITATION

9. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The efficiency of the service Non-revenue water. the average of the main Latin American utilities is 40% (between 15-25%). Labour productivity. The average is about 5 employees per 1000 connections (reccomended 2). Micro-metering (varies across countries). CHALLENGES: WATER SUPPLY AND SANITATION

10. SITUATION: SITUATION: (Cont..) The statistics do not take into account: Wastewater treatment Only an estimated 10% of the collected wastewater finds its way into wastewater treatment plants, which often are not properly functioning (PAHO, 2001) CHALLENGES: WATER SUPPLY AND SANITATION

11. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The low cost recovery of the service providers Tariff and cost recovery. Water tariffs are the highest of any region of the developing world but less than half as high as in OECD countries (World Bank, 2006). It appears that most utilities in Latin America recover more than their operating costs. However these calculations are based on billed revenues and not on collected revenues. The reasons include low levels of operational efficiency, poor recovery of bills, poor procurement practices and political corruption. CHALLENGES: WATER SUPPLY AND SANITATION

12. SITUATION: SITUATION: (Cont..) The statistics do not take into account: The poor financial health of the service providers Some countries that have reached higher levels of cost recovery, such as Chile and some utilities in Brazil and Mexico, rely on commercial credit financing. However the vast majority of utilities relies on transfers from national governments. These can take various forms. The level of transfers from national governments is highly variable and often far from sufficient to increase coverage and improve service quality. CHALLENGES: WATER SUPPLY AND SANITATION

13. SITUATION: SITUATION: (Cont..) Private sector participation in the 90’s What happened? Large international investors. Some success stories (CH,CO,EC,HO,etc). Over optimism and disappointments in Y-2000 Causes: abrupt increase in tariffs, changes in local politics, macroeconomic conditions, social conflict. Results Less interest of multinationals Emergence of local and regional investors: CO and AR Larger role of the Government Local politics: less PSP CHALLENGES: WATER SUPPLY AND SANITATION

14. NEEDS Managing and Mitigating Natural Hazards 1.Need to build infrastructure to regulate the hydrologic regimes (surface runoff concentrated in a few months) 2.The region is also naturally prone to disasters (¨El Niño¨ and ¨La Niña¨). Financing Water Sector Infrastructure Needs (Productive sectors). 3.Agriculture is the primary water consumer with less than 11 percent of the total arable land in the region. 4.Only 40 percent of the region´s hydropower potential had been developed by the year 2000. SITUATION: SITUATION: (Cont..)

15. NEEDS: Financing Water Sector Infrastructure Needs (Social/environmental sectors). 5.Water Supply. About 100 million residents lack access to a safe water supply and 120 million people do not have sewerage. 6.Sanitation. Access to sanitation for the urban population is relatively high, but rural sanitation coverage remains low. The number of people served must increase by 131 million (39%) in urban areas and 32 million (52%) in rural areas. To accomplish MDG target on Sanitation, total sanitation services in the region have to be developed for 37,215 people each day from 2003 until 2015 (IDB,2005) 7.Water Quality. In most countries, the greatest challenge is wastewater treatment, only a small percentage (less than 10 percent) of which is treated. The cost to fill these gaps has been estimated at around $65 billion, while the cost to reach the Millennium Development Goals (MDG) in this area is estimated at $27 billion. SITUATION: SITUATION: (Cont..)

16. Achievements: 1.IWRM Planning. Since 2000 countries have made commitments to elaborate IWRM plans. To date IDB has supported 6 national planning processes. 2.Policy Development. Water Legislation (recent reforms in Mexico and Brazil, new water law for Nicaragua and Paraguay). Rules for equitable water allocation. Water markets.Water pollution charges. 3.Local Utilities. Early on this decade there was an exodus of international private water operators but a new generations of public and private Latin American companies are taking their place. 4.Water Supply (2004). Population w/out access: 1990 = 17% ; 2004 = 10%; MDG target 9%. MDG reachable if current rate of increase in coverage is maintained. 5.Sanitation (2004). Population w/out access: 1990 = 32% ; 2004 = 23%; MDG target 16%

17. OVERVIEW OF PRESENTATION SITUATION Water Challenges, Needs and Achievements in LAC International water commitments IDB STRATEGIES IN THE WATER SECTOR Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) INSTRUMENTS IDB-Netherlands Water Partnership Program (INWAP) InfraFund IDB ACTIVITIES IDB Water Portfolio at a Glance Water Activities in Pipeline (2007-2008)

18. SITUATION: INTERNATIONAL WATER COMMITTMENTS EXTERNAL MILESTONES : IWRM and Water Efficiency Plans by 2005 (2002). In WSSD 2002 countries committed to develop IWRM plans by 2005. Millennium Development Goals by 2015 (2000). Reduce by half the proportion of people without sustainable access to safe drinking water and basic sanitation by 2015¨

19. OVERVIEW OF PRESENTATION SITUATION Water Challenges, Needs and Achievements in LAC International water commitments IDB STRATEGIES IN THE WATER SECTOR Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) INSTRUMENTS IDB-Netherlands Water Partnership Program (INWAP) InfraFund IDB ACTIVITIES IDB Water Portfolio at a Glance Water Activities in Pipeline (2007-2008)

20. IDB STRATEGIES IN THE WATER SECTOR DIRECTLY RELATED TO THE WATER SECTOR: Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) OTHER: Environmental Safeguard and Compliance Policy (2006) Strategy for Agricultural Development (2000) Water Supply and Sanitation Strategy (2007)

21. THE WATER SUPPLY AND SANITATION INITIATIVE THE WATER SUPPLY AND SANITATION INITIATIVE (Cont..) Calls for the implementation of four special programs between 2007 and 2011 including technical assistance and financing: 1.100 Cities: WSS services to reach cities with over 50,000 inhabitants. 2.3,000 Rural communities: address needs to community based-organizations 3.Water defenders: Environmental rehabilitation, water pollution control and wastewater treatment. 4.Efficient and transparent utilities

22. THE WATER SUPPLY AND SANITATION INITIATIVE THE WATER SUPPLY AND SANITATION INITIATIVE (Cont..) Through an array of financial and nonfinancial instruments…. Sector business plans Water express: express line of credit to eligible clients. AquaFund, multidonor technical assistance fund. Strategic partnerships: WOPs, WSS panel. Ambitious investment targets Dissemination strategy

23. THE WATER SUPPLY AND SANITATION INITIATIVE THE WATER SUPPLY AND SANITATION INITIATIVE (Cont..) IDB Water Supply and Sanitation Amount approved and projected US$ Source: IDB 2007 Projected Increase in Investments.

24. OVERVIEW OF PRESENTATION SITUATION Water Challenges, Needs and Achievements in LAC International water commitments IDB STRATEGIES IN THE WATER SECTOR Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) INSTRUMENTS IDB-Netherlands Water Partnership Program (INWAP) InfraFund IDB ACTIVITIES IDB Water Portfolio at a Glance Water Activities in Pipeline (2007-2008)

25. IDB-NETHERLANDS WATER PARTNERSHIP PROGRAM (INWAP) INWAP is a joint effort between the Inter-American Development Bank (IDB) and the Government of the Netherlands to promote the international principles of Integrated Water Resources Management (IWRM) INWAP became fully operational in August, 2002 with US$10 million available for seven years. INWAP resources can be used to hire specialized consulting services and conduct the necessary activities to create: innovative knowledge, water sector reforms, planning processes and capacity building activities

26. IDB-NETHERLANDS WATER PARTNERSHIP PROGRAM (INWAP) Only IDB Staff involved in water-related projects may submit proposals. INWAP funds are completely untied Proposals for greater amounts have been funded, proposals for less than US$150,000 are generally encouraged due to the limited resources of the Program. INWAP receives proposals throughout the year.

27. IDB-NETHERLANDS WATER PARTNERSHIP PROGRAM (INWAP) IDB-NETHERLANDS WATER PARTNERSHIP PROGRAM (INWAP) (Cont..)

29. INWAP INWAP (Cont..) www.iadb.org/inwap

30. INFRASTRUCTURE FUND The InfraFund is dedicated to assisting public, private and mixed- capital entities in LAC in the identification, development and preparation of bankable and sustainable infrastructure projects that have the potential of reaching financial closure. InfraFund became fully operational in August, 2006 with US$20 million available from the Bank’s Ordinary Capital. ELEGIBLE ACTIVITIES Preparation of pre-feasibility, feasibility, technical, economic, environmental, legal and other relevant studies. Preparatory activities for investment in infrastructure, including public sector capacity building and targeted business climate enhancement measures and others initiatives aimed at boosting private sector participation in infrastructure in LAC.

31. INFRASTRUCTURE FUND INFRASTRUCTURE FUND (Cont..) www.iadb.org/infrafund

32. OVERVIEW OF PRESENTATION SITUATION Water Challenges, Needs and Achievements in LAC International water commitments IDB STRATEGIES IN THE WATER SECTOR Integrated Water Resources Management Strategy (1998) Water Supply and Sanitation Initiative (2007) INSTRUMENTS IDB-Netherlands Water Partnership Program (INWAP) InfraFund IDB ACTIVITIES IDB Water Portfolio at a Glance Water Activities in Pipeline (2007-2008)

33. IDB WATER PORTFOLIO AT A GLANCE www.iadb.org/inwap

34. IDB WATER PORTFOLIO AT A GLANCE IDB WATER PORTFOLIO AT A GLANCE (Cont..) The first operation ever approved by the Inter- American Development Bank was a water supply and sanitation project in Peru in February 1961. Since then, it has provided financing to water-related projects and activities averaging $900 million per year and totaling $40 billion or 18 percent of its total investment portfolio.

35. IDB WATER PORTFOLIO AT A GLANCE IDB WATER PORTFOLIO AT A GLANCE (Cont..)

36. Some Key Financial Highlights (1990-2005) Investment volume (grants and loans) US$13.2 billion Water lending as % of total Bank lending 11% Projects under execution 40% Public sector water investments (vrs. Private) 96% Sources of funding 90%OC 1% TC Dedicated water projects 89% Water Infrastructure (vrs. Support investments) 70% IDB WATER PORTFOLIO AT A GLANCE IDB WATER PORTFOLIO AT A GLANCE (Cont..)

45. ACTIVITIES IN PIPELINE (2007-2008) By Country 42% to Peru (PBL, WS, San) 11% to Colombia (WSS and Environmental rehabilitation at the sub national level). 15% to Brazil mostly to Environmental Sanitation at the sub national level. By Type 18% on Sanitation 10% on Water Supply 68% on Environmental Rehabilitation 22% at the national level 78% at the sub national level

46. REQUIRED CAPACITIES: INVESTMENT LOANS FINANCIAL ENGINEERING Financial Modeling Business Plans Public Corporate Desing PROJECT PREPARATION Overall project desing, infrastructure desing Institutional design and evaluation Financial and economic analysis and evaluation PROJECT IMPLEMENTATION Design and commissioning of regulatory and supervisory entities Design of contracts and corporate frameworks Managing Projects Design of works and supervision of construction

47. FOR MORE INFORMATION Infrafund Esteban Piedrahita, estebanp@iadb.orgestebanp@iadb.org INWAP Coordinator Silvia Ortiz, silviaor@iadb.orgsilviaor@iadb.org Water Supply and Sanitation Initiative Corinne Cathala, corinnec@iadb.orgcorinnec@iadb.org Water Portfolio Central American Region Ruben Avendano, rubenav@iadb.orgrubenav@iadb.org Water Portfolio Southern Cone Fernando Bretas, fernandob@iadb.orgfernandob@iadb.org Water Portfolio Andean Countries Sergio Campos, sergioc@iadb.orgsergioc@iadb.org Water Portfolio Caribbean Ana Maria Linares, anamariali@iadb.organamariali@iadb.org