copy the linklink copied!4. Evidence on blended finance in multipurpose infrastructure and landscape-based approaches

This chapter presents the results of the in-depth review of multipurpose water infrastructure (MPWI) and landscape-based approaches, including: (i) an introduction into the subsector, (ii) a commercial investor perspective on the subsector, (iii) an overview of blended finance transactions, (iv) a typology of commercial investment ready to be mobilised, (v) an assessment of the impact on the poor, and (vi) subsector-specific insights. It finds that for MPWI blended finance models are an established financing instrument mobilising commercial finance at scale. For landscape-based approaches, blended finance can potentially operate as a fit-for-purpose financing instrument as it brings together different stakeholders responding to their individual investment preferences, but developments remain at a very early stage.


copy the linklink copied!4.1. An introduction to multipurpose water infrastructure and landscape-based approaches

Multipurpose water infrastructure (MPWI) and landscape-based approaches refer to investments that deliver multiple water-related benefits, which can include cross-sectoral benefits such as energy production, agriculture and biodiversity conservation. MPWI can be defined as “all man-made water infrastructure, including dams, dykes, reservoirs and associated irrigation canals and water distribution networks, which are used or may be used for multiple purposes, for economic, social and environmental activities” (Naughton, DeSantis and Martoussevitch, 2017[1]). While MPWI may be designed for a single purpose, in practice, water is used in a multi-faceted way and as such, MPWI can be multi-purpose by either design or practice (Naughton, DeSantis and Martoussevitch, 2017[1]).

Landscape-based approaches refer to projects within a given spatial area (e.g. catchment or basin), which often incorporate nature-based solutions.1 These are emerging approaches which complement traditional approaches to water-related investments that can deliver cross-sectoral benefits. These approaches may include investments to protect and manage watersheds - areas of land that drain rainwater or snow into one location such as a stream, lake or wetland (TNC, 2018[2]). They include projects that prevent pollution, hydrological risks, such as floods and droughts, erosion and run-off that negatively effects the quality and quantity of water used for drinking water supply, agriculture, industry, ecosystems and habitats. Landscape-based approaches provide a framework across entire spatial area in an integrated manner (Kissinger et al., 2013[3]).

In this chapter, select emerging examples of landscape-based approaches are discussed, recognising that experience is still preliminary and further analysis is required to more fully examine the economics and financing of such approaches and draw lessons learned.

copy the linklink copied!4.2. Investment profile: an assessment of the risks, returns and project attributes

Even within the subsector of multi-purpose water infrastructure and landscape-based approaches, there is great variation in terms of project types, and as a result risk and return characteristics. Comparatively, the attribution and economic valuation of revenue streams from landscape-based approaches is more complex. In addition, multiple stakeholders and communities involved in large scale projects and projects can increase the cost and time of project delivery, but their involvement is critical to ensure that projects deliver benefits for the entire community over the long term.

Given the large size of most multipurpose water infrastructure projects, these are typically financed by setting up special purpose vehicles (SPVs) owned by a consortium of project sponsors that can raise further debt funding if needed. SPVs are set up for the sole purpose of financing, building and potentially running the infrastructure project.2 These companies are of limited recourse to their owners’ assets and hence depend on the quality and cash flows of the asset. As such, MPWI are not different to other infrastructure projects and hence appeal to commercial investors that seek long-term opportunities at scale.

copy the linklink copied!
Table 4.1. Summary of investment attributes




Macroeconomic and business risks

Currency risk (due to mismatch revenue and debt servicing currency), credit/off-taker risk (if applicable), operating risk (due to a variety of different technologies in MPWI),

termination risk (risk of early termination of long-term contracts), market risk (demand for service), construction risk (if applicable).

Regulatory and political risks

Regulatory risk (e.g. change in tariffs if any; private participation in infrastructure).

Technical risks

Obsolesce of utilised technology given the long-term nature of contracts and multitude of technologies applied.

Environmental/ social risk

Environmental risk (e.g. complex and costly assessment of MPWIs adherence to environmental standards; variability of availability of water resources due to climate change can reduce performance of MPWI, for example hydropower production). Potential negative environmental impacts of large MPWI, disrupting natural flow regimes that support ecosystem services.

Social risk (e.g. the resettlement of households that will be flooded down stream of dams or the impact of landscape-based approaches on communities including resettlement).


Cash-flow generation

MPWI projects often have quite clear predictable revenue streams, for example in case of electricity generation tariffs or power purchase agreements (PPAs) and large scale waste treatment plants. Cash-flows generated by landscape approaches to delivering water-related services often generate cash flows within actors operating in the spatial area, including by increasing turnover, efficiencies or reducing cost and expenditures of e.g. bulk water supply.

Developmental return

Projects can have potentially significant economic effect on areas. Landscape-based approaches can improved water management and quality for downstream users.

Project attributes

Greenfield vs. brownfield

Greenfield projects face additional business or technical risk due to the construction.


MPWI and landscape-based approaches are significantly dependent (by definition) on the spatial area where they are located, including the actors located in the areas. At the same time, in particular landscape-based approaches such as water funds have proven to be scalable and replicable when adapted to the local context.


MPWI are typically large scale projects run as Special Purpose Vehicles (SPVs). Landscape infrastructure projects tend to be smaller focusing on spatial area.

Transaction costs

Adapting projects to the local context comes with high project development cost.

Tenor / Longevity

Long tenor of in particular MPWI public private partnerships (PPPs), e.g. 20-25 years.

Source: Authors.

Commercial investors value projects with a power element, such as hydropower production, in part because of the predictable business case of revenue streams associated with such infrastructure projects. That is, tariffs and power purchase agreements (PPAs) for electricity produced can provide private investors with a clear idea of the project funding. For example, the Kalangala Infrastructure Services SPV, a MPWI project providing transport, water piping, wastewater plant construction services, pre-agreed a tariff for transport, electricity and water services with the Ugandan government. Similarly, the Nam Theun 2 power station in Lao is funded via a power purchase agreement between the Electricity Generating Authority of Thailand and Electricity de Lao, a state owned utility. In such cases, off-taker or counterparty risk is driven by the public sector’s ability to honour contractual obligations.

Other business risks refer to market risk (also often referred to as demand risk) associated with a varying demand for the water-related services. The initial As-Samra wastewater treatment plant for example in Jordan had reached operational capacity. As a response, jointly with the Government of Jordan, the Millennium Challenge Corporation (MCC) expanded the plant as part of its compact with the country. However, it is anticipated that the expanded plant will reach full capacity shortly, and a third expansion was announced in December 2018 by the European Bank for Reconstruction and Development (EBRD) and the European Union (EBRD, 2018[4]).

In addition, such projects are often not without substantial macroeconomic risks. While not unique to the water sector, foreign currency risks often make the participation of private sector investors in infrastructure projects challenging. Infrastructure projects are often funded in local currencies. However, a large portion of infrastructure projects are still financed in US dollars, resulting in volatile debt servicing cash flow needs. Good examples of currency matching is the expansion of the As-Samra wastewater treatment plant as well as the Nam Theun 2 which involved substantial local currency debt financing (Naughton, DeSantis and Martoussevitch, 2017[1]).

The extent of political and regulatory risks are, by nature, context and project specific. However, in this subsector they tend to drive commercial investment decisions given the project attributes of large scale, long-term tenure and the decisive role of governments. Interventions in regulations affecting revenues such as changes in tariffs or taxation, but also political risk such as breach of contract are of major concern to private investors and hard to quantify ex ante (see also (World Bank/OECD, 2015[5])). Official development actors can contribute to addressing such systematic risks by providing political risk guarantees. The World Bank Group’s guarantee arm MIGA, for instance, provided a total of USD 91 million in political risk insurance in 2005 to private investors in the Nam Theun 2 project (MIGA, 2006[6]).

Often, project valuation of large scale MPWI is complex and time-consuming due to their variety in value propositions. For example, the Nam Theun 2 Project in its entirety spanned over 30 years. During that time there was the Asian financial crisis in 1997 which had impacted the projects scope and size, with the planned budget for the project cut from USD 2 billion to USD 1.3 billion. Delays to the start of construction and cost overruns contributed to higher risk levels for the project. In addition, understanding and potentially mitigating environmental and social risks of MPWI infrastructure is associated with significant time commitments and costs for project development. For example, the design and preparation of the economic, environmental and social safeguards for Nam Theun 2 took over ten years to complete. In addition, the costs of mitigating negative social and environmental costs such as displaced persons can be significant – a total of USD 78.6 million was provided by the Nam Theun 2 Power Company for the environmental and social programme, equivalent to over 6% of total project costs. Brownfield investments, in contrast, can often more easily commercial private capital due to the lack of construction risk and available track record in both operations and financing.

Moving towards integrated landscape-based approaches may add a variety of characteristics and project attributes to those associated with discrete MPWI projects. For example, landscape-based approaches often leverage a business’ or project’s holistic exposure to a landscape into the project design (Kissinger et al., 2013[3]). These approaches can benefit downstream water users such as water supply companies, hydropower plants, irrigation districts, agricultural associations and other private sector actors such as food and beverage companies (TNC, 2011[7]). Beyond social and environmental impact, these approaches can deliver direct economic benefits to businesses and other water users within a specific spatial area, either by avoiding losses and/or by increasing profits. The rationale to invest in such landscape-based approaches is hence often driven by considerations of direct positive and/or avoided negative impact in the local context. For example, water supply companies and beverage companies benefit from improvements in water quality that result in reduced treatment costs, reducing operational risk, and are, as such, inclined to invest in projects addressing these areas. For example, the Monterrey Metropolitan Water Fund (FAMM) provides an example of corporate business funding of landscape-based approaches due to downstream benefits. Heineken, which has a brewery located in area, provided the majority of grant funding for the fund.

copy the linklink copied!4.3. Blended finance instruments and mechanisms for financing multipurpose water infrastructure and landscape-based approaches

Blended finance models in this subsector apply a whole range of instruments and mechanisms to mobilise commercial finance in this subsector.

As in water and sanitation utilities and off-grid sanitation, grants and technical assistance are often needed in the early stages of project development. The Development Bank of Southern Africa (DBSA) is developing a project to fund large scale municipal water conservation, water demand management (WCWDM) and cost recovery programmes. The City of Tshwane currently loses millions of Rand annually as a result of water losses in the network and poor cost recovery. To address this, DBSA and the Infrastructure Investment Programme of South Africa (IIAPSA) are grant funding the pre-feasibility and feasibility studies of the planned WCWDM programme in the City of Tshwane, which will report identify, assess and mitigate technical, institutional, legal and financial risks.

The programme is still in its first phase and includes the design of a financing mechanism that is a combination of conventional debt financing with structured finance characteristics. The aim is to enable the city to borrow the money required to conduct infrastructure improvements for the WCWDM programme while strengthening its balance sheet over the implementation of the programme by using the proceeds to invest in projects that lead to savings through reducing water losses. The savings and improved levels of cost recovery out of the sub-projects implemented will allow the Metro to finance future sub-projects through a combination of debt and own funds as well as grants. As the programme is rolled out, less debt will be required to finance the new sub-projects as the city will be able to fund a larger portion through own funds generated from the savings and improved revenues (Figure 4.1.).

copy the linklink copied!
Figure 4.1. DBSA Programme outline for the City of Twshane
Figure 4.1. DBSA Programme outline for the City of Twshane

Source: Undisclosed project documentation.

Grants play not only a key role in project development but also in the financing structure which helps to enhance the credit profile of projects that have a social and economic benefit. For the expansion of the As-Samra wastewater treatment plant the viability gap grant funding of USD 93 million from MCC and a USD 20 million grant from the Jordanian government were critical to leveraging an additional USD 110 million from the private financiers for the project.

Strategic direct investments in projects finance vehicles via loans or equity can be an effective tool to mobilise private capital. This was the case with Nam Theun 2. Total project volume of the SPV Nam Theun 2 is more that USD 1 300 million of which 85% is commercially financed. The complexity is reflected in the total of 27 institutions including MDBs, DFIs, Export Credit Agencies (ECAs) and Thai Banks involved. The SPV Nam Theun 2 Power Company is owned by Lao Holding State Enterprise (LHSE), a state-run business, which helped to mobilise USD 327.5 million of private investments in equity. The LHSE has in turn raised a combination of debt (e.g. AFD, EIB and ADB) and grant funding (AFD, World Bank’s IDA). Debt is raised in both LCY by local banks and USD by international lenders, which overall reduces the currency volatility risk for the project company. Also, this large-scale project received grant funding and technical assistance for project development from the World Bank.

copy the linklink copied!
Figure 4.2. A simplified Nam Theun 2 financing scheme
Figure 4.2. A simplified Nam Theun 2 financing scheme

Source: Authors based on (Naughton, DeSantis and Martoussevitch, 2017[1]).

Syndicated loans are an effective way to mobilise private finance by reducing transaction costs and building on the track record of the arranger’s expertise in the particular area. For example, the expansion of the As-Samra Wastewater treatment plant, the sponsor Suez raised syndicated debt financing, whereby the Arab bank as lead arranger mobilised further debt from Jordanian local financial institutions. The USD 110 million syndicated loan is Jordanian dinar-denominated and has a tenor for 13 years with the option to extend to 20 years. This is the longest maturity that had been obtained for a Jordanian dinar-denominated loan by 2012. While the interest rate during the three-year construction period for the treatment plant expansion has been fixed, following the commissioning of the plant, the loan evolved to a floating rate linked to the average prime lending rate of four local banks.

Guarantees are in general a very effective tool in blended finance. The instrument is currently not utilised at scale in the water and sanitation sector (GuarantCo, 2018[8]). For example, GuarantCo provides a joint partial credit risk guarantee with USAID of USD 1.8 million to Nedbank as part of the financing for the Kalangala Infrastructure project, covering the non-payment of debt service. In addition, MIGA provided USD 91 million in political risk insurance for Nam Theun 2 Power Project (MIGA, 2006[6]). The guarantee of USD 86 million covers a loan by Fortis Bank NV against risks of war and civil disturbance, expropriation, breach of contract, transfer restriction and inconvertibility.

Landscape-based approaches enhance MPWI projects in respect to various dimensions, as described before. Innovative financing approaches are aiming to monetise and share economic, social and environmental returns related to investments in the landscape.

The Water Funds model, first set up by The Nature Conservancy (TNC) and the Municipality of Quito, brings different types of public and private actors together in pooling mechanisms that provide long-term, sustainable finance to contribute to water security and sustainable watershed management through nature-based solutions. The Inter-American Development Bank (IADB), in partnership with TNC, FEMSA Foundation and the Global Environment Facility (GEF), launched the Latin American Water Funds Partnership in 2011. The partnership creates and strengthens Water Funds across the region. Water funds, as such, are blended collective investment vehicles which pool grant funding from donors, households and commercial sector actors. At the same time, water funds offer no direct financial return to investors. Any returns generated by the funds are reinvested into watershed management and conservation activities. These include, for example (see Figure 4.3):

  • Payment for environmental services, including watershed management and biodiversity conservation,

  • Water resources management as part of sustainable land use programs,

  • Conservation projects to protect the natural habitats where these services originate, and

  • Adaptation measures to mitigate negative impacts on water resources due to climate change.

While contributions to the water funds do not generate financial returns to investors, the benefits of more effective watershed management can attract non-repayable capital contributions from large commercial water users such as water supply companies, hydropower plants, irrigation districts, agricultural associations and other private sector investors such as breweries and soft drink companies.

Large water supply companies for instance can benefit as improvements in water quality result in reduced treatment costs. This can lead to savings that exceed conservation investments, with a reduction in annual expenses for filters, chemicals to purify and potentially removing the need to develop treatment plants. Similarly, investments in nature-based solutions in watersheds can reduce the recurring costs for hydropower plants reducing sediment accumulation and silting of dams. Water Funds have proven to be a replicable model with 24 funds created so far in Latin America.

copy the linklink copied!
Figure 4.3. The Water Fund Endowment Model
Figure 4.3. The Water Fund Endowment Model

Source: (TNC, 2011[7]).

The Monterrey Metropolitan Water Fund (FAMM) in Mexico for example is predominantly funded by commercial actors. It has been set up in 2013 in order to increase the water security in the city of Monterrey located on the banks of the Santa Catarina River. Over 60% of the water used in the metropolitan areas come from Cumbres de Monterrey National Park, located within the San Juan River basin. In the basin soil erosion and the loss of vegetation cover have negatively impacted run off control. In addition, changes in land use and forest have also contributed to the degradation of the water supply to Monterrey metropolitan area. The region is also prone to hurricanes which can have further devastating effects on the city. To respond to these challenges, the FAMM invests in reforestation, restoration and soil management to improve water infiltration in the San Juan River basin and reduce the potential impact of natural disasters. FAMM has more than 40 partners including the federal government, the local government, businesses and NGOs. Over 75% of the grant funding is provided by the private sector, with the remainder of funding provided by bilateral and multilateral development agencies. Heineken, who operate a brewery within the region, funds and sits on the board of FAMM.

Water Funds show how both the need for tailor-made solutions in developing and financing landscape-based approaches as well as a large degree of replicability of the funding model can be aligned. Beyond anchor investments in the funds, development actors have a crucial role to play in providing technical assistance and grant funding to develop innovative solutions in the first place. Despite successes to date, quantifying, monetising and linking the benefits from increased water security to the beneficiaries who can take the investor role as well as attracting external investors remains an important challenge in financing landscape-based approaches.

In the same vein, landscape-based approaches can also incorporate discrete MPWI projects. The Songwe River Basin Development Programme (SRBDP) is currently being developed by the governments of Tanzania and Malawi. It consists of the implementation of a 10-year programme with integrated industrial irrigation, water supply, and hydropower schemes which jointly aim to enhance food and energy security for the basin communities in the context of the overall socio-economic development of Malawi and Tanzania. Under the SRBDP, water supply projects for small towns around Kasumulu (Tanzania) and Songwe (Malawi) will be implemented, tapping water from the Lower Songwe dam reservoir after producing hydropower (180.2MW). The Irrigation and Drainage scheme participants will be required to pay a fee for water provided from the new dam through the canals being planned. In collaboration with the Climate Resilient Infrastructure Development Facility (CRIDF), the Africa-EU Water Partnership Programme (AEWPP) being implemented by the Stockholm International Water Institute (SIWI) is supporting the Songwe River Basin Commission (SRBC) to mobilise commercial financing for the SRBDP. SIWI is working with the SRBDP to develop a commercially sound business model for the agri-businesses that will underpin the irrigation schemes along the Songwe River, while CRIDF supports the project preparation of the water supply to Kasumulu and Songwe. To improve the financial viability of the project, a blended finance approach is planned that will involve significant concessional debt from development actors, equity from the two Governments of Malawi and Tanzania, as well as commercial debt and equity from private investors.

In order to attract more commercial capital to improve water security via landscape-based approaches, WWF have launched the Bankable Water Solutions Initiative in partnership with DFIs and private sector firms. The initiative seeks to catalyse a stream of bankable projects that will improve water management and offer acceptable financial returns to investors. An example of partnership and project currently being scoped is the Kafue River basin in Zambia. WWF has partnered with the Zambian government, private sector firms, and the Dutch DFI FMO to tackle several interlinked challenges facing the basin, which are critical for the Zambian economy. The Kafue Flats provide a promising case for piloting bankable project, because of the inter-related risks of water supply, increase in hydropower and expansion of agriculture in the basin. Through WWF’s Bankable Water Solutions Initiative, a landscape finance plan is being developed with a pipeline of projects that aim to develop water resources with a positive net impact in the Kafue Flats Landscape. WWF has secured seed funding to execute a pre-feasibility study for an industrial wastewater treatment plant as the first step in assessing the bankability of such a project. The project has also attracted funding from a private sector investor, AB InBev, which have a direct interest in the supply system risks/reliability for Lusaka of their own operations and their customers’ wellbeing, as well as the sugar supply chain.

Similar to MPWI projects, financing landscape-based approaches is challenging in both developed and emerging economies, with additional layers of complexities in the latter group. At the same time, it can be relevant for future project development to understand the mechanics behind recent approaches that attract commercial investment at scale into such projects. An example that provides such an illustration derives from the Waikato region in New Zealand. This innovative financing approach provides insights into how a venture-capital like hybrid debt instrument exercising both debt and equity characteristics is applied in order to improve agricultural land use and convert conventional dairy farms to organic (Box 4.1). This example demonstrates how commercial actors can be mobilised into a portfolio of projects building on a blended model where a government-related authority provides credit enhancement. However, the project itself is early stage. It remains to be assessed whether this model could be replicated in developing countries.

copy the linklink copied!
Box 4.1. Blended finance in the Waikato Region, New Zealand

The Waikato region produces greenhouse gas emissions that are 50% higher per capita than the New Zealand average. In 2016, the Waikato River Authority and the Waikato Regional Council commissioned an impact investment feasibility study. As a result, the dairy sector has been prioritised given the cash flow generation opportunity through conversion of conventional to organic dairy in comparison to afforestation.

The Waikato River Limited was created to increase sustainable agricultural land use. That is, the SPV plans to use proceeds from a bond issuance to acquire conventional farms and convert them to organic farms with measures to mitigate negative environmental effects such as afforestation and riparian tree planting by waterways. The feasibility study has indicated that by targeting land use change and low input farming, a significant cumulative reduction of environmental externalities can be achieved. In addition, the now organic farms are expected to increase their turnover by producing organics milk, which can achieve a higher price in the market than conventional milk.

The company will issue a hybrid NZD 100 million bond with a tenor of ten years with an annual coupon payment. At the same time, the asset-backed hybrid bond includes a swap, and as such exhibit both fixed income and equity characteristics. This will allow investors to generate explicit financial returns, i.e. interest payments, as well as partake in the implicit gains via the equity ownership. Indeed, within the ten year to maturity, the farm land is expected to appreciate in value. This profit will be shared between bond investors, the government related organisation and the SPV manager. The government acts as a guarantor in mobilising commercial bond holders as any shortfall in coupon payments will be guaranteed by a governmental organisation.

copy the linklink copied!
Figure 4.4. The blended structure of the hybrid bond
Figure 4.4. The blended structure of the hybrid bond

Source: Information Memorandum, Waikato River Authority, 2018 (Waikato River Authority, 2018[9])

copy the linklink copied!4.4. A typology of investors in multipurpose infrastructure and landscape-based approaches

MPWI projects have the potential to mobilise commercial finance from banks and institutional investors as they present a familiar business case for such type of investors. Particularly large scale projects with clear revenue streams such hydropower or largescale wastewater treatment plants can attract financing from institutional investors. For example, the range of private actors such as Standard Chartered, BNP Paribas and ING involved in financing the Nam Theun 2 power plant. Local and regional banks have an important role to play in financing and providing technical assistance for projects. In addition to fostering local ownership, local currency financing fosters actively the financial sustainability of infrastructure projects that are funded in local currency through their revenue streams. Local financing in Thai Baht was a key part of the financing approach for Nam Theun 2, for example.

However, it is more challenging to mobilise commercial investment into landscape-based approaches. Local private sector companies are already engaging in the provision of grant capital to watershed management projects that deliver positive benefits the spatial area they are operating in. For example, water funds often attract private capital from downstream water users as brewers or soft drink companies operating within the region. Heineken’s financing of the FAMM Water Fund is an example.

MDBs and DFIs are an important player in blended finance models for financing infrastructure, including MPWI. They engage typically in providing (senior) debt financing or guarantees, but also act as equity sponsors. Proparco, the French DFI for example, classifies water-related projects under their mandate to support infrastructure. The organisation invests primarily into countries in Sub-Saharan Africa and the Mediterranean, and largely funds projects in the financial and power sectors, 36% and 22% respectively, followed by “other infrastructure,” 12%, of which water projects would be included (EDFI, 2018[10]).

Increasingly MDBs and DFIs are mainstreaming nature-based solutions into their operations. For example, the IADB based on their experience with the Latin American Water Funds Partnership, have worked in identifying a potential pipeline to mainstream nature-based solutions into specific IADB loans. As a result, a USD 250 million loan in design phase in Panama and in a USD 200 million loan in execution phase in Pernambuco, Brazil were identified. Both operations are expected to co-design and develop green and grey infrastructure for the conservation of the Juan Diaz watershed (Panama), and the Ipojuca watershed (Brazil). In addition, the EIB Water Sector Lending Policy published in December 2017 set out the importance of landscape-based approaches to integrated water resource management (EIB, 2017[11]). From 2012-17 the World Bank Group financed 81 projects that employed green infrastructure/nature based solutions of which approximately 18 were in the water and sanitation sector (Browder et al., 2019[12]). Historically, the World Bank has treated grey infrastructure and environmental projects as separate, however, as evidence base for the benefits of integrating nature-based solutions into infrastructure projects, the bank has increasingly looked at financing and promoting green-grey infrastructure approaches (Browder et al., 2019[12]).

Importantly, development actors as DBSA and the Dutch government (though FMO) engage actively in the development of projects, which may serve as a stepping stone to mobilise commercial investment. NGOs are also active in project development. WWF provided technical expertise and grant funding for feasibility studies for planned projects in the Kafue River Basin as well as launching the Bankable Projects Initiative for landscape-based solutions. In developing Water Funds, TNC provided technical assistance, watershed management expertise as well as promoting nature-based solutions and the Water Funds mechanism more broadly.

copy the linklink copied!4.5. An assessment of the sustainable development impact

Large-scale infrastructure projects should include an assessment of potential negative environmental and social impacts during the project preparation stage, design and implementation. Programmes should be implemented to mitigate these risks and progress consistently monitored. While this requires additional resources it is essential to ensure that potentially negative effects such as displaced persons, ecosystem and wild life damage and potential threats to water quality are identified and addressed. The experience of Nam Theun 2 has shown that a co-ordinated approach can help mitigate negative impacts if it is strongly integrated into project planning and financing. Most explicitly, the project is a key part of the government’s poverty reduction strategy with an agreement in place between the World Bank and the government that revenues generated from the project would be invested in poverty reduction and public services (World Bank, 2018[13]). However, the additionality of revenues as result of revenues as opposed to previously planned budget increases was not verified. This was in part due to the lack of baseline data and changes in budget classification (World Bank, 2018[13]). Therefore it is unknown whether revenues replaced planned government expenditure increases. Efforts have been made to increase transparency with revenue statements shared with the World Bank and State Audit Office as well as audits of projects funded by revenues (World Bank, 2018[13]). The breakdown of the disbursement of the services for the project can be found below.

copy the linklink copied!
Table 4.2. Disbursement of Nam Theun 2 (NT2) Revenues


Million USD








Public Works and Transport



Energy, Mining and Agriculture



Natural Resources and Environment



Poverty Reduction Fund



Projects Implemented by Provinces






Source: State Audit Organization (SAO) Audit Reports 2009/10 - 2015/16, MoF Data FY15/16 and FY17 & World Bank 2018, Implementation Completion and Results Report – Nam Theun 2 (World Bank, 2018[13])

The 2017 assessment following the closure of the environmental and social programme concluded that the environmental targets around watershed management, water quality and species protection had been met (World Bank, 2018[13]). The report found that 100% of displaced persons had been resettled and 97% villages met income targets - the rural poverty line which was approximately double pre-project incomes. The remaining 3 % received additional in-kind support. In addition 100 000 people lived downstream and were potentially vulnerable to the project induced changes. A programme to compensate for lost land and provide infrastructure and livelihood training, and a fund to provide investments for livelihoods was created by the World Bank. However, the complexity, large scale, long lifetime and the variety of actors involved undermine a comprehensive and causal assessment of the full negative or positive impacts upon downstream users (World Bank, 2018[13]).

The expansion As-Samra Wastewater Treatment plant has provided the capacity for the Government to treat 70% of the countries’ wastewater and provided 133 million cubic meters of treated water per year for irrigation in the Jordan Valley. In addition, the As-Samra plant has improved the long-term sludge management and disposal practices further helping to preserve Jordan’s water resources. At the end of the Compact between the Government and MCC approximately 375 000 households or 2 023 000 individuals had benefitted from additional supplies of freshwater as larger volumes wastewater agricultural use in the Jordan Valley. Approximately 8 500 households in the Jordan Valley or 46 000 individuals now receive a consistent supply of high-quality treated wastewater that can be used for irrigation (MCC, 2018[14]). The As-Samra plant also provides bio-solids for potential reuse in fertilizer and fuel, and produces 80% of its own energy needs, from biogas and hydropower. However, unanticipated population growth means that the plant is already nearing full capacity despite initial projections that it would serve Jordan’s water needs until 2025. As a result, in December 2018 the EU and the EBRD announced their intention to expand the plant further increasing the capacity of the plant from 365 000 kilolitre per day (kl/day) to 465 000 kl/day (EBRD, 2018[15]).

The Mwena water treatment plant has a capacity of over 400 kl/day and the reservoir tanks/storage facilities of 200 kl. The improvement has enabled Kalangala Infrastructure Services to supply water to Bugala Island 24 hours. As a result of safe water supply services, the population on Bugala Island has experienced a reduction in medical expenses due to reduction water in borne diseases and improved sanitation. Those villages now supplied with clean, safe water have seen an 80% drop in waterborne disease. However, other aspects of the programme have increased costs for residents in the area with the ferry service developed as part of the project now charging a fee for use whereas it had previously been free.

Landscape-based approaches aim at developing approaches that are embedded in local communities from the project development phase. As such, the local community can benefit from better management of watershed and greater water security but also environmental conservation. Improved land management and agricultural practices can have large positive impacts on downstream users. In total, the Latin American Water Funds Partnership implemented by the IADB led to the implementation of watershed conservation projects that have benefitted over 70 million people downstream from 2011-16. In addition, 1 675 667 hectares of natural habitat has been conserved or positively impacted by Water Fund operations (The Latin American Water Funds Partnership, 2018[16]).

copy the linklink copied!4.6. Subsector-specific insights

For MPWI, blended finance models are an established financing instrument for typically large-scale special purpose companies directed to delivering multiple water-related benefits.

  • MPWI is typically financed via project companies that are run as SPVs and hence constitute a well-known structure to commercial investors. Commercial finance can be mobilised in MPWI projects with a predictable revenue proposal. This can include for example MPWI projects that incorporate an energy element such as hydropower which is associated with tariffs or PPAs that cater to the financial sustainability of a project.

  • Within MPWI projects, development actors engage in providing equity and debt, underwrite guarantees to mitigate risk for commercial financiers, or provide viability gap grant funding with ambition to mobilise commercial financing typically from local and international financial institutions; sponsor equity is often sourced from private or public utility companies.

  • In addition, technical assistance for project development is an effective enabling blended finance instrument. Large-scale MPWI projects have long preparation and financing tenors, which leaves them vulnerable to changing circumstances. Assessing and addressing negative environmental and social impacts of large scale MPWI should be integrated from the outset.

    For landscape-based approaches, blended finance can potentially operate as a fit-for-purpose financing instrument as it brings together different stakeholders responding to their individual investment preferences.

  • Development financiers are gaining experience with landscape-based approaches which can mobilise local actors with a stake in improved water resources management. Moreover, nature-based solutions are also attracting increasing interest, as a complement to conventional grey infrastructure to deliver multiple water-related benefits.

  • Technical assistance and pooling mechanisms are prevalent blending instruments in landscape-based approaches, which have mainly attracted public funds and corporate philanthropy to date, rather than commercial finance. The use of blended finance remains at an early stage. A functioning model thus far has been to source grant funding from commercial actors.

  • Landscape-based approaches need models and innovative approaches to materialise often implicit revenue streams such land and other asset appreciation (see Figure 4.5). For example, Water Funds build on the implicit gains for locally-based actors (e.g. water utilities and corporates) who benefit from avoided costs due to improved watershed management in the spatial area. It remains a challenge to externalise such avoided costs in a way that commercial investment can be attracted.

copy the linklink copied!
Figure 4.5. An investor perspective on return sources in landscape-based approaches
Figure 4.5. An investor perspective on return sources in landscape-based approaches

Source: Authors.


[12] Browder, G. et al. (2019), Integrating Green and Gray: Creating Next Generation Infrastructure, (accessed on 6 May 2019).

[15] EBRD (2018), EBRD and EU to support expansion of As Samra wastewater treatment plant in Jordan, (accessed on 20 March 2019).

[4] EBRD (2018), EBRD and EU to support expansion of As Samra wastewater treatment plant in Jordan, (accessed on 25 April 2019).

[10] EDFI (2018), Meet our members: Proparco, (accessed on 12 September 2018).

[11] EIB (2017), EIB water sector lending orientation: strengthening water security, (accessed on 6 May 2019).

[8] GuarantCo (2018), GuarantCo - Portfolio - Kalangala Infrastructure Services, (accessed on 25 April 2019).

[3] Kissinger, G. et al. (2013), Reducing Risk: Landscape Approaches to Sustainable Sourcing, (accessed on 25 April 2019).

[14] MCC (2018), Jordan Compact | Millennium Challenge Corporation, (accessed on 25 April 2019).

[6] MIGA (2006), Hyrdopower in Asia: The Nam Theun 2 Project, (accessed on 25 April 2019).

[1] Naughton, M., N. DeSantis and A. Martoussevitch (2017), “Managing multi-purpose water infrastructure: A review of international experience”, OECD Environment Working Papers, No. 115, OECD Publishing, Paris,

[17] OECD (2008), Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money, OECD Publishing, Paris,

[16] The Latin American Water Funds Partnership (2018), IMPACTS - Fondos de Agua, (accessed on 25 April 2019).

[2] TNC (2018), Water Funds: Field Guide 2018, (accessed on 14 August 2019).

[7] TNC (2011), Water Funds Conserving green infrastructure: A guide for design, creation and operation, (accessed on 25 April 2019).

[9] Waikato River Authority (2018), Information Memorandum NZ$100M Hybrid Bond Impact Investment, (accessed on 29 July 2019).

[13] World Bank (2018), Implementation Completion and Results Report: Nam Theun 2 Social and Evironment Project, (accessed on 25 April 2019).



← 1. Nature-based solutions (NbS) involve protecting, restoring and improving the management of ecosystems to deliver ecosystem services. NbS can also include the creation of natural processes in modified or artificial ecosystems, such as the construction of new wetlands to treat wastewater. By supporting the provision of ecosystem services, these interventions can serve as a complement to, or substitute for, the use of conventional engineered infrastructure.

← 2. SPVs are playing a role also in public-private partnerships (PPPs), which refer to “an agreement between the government and one or more private partners (which may include the operators and the financers) according to which the private partners deliver the service in such a manner that the service delivery objectives of the government are aligned with the profit objectives of the private partners and where the effectiveness of the alignment depends on a sufficient transfer of risk to the private partners” (OECD, 2008[17]). Build Operate Own Transfer (BOOT) contracts are a common contractual PPP framework in the MPWI subsector. As such, financing could include blended finance approaches. For example, the Government of Lao and NTPC signed a PPP/BOOT agreement in 2002 contracting NTPC to finance, develop, construct, own, and operate the hydroelectric plant and facilities for 25 years. Similarly, the As-Samra Wastewater treatment plant PPP is a 25 year long BOOT contract signed between the Government of Jordan and the SPV As-Samra Wastewater Treatment Plant Company Limited. The Kalangala Infrastructure Services (KIS) project operates as a multi-donor BOOT PPP with KIS, the SPV, responsible for the investment and maintenance of infrastructure for 15 years. The Government of Uganda signed a memorandum of understanding with InfraCo, who set up and maintain a 54% equity stake in KIS, in 2006.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2019

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at

4. Evidence on blended finance in multipurpose infrastructure and landscape-based approaches