OECD Studies on Water

ISSN :
2224-5081 (online)
ISSN :
2224-5073 (print)
DOI :
10.1787/22245081
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Water is essential for economic growth, human health, and the environment. Yet governments around the world face significant challenges in managing their water resources effectively. The problems are multiple and complex: billions of people are still without access to safe water and adequate sanitation; competition for water is increasing among the different uses and users; and major investment is required to maintain and improve water infrastructure in OECD and non-OECD countries. This OECD series on water provides policy analysis and guidance on the economic, financial and governance aspects of water resources management. These aspects generally lie at the heart of the water problem and hold the key to unlocking the policy puzzle.

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Meeting the Challenge of Financing Water and Sanitation

Meeting the Challenge of Financing Water and Sanitation

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Author(s):
OECD
Publication Date :
14 Oct 2011
Pages :
142
ISBN :
9789264120525 (PDF) ; 9789264120518 (print)
DOI :
10.1787/9789264120525-en

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The investments needed to deliver sustainable water and sanitation services, including the funds that are needed to operate and maintain the infrastructure, expand their coverage and upgrade service delivery to meet current social and environmental expectations, are huge. Yet, most systems are underfunded with dire consequences for water and sanitation users, especially the poorest. Providing sustainable drinking water supply and sanitation services requires sound financial basis and strategic financial planning to ensure that existing and future financial resources are commensurate with investment needs as well as the costs of operating and maintaining services. Some of the key messages of the report are:
- WSS generate substantial benefits for the economy
- Investment needs to generate these benefits are large in both OECD and developing countries
- Tariffs are a preferred funding source, but public budgets and ODA will have a role to play, too
- Markets-based repayable finance is needed to cover high up-front capital investment costs
- Strategic financial planning and other OECD tools can help Governments move forward

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    Foreword
    Almost 900 million people cannot get clean drinking water and 2.5 billion lack access to basic sanitation. Polluted water and poor sanitation cause 1.5 million preventable child deaths per year which makes them among the biggest causes of infant mortality along with malaria and malnutrition.
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    Executive summary
    The investments needed to deliver sustainable water and sanitation services, including the funds that are needed to operate and maintain the infrastructure, expand coverage and upgrade service delivery to meet current social and environmental expectations, are huge. Benefits from such investments for society as a whole are equally substantial. Yet, most systems are underfunded with dire consequences for water and sanitation users, especially the poorest. Providing sustainable drinking water supply and sanitation services (WSS) requires a sound financial basis and strategic financial planning to ensure that existing and future financial resources are commensurate with investment needs as well as the costs of operating and maintaining services.
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    Introduction
    The benefits of investing in water and sanitation services are very substantial. An adequate and dependable source of water is needed to sustain human life, economic development, and the integrity of ecosystems. Investment in drinking water and sanitation services can yield substantial benefits, with benefit-cost ratios that are consistently above one. According to the JMP, around 884 million people lack access to improved water sources and 2.6 billion are without access to basic sanitation. Approximately 10% of the global burden of disease could be prevented with improvements to water, sanitation and hygiene and better water resource management worldwide. The burden of water-related diseases falls disproportionately on developing countries and particularly on children under five, with 30% of deaths of such children attributable to inadequate access to water and sanitation. Wastewater from domestic and industrial uses often reaches the environment untreated or insufficiently treated, resulting in major impacts on surface waters and associated ecosystems as well as economic activity that uses these resources.
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  • Expand / Collapse Hide / Show all Abstracts Key issues with respect to financing water and sanitation

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      What are the benefits of investing in WSS?
      This chapter identifies the types of investments that are required to deliver WSS and presents available evidence on the magnitude of the benefits that are generated from such services. Such benefits usually outstrip the costs of service provision and provide a strong basis for investing in the sector.
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      Current status of WSS and investment needs
      This chapter synthesises aggregated investment estimates in order to maintain and expand drinking water supply and sanitation services (WSS) around the world. In doing so, the Chapter distinguishes between the situation in countries with almost universal water and sanitation coverage (most OECD countries and some transition countries) and those where extending access to the service remains at the heart of current investment policies.
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      Where is the money going to come from?
      This chapter presents all possible sources of finance in turn and evaluates the potential for generating additional financing from each of these sources. In doing so, we examine the likely impact of the ongoing financial and economic crisis. The chapter also examines the potential role of the private sector in helping mobilising financing for the sector.
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  • Expand / Collapse Hide / Show all Abstracts A toolbox to support effective water and sanitation policies

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      Introduction to the toolbox
      To provide support to governments and water and sanitation service providers, the OECD (in conjunction with a number of other international organisations) has developed a series of tools, including financial tools, benchmarking tools and guidelines with a view to improve the performance of utilities. The audience for these tools varies, and may include policy and decision makers, municipal government staff, water utility managers, staff of international organisations, etc.
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      Strategic Financial Planning for WSS at national or regional level – the FEASIBLE tool
      Strategic Financial Planning (SFP) is a methodology designed to help developing and transition countries that need to engage in a reform process for the water and sanitation sector with defining achievable targets and financially sound planning, taking into account limited public funding. FEASIBLE is a computer-based decision support tool that can assist with the process.
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      Financial planning tool for water utilities
      Few water utilities have the capacity to rely on strategic financial planning. The Financial Planning Tool for Water Utilities (FPTWU) was therefore created to assist water utilities, originally in EECCA countries, with achieving medium and long-term operational and financial sustainability through thorough investment planning. It is a computerised model that allows users to summarise key technical, financial, operational parameters of a water company, calculate a set of performance indicators for utility monitoring and analyse the financial gap to meet these performance indicators on the basis of cash in and cash out. The resulting gap is presented graphically and the model allows defining a program of measures in order to close the financing gap.
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      Multi-year investment planning tool for municipalities
      Long-term capital planning is required to expand and repair water and sanitation infrastructure. The MYIP tool is targeted at municipalities to help them prioritise their investments in the economic and social sectors under their responsibility. To do so, the tool gathers data on historical budget trends, planned expenditures, available resources and cost of debt. Based on investment prioritisation criteria, it then sets priorities for the next 4 to 6 years.
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      Guidelines for performance-based contracts
      In many developing and transition countries, the performance of water utilities is poor and many countries have therefore turned to performance contracting. The OECD has developed Guide lines in which the key elements for preparing, negotiating and implementing performance-based contracts are addressed. They include the choice of performance indicators, tariff structures and mechanisms for monitoring and enforcing the contract. This tool was developed primarily for countries in Eastern Europe, Caucasus and Central Asia (EECCA) but could potentially be applicable in other regions.
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      Water Utility Performance Indicators (IBNET)
      One way to increase the volume of investment towards sustainable water and sanitation infrastructures is to produce clear and accurate data that allows assessing and comparing performance across utilities. IBNET is a benchmarking tool developed by the World Bank and supported by a number of donors (including DFID and WSP) that promotes international benchmarking of water utilities and provides guidance on data collection and monitoring.
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      Private sector participation in water infrastructure – checklist for public action
      Many governments have turned to private sector participation to inject capital or improve the performance of utilities. However, the implications of involving the private sector may be sources of misunderstanding as highlighted in section 3.4. The Checklist precisely seeks to assist policy makers in assessing and managing the implication of PSP in the water sector. It identifies key policies needed for performing cooperation and provides a set of tools and practices to address those issues, based on country experiences.
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