CS2 Financing Water for All

Key organisations :
French Development Agency;  European Investment Bank

Ensuring that sufficient financing is mobilised in order to reach ambitious targets and objectives for the water sector is absolutely critical. In many countries, the investments needed to deliver sustainable water and sanitation services, expand their coverage and upgrade service delivery to meet current social and environmental expectations, are huge. Throughout the world, the challenges of providing access to safe water and sanitation are further accentuated by increasing demands from other water uses due to a variety of factors, such as population increase, pressures to increase food production, rapid urbanisation, degradation of water quality, and increasing uncertainty about water availability in the context of climate change.   Addressing these challenges will require both large capital investments for new or upgraded infrastructure, on-going investments in operations and maintenance and funding of critical “soft” activities, such as governance reforms or capacity building.   The benefits from such investments for society are substantial. Access to clean drinking water and sanitation reduces health risks and frees-up time for education and other productive activities, as well as increases the productivity of the labour force. Safe wastewater disposal helps improve the quality of surface waters, with benefits for the environment (e.g. functioning of ecosystems; biodiversity), as well as for economic sectors that depend on water as a resource (e.g. fishing, agriculture, tourism). Such benefits usually outstrip the costs of service provision and provide a strong basis for investing in the sector. Yet, most systems are underfunded with dire consequences for water and sanitation users, especially the poorest. Providing sustainable drinking water supply and sanitation services requires a sound financial basis and strategic financial planning to ensure that existing and future financial resources are commensurate with investment needs as well as the costs of operating and maintaining services. At a previous World Water Forum in Kyoto in 2003, an international panel of leading specialists led by former IMF-chief, Michel Camdessus, had called for a doubling in financial flows to the sector. Although funding for water has increased, such a radical rise has not materialised. In its absence, increased focus needs to be placed on reducing costs through efficiency gains, adjusting future expectations to match funding and mobilising additional sources through innovative financing.   This Core Group has identified targets in key areas in order to mobilise additional financing across all sub-components of the broad “water sector”, ranging from the provision of water and sanitation services to the integrated management of water resources.   Targets 1 and 3 emphasise the importance of developing a clear picture of what needs to be financed and where financing is going to come from. Strategic Financial Planning (promoted through Target 1) is a tool that decision-makers can use at national and regional level to define achievable targets and financially sound planning, taking into account limited public funding. SFP can also help planning the right balance between the three main sources of financial revenues for the sector, which are commonly referred to as the 3Ts (Tariffs, Tax-based subsidies and Transfers from abroad). As indicated in Target 3, service providers need to build a clear strategy as to how they are going to meet current and future costs from these three potential sources and when they might need to call on repayable financing (e.g. loans) to temporarily bridge the financing gap.   These overall challenges play up differently in various sub-components of the broader “water sector”:

- Target 2 highlights the importance of ensuring that necessary “soft measures” identified through strategic financial planning receive adequate financing; – Recognising the fact that the provision of water and sanitation services tends to be increasingly decentralised, Target 4 focuses on the need to ensure that local authorities have access to sustainable flows of funding to meet their obligations to ensure efficient service delivery; - Target 6 examines the specific challenges raised by the financing of integrated water management, an area that has received comparatively little attention up to this point, even though adequate management of water resources will be critical for guaranteeing reliable supply. The other two targets explore the potential for mobilising additional financing for water and sanitation in an innovative manner - Target 5 recommends the creation of innovative financing mechanisms based on the “1% water and sanitation solidarity levy” introduced in France via the Oudin-Santini law adopted in 2005, so that financing for water users in the South can come directly from water users in the North. - Target 7 identifies innovative financing mechanisms that can help provide water and sanitation services for “hard-to-reach” low-income consumers, in rural, peri-urban and urban areas. Providing sustainable services to those consumers will require estimating costs based on a lifecycle-cost approach and financing services on a sustainable basis, as opposed to the unfortunately too-common approach of “feast and famine” which consists of giving infrastructure away for free, without considering how the operations and maintenance costs will be financed.