Everybody's business

Water is everybody's business - and increasingly so, given how little there is that we can actually use. Fresh water is one of the world's most precious resources - only 2.5% of the world's water is fresh, and of that, 2/3s is locked in glaciers and other ice masses. Of the remaining, 2/3s evaporates or is used in the plant cycle. Of the small remainder, 20% is in areas too difficult to access and 75% comes in the form of monsoons or floods. On average, therefore, we get to use less than 0.1% of the total water on the planet.

Over the last decade or so, the issues surrounding water access and provision have grown substantially in importance, and are well known - it is estimated that over 1 billion people in the world today lack access to safe fresh water, and in the absence of further investment, this number will grow to over 2 billion by 2025. Worse, some 3 million die each year from water related diseases. The principal issue facing us today is simply that the needs of an increasing population for water far outstrip currently available financing resources.

Total global required annual investment is estimated in excess of $100 billion a year for water (including service provision and agriculture) over the next 15-20 years - the public sector can provide a part of it, but not all. Recognition of this funding gap in the early 1990s resulted in great interest in the private sector providing part of the funding. While initial efforts in this direction were promising...

a lack of understanding on the part of the public and private sectors on the benefits and risks involved in transacting with one another, and several macroeconomic shocks led to a massive contraction in private investment in the sector, and a widening in the funding gap.

Experience has brought about an emerging and more interesting generation of public-private transactions in the water sector - popularly known as PPPs. PPPs are considered a means to increase the quantity and quality of infrastructure investment. PPPs are also thought to better balance the risks of investing in the water sector more fairly between the public and private parties by allowing the public sector to understand better the concept of cost recovery and appropriate regulation, and the private sector to understand the policy issues surrounding 100% provision.

While there are multiple definitions of PPPs, one way of looking at PPPs is to divide them into those involving public sector risk mitigation with 100% private financing, private management with 100% public financing and mixed private -public financing and/or ownership. An important development is the growing acceptance of using performance-based subsidies (e.g. output based aid) in sensitive sectors such as water to enhance greater access and provision.

A further interesting development in the water sector in the last couple of years has been the rise of local and regional players who are more comfortable working with local governments often in PPP structures. This has resulted in a resurgence of private investment in the water sector by players more comfortable with the very local characteristics that define the water sector. Water is not only local from a public policy angle, but is increasingly becoming more local from a financing/ownership viewpoint. IFC is providing financing to local/regional sponsors in PPP projects around the world with a single objective of increasing access and provision to all.