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Water Sector Can Attract Private Investment By Improving Efficiency, IFC Official Says

Thursday, May 8, 2014

By Ali Qassim  

May 7 — To help to attract badly needed private investment in water infrastructure globally, regulators and governments need to ensure more efficient use of water and educate the public about the real costs of delivering water, a senior World Bank executive said May 7.

“Unless we are able to maximize efficiencies on the supply side and we are willing to have the political stamina to recognize that there is no such thing as free water and sanitation and that somebody has to pay for it, then any financing models—no matter how clever they are—are not going to solve the problem,” said Elena Bourganskaia, global head of water and municipal infrastructure at the International Finance Corporation, which is the private sector lending arm of the World Bank group.

Water and sanitation infrastructure will require $12 trillion in global investment by 2030, offering large growth opportunities for the private sector, she said at the global Water Investment Summit organized by Euromoney Water Events. The summit is being held in London May 7-8.

Hybrid Schemes ‘Most Successful’ Models

Asked by a delegate why the water industry had not emerged with an innovative financial investment model, Bourganskaia said she did not believe “some magical solution” will be invented.

“I don't think the problem is about financing,” she said. “There are plenty of financial instruments to solve the right problems.”

The most successful financing model must involve both the private and public sector, she said.

Water infrastructure projects “cannot be structured just from the private sector alone. There also has to be a lot of work from the regulatory, the political side.”

Referring to the growing number of private players that are willing to finance water projects in Brazil and China, she underlined how “if this private investment is to deliver the intended results, they need to be happening within a framework that is accountable. There also needs to be a strong and competent regulator and the political will in part of the government to make tough choices.”

Political Decisions Can't Be `Outsourced.'

Speaking at an earlier session, Monica Scatasta, head of water and waste management at the European Investment Bank, agreed that “even though we need private funds,” political decisions “can't be outsourced to the private sector”.

Underlying the important role of regulatory frameworks, Scatasta said that this was “fundamental in providing the reliability and secure stable environment that repayable finance will want to see in order to be willing to fund more.”

Setting a Higher Price for Water?

Marianne Wenning, director of “Quality of Life, Water and Air” at the European Commission's Environment DG, said that while she believed the EU has adopted a “coherent” water policy framework, she admitted more effort was needed to educate citizens about the value of water.

“There is a right to water enshrined in the EU charter but that does not mean using water as you want,” she said. “We should be asking where is water used, whether certain sectors are using more than others, whether to increase water efficiency? There are many questions and I have no immediate answer. But the issue of the right to water and pricing of water needs to be addressed.”

Sasja Beslik, head of responsible investment and governance at Nordea Investment Funds, concurred that the water sector suffered from a “credibility issue” because a lot of his clients are concerned about how their investments will “fit in with water rights.”

“If we don't have a price for water, we will have difficulties,” he warned.

Lydia Whyatt, managing director at Resonance Asset Management LLP, said that the water industry must address the pricing issue.

“It has to be incrementally done and if the government needs to support people who cannot pay, then that is what needs to happen,” she said.

She added though that a government's typical five-year cycle was not long enough to deal with the expected unpopularity caused by a hike in water prices.

Charging the full cost of water could encourage more efficient use, according to a report published last year by the European Environment Agency.

To contact the reporter on this story: Ali Qassim in London at correspondents@bna.com

To contact the editor responsible for this story: Greg Henderson at ghenderson@bna.com

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