Financing water for all : report of the World Panel on Financing Water Infrastructure

Report by the world panel on financing globalwater infrastructure, chaired by M Michel Camdessus, and formed late in 2001. The subject matter of the panel is the financial needs of the water sector in its broadest sense, taking a 25-year perspective. The water sector's problems arise partly from weaknesses in governance and partly from risks specific to the sector. In the realm of governance, the main problems include: the apparent low priority given to water sector issues by central governments; an inadequate general legal framework; lack of transparency in award of contracts; non-existent, or weak and inexperienced regulators; and resistance to cost-recovering tariffs. The main sector-specific risks include: project profile: capital intensive with high initial investment and long payback period; low rate of return; foreign exchange risk: mismatch between revenues in local currency and finance in foreign currency; sub-sovereign risk: decentralised water agencies with service responsibility but lacking financial resources and credit standing; risk of political pressure on contracts and tariffs, with weak and inconsistent regulation; and contractual risk: projects of long duration entered into on the basis of poor initial information.
The panel believes that water projects can be financed by combining public funds with private financing in transparent and acceptable ways. Private investment does not just include that from large international operators. It also comes from local investors in all parts of the sector, at all levels. Governments and water authorities should recognise the present and potential role of the local private sector and provide a legal framework to encourage greater long-term investment from this source.
Local communities need to receive the powers and resources necessary to enable them to perform their important role. Support from local NGOs, with backing from their international counterparts, is often crucial. In addition to the ordinary operations of local commercial banks, micro-credit schemes are important in financing community water projects and small local producers, and they should be supported by donors, MFIs, banks and external NGOs through the provision of seed capital, initial reserves and guarantees. Ongoing subsidies should be avoided.
Building the capacity of different local and national civil society stakeholders to perform independent watchdog roles in the sector is important in tracking the performance of public and private bodies and tackling corruption.