GOVERNANCE & FUNDING
THE INTERVIEWEES Johann Lübbe (JL) is a disruption specialist who investigates and develops new, innovative funding instruments, products and programmes for infrastructure investment.
Konstant Bruinette (KB) is a senior deal originator who assists municipalities and water utilities to conceptualise and prepare projects for funding.
Are water infrastructure projects difficult to finance? JL Absolutely. There are a few reasons for this, with the most obvious being: 1) Water is a basic human right, and people expect to get it for free. This means that there are limited revenue streams associated with the provision of water, as opposed to energy, for example. Water is free, but people pay for it to be treated, stored and conveyed to them – and that is what people often do not understand. In order to finance water projects, a revenue stream is essential and there needs to be a willingness and ability to pay for water.
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MAY /JUNE 2021
UNPACKING THE CHALLENGES OF FINANCING WATER PROJECTS The Development Bank of Southern Africa (DBSA) is focused on offering a centre of excellence for water-based projects, as well as blended funding options for financiers of new waterrelated projects in South Africa. Kirsten Kelly talks to two specialists at the DBSA about governance issues around the financing of water projects.
2) When structuring projects, advisors often tend to consider only the technical aspects, but it is much broader than that. The technical side is the easier part of creating a bankable project. The more difficult parts are tariff structures, revenue sources, lending structures, types of entities, as well as legal, social and environmental aspects. 3) There are limited municipalities with strong balance sheets and the country has seen very few public-private partnerships (PPPs) in the water sector. There is funding available to invest in water infrastructure, and there are a lot of possible water projects, but very few of them are bankable. KB I would like to add affordability and political support to that list: 4) If one wants to provide and fund infrastructure, it needs to be affordable
for the end user. When structuring a water project, there is a difficult balancing act between receiving returns on an investment and affordability for the end user. One also needs to consider how to use grants available in the system to gear private sector investment. 5) You need to separate political support from water projects. A municipal political term is five years, and it may take three to five years to prepare a water project to bankability
– project preparation will only be completed right before there is a potential change in political governance and project support. When funding a project, does one include costs relating to administrative overheads, operations, maintenance, routine repairs and periodic replacements of equipment? KB We take a view of the entire project life cycle. The DBSA sometimes provides long-term funding up to 25 years, so it is important to ensure that the infrastructure that is financed is properly operated and maintained. When looking at the project life cycle, we evaluate how all of these costs may impact on the project’s revenue streams and affordability for the end user.
