Q&A: Working with the Public and Private Sectors to Increase Water and Sanitation Access
January 7, 2014
Important questions are often asked of the World Bank Group regarding the role for the private sector in increasing access to and improving quality of water and sanitation services, including for the poorest. The World Bank Group is deeply committed to eliminating extreme poverty by 2030 and boosting shared prosperity for the bottom 40% in a sustainable manner, goals which will not be met without addressing the world’s water challenges.
Today, 2.5 billion people lack access to basic sanitation and at least 780 million people lack access to safe drinking water. This causes thousands of children to die each day and hundreds of billions of dollars in global economic losses every year.
What does the World Bank Group believe is the best way to deliver water and sanitation services, through the private sector or the public sector?
With so many people lacking access to these basic services, developing countries have an enormous challenge ahead. It calls for a massive increase in the roll out of water and sanitation services, both in urban and in rural areas. This will require significant investment, as well as improvements in management of the utilities providing these services.
Experience around the world shows that both the public and private sector can deliver affordable, sustainable, high quality water and sanitation services, which has more to do with factors such as the capacity and financial sustainability of the service provider and whether there’s a reasonable regulatory and institutional framework in place. The World Bank Group wants to focus on results and ensure services are delivered, and therefore supports both public and private approaches.
In many places where public services do not reach people, governments engage private sector or community based organizations to reach those unreached. By helping governments to create a better enabling environment for these entities, the World Bank Group helps affordable and better services to reach those people, while also strengthening their demand for better services in the longer term.
How much money does the World Bank Group lend for water?
In Fiscal Year 2013, the World Bank Group committed US$3 billion for the water sector. In the last three years (FY11-13), the World Bank’s commitment for water projects totaled US$17 billion, comprising 56% for water supply and sanitation, 16% for hydropower, 15% for irrigation and drainage, and 13% for flood protection.
Through its Water and Sanitation Program, the World Bank helped the domestic private sector expand access to water and sanitation and improve the level of service for nearly 2.5 million people across 14 countries. Additionally, WSP catalyzed nearly US$10 million in investments from small and medium enterprises in 8 countries to expand their reach.
The International Finance Corporation (IFC), the private sector lending arm of the World Bank Group, lent US$217 million for water infrastructure projects in FY13. In recent years much of IFC's water lending has been to local and regional level water municipalities (over US$170 million in the last five years).
The Multilateral Investment Guarantee Agency (MIGA) provided guarantees in FY13 totaling US$704 million for water supply, water treatment, and hydropower investments in Ghana, Jordan, and Angola, respectively.
The World Bank’s Global Partnership on Output-Based Aid (GPOBA) has committed a total of US$59.7 million in subsidies since 2006 for water and sanitation activities which will benefit over 2 million poor people in 5 different regions.
The World Bank’s Public Private Infrastructure Advisory Facility (PPIAF) provided technical assistance totaling US$1.3 million for a number of water sector activities in Armenia, Belarus, Belize, Benin, Brazil, Comoros, Ghana, Jamaica, Nigeria and Tunisia in FY13. The support comes at the request of these governments to help understand how best to leverage the private sector in providing better, affordable services for more people.
What is the best way to increase access to and quality of water and sanitation services?
The scale of the challenge varies by and within a country. The reality is that there is not a one size fits all solution.
In some cases local or national governments will be able to increase access to affordable water for their people in a timely manner, as well as manage the service sustainably. In other cases, there will be private sector companies (local and/or international), or public-private partnerships, that can achieve these goals more efficiently. We want to help the public sector understand how best it can leverage the knowledge of the private sector, in areas such as efficiency in management and operations, for public purposes.
What is the role of the World Bank Group in mobilizing investment in the water sector?
A variety of research suggests the financing gap today in water and sanitation services amounts to hundreds of billions of dollars per year. Absent sufficient revenues, both national and local governments need to look at creative ways to mobilize additional finance to meet this gap. In addition to having reasonable rates for services, this could be through debt financing, such as through the World Bank and other development bank loans and/or equity financing.
Equity finance allows IFC to invest in projects in a wide range of sectors, including water, which may be at a development stage where debt financing is not appropriate or an investor like IFC can attract further funding. Being an equity investor also allows the IFC to work closely with projects to enhance their environmental and social management. As with any financial support that the World Bank Group provides, we have controls to ensure that conflicts of interest are avoided.
MIGA’s investment guarantees can cover both equity and debt financing in water projects. MIGA’s guarantees can be used on a standalone basis or in conjunction with other World Bank instruments, which offer an additional set of benefits. World Bank partial risk guarantees, for instance, promote stable regulatory and contractual frameworks, while helping investors obtain capital market financing on better terms and securing public obligations by a sovereign counter-guarantee.