MOBILIZING PRIVATE FUNDS TO THE WATER SECTOR by dffhrtcv3

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									MOBILIZING PRIVATE FUNDS
 TO THE WATER SECTOR
                        OSAMU MURATA
                      Chief Representative
            Japan Bank for International Cooperation
                   Manila Representative Office
                            June 2005
  Presented at Financing for Development Workshop in New York
                     World Economic Forum




                                                                1
     Outline of Presentation
1. USAID-JBIC     Water    Collaboration:
   Background and Challenges

2. Municipal Water Loan Finance Initiative
   (MWLFI): Pilot Project in the Philippines

3. Philippine  Water     Revolving Fund
   (PWRF): First Full-Scale WRF in
   Developing Countries (DCs)
                                           2
      US-Japan Clean Water for
          People Initiative
• Initiated in September 2002 at the World Summit on
  Sustainable Development (WSSD) between two
  governments

• Objectives:
  (a) provide safe water supply and sanitation to the
      world’s poor
  (b) accelerate and expand cooperation to achieve the
      United Nations Millennium Development Goal of
      reducing half the proportion of people without
      access to safe drinking water or sanitation by year
      2015

                                                        3
US-JAPAN CLEAN WATER FOR PEOPLE INITIATIVE




             US-Japan cooperation in various fields




Grant Assistance             ODA Loan                 T/A




   USAID-JBIC Water Collaboration

                                                            4
      USAID-JBIC Collaboration
• Pilot Countries:
  To realize the Initiative, Indonesia, India, Jamaica and
  the Philippines were selected as pilot countries

• Challenges:
  To mobilize private funds to the water sector in rural
  areas by establishing a Water Revolving Fund (WRF),
  the idea of which was endorsed in G8 Water Action Plan
  in Evian Summit

  To channel private sector funds for water and sanitation
  projects through JBIC ODA loan and USAID Guarantee
                                                         5
    USAID-JBIC Collaboration
• Philippine Case:
 (a) In the case of the Philippines, the Initiative is
     very     timely     with    the   enactment    of
     water/sanitation policies and consistent with
     overall policy of the Philippine Government:

 → Instituting Reforms in the Financing Policies for
   Water Supply and Sewerage Sector
 → Encourage private sector participation
 → Water as a priority sector in President Arroyo’s
   10-Point Agenda
                                                     6
     USAID-JBIC Collaboration
• Philippine Case:
  (b) Two (2) schemes proposed to facilitate
      collaboration in the Philippines
  ▓ Municipal Water Loan Finance Initiative
      (MWLFI) – as a pilot scheme combining
      ongoing projects of USAID and JBIC,
      established in October 2004
  ▓ Philippine Water Revolving Fund (PWRF) –
      targeted as a long-term financing scheme to
      be established in near future

                                                7
Municipal Water Loan Finance
      Initiative (MWLFI)
▓   Basic Features of MWLFI
    ▪      will utilize ongoing guarantee scheme of
    USAID      with    LGU    Guarantee    Corporation
    (LGUGC, private sector financing) and two-step
    loan of JBIC with Government Financial Institutions
    (GFIs), in this case, Development Bank of the
    Philippines (DBP, public sector financing) through
    its Environmental Infrastructure Support Credit
    Program II (EISCP II)

    ▪     will be the springboard for PWRF



                                                      8
             MWLFI Structure
• Funding from Both Public and Private Sources
                 BORROWER: Creditworthy Local Government Units (LGUs)
                 and Water Districts (WDs)
                 LENDERS: DBP and Private Financial Institutions (with
                 LGUGC guarantee)




                  Participating Private
                  Financial Institution
     50%                     50%
                                          100% Guarantee        30% co-guarantee

           LGUs and WDs

                                   End-user rate: 9-11% (private loan is
                                   floating, depending on market rate)
                                   Term: 7-15 years (max. 2-yr grace period)   9
 MWLFI: Implementation Status
Funding Source:
• About US $ 20 Million (Peso 1,020 Million) was
  earmarked
  → 50% (US$ 10 Million) by DBP as start-up fund
     for MWLFI

  → 50% (US$ 10 Million) will come from private
    financial institutions (PFIs) with guarantee
    from LGUGC (30% of LGUGC guarantee is
    back-guaranteed by USAID/DCA)

                                              10
   MWLFI: Current Concerns

• Term of private financing institutions is maximum
  of 7 years but requirements of water supply
  project is minimum of 15 years
• Interest rate of private banks is high and floating;
  prospective clients prefer fixed rate
• Clients do not want to incur additional guarantee
  fee for the amount to be funded by private banks
• Clients prefer 100% GFI loan given better loan
  terms/conditions and provision of technical
  assistance

                                                    11
      Existing Water Financing
      Schemes in Rural Areas
                          GFIs

  Creditworthy WSPs
                          LWUA          ODA Agencies
                                            JBIC
Semi-Creditworthy WSPs                       WB
                           DBP
                                             ADB

Pre-Creditworthy WSPs
                           LBP


                         GOP Agencies
Non-Creditworthy WSPs
                            DILG
                                                   12
    Experience in Existing Water
        Financing Schemes
→    Rural-based water financing system is
     highly dependent upon GFIs that are
     supported by foreign aid agencies
→    GFIs prefer more creditworthy WSPs;
     hence, less creditworthy WSPs receive less
     foreign aid
→    Private sector funds is not an active player in
     the sector; most WSPs hope to continue to
     utilize GFI credit windows
→    Funds from GFIs/ODA is not enough to meet
     the demands of WSPs; private money is
     needed !!!
                                                  13
     MWLFI: Lessons Learned

• Regulate GFIs
• 100% private money cannot work
• Technical assistance (T/A) is imperative;
  T/A to support WSPs especially during the
  feasibility study, detailed design and
  construction supervision stages. WSPs in
  the Philippines have weak engineering
  capacity
                                         14
Future Water Financing System

  Creditworthy WSPs                                      Private Funds

                                        WRF
                                        WRF

Semi-Creditworthy WSPs
                                                      Catalytic Assistance Role



Pre-Creditworthy WSPs                   GFIs

                                                            ODA/GOP

Non-Creditworthy WSPs                DILG/GOP


                T/A facilities must be incorporated                        15
Philippine Water Revolving Fund
            (PWRF)
● USAID and JBIC started Feasibility Study (F/S)
  of WRF in the Philippines last year in
  preparation for the establishment of a full-scale
  revolving fund that will mobilize private sector
  funds
● USAID and JBIC play catalytic roles in WRF
  process
● Involvement of government and the private
  sector from the conceptual stage
● WRF is envisioned to finance creditworthy and
  semi-creditworthy water service providers

                                                 16
       PWRF Prototype Model
USAID Guarantee                                                                    Guarantee
(up to 50% of PFI                                     GOP
      Funds)
                                                 Reserve Account
                                                                                               JBIC
                                       50%                                  50%

             PFIs                                    WRF
                                                                                           30 years,1.5% *
      7 year/8year option
         13% floating



                            LGUs                   LGUs                      LGUs
                            WDs                    WDs                       WDs

                            15 years              15 years                   15 years
                            11%                   11%                        11%

     * JBIC ODA loan interest is 1.5% in yen but assumed as 5.5% in peso including foreign exchange risk
     (3%) and government guarantee fee (1%).

                                                                                                             17
    PWRF: Emerging Issues
1. Policy Framework
   ● Water financing policy framework should be
     elaborated so as not to create unnecessary
     competition among WRF and GFIs
2. Institutional Framework
   ● Need to define a viable scheme and
     institutional framework to pursue financing
     options/mechanisms       of  PWRF;     lead
     proponent in GOP should be defined

                                              18
    PWRF: Emerging Issues
3. Major Project Issues
  ● Potential source of GOP grant/funds for the
     reserve account should be established; fiscal
     constraints of     government could be a
     setback
  ● Size of PWRF still to be decided upon
  ● Weak       technical     and  implementation
     capacities of local government units and
     water districts (LGUs/WDs); how to
     incorporate T/A facility

                                                19
    PWRF: Emerging Issues
4. Legal Framework
   ● The framework to legally bind all
     concerned parties should be structured
     as soon as the feasibility of WRF is
     confirmed




                                         20
Finalize Full-Scale Feasibility Study that will establish
most viable option including its implementation Plan



                    Policy Framework



                 Institutional Framework



                    Legal Framework



          First Full-Fledged WRF Established


USAID-JBIC will develop and replicate this model in
other developing countries                                  21
           THANK YOU!

If you have any question, please contact:
          o-murata@jbic.go.jp
               and/or visit:
          http://www.jbic.go.jp
                                            22

								
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