VEI: How to support urban water utilities to become creditworthy?

During the Stockholm Water Week in August 2017, the World Bank announced that a staggering €125 billion is needed annually to achieve universal access to safe water and sanitation by 2030. This is four times more than countries and international organisations are currently spending on water and sanitation infrastructure and services. It is clear that reaching this investment level and realising SDG6, is not achievable by public funding alone, but rather requires the involvement from the private sector. – by Adriaan Mels

In the Netherlands, Dutch water utilities invest some €250-330 million annually in the rehabilitation and expansion of their water pipes and treatment works. These investment funds are largely drawn from national and international (mostly commercial) banks based on their creditworthiness (i.e. a triple AAA rating), which shows an enabling, stable environment as well as a reliable track record in achieving full cost recovery and meeting their loan obligations. The Dutch example, shows that these three elements are key to attract investments for water service utilities in the urban context in developing countries.

And that is where the problem lies: many water utilities in developing countries are practically bankrupt. High water losses (leading to non-revenue water), low tariffs that don’t cover costs, and inefficient utility operations, give them a ‘junk’ status in the eyes of commercial borrowers. Improvements in poor financial and operational performance is needed to achieve the SDG 6 goal to provide safe water and sanitation for all by 2030.

Water Operator Partnerships (WOPs) have provided positive results to improve the creditworthiness of water utilities. In a WOP, a ‘mentor’ water utility company supports a ‘mentee’ to improve its performance. WOPs can have different objectives, from technological assistance, or a partnership to improve the financial status of the mentee and enable them to attract investment funds. According to the Global Water Operator Partnership Alliance (GWOPA), more than 200 of these WOPs have been established over the last decade, and the cooperation through WOPs is growing. Its main power lies in the peer-to-peer partnering in a time frame that allows for a utility in a developing country to improve its operations.

Vitens Evides International (VEI, an organisation that represents five Dutch water utilities) and four Ethiopian water utilities (Adama, Ambo, Assella and Bishoftu) started a WOP that ran from 2012 to 2016, funded by the EU and the cooperating parties. VEI supported the Ethiopian partners through expert visits, training courses and exposure programmes. In addition, as part of the partnership, minor investments in equipment and hardware were made. The partnership significantly improved several operational processes, including administrative procedures, and the development of proper business plans. One important result of the partnership, was the invoicing and payment of more than €2 million in outstanding debts, which significantly improved the cash flow of the participating Ethiopian utilities. As a result, their creditworthiness improved and they were able to retain a sizeable loan for infrastructure investments in Adama.

A new large WOP, called WaterWorX, was started recently, through which 24 utilities in Africa, Asia and Latin America will be supported until 2030. The partnership is funded jointly by the Dutch Ministry of Foreign Affairs, the mentoring Dutch utilities and the mentees. In order to reach more than 10 million people by 2030, WaterWorX will mobilise up to €500 million in investments from the private sector for infrastructure expansion, rehabilitation, and improvements in the sector.

Dutch water utilities are playing their part in this effort to improve (financial) performance, supporting more than 40 water utilities worldwide and although the Dutch efforts are significant, our outreach is still modest compared to the enormous global challenges we face to create universal access. Around 670 million people lack access to safe water and 2.4 billion people still do not have access to decent sanitation facilities. We would like to challenge water utilities in Europe and the USA to follow our example and support water utilities in developing countries to become creditworthy, and improve their access to private investments. It is key to realise SDG6.

Adriaan Mels is Regional Director at Vitens Evides International