Private Sector & Development #42 - Access to water and sanitation by Agence Française de Développement

Private Sector & Development is published by Proparco, Agence Française de Développement Group, share capital of EUR 1,353,513,248

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Publications director Françoise Lombard

Founder Julien Lefilleur

Editorial director and editor in chief Laurence Rouget-Le Clech

Deputy editor Pierre Tiessen

Editorial support Claudia Di Quinzio

Editorial committee

Guillaume Barberousse, Axelle Bergeret-Cassagne, Laure Bourgeois, Myriam Brigui, Marianne Cessac, Jérémie Ceyrac, Fariza Chalal, Christophe Cottet, Djalal Khimdjee, Olivier Luc, Elodie Martinez, Gonzague Monreal, Gregor Quiniou, Emmanuelle Riedel Drouin, Françoise Rivière, Laurence Rouget-Le Clech, Bertrand Savoye, Samuel Touboul, Baptiste Tournemolle, Hélène Verrue

Advisory board

Jean-Claude Berthélemy, Paul Collier, Kemal Dervis, Mohamed Ibrahim, Pierre Jacquet, Michael Klein, Nanno Kleiterp, Ngozi Okonjo-Iweala, Jean-Michel Severino, Bruno Wenn, Michel Wormser Graphic

Pedro Ladeira / Proparco Translations Jean-Marc Agostini, Neil O’Brien/Nollez Ink

SUMMARY

Improving water service quality in Cambodia by facilitating access to credit By Clément Frenoux, Audrey Brulé-Françoise and Sokkol Yi

The global drinking water and sanitation challenge: doing more, faster!

Addressing critical water shortage in Jordan: a collaborative effort

Interview with Tolga Ergüven

Getting it right: private sector participation in the

Non-Revenue Water is water wasted - is resource wasted By Noam Komy

Leveraging capital markets to meet water and sanitation needs

Valli

Drinking water for all: the work of Águas do Rio in Brazil By Proparco’s Communication and Marketing Division

Interview with Eduardo Nali

Orchestrating multi-player collaboration in water and sanitation in Latin America and the Caribbean

Interview with Irene Arias Hofman

Drinking water for rural and semi-urban areas in Africa: the need for private sector involvement By Mikaël Dupuis 42

Enhancing water security in Africa: Metito’s mission in action By Rami Ghandour 44

SUEZ is innovating to improve access to essential water services

Interview with Jérôme Bailly 48

A concession success story: the private sector’s role in water and sanitation in Manila By Virgilio C. Rivera Jr.

Djalal Khimdjee Deputy CEO, Proparco

Laurent Biddiscombe Director of the Sustainable Solutions Department, AFD

The sixth Sustainable Development Goal (SDG) aims for universal and equitable access to safe drinking water, hygiene and sanitation by 2030. It also calls for the sustainable management of water resources. As pressure on water resources increases, particularly as a result of climate change, the management of surface and groundwater reserves is a major challenge that needs to be tackled at all levels – local, national and regional – especially from a cross-border perspective.

While there is a consensus around the objectives, the progress made – although real – is not commensurate with the challenges that need to be met. More than 2.2 billion people worldwide still do not have access to safe drinking water in their homes and 3.5 billion people lack adequate sanitation. According to the UN, the rate of investment in drinking water needs to be increased sixfold, investment in sanitation fivefold, and investment in hygiene threefold, if we are to meet the targets of SDG 6 by 2030. Now more than ever, we need to be proactive, especially as the “water and sanitation” issue finally seems to be making its way up the international agenda. France is playing its part by jointly organizing – along with Kazakhstan, Saudi Arabia and the World Bank – the One Water Summit in December 2024, on the sidelines of COP 16 on the fight against desertification. This event follows on the heels of the UN 2023 Water Conference – an event that had not taken place for over 45 years – and the appointment of a first Special Envoy for Water in the person of Retno Marsudi, former Foreign Minister of Indonesia.

As a major international financial institution in this sector, with €1.8 billion committed in 2023, including €300 million for Proparco, AFD Group has an important role to play in this new-found momentum. Through the Water Finance Coalition, which it co-chairs, AFD is working to encourage national public development banks to become more active in a sector that is largely financed by public funds. At the same time, Proparco is supporting private investment, which needs to be stepped up to meet the challenges of water and sanitation. In 2023, private financing for the sector in low- and middle-income countries totalled nearly $2 billion. This issue of Private Sector & Development uses numerous examples, analyses and feedback to illustrate the wide range of projects and arrangements currently in progress. It demonstrates the conditions and approaches that can enable private companies – especially operators – to play a part in improving access to water and sanitation, with a view to ensuring service quality and sustainability.

Irene Arias Hofman CEO, IDB Lab

Irene Arias Hofman is the CEO of IDB Lab, the innovation and venture laboratory of the Inter-American Development Bank Group. Previously, Irene worked for 20 years at the IFC, the private sector arm of the World Bank Group, where she managed the Financial Institutions Group and the LAC region with its 16-billion dollar portfolio. Her focus has been on innovation and technology, venture capital, and organizational development.

Audrey Brulé-Françoise Head of Financial Systems Division, AFD

Jérôme Bailly SVP Innovation, SUEZ

Jérôme Bailly is a graduate of both École Polytechnique and Ponts et Chaussées engineering school. He joined SUEZ in 2002 as a Branch Manager. His career began in the Water business and led him to work in a range of operational, technical and commercial positions, both inside and outside France. Since 2022, he has been Senior Vice President Innovation, Research & Development and Support to operations at SUEZ.

Mikaël Dupuis Deputy Director, Uduma

Mikael Dupuis is Uduma’s deputy director, where he oversees operations in its 4 countries: Burkina Faso, Mali, Côte d'Ivoire and Benin. He is also in charge of business development in Africa and setting up partnership ventures involving governments, donors and the private sector (PPPs in the broad sense). Mikael previously managed construction subsidiaries in West Africa and held a development position in Asia.

Genevieve Edens Senior Director, Impact & ESG, WaterEquity

Genevieve Edens leads impact and ESG at WaterEquity. In this capacity, she develops policies and tools and engages across the investment process. She has 15 years' experience in impact management and research. Previously, Genevieve was Director of Research at the Aspen Network of Development Entrepreneurs (ANDE), a global network supporting entrepreneurship in emerging markets. Prior to ANDE, she spent several years in Tanzania, where she worked for coffee importer Sustainable Harvest, sourcing coffee from smallholder farmers.

Tolga Ergüven GAMA Enerji, CFO & DIWACO Board member

With nearly 20 years of experience in corporate and investment banking at Citigroup, Credit Agricole, and EBRD, Tolga Ergüven led various syndicated loans, structured ECA, acquisition and project financing and M&A advisory transactions for leading public and private companies in sectors such as infrastructure, energy, oil & gas, metals, and mining across Central Asia, the Caucasus, CIS, Turkey, and the Middle East. Since 2020, he has been a CFO at GAMA Enerji and a board member at DIWACO.

Rami Ghandour CEO, Metito Utilities

Rami Ghandour joined Metito in 2004 and set up Metito Utilities in 2007. Metito Utilities is the investment arm of the Group, providing complete water and wastewater outsourcing and partnership solutions to end-users. Rami also leads Metito’s endeavours in strategic partnerships, mergers, and acquisitions as well as equity investments. Rami has an MBA in Finance and Entrepreneurial Management from the Wharton School, as well as a MEng, MA, and BA in Chemical Engineering from the University of Cambridge.

Clément Frenoux

Regional Project Team Lead, Water and Sanitation Division, AFD

Noam Komy CEO, Miya Water

Noam Komy joined Miya Water in 2013, with a focus on strategy, M&A and growth. In 2022, he was appointed Miya’s CEO. Prior to joining Miya, Noam had worked for three years at a leading Israeli law firm, where he specialized in the fields of public law, environmental law and corporate litigation. He holds an LLB in law and government from the IDC.

Eduardo Nali

Head of the Water and Sanitation department of the Infrastructure division, BNDES

Eduardo Nali currently serves as head of the Water and Sanitation department of the Infrastructure division at BNDES (Brazilian Development Bank), responsible for structuring loans and other financing mechanisms for Water & Sewage projects. He holds a degree in Economics from the University of São Paulo, a specialization in Economics from UnB and an MBA in Finance from COPPEAD/UFRJ. He has more than 15 years' experience of financing the industrial and infrastructure sectors.

Gérard

Payen

Vice-President of the French Water Partnership, former member of the UN Secretary-General’s Advisory Board on Water and Sanitation (UNSGAB)

Gérard Payen has been resolving water-related problems for the past 35 years. Until 2002, he was in charge of utilities providing daily water services to more than 100 million people before serving as a member of the United Nations Secretary General’s Advisory Board on Water and Sanitation. He has contributed to securing recognition for human rights to safe drinking water and sanitation, and to the adoption of the numerous water-related global Sustainable Development Goals.

Sophie Trémolet Water Team Lead, OECD

Sophie Trémolet leads the Water Team within the Environment Directorate at the OECD, which focuses on water economics and finance, as well as water quality challenges. Previously, Sophie was Europe Freshwater Director at The Nature Conservancy and a Senior Economist in the World Bank’s Global Water practice. She started her career as a consultant advising on institutional and regulatory reforms and private sector participation in the water sector. An economist by training, she holds a double Masters from Sciences-Po (Paris) and Columbia University (New York).

Virgilio C. Rivera Jr.

Founder and Managing Consultant, WatSan Analytics

Virgilio “Perry” C. Rivera Jr. was employed by the Ayala Corporation, one of the Philippines’ leading and largest conglomerates, for almost 33 years where he held various positions, most notably that of Managing Director. He moved to Manila Water Company, Inc. (MWCI) in 1997 and held key leadership roles including the position of Chief Operating Officer for New Business/Subsidiary Operations and Business Development until 2021. After retiring, he founded WatSan Analytics, a management consulting firm catering to the water and sanitation sector.

Anu Valli

Senior Director, Financial Institution Investments, WaterEquity

Anu Valli leads WaterEquity’s investments in water and sanitation through financial institutions. She is responsible for strategy, managing a global team, portfolio development, and overseeing investment vehicles. She has 15+ years' experience in impact investing and investment banking. Previously, Anu led Symbiotics’ debt financing for financial institutions in South Asia. Before this, she was an Investment Manager at Bamboo Capital. Previous positions include investment management and incubation support at IFMR Trust’s venture capital arm and investment banking analysis with Citigroup, India.

Sokkol Yi

CEO, Innovative Services Engineering and Advisory (iSEA)

Sokkol Yi is one of the founders and CEO of Innovative Services, Engineering and Advisory (iSEA). With over 16 years’ experience working with the international NGO GRET, he is an expert in water and sanitation in Cambodia: he has expertise in strategic project development and implementation, public-private partnerships and feasibility studies in the water sector. He has spent the past six years working on projects to promote access to financial services for private water and sanitation service providers in Cambodia.

Ichem Besseghir Principal Investment Officer, Proparco

Ichem has been an Investment Officer in Proparco’s Energy, Digital & Infrastructure division since 2018, covering all infrastructure sectors, but with a special focus on the waste, water and sanitation sector and a geographical focus on the Middle East and Central Africa. He previously spent over a decade working in project and asset finance at several French banks.

Alexandre Gaudry PhD student, AFD

Alexandre is a PhD student in spatial and urban planning in the Agence Française de Développement Water and Sanitation Division. His thesis – directed by Catherine Baron and Marine Colon –explores changes in access to drinking water in “Southern” cities based on two long-term field studies in Dakar (Senegal) and Bandung (Indonesia).

Denis

Desille Head of water and sanitation projects, AFD

Denis joined AFD’s Water and Sanitation Division in 2014 to appraise and supervise project deployment in different geographies, particularly in Africa and Asia. He has been a credit risk analyst, supporting AFD Group's private sector operations since September 2024. Denis previously worked for NGOs and consultancy firms providing technical expertise and institutional support.

Marianne Pallez Senior Investment Officer, Proparco

Marianne Pallez is a Senior Investment Officer in Proparco's Investments Division, responsible for infrastructure projects in Asia and Latin America. Marianne is a graduate of Sciences Po Paris and Fundação Getulio Vargas (Brazil), and she joined Proparco in 2017 after several years spent working in the Energy and Infrastructure (Project Finance) department of BNP Paribas in Paris and São Paulo.

Madeleine Portmann

Deputy

Head

of the Water and Sanitation Division, AFD

Madeleine is Deputy Head of AFD's Water and Sanitation Division, where she previously worked as a regional project team lead, particularly in Egypt and Turkey. Madeleine has 16 years' experience of development assistance acquired in AFD and Proparco, in infrastructure project appraisal and management, as well as in structuring non-sovereign project financing, working out of Paris, Bangkok and Istanbul.

The global drinking water and sanitation challenge: doing more, faster!

Gérard Payen, Vice-President

of the French Water Partnership, former member of the UN Secretary-General’s Advisory Board on Water and Sanitation (UNSGAB)

Although access to safe drinking water and sanitation are clearly human rights, these needs are far from being met. For some populations, they are even deteriorating - because demand is growing faster than supply. To meet this challenge, a results-based approach needs to be adopted everywhere and the different sector stakeholders need to look beyond their own interests in favour of collective goals, and funding needs to drive ‘leverage effects’ to facilitate many more initiatives.

The drinking water sector comprises all the activities involved in withdrawing, treating and distributing water so that water users can benefit according to their needs. The sanitation sector covers all activities relating to the collection, disposal, treatment – and reuse – of wastewater and rain-

water. These two sectors are so important for humanity that they are the focus of ambitious global targets unanimously adopted by all countries in 2015 as part of the 2030 Agenda and its Sustainable Development Goals (SDGs): at least 8 of the 169 targets of this global programme directly concern them. 1

WHAT DO WE KNOW ABOUT THE GLOBAL SITUATION?

The adoption of these targets in 2015 has resulted in a better understanding of the global situation in these areas and there is now enough data for each country to produce reliable global estimates. For certain SDGs, this information has been compiled on several dates, making it possible to track progress against desired outcomes. For example, regarding access to drinking water and sanitation, we now have solid estimates of current needs and trends since 2015 at global level, by major region, and for many countries. In terms

of a average, there has been clear progress but it is far from sufficient. This average conceals deteriorating situations for large sections of the world’s population. 2

As far as remediation and pollution removal are concerned, there is still not enough information to assess global progress. We finally have an estimate of the proportion of water discharged by populations worldwide that is not treated properly before being released into the environment (42% in 2022, according to the WHO3). But, we still

1 SDG targets 6.1 and 6.2 aim to provide access to safe drinking water and sanitation for all, while targets 1.4 and 11.1 focus on access for vulnerable groups. SDG targets 6.3, 6.6 and 14.1 aim to reduce pollution discharges. Target 11.5 aims to reduce the impact of flooding.

2 See Safe drinking water: what do global statistics tell us that goes beyond official reports? , Gérard Payen, Défis Humanitaires n°86, 29 February 2024

3 Progress on Wastewater Treatment – 2024 Update | WHO - UN-Water

do not know whether total global water flows used by populations and released without any pollution removal is increasing or decreasing. Data are also still insufficient concerning global estimates of the pollution discharged by industry. Besides, the indicators chosen for the SDG targets 6.6 and 14.1 are insufficient for measuring the impacts of drinking water and sanitation activities on water and marine ecosystems.

Nevertheless, although still limited, this new statistical knowledge is a major step forward. For targets where it has been possible to estimate changes over time, stakeholders can no longer be content with fine speeches about how much they are doing and the resulting progress. They are now confronted with the reality of actual needs.

THE BIG CHALLENGE FOR STAKEHOLDERS: ACTING FASTER AND DOING MUCH MORE!

At present, most of the different stakeholders are doing what they can with their respective resources and constraints. While many really positive initiatives are being launched by public authorities, financial institutions, economic players, NGOs and local communities, unfortunately, taken as a whole, they are not enough. They only partially meet current needs, especially when these needs are increasing: demographic, urban and economic growth are increasing global demand for drinking water and sanitation year in, year out. If progress is not made quickly enough, the number of people without satisfactory access to these services may actually increase rather than decrease. Unfortunately, this is what is happening in the urbanised half of the world’s population, and throughout sub-Saharan Africa as a whole. This gap between what has been done and what needs to be done is usually not very visible because each stakeholder category communicates what they are doing in a positive manner and few compare the speed of progress with actual needs – and even fewer adjust their actions accordingly. The very large gap in some areas

is narrowing only slowly. It is even increasing for certain populations, not because of inaction, but because progress is slower than the rate at which needs are increasing.

The collective global challenge for water and sanitation stakeholders is clear: they need to do more, faster. We need to move from a world in which the numerous water sector stakeholders are satisfied with their respective actions to one where the scale of the drinking water and sanitation challenges is being effectively addressed. This means setting more ambitious national and local targets, mobilising more human and financial resources and removing many obstacles. For many decision-makers, it also means moving from a resource-based culture – “I do what I can with the budgets I’m given” – to a results-based culture – “I seek out a whole array of human and financial resources that will enable me to achieve the results I’m asked to achieve”. This results-based culture lies at the heart of the 2030 Agenda, which outlines the objectives without indicating the path. The means are left up to each and everyone.

AN ARTICLE BY GÉRARD PAYEN

Gérard Payen has been resolving water-related problems throughout the world for the past 35 years. Until 2002, he was in charge of utilities providing daily water services to more than 100 million people before serving for 11 years as a member of the United Nations Secretary General’s Advisory Board on Water and Sanitation. He has contributed to securing recognition for human rights to safe drinking water and sanitation, and to the adoption of the numerous water-related global Sustainable Development Goals (SDGs). Gérard developed the ‘Water4allSDGs’ method for assessing the impact of waterrelated actions on all of the SDGs.

Since 2010 and the recognition by the United Nations of access to safe drinking water and sanitation as basic human rights, public authorities can no longer be content merely to do the best they can with arbitrarily chosen budgets. They have an obligation to achieve a result: to

ensure that their entire population has satisfactory access to safe drinking water and sanitation by mobilising the necessary resources. This change in the role of public authorities was enshrined in EU legislation in 2020.

THE PRIVATE SECTOR IS CONCERNED IN MANY DIFFERENT WAYS

Public authorities are obviously primarily concerned by the need to speed up deployment on the ground and to develop a results-based culture in line with objectives. But the private sector is also involved because it helps to meet people’s drinking water and sanitation needs both through publicly-led actions or the private initiatives that round these out.

Several categories of private players are involved in the water sector and each has to contend with their own constraints. Manufacturers of pipes, pumps, equipment and other products necessary to water and sanitation infrastructure, as well as the builders of these infrastructures, must ensure that their equipment is durable and easy to maintain. They must also innovate and optimise in order to reduce costs, provide equipment that is adapted to the wide variety of practical situations, anticipate the impact of changes such as water warming, the emergence of new pollutants or changes in needs and uses, and so on. Regulated private operators act at the request and under the control of the public authorities, most often under public-private partnership (PPP) agreements. Like the public operators engaged in the same activity, these private players must adapt to differences in the quality and quantity of water resources, to changing needs and uses, to the emergence of new pollutants, to the need to serve populations without satisfactory access, to different social demands and to climate change. Private operators of unregulated or poorly regulated services also play an important role

in this sector: distributors of water in mobile tankers or cans, manufacturers and distributors of bottled water, and so on. Without forgetting the vacuum tanker companies who empty the contents of private sewage pits and must comply with specific environmental standards.

Private banks are essential for players in the water sector, as they enable them to bridge the time lag between their disbursements and receipts and to finance long-term investments. It is vital that they meet the financing needs of both public operators and private players more effectively. Electricity distributors must supply water infrastructures as a priority and on a continuous basis, because without electricity, pumps cannot function and the water supply comes to a standstill. Local and international associations and non-profits can set up and operate drinking water or sanitation infrastructures. Lastly, consultancies analyse problems, advise public authorities, design projects and help track their implementation. All of these private players need to adapt to changes in their respective markets. Add on the operational side of public operators and public inspection services, and you have the entire drinking water and wastewater ecosystem. Its members complement each other and operate in a more or less regulated way, under the direction and control of the public authorities.

THE ROLE OF PUBLIC AUTHORITIES AND THEIR FINANCIAL INSTITUTIONS

For the entire ecosystem to produce more services, public authorities first need to set more ambitious targets within the framework of long-term public policies focused on achieving results and regularly adjusted in line with progress actually achieved.

However, the stakeholders in this ecosystem will only be able to collectively achieve these objectives if they have sufficient financial and human resources, and only if they can overcome the internal obstacles and disincentives restricting these resources and resulting from diverging interests, lack of trust in the other partners or inadequate regulations. For example, to respond to needs more effectively – rather than merely seeking to finance them – it is important for public authorities and financial institutions to enable the financing of a greater number of investments by using ‘leveraged’ finance. For this to happen, they need to make the investment projects of local public and private operators more credible and create more trust between the players and on the financial markets. This will help to bring down interest rates on ‘commercial’ loans, which are often totally unsuited to very long-term investments.

But removing all these obstacles will not be enough. The situation will only improve significantly once these essential services become a clear priority for politicians and decision-makers. Today, on a per capita wealth basis, some developing countries devote half as much funding (i.e., public budgets + financing provided by users) to water and sanitation as others !

For the past four years, UN-Water has been communicating widely about the need to ramp up public water and sanitation policies without any conclusive effect so far. There has been no notable change of pace but this is no easy task as it challenges many entrenched habits and political arrangements.

And yet, to prevent a situation where billions of people still do not have drinking water or sanitation generations from now, we need to act much faster and much more forcefully, looking beyond the short-term interests of the different stakeholders. A collective leap forward is absolutely essential, and no later than the second UN Water Conference to be held in December 2026.

Figure 1 – Global populations lacking services (billions) and variations from 2015 to 2022 (%)

FOCUS FRENCH WATER PARTNERSHIP

The French Water Partnership (FWP) is a platform that brings together French water players active on the international stage. Its members include government ministries and public establishments (including AFD), elected representatives, local authorities, associations, NGOs and foundations, economic players, research and training institutions, and individuals. Since 2007, the FWP and its members have been working together to advocate at international level for better consideration of waterrelated issues in various actions and policies. The PFE also fosters exchanges between French knowhow and that of other countries in the field of water management. https://www.partenariat-francaiseau.fr/

Getting it right: private sector participation in the water sector

Sophie Trémolet, Water Team Lead, OECD

Attracting private sector participation to the water sector is key to achieving the Sustainable Development Goals (SDGs). Successful experiences abound, as described in this issue. However, as investment levels remain low, clarifying the contracting parties’ expectations upfront and establishing the right enabling environment (including regulatory frameworks) is key to increasing participation.

AN ARTICLE BY SOPHIE TRÉMOLET

It is often said that the private sector is not the sole solution, but is part of the solution – an opinion shared by many public sector agencies looking for ways to attract greater private sector participation in the water sector. Specifically, commercial financing is needed to enable the investment required to achieve the SDGs as most of the SDGs depend on water security (and particularly SDG6, the ’water SDG’).

DEFICIT IN PRIVATE INVESTMENT

Back in 2015, the OECD and the World Water Council had identified estimates of investment needs to achieve SDG 6 ranging from USD 6.7 trillion by 2030 to USD 22.6 trillion by 2050 1 . The World Bank recently found that developing countries need to triple current expenditure to achieve SDG6 and that the private sector accounted for only 2% of current spending 2 In Europe, the private sector has long been a more consistent investor; still, its share of total financing is a mere 6%.

SDG 6.1. and 6.2. concern realizing universal access to safe water and sanitation; 6.3. relates to wastewater treatment, and 6.4 to improving water-use efficiency, aimed at reducing water scarcity. Attaining all the goals will require substantial upfront investment: once networks and treatment units are in place, operational and maintenance spending, as well as ongoing investment are needed to maintain and upgrade the installations and to meet evolving regulations. The OECD has estimated that EU countries will need to increase investment, on average, by 25% between 2020 and 2030, and for countries that have joined more recently, by 100%. This in order to catch up and align with EU requirements3 In terms of private participation in infrastructure, the water sector is lagging behind, with private investment committed to water infrastructure projects in the low- and middle-income countries hovering between 2% and 10% of total private investment between 2014 and 2023. The volume of private investment in water and the number of projects with private participation fell from USD 5.3 billion across 27 projects in 2022 to USD 1.8 billion across 19 projects in 2023. By contrast, over the same period, the volume of energy projects – mainly

renewable energy projects – sharply overtook pre-Covid levels, with private investment in low- and middle-income countries at USD 62.4 billion over 187 projects 4 .

The reasons for this deficit in private investment in water include perennially low water tariffs – often kept at below-cost levels for political reasons – and the limited pipeline of investable projects. This is changing, however, as the effects of climate change (floods, droughts and wildfires) impact water, making investment in water security urgent and critical. Many governments, with the support of

development finance institutions, are turning to the private sector to help them advance in this area.

While private sector participation in the water sector can be expected to increase, in response to strong demand, it is necessary to be realistic about the role it can and should play in achieving a water-secure future. The focus going forward should be on how to get it right, to avoid past challenges. Important lessons, outlined below, have emerged so as to achieve greater, more sustainable private participation.

APPROPRIATE RISK SHARING BETWEEN THE PUBLIC AND PRIVATE SECTORS

First, broader reforms of the sector need to be considered, to put the foundational elements of well-functioning water services in place. These must be based on a move towards cost-covering tariffs (with redistributive measures to address inequalities) and well-defined service areas for operators – often they are fragmented (for example, the previous rural services in Benin) and sometimes too large (for example, in post-Soviet countries).

Second, appropriate risk sharing between the public and private sectors is necessary. Unrealistic expectations regarding the private sector have persisted since the early 1990s, when many of the landmark concession contracts were granted. At the time, private operators already emphasised their expertise, rather than their funding contributions. Their appetite to invest in water was significantly dampened after early concession contracts were impacted by economic and political instability and were ultimately terminated (e.g. Buenos Aires in 2006, Gabon in 2018). A gradual introduction of private participation, starting with service and management contracts, while protecting private sector’s revenues from tariff fluctuations, is therefore needed to build trust

between public and private partners.

Third, a suitable enabling environment is needed to attract private participation. Besides having strong water sector policies in place5, it must include indicators of economic stability, broader corporate governance rules and ensuring that policies relative to agriculture or industry are not having detrimental impacts on water security. Political leadership by governments is also necessary to ensure that ministries and autonomous agencies work towards common goals. An OECD tool for assessing the enabling environment for investment in water has been developed and tested in multiple Asian countries, including in Armenia where it helped identify necessary reforms. Additionally, clear legal frameworks for private participation are essential (e.g. , the BOT6 Law in the Philippines). Finally, a well-coordinated regulatory framework is essential. In addition to setting tariffs and deploying results-based performance standards, environmental approaches must also be encouraged and integrated into regulations in order to serve broader climate objectives. The OECD and AFD are currently working on a publication on this topic, which will be published in early 2025.

FOCUS OECD

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to build better policies for better lives. The OECD is a unique forum and knowledge hub for data, analysis and best practices in public policy. We work closely with policy makers, stakeholders and citizens to establish evidence-based international standards and to find solutions to social, economic and environmental challenges.

C. Rivera

Leveraging capital markets to meet water and sanitation needs

Anu Valli, Senior Director, Financial Institution Investments, WaterEquity

Genevieve Edens, Senior Director, Impact & ESG, WaterEquity

The World Bank estimates that to achieve Sustainable Development Goal (SDG) 6, $114 billion per year will be needed for new water and sanitation infrastructure. To this end, WaterEquity was established to mobilize and scale private investment in emerging markets.

FOCUS WATEREQUITY

WaterEquity is an asset manager dedicated to mobilizing private investment in the water and sanitation sector in emerging and frontier markets. WaterEquity invests in financial institutions, enterprises, and infrastructure in emerging and frontier markets delivering safe water and sanitation solutions to vulnerable communities, while seeking financial returns for accredited investors. Founded by entrepreneurs Gary White and Matt Damon of Water. org, and led by Paul O’Connell, the success of WaterEquity is built on decades of collective experience investing in water and sanitation in emerging markets.

WATER.ORG

Water.org is a global nonprofit that breaks down financial barriers to provide low-income communities access to safe water and sanitation through affordable financing. Water.org uses philanthropy to develop a pipeline of investable opportunities through technical assistance for financial institutions and project development support for infrastructure.

Access to safe water and sanitation is a human right, yet today 2.2 billion people lack access to safe water, and 3.5 billion people lack adequate sanitation1. Climate change is amplifying this crisis, as it directly impacts water availability through temperature extremes, floods, and droughts. Millions of vulnerable families are ill-prepared to cope with these changes. Access to sustainable water and functional sanitation is essential for building climate resilience in low-income communities.

Yet, there is a gap in financing. The World Bank estimates that to achieve Sustainable Development Goal (SDG) 6, by 20302, $114 billion per year will be needed just for new infrastructure3 (excluding maintenance and operating costs), thrice the current global investment.

In 2017, WaterEquity was established to mobilize and scale private investment for water and sanitation in emerging markets. The primary obstacle to providing loans for access to water and improved sanitation solutions has been their non-income-generating nature. Financial institutions offering loans to low-income clients for these needs have also faced challenges. In WaterEquity’s experience, attracting financing has involved raising awareness about the nature of the water crisis, advocating for change, demonstrating successful solutions, and improving awareness of the impacts of climate change. Its private funds invest in financial institutions, enterprises, and infrastructure that deliver safe water and sanitation to low-income communities, while seeking to align investor values with the potential for risk-adjusted returns.

DEMAND-DRIVEN SOLUTIONS: INVESTING IN FINANCIAL INSTITUTIONS FOR WATER AND SANITATION

WaterEquity was launched by Water.org, a global nonprofit organization that deploys philanthropic capital to help people living in poverty get access to safe water and sanitation through market-based solutions. Water.org’s work has revealed demand for small, affordable loans for low-income families to access water or sanitation. Families without basic services spend up to 15% of their income on water 4 Furthermore, hours are lost fetching water, especially by women and girls, reducing productive time and resulting in higher levels of

1 World Health Organization (WHO) and the United Nations International Children’s Fund (UNICEF) Joint Monitoring Program (2023). Progress on household drinking water, sanitation, and hygiene 2000–2022: special focus on gender.

2 UN-Water, 2023. Blueprint for Acceleration: SDG 6 Synthesis Report on Water and Sanitation 2023

3 Hutton and Varughese (2016). The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation, and Hygiene. World Bank.

4 Justin Stoler, et al. Cash water expenditures are associated with household water insecurity, food insecurity, and perceived stress in study sites across 20 low- and middle-income countries, Science of The Total Environment, Volume 716, 2020, 135881, ISSN 0048-9697.

illness. This translates into an estimated $260 billion lost globally each year5. Hence, families see significant value in taking out a small loan to improve their access to these services.

Water.org enables financial institutions to develop water and sanitation microloans; WaterEquity supports them with debt investments to enable them to scale up their water and sanitation microloan portfolios. Since its launch, WaterEquity has raised more than $460 million in capital, facilitated over 1.2 million in microloans, and enabled more than 6 million low-income people in Asia, Africa, and Latin America to access water and sanitation6. The following lessons have been learned along the way:

- Most financial institutions do not recognize the demand for water and sanitation microloans.

Technical assistance is needed – support in identifying opportunities, designing products,

developing marketing materials, training teams, and tracking results.

- The demand extends to SMEs, which fill the gap in service delivery. These need financing to improve the quality and reach of their services. In addition to technical assistance, the financial institutions serving them require derisking support.

- Client protection and good governance add impact for households. Mature institutions that are oriented towards client protection and social impact are best positioned to deliver these. Typically, they represent lower credit risk and also lower impact risk.

- Technical assistance geared towards good product design, including checks for loan misutilization and direct payments to vendors, helps to mitigate credit risks.

SCALING SOLUTIONS: INVESTING IN CLIMATE-RESILIENT WATER AND SANITATION INFRASTRUCTURE

Financing the “last mile” of water and sanitation must be complemented by investment in resilient infrastructure: existing infrastructure is vulnerable to extreme weather. Despite infrastructure investment having grown by 350% over the last decade7, only 1.9% of commercial financing has been of water and sanitation infrastructure8. This is due to the lack of investible projects, and because investing in the sector can be fraught with challenges.

Hence, in 2022, WaterEquity embarked on an initiative with Water.org to develop and invest in infrastructure projects and companies. Water. org recently launched WaterConnect, which provides early-stage support for developers and others to generate investment-ready projects.

WaterEquity’s first infrastructure fund, the Water & Climate Resilience Fund, achieved its first close in 2024. By investing in climate-resilient infrastructure, the WCR I Fund aims to offer 15 million people access to water and sanitation, and indirectly benefit millions more with improved

water quality and reduced scarcity. The fund will invest in projects such as public-private partnerships to build and operate water treatment plants. It will also invest in growth companies within the sector that develop and deploy innovative technologies and services. These investments are intended to enhance reliability and efficiency at scale, while contributing to the climate resilience of communities.

WaterEquity’s twin focus on household financing and climate-resilient infrastructure is a crucial step in addressing the global water crisis. The link between water, climate, and gender is essential for impact investors like WaterEquity. Strategically investing in solutions that span household needs and infrastructure drives transformative change and eases burdens on women and marginalized communities. The climate-water nexus confers positive environmental impacts while contributing sustainable water security and gender equality impacts.

5 Hutton, G. and M. Varughese (2016) “The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation, and Hygiene,” World Bank Water and Sanitation Program Summary Report.

6 WaterEquity Social impact data as of 03/31/2023. Past performance is not indicative of future results.

7 Preqin Global Infrastructure Report, (2020).

8 Pories, L., Fonseca, C. and Delmon V, (2019). Mobilising Finance for WASH: getting the foundation right. Water.org, IRC and The World Bank.

AN ARTICLE BY ANU VALLI

Anu Valli leads WaterEquity’s investments in water and sanitation through financial institutions. She is responsible for strategy, managing a global team, portfolio development, and overseeing investment vehicles. She has 15+ years' experience in impact investing and investment banking. Previously, Anu led Symbiotics’ debt financing for financial institutions in South Asia. Before this, she was an Investment Manager at Bamboo Capital overseeing equity investments in Asia. Previous positions include investment management and incubation support at IFMR Trust’s venture capital arm and investment banking analysis with Citigroup, India. Anu received a BCom from Madras University and has a postgraduate diploma in business management from the International Management Institute, New Delhi.

GENEVIEVE EDENS

Drinking water for all: the work of Águas do Rio in Brazil

By Proparco’s Communication and Marketing Division

As part of the programme to privatise water and sanitation services in the State of Rio, the private company Águas do Rio - supported by IDB Invest and Proparco - was awarded management of two concessions in 2021, covering areas where almost 10 million people live. Connection to a reliable water network, managed using leading-edge technology, has revolutionised the lives of local residents, mainly in a number of Rio’s favelas . Report

Acity within a city. With its steep alleyways and passageways, the working-class district of Mangueira seems to have been built like a huge labyrinth, cut off from the rest of Rio de Janeiro. Perched on one of the many hills (morros) that characterise the city’s topography, just a stone’s throw from the Maracanã football stadium, this favela is home to more than 30,000 people 1, one of the

CLEAN WATER IN MANGUEIRA FAVELA

highest population densities in Rio. “Living here has always been difficult. These are the slums of Rio”, explains Carlos Da Costa Silva (73), a native of Mangueira. The local residents – most of whom live in informal housing made out of bricks and tin – “manage as best they can”, says this former security guard and fervent supporter of the local Vasco da Gama football club. “There are very few local services and amenities, and job opportunities within the favela are rare.”

Over the past three years, the area has undergone a real transformation, in terms of both health and social amenities. Virtually all the homes in Mangueira are now connected to the official water network – managed by private operator Águas do Rio (8,000 employees), a subsidiary of the Aegea Group2 – which provides access to safe, high-quality services. “It’s a huge change,” explains the old man. “We used to be supplied via a rudimentary system”. There was a lot of waste and the quality of the water was very unstable. “We used to repair leaks ourselves, in the middle of the wastewater. We had to lift heavy concrete slabs to access the underground network. It was very dangerous.”

The residents of Sinimbu Road, in the western part of the favela , have still not abandoned these old habits. There, the very last of the neighbourhood’s 400 homes are waiting to be connected to the network in a few months’ time. Meanwhile, countless haphazardly connected pipes, most of which are continuously leaking, have to be repaired. Large containers have been set up everywhere, filled to the brim and used

as a reserve when the pipes run dry. “With this system, the water is frequently cut off”, explains Clayton Guilherme Da Silva, a Mangueira native and sales representative for Águas do Rio. “The installations are completely outdated, but soon, every family here will have its own meter.” And consequently, an individual account; a boon that allows the inhabitants of these working-class

neighbourhoods to exercise their rights. With official proof of their address, they can access social services that would otherwise be unavailable to them. Once they are connected to the water network managed by Águas do Rio, these favela residents benefit from a ‘social’ tariff, which is lower than that charged in the more affluent areas of this Brazilian megalopolis.

Rue Sinimbu, in the Mangueira favela, where the last few houses are waiting to be connected to the Águas do Rio network.

99%

The objective of the Brazilian Federal government – which approved a “specific new legal framework" in 2020 – is to ensure that 99% of the country’s population has access to drinking water and 90% to wastewater collection and treatment by 2033 (compared with 84% and 55%, respectively in 2023). Total investment required under this new legal framework is estimated at BRL 500 billion (around €80 billion).

COMPLEMENTARITY OF THE PUBLIC AND PRIVATE SECTORS

In total, Águas do Rio supplies almost 10 million people in 27 municipalities in the State of Rio via a clean reliable water network - through two concessions (numbered 1 and 4) that it has been managing since 2021. The private operator’s work has already provided 621,000 people with regularized access to drinking water. “Three years ago, the federal authorities approved a new legal framework aimed at providing universal access to water and sanitation throughout Brazil by 2033”, explains Sinval Andrade, Águas do Rio’s Institutional Director.

A water meter newly-installed by Águas do Rio teams in Mangueira favela

At the Sinimbu road, where the last of the neighbourhood's of the favela are waiting to be connected to the network.

To achieve this goal, they decided to privatise water distribution and sanitation services in the State of Rio, which was previously managed by public operator, Companhia Estadual de Aguas e Esgoto (CEDAE), by dividing the territory into 4 concessions. “We were awarded two of them for a 35-year period”, adds the Director, highlighting the substantial investment planned by Águas do Rio over the period in question: BRL 19 billion (around €3.4 billion). “Since 2021, we have spent BRL 3.5 billion (around €650 million) repairing the existing water and sewage network”, points out the Director, for whom this association between the private sector (Águas do Rio) and public sector (CEDAE) is a particularly virtuous development. “Neither has the resources needed to make the necessary investments on its own. These different players complement each other.”

To support this development plan, IDB Invest (a member of the Inter-American Development Bank Group) and Proparco teamed up with Águas do Rio in 2023. IDB Invest granted a long-term loan in local currency - better suited to its needs than a loan in foreign currency - for a maximum amount of BRL 1,500 million (around €282 million). Proparco has given IDB Invest a guarantee on part of this amount (BRL 500 million, or around €94 million) . This transaction has a twofold advantage: it enables IDB Invest to increase the amount of its loan to Águas do Rio, as part of the risk is guaranteed by Proparco. It also allows Proparco to be involved in arranging the financial operation thanks to an effective partnership with IDB Invest.

AFD Group mobilising to provide access to water and sanitation services in Brazil

AFD Group is one of Brazil’s key partners in deploying its universal access to water and sanitation objectives. With over one billion euros in cumulative commitments, AFD prioritizes the reduction of inequalities in access to resources and services, helping operators to improve their performance and making the sector more resilient in the face of climate risks. The Group is especially well positioned to meet the needs of public and private players in the sector. While AFD works with governments, municipalities, public operators and public financial institutions involved in the sector, Proparco can deal with private companies. The Group’s other entities and instruments can provide equity financing for concessions (STOA), technical expertise (Expertise France) and support innovative projects with a major environmental impact (FGEF).

The opportunities in the sector and the soundness of certain partners are encouraging AFD Group to ramp up its investments, for example by launching a range of guarantees and loans in local currency, or by partnering the issue of sustainable bonds. These innovative instruments will continue to be deployed on a case-by-case basis over the coming years.

SATELLITE TRACKING OF LEAKS

From the Company’s operations centre, located in a former industrial warehouse in the heart of the city, several dozen engineers and technicians take it in turns to analyse the state of the water network covered by the Águas do Rio concessions in real time. Three giant screens display satellite images of the water circuits running through all the districts concerned. “Thanks to minute quantities of chlorine contained in the water we distribute – which our software detects and distinguishes from groundwater – we can spot leaks in real time,” explains data analysis specialist Thaissa Chemzariam. And on a map of central Rio, she shows around twenty leak points in the Ipanema area, where technicians - equipped with geophones - are carrying out

repair work. “We are also installing over 250 smart valves that will enable us to remotely monitor leaks and water pressure more effectively”, explains Sinval Andrade. The stakes are high, both economically and ecologically. The operator estimates that these leaks in its network – estimated in billions of litres each month – would allow it to supply drinking water to an additional 4 million people if they were eliminated. “We currently lose 50% of the water we distribute, usually as a result of structural problems linked to the state of the network. Our objective over the next 10 years is to reduce this to 25%”, concludes Águas do Rio’s Institutional Director. Before adding confidently: “And we’ll meet that target too!”

Águas do Rio operations centre, where engineers work in shifts to monitor the water network in real time.

Access to water has always been a problem in the favélas of Rio. When I was a child, because of the lack of water, I had to shower at the homes of friends from better-off neighbourhoods. But since Águas do Rio stepped in, the situation has changed completely. Each home is connected to the network and equipped with an individual meter and has unlimited access to drinking water.

Katia Regina Moreira (45), married with 3 children, resident of the favela of Mangueira

Carlos Da Costa Silva (73), a native of Mangueira favela: "We used to be supplied via a rudimentary system of open drains".

Saving Guanabara Bay

Águas do Rio’s action has improved the health and environmental performance of Rio de Janeiro’s celebrated bay.

A picture postcard and jewel of biodiversity in the heart of Rio de Janeiro: Guanabara Bay, which extends over 400 km² – and around which the Brazilian megalopolis has grown – is both a marvel and a unique ecosystem in Brazil. This enormous basin –which opens onto the Atlantic Ocean and extends inland for some 30 kilometres – contains some 130 islands and hosts 250 marine species, including seahorses, turtles and no less than seven different types of ray!

“But it’s a fragile treasure, severely damaged by water pollution”, explains biologist Ricardo Gomes, who founded Instituto Mar Urbano, an environmental protection NGO in 2017. “For a long time, the Bay was the city’s sewage system”. During the 2016 Rio Olympics, the situation, – remarked on by the world’s media – greatly complicated the organization of the nautical events. At the time, it was estimated that the rivers that flow into the Bay - including the Rio Carioca, the city’s main river - were discharging the equivalent of 18,000 litres of wastewater every second1. Staggering!

60 consecutive days of bathing

“But the situation is improving”, insists the scientist. On board his Institute’s zodiac boat, this keen diver surveys the marine fauna along the whole the bay and, since 2022, he has been running an environmental education programme called ‘Expedição Águas Urbanas’, sponsored by Águas do Rio. “New varieties of fish are appearing, while turtles, a species that we observe closely, are now reproducing in greater numbers”. The Cariocas (i.e., the inhabitants of Rio), can finally enjoy the Bay’s beaches. Long unfit for bathing, Flamengo Beach - whose sandy stretches face the iconic Sugarloaf - had been open to the public for more than 60 consecutive days by the end of September 2024. A new record!

At the heart of this metamorphosis: the clean up by Águas do Rio of a nine-kilometre-long tunnel, which collects a large part of the wastewater from southern Rio de Janeiro and transports it to the Parafuso pumping station as far as the underwater piping system at Ipanema, four kilometres off the coast. Around 3 thousand tonnes of waste have been collected in this way.

‘Even though there is still lots to be done, the appearance of the site has been completely transformed,’ says Ricardo Gomes. “The future of the bay belongs to the Cariocas. It’s up to them to take care of it.”

1 Data provided by Rio’s Museu do Amanhã (The Museum of Tomorrow). See also: Rio’s Olympic waters blighted by heavy pollution (BBC, 2015).

September 2024: Flamengo beach, overlooking Guanabara Bay, which had been open to the public for more than 60 consecutive days.

Ricardo Gomes, biologist and founder of Instituto Mar Urbano.

Stimulation, innovation, and development: Brazil’s BNDES at the forefront

Interview with Eduardo Nali, Head of the Water and Sanitation department of the Infrastructure division, BNDES

WHAT ARE THE MISSION AND FUNCTIONS OF THE BANCO NACIONAL DE DESENVOLVIMENTO ECONOMICO E SOCIAL (BNDES)?

BNDES, a public bank, is Brazil’s main longterm credit provider. It supports economic policy through financing for companies, PPPs, and projects. It offers direct financing, on-lending to MSMEs, guarantees, and capital market investments. BNDES also provides grants for sustainability and social causes, focusing on economic impact, innovation, and regional development.

GIVEN THE SUBSTANTIAL REORGANIZATION OF THE WATER AND SANITATION SECTOR IN BRAZIL, WHAT ARE THE MAIN CHALLENGES AND ISSUES IT FACES?

The Basic Sanitation Legal Framework set a goal to achieve 99% coverage with potable water and 90% with sewage treatment by 2033. The estimated investment to reach this goal is more than 500 billion reais (80 billion euros). Challenges include public and private investment capacity; structures and governance of subnational regulatory bodies; increasing private sector involvement in financing and operations; and the strong need for investment, especially in poorer regions, where tariffs must be reasonable.

WHAT IS THE ROLE OF PRIVATE SECTOR PLAYERS IN PROVIDING WATER AND SANITATION IN BRAZIL?

BNDES plays a major role in expanding private sector provision. With the support of BNDES Project Factory, 12 auctions have been held in recent years, encompassing the sanitation services of multiple municipalities in the states of Rio de Janeiro, Alagoas, Amapá, Ceará and Rio Grande do Sul. As concessions and public-private partnerships expand, the role of the private sector

is expected to grow significantly. By 2026, there will have been 10 auctions of the type modeled by BNDES, with an investment of 100 billion reais (approximately 17 billion euros), serving 36 million people. To increase competition, it is important to attract new players into the sector, by making more capital available.

HOW DO YOU SUPPORT PUBLIC AND PRIVATE ACTORS WITHIN THE FRAMEWORK OF THE WATER CONCESSION PRIVATIZATION PROGRAM IN BRAZIL?

BNDES supports investment by private and public entities, from local to state levels. In the concession/PPPs process, BNDES supports public authorities mostly by providing a modeling service for projects, undertaking studies and building the contractual framework for future concession auctions. Thereafter, BNDES assists companies by offering funding, structuring collateral, and helping to allocate risks appropriately among lenders, sponsors, contractors, and the grantor. Given its thorough project analyses, BNDES’ support has a signaling effect for other co-lenders.

WHAT

HAS

BNDES'

ROLE BEEN IN FINANCING THE AGUAS DO RIO 1 & 4 CONCESSIONS?

BNDES was the lead developer of the financial solution. It was the first to sign a loan agreement, and established the guarantee and collateral framework; this was later augmented with other co-lenders. BNDES was also the largest and main coordinator of four bonds, totalling more than 7 billion reais (approximately 1.2 billion euros); additionally, it offered a backstop facility of 3.8 billion reais (approximately 630 million euros) to ensure the project was fully-funded, enabling other lenders to join the structure.

EDUARDO NALI

FOCUS

BNDES

BNDES, one of the world’s largest public development banks, is Brazil’s key instrument for long-term financing and investment across all sectors. The bank supports entrepreneurs of all sizes by financing investments, underwriting securities, offering guarantees, and providing non-refundable funds. BNDES prioritizes projects that drive social, environmental, and economic impact, fostering innovation, regional development, and social inclusion. In times of crisis, BNDES plays a crucial role in economic recovery, ensuring sustainable growth for Brazil.

Orchestrating multi - player collaboration in water and sanitation in Latin America and the Caribbean

Interview with Irene Arias Hofman, CEO, IDB Lab

Irene Arias Hofman, CEO of IDB Lab, describes the Lab’s role in Latin America and the Caribbean, specifically in the water and sanitation sector of the region. This against the backdrop of IDB Lab’s founding purpose – to improve lives in the region, by enabling its people to find innovative entrepreneurial solutions.

WHAT

IS THE PURPOSE OF IDB LAB?

IRENE ARIAS HOFMAN

The IDB Group has the sole purpose of improving lives in Latin America and the Caribbean (LAC). That said, IDB Lab, was born of the conviction that the region needs to find ways to deliver on social inclusion, environmental action, and productivity.

Core to IDB’s work is advancing early-stage entrepreneurial innovation and supporting solu-

tions and ecosystems. IDB Lab also fosters new technologies, activates innovative markets, and catalyzes existing sectors.

The Lab serves as a testing ground for the IDB and IDB Invest – and for other IFIs that have the financial resources and knowledge to scale innovations. It fulfills this role by design, operating with agility and a high-risk appetite.

WHAT TYPES OF PRIVATE SECTOR ACTORS AND PROJECTS IS IDB LAB ABLE TO SUPPORT IN THE WATER AND SANITATION SECTOR?

It supports a range of private sector actors, including startups, small and medium-sized enterprises (SMEs), and social enterprises. Projects vary in size from pilot initiatives (150.000US$) to scalable ventures (1.000.000US$). Examples include technology-based solutions for efficiency in water purification, social enterprises working on community-based sanitation projects, and SMEs

developing new infrastructure models for water distribution. IDB Lab also promotes the development of ecosystem projects with entities such as water companies, universities, and accelerators to enhance a strong supply of technological solutions in the region. Its support involves both financial investment and strategic guidance, to ensure that projects can scale and achieve a sustainable impact.

WATER AND SANITATION IS ONE OF SEVERAL SECTORS TARGETED: DO YOU TAKE A SPECIFIC APPROACH COMPARED WITH OTHER SECTORS?

IDB Lab approaches the water and sanitation sector uniquely, through an alliance called Source of Innovation. This is a strategic alliance between IDB Lab, the IDB, and external partners, including public and private entities. The collaboration allows for a holistic strategy to address safe access to water, sanitation, and solid waste services, promoting innovative solutions. By leveraging the combined expertise and resources of the partners, the initiative can pilot new technologies, implement best practices, and promote sustainable models that can be replicated across the region.

This approach differs from those taken with

other infrastructure sectors, where IDB Lab often works directly with startups and other entities to develop and deploy new technologies. Nevertheless, all energy, transport, and water

projects emphasize multi-stakeholder collaboration, community engagement, and integrated solutions that combine technological, social, and financial innovations.

COULD YOU GIVE EXAMPLES OF SOME INNOVATIONS THAT IDB LAB HAS HELPED FOSTER IN RECENT YEARS IN THE WATER AND SANITATION SECTOR?

It has been fostering innovation, enhancing service offerings, and cultivating a culture of innovation through various ecosystemic projects. Some examples are the following.

A Clean Solution to a Dirty Problem is expanding access to safe sanitation in the Dominican Republic. It introduced an outcomes-based contracting mechanism called Payment by Results, aimed at increasing formal sewage system connections for vulnerable coastal populations.

Development of a Robust Offer of Deeptech Technology Providers (RG-T4302) supports startups in Latin America that could meet the demand for digital transformation. The project maps, analyzes, and validates startups’ technologies.

The Toilet Board Coalition – Boosting the Sanitation Economy in LAC (RG-T4144 and RG-T4148) is aimed at supporting entrepreneurs and facilitating partnerships between SMEs, corporates, NGOs, investors, and governments. Through its Accelerator program, the Coalition focuses on improving sanitation and hygiene for low-income markets, contributing to the goal of universal sanitation by 2030. Brazil Trial Reservoir (BR-T1532 and BR-G1017) accelerates adopting innovative technologies, reducing risks on the path to commercialization, and improving service delivery and environmental impacts. It leverages Brazil’s Legal Startup Framework to enable public utilities to experiment with and scale innovative solutions while developing a financing model that supports technology companies in conducting pilot tests.

THE WORD “LAB” MIGHT IMPLY SOME SORT OF EXPERIMENTATION AND MEASUREMENT OF RESULTS: IS THIS HOW YOU APPROACH YOUR WORK?

The ‘Lab’ in IDB Lab shows a commitment to experimentation and a willingness to take risks. This involves piloting new ideas, testing their feasibility and impact, and refining them based on measurable outcomes. By adopting this mindset, IDB Lab can identify the most effective solutions and scale them up for broader implementation. The Lab’s high-risk appetite,

unique among multilateral organizations, allows for derisking large public and private sector operations to create and activate innovative markets through entrepreneurship. The method embraces learning from failures and continuously improving successful models to maximize their impact across the region.

HOW DO YOU APPROACH SCALABILITY IN THE WATER AND SANITATION PROJECTS YOU SUPPORT?

In this sector, all projects are designed to meet demand, fostering both supply and demand from the start. Scalability is in mind from the outset, ensuring that solutions can be adopted by utilities and service providers, and expanded to reach larger populations. This involves creating adaptable models, fostering partnerships with local and regional stakeholders, and securing ongoing funding and support. By aligning

with public sector priorities and leveraging their resources and influence, the potential for successful implementation and scalability is enhanced. Specifically, 71% of IDB Lab projects approved through Source of Innovation, already have a utility or service provider as a client or partner from the design stage; the other 29% have this as their main target.

FOCUS IDB LAB

IDB Lab is the innovation and venture capital arm of the Inter-American Development Bank Group. It discovers new ways to drive social inclusion, environmental action and productivity in Latin America and the Caribbean. It leverages financing, knowledge and connections to support early-stage entrepreneurship, foster new technologies, activate innovative markets and catalyze existing sectors. www.idblab.org

Clean water: the challenges of access to resources of quality for all

At the very heart of the balance between ecosystems and societies, water is an essential component of food security, health, dignity, peace and biodiversity. But access to high-quality drinking water and sanitation services is a key challenge in many parts of the world, where it cannot yet be taken for granted. And yet it is a basic human right, recognised by the United Nations since 2010.

Several billion people are deprived of drinking water and sanitation services

Over 2.2 billion people still do not have access to quality domestic drinking water

3.5 billion people do not have access to adequate, securely managed sanitation

Sources: UN

Source: values calculated from the WHO-UNICEF database

Every day, over 1,000 children under the age of 5 die as a result of unclean water –400,000 children every year!

Sources: UN

Number of people still without access to drinking water in sub-Saharan Africa

IN 2 0 22

800 million people

An increase of 13%

In 2022, at least 1.7 billion people worldwide were using a source of drinking water contaminated by faecal matter. Microbial contamination of drinking water due to faecal contamination is the greatest risk to safe drinking water.

To be able to provide universal water and sanitation services by 2030, current investment will need to be 6 times greater for drinking water and 5 times greater for sanitation services.

(2024); UNOPS (2023), UNICEF (2024), WHO (2022)

(2024), UNOPS (2023), UNICEF (2024), WHO (2022)

SDG 6 – Clean water & sanitation

The sixth Sustainable Development Goal (SDG) aims to achieve universal and equitable access to safe drinking water, hygiene and sanitation by 2030, especially for the most vulnerable populations. It also calls for sustainable management of this resource, and stresses the need to reduce the number of people suffering from water scarcity. This 6th Sustainable Development Goal incorporates the notion of transboundary water management, which is essential for long-term access to water and promotes peace and cooperation1

1 See also: https://www.un.org/sustainabledevelopment/fr/water-and-sanitation/

Glossary

BOT (Build-operate-transfer)

BOT (Build-operate-transfer) is one type of Anglo-Saxon public-private partnership (PPP) contractual arrangement: in a BOT, a public organization or contracting authority (e.g. a government) teams up with a private company, the operator, to finance, design, build and operate a project for a defined period (generally quite long, e.g. 20 years), at the end of which the project is transferred to the public entity. Consideration for the operator is either in the form of the right to operate the project/facility, or this right plus a royalty-type payment.

Drinking water

Drinking water is suitable for drinking, preparing food or for personal hygiene. Drinking water criteria differ from country to country. In its quality guidelines, the World Health Organisation (WHO) defines drinking water as being constantly free from pathogens, harmful chemical contaminants and radioactive contaminants. In addition, the appearance, taste and odour of drinking water must be acceptable to consumers, to prevent them from turning to sources that are less safe but have more satisfactory organoleptic qualities.

Sources: WHO (2017); UNICEF and WHO (2019)

“Safely Managed Service” (SMS)

When devising the targets for SDG 6 in 2015, the UN introduced the notion of access to a “safely managed service”. A “safely managed” potable water service means that drinking water comes from an “improved” water source located in the home, available on demand and free from pathogens and chemical contamination. An “improved” water source is potentially capable of providing safe drinking water

thanks to its design and construction. Since 2017, UNICEF and WHO have recognised that water packaged or delivered by tanker truck can be considered an improved source corresponding to a potentially safely managed service. In terms of sanitation, access to a “safely managed service” refers to improved sanitation facilities that are not shared by several families and in which excreta are either stored and treated on site or transported and treated off site.

Sanitation

Sanitation refers to all the practices and infrastructures designed to deal with the health risks associated with human waste and contaminated water. It essentially comprises the management of wastewater (domestic, industrial and rainwater) as well as the collection, treatment and appropriate disposal of waste. Sanitation aims to protect both public health and the environment. It is a constantly evolving sector, especially with the introduction of new pollutants.

Source: Gabert (2018)

Sanitation (collective and on-site)

Collective sanitation involves the continuous evacuation of wastewater through a network of pipes connected to a treatment plant. In the case of on-site (or autonomous) sanitation, wastewater and human waste are first stored in septic tanks before being transported by a pumpout service to a treatment plant. This is the most common form of sanitation throughout the world, particularly in so-called developing countries.

Source: Ibid.

Waste/resources

Wastewater contains nutrients, notably nitrogen and phosphorus, which can be used as fertiliser in agriculture. Sewage sludge (generated from pumping out septic tanks) can be used to produce energy or for soil fertilisation. The Ecosan (ecological sanitation) approach aims to recycle nutrients and sewage sludge, as well as recovering value from this waste (particularly economic value), which then becomes a resource.

Source: Ibid.

Water resources

All the water available in a given area, including surface water (lakes, rivers, etc.), groundwater (water tables, aquifers, etc.) and sometimes, recycled water, water from desalination processes and, more rarely, rainwater. Preserving the quality and quantity of water is a fundamental issue, particularly in the face of climate and demographic challenges. Sustainable management requires an equitable breakdown between the different uses (agricultural, industrial and domestic) while simultaneously protecting ecosystems.

Mobilizing the private sector to secure financing and improve efficiency

The private players operating in the water and wastewater sector come in many different forms. Alongside large-scale partnerships, operating by means of a variety of contractual arrangements (leasing, concession, etc.), small private suppliers are helping to meet the demand that public services alone cannot satisfy. Risk-sharing arrangements are being increasingly tailored to the various different operating contexts, and cover the whole range of possible formulae, from full transfer of ownership to non-financial forms of participation. In all cases, the challenge is to raise the enormous amounts required to finance water supply and sanitation, while at the same time improving system efficiency.

A lack of overall investment

Between 2009 and 2020, less than 2% of total public spending went into the water and sanitation sector, an average of 0.44% of global GDP.

Over $1,700 billion worth of investment is needed to achieve universal and equitable access to quality drinking water by 2030.

Private sector participation in infrastructure projects

According to the World Bank, private sector investment in water and sanitation infrastructure projects in low- and middleincome countries amounted to $1.8 billion in 2023, for a total of 19 projects in eight countries.

See page 8: Water and sanitation: how to encourage private investment, by Sophie Trémolet, OECD

Breakdown of private sector participation in water and wastewater infrastructure projects in 2023

Sources: Financing a water secure future (OCDE – 2022); The Costs of Meeting

(Hutton, G. & M. Varughese – 2016).

The roles of the public and private sector

PUBLIC SECTOR

Improve sector governance, efficiency, and creditworthiness

Create and regulate water pricing mechanisms

Allocate sector resources more effectively and equitably to deliver the maximum benefit for every dollar invested

Improve sector capital planning to reduce costs

Crowd in or blend private finance with public funds

Source: Scaling Up Finance for Water (Banque mondiale ; GWSP – 2023).

Binding constraints on Private Sector Participation

PRIVATE SECTOR

Use water resources and services efficiently, promoting water stewardship

Provide debt and equity financing through loans, capital market operations, public-private partnerships, and other structures

Provide innovative approaches and expertise via various contractual modalities

Absorb risk

Align incentives for achieving targets and efficiency levels to recover costs

1 2 3 4 5

Undervaluation of water

• Price of water does not reflect its economic value or broader values, nor the cost of provision

• Alignment of prices, taxes, subsidies, and transfers is critical to drive efficiency

Lack of financially viable service providers

• Limited creditworthy water entities and financially viable projects

• Revenue leakages through technical and financial inefficiency

Source: Scaling Up Finance for Water (Banque mondiale; GWSP – 2023).

Absence of enabling conditions

• Low incentives to reduce costs and increase revenues

• Political influence and lack of cost-reflective tariffs undermine bankability

Skepticism by civil society about private sector participation

• Continued backlash against private sector participation and PPPs, building on various contractual terminations in the 1990s

• Result of poor allocation of risks between public and private parties, weak enabling environments, lack of contractual clarity, and lack of stakeholder engagement

Multiple risks in PPP structuring

• High transaction costs for PPPs and limited and weak capacity in counterparty

• Poor design, lowquality pre-feasibility assessments, structuring of inadequate projects

Improving water service quality in Cambodia by facilitating access to credit

Clément

Frenoux, Regional Project Team Lead, Water and Sanitation Division, AFD

Audrey Brulé-Francoise, Head of Financial Systems Division, AFD Sokkol Yi, CEO, Innovative Services Engineering and Advisory (iSEA)

Between 2010 and 2019, AFD, with the help of the European Union, designed and implemented a project to unlock access to finance for Cambodian private entrepreneurs. Comprising a subsidized line of credit along with a risk-sharing arrangement and technical assistance subsidy, this ‘blended finance’ programme has not only facilitated the financial inclusion of entrepreneurs, but has also increased the number of household water connections, greatly improved water service quality and created an ecosystem of local players. The second phase of this project is currently being supported by Proparco, within the AFD Group.

In the early 1990s, following the return of peace, many local Cambodian private entrepreneurs spontaneously invested in the development of water supply infrastructures, particularly in small urban centres. These services were unique insofar as they were created without any planning, contractualisation or even regulation by public institutions. They were entirely private, made up of complex network infrastructures, and marked out by their sophisticated commercial management (home metering), adapted to demand and to users’ ability to pay. In the

space of a decade (2000-2010), according to several studies financed by the World Bank1 and Agence Française de Développement (AFD) 2 , around 400 local businesses emerged across the country 3, accounting for almost 50% of water connections nationally. These private services have gradually been formally structured and regulated by the Cambodian government, with the introduction of a licensing system (2006), followed by various regulations (2017) covering the scope of concessions, compliance with technical standards and quality of service.

1 For a detailed analysis, see: Frenoux C., Carlier C., Sokkol Y., and Tsitsikalis A. (2013), ‘Global Study for the Expansion of Domestic Private Sector Participation in the Water and Sanitation Market’, Cambodia, 148. Phnom Penh: Gret.

2 Frenoux C., Laurent Y. (2011) “Opportunities for the Development of Privately Operated Water Systems in Small Towns of Cambodia”, Volume 1, Main Report, 70. Phnom Penh: Gret.

3 For a detailed analysis of the emergence of local Cambodian businesses, see: Frenoux C., 2016, Institutions et transactions : déterminants et performances des services non conventionnels d’approvisionnement en eau dans les villes en développement, le cas des entrepreneurs privés locaux dans les petits centres urbains du Cambodge (Institutions and transactions: determining factors and performance of non-traditional water supply services in developing cities, the case of local private businesses in small urban centres in Cambodia), PhD in Economic Science, Université de Toulouse Capitole 1, 442 p.

SECTOR DEVELOPMENT: THE MISSING LINK IN ACCESS TO FINANCE

In 2010, despite the efforts to provide a framework, many sectoral constraints remained, particularly in relation to service quality. Financial backers 4 have been supporting entrepreneurs for more than a decade, through investment grants and capacity building, without really managing to impose minimum quality standards. Consequently, the infrastructure was often poorly designed, resulting in poor quality water services. From a financial perspective, there were also a number of barriers to investment. Network infrastructure requires high levels of initial investment, which are often beyond the borrowing capacity of Cambodian businesses from the traditional banking sector. As a result, they have become accustomed to small-scale, ‘sequential’ investments, raising funds either from family or informal lenders. Access to finance for Cambodian businesses in the formal sector therefore remained embryonic and limited in its amount. Indeed, Cambodian commercial banks were not very active in asset financing, particularly for small and medium-sized enterprises (SMEs). The Cambodian banking sector, which was rebuilt in the mid-1990s, gave priority to the corporate market in the country’s main

cities, while Cambodia’s many, highly developed microfinance institutions (MFIs) focused on financing VSEs and individuals in rural areas. Therefore, the intermediate meso-finance segment was not covered. Moreover, in 2010, the water sector was perceived as especially risky and financial institutions lacked the in-house expertise required to assess the business models of complex, long-term projects. The financial conditions on offer were therefore very conservative, making the related products unattractive and wholly unsuited to the water sector, characterised by the large amounts of collateral demanded (up to 200% of the total amount of the loan), made up almost exclusively of mortgages, resulting in low loan amounts, with excessively short maturities (limited to 5 years).

In response to these constraints, AFD and the European Union have been working with Cambodian commercial banks since 2010 to develop credit facilities dedicated to private water and electricity businesses. These facilities were to be combined with a risk-sharing arrangement and a grant from the European Union, reducing collateral requirements and helping to minimise technical and financial risks.

AFD and the European Union have been working with Cambodian commercial banks since 2010 to develop credit facilities dedicated to private water and electricity businesses.

AN ARTICLE BY CLÉMENT FRENOUX

Clément Frenoux joined the Water and Sanitation Division of Agence Française de Développement (AFD) in 2018 after 13 years spent working at GRET. He has over 20 years’ experience in this sector as project operator and consultant in Africa, Latin America and the Caribbean. His areas of expertise include private sector participation and structuring stakeholder ecosystems. Clément has extensive experience in designing innovative projects that promote access to finance. He is a qualified environmental engineer and also holds a doctorate in economics from the University of Toulouse and has published numerous articles on the sector. Clément is one of the founders of iSEA.

AUDREY BRULÉ-FRANCOISE

Audrey Brulé-Françoise is Head of the Financial Systems Division at Agence Française de Développement (AFD). Since joining AFD in 2008, she has gradually focused on financial sector development. More specifically, she has spearheaded strategic initiatives for financing SMEs, rural and agricultural finance and financial inclusion, with significant experience of working in North Africa, the Middle East and Southeast Asia. Audrey is a graduate of Toulouse Business School and IAE Paris La Sorbonne and she holds two Masters of Science degrees in management control/ internal audit and corporate finance/ market finance.

SOKKOL YI

FOCUS AFD GROUP

AFD works to implement France’s policies of development and international solidarity. Comprising Agence française de développement (AFD, in charge of public sector and NGO financing, sustainable development research and training), its subsidiary Proparco (AFD’s private sector financing arm) and Expertise France (technical cooperation agency), the Group finances and partners the transition to a fairer and more resilient world. Its teams are involved in over 4,000 projects for the common good – focusing on climate, biodiversity, peace, gender equality, education and healthcare – on the ground in French overseas departments, in 115 countries and in territories in crisis.

ISEA

iSEA is a Cambodian consultancy specialising in the water sector. It works alongside private operators and banks on water supply projects, providing help with the preparation of credit applications, infrastructure design, works supervision and service support.

AN INNOVATIVE PROJECT BUILT AROUND THREE INTERDEPENDENT TOOLS

After a lengthy structuring phase needed to identify the ‘right’ banking partner, Foreign Trade Bank (FTB), a Cambodian commercial bank, came forward in 2012 and met AFD’s conditions for providing this type of credit facility. The project was designed around: i) a $15 million non-sovereign subsidised line of credit (without a government guarantee) (including $5 million for the water sector, with the remainder earmarked for electricity) to finance investment projects (infrastructure and engineering); ii) a risk-sharing arrangement (ARIZ5) in the form of a €10 million portfolio/individual guarantee aimed at reducing the Bank’s collateral

requirements from its future customers; and iii) a €3.5 million subsidy from EU funds to finance two technical assistance projects , one for the bank (to bring its teams up to speed with commercial aspects, project vetting and the use of new guarantee evaluation methods), the other to provide businesses with support in preparing loan application files, designing and managing infrastructure, and capacity-building measures. A consultancy, ENCLUDE was to provide technical assistance to the bank, while a consortium made up of GRET / ARTELIA / iSEA / SEE-SAW would provide technical assistance to contractors.

RESULTS AND IMPACTS: A DEMAND FOR FUNDING THAT EXCEEDED EXPECTATIONS

The programme was rolled out beginning in August 2014. It would help drive the growth and development in financial products tailored to Cambodian SMEs, with an attractive rate of interest of around 6% (compared with 12%), maturities of up to 10 years (compared with 5 years previously), a one-year grace period (compared with 6 months) and – most importantly – bank guarantees limited to 100% of the loan amount that take account of the valuation of the business’s productive assets and net present value over 10 years. This system has also standardised credit applications, which has improved loan application processing times, information sharing and the quality of applications. Lastly, the technical assistance component has resulted in the emergence of iSEA, a consultancy paid for by borrower businesses, specialising in intermediation, support and preparing applications, while also managing projects and training businesses in project sustainability. All this has helped to reduce both the technical and financial risks, and information asymmetry between lender and the borrower.

Between 20156 and 2019, 68 loan applications (representing a volume of $19 million) were submitted to FTB; 56 applications were accepted (for an amount of $17 million); 47 pre-financing studies were carried out (for $13 million), and 40 business plans were produced ($10 million). Finally, 31 loans were granted by FTB for a total of $7.3 million (compared with the $5 million programmed initially). An analysis of the portfolio of approved loans reveals a very wide range of loan authorisations that reached targets that were previously outside the banking system, in phase with the goal of developing ‘meso-finance’. The amounts of loans granted ranged from $16,000 to $780,000, with an average amount of $259,300. In particular, this funding has facilitated 33,000 additional connections (133,000 people) to the drinking water network and, most importantly, improved service quality for more than 430,000 people. Meng Sengkry, Director of Loans at FTB for this project, believes that “the main successes were reduced guarantees, bigger loan amounts, the attractive interest rates and longer maturities.”

5 See: https://www.afd.fr/en/ressources/brochure-ariz

6 It should be noted that, from 2013 on, the processing of 20 applications was financed by the World Bank.

KEY TAKEAWAYS

As the first programme of its kind in the water sector on an international scale, its deployment has provided important insights for designing and implementing projects in the ‘meso-finance’ segment. First, the project was a success thanks to the close involvement of FTB, a proactive and forward-looking bank, in all stages of the project, from co-designing to implementing the tools. From a financial perspective, the arrangements and nature of the guarantees selected played a central role in facilitating access to suitable loans. In addition to the lower subsidised interest rate, businesses were able to borrow on average almost four times more than under existing financial arrangements, thanks to the co-creation of a method for valuing assets and accounting for economic flows. As regards non-financial resources, combining two types of technical assistance has been crucial in creating trust between stakeholders, thereby reducing technical and financial risks.

Other, more unexpected effects were also observed following the deployment of this sector-specific credit facility, such as a mature ecosystem of technical and financial players (particularly research offices) and an improvement in infrastructure and service quality. These dual effects are undoubtedly linked to the fact that the sequential disbursement of loans was contingent on the presence of an accredited project manager. Sear Sengheap, a local businessman believes that, “It is now essential to guarantee water quality through adequate treatment facilities, sufficient distribution and maintaining water pressure. The Ministry’s operating certificate

is approved solely on the basis of the project’s results.” Finally, it is worth highlighting one frequently overlooked aspect of ‘blended finance’ projects, namely the role played by specialised and accredited referral agents, entrusted in this case to a consortium member company, iSEA. Despite their close involvement, it is difficult for commercial banks to be specialised in highly technical sectors such as water and electricity, as their core business is financing. Therefore, the presence of one or more referral agents, initially paid out of subsidies and accredited by the project, enables the bank to ensure the quality of the loan applications (particularly the valuation of assets), the quality of project design (adapted to the investment capacity) and the subsequent completion of the infrastructure. However, the question of how to pay these agents, operating at the interface between the bank and the business, remains key and it was not resolved in the initial project phase. These lessons and experiences were factored into a new phase of the project, this time supported by Proparco, beginning in 2022. This second phase includes the creation of a research fund to subsidise the costs of using local experts acting as referral agents and technical design offices (under the supervision of technical assistance, which strengthens the capacities of all players involved). This approach further consolidates the ecosystem of players and overall project sustainability and unlocks synergies with other financial backers or similar initiatives deployed by the Cambodian authorities.

Addressing critical water shortage in Jordan: a collaborative effort

Interview with Tolga Ergüven, GAMA Enerji, CFO & DIWACO Board member

Guided by AFD and Proparco, DIWACO is addressing water scarcity in Jordan. Due to its record, the project is attracting interest from investors and commercial banks – notwithstanding its emerging market and geopolitical risk context. The DFIs’ involvement has been key to the financing and technical, environmental, social, and regulatory aspects of the project.

WHAT EXACTLY IS THE DISI WATER CONVEYANCE PROJECT AND ITS BENEFITS FOR THE POPULATION OF AMMAN, GIVEN THE SEVERE WATER STRESS IN JORDAN?

TOLGA ERGÜVEN

The Disi Water Conveyance (DIWACO) project seeks to tackle water scarcity in Jordan. It is a Build–Operate–Transfer (BOT) project, designed to extract 100 million m³ of water every year from 55 wells on the Disi Aquifer, located beneath the desert in the south of Jordan. The water is conveyed via pipelines

to Amman over a distance of 325 km. With a lifespan of 50 years, the project is a reliable source of potable water for nearly one third of the Jordanian population. It has played a vital role for the country, particularly since the influx of refugees in 2014, which increased the population by 2.7 million.

AS AN INVESTOR, WHAT IS YOUR ASSESSMENT OF THIS FIRST INTERNATIONAL PPP IN THE WATER SECTOR?

The success of DIWACO’s commissioning phase has continued into the operational phase. Close cooperation between the Government, the sponsors and senior lenders has helped to overcome major obstacles and key risks. The project has met the additional demand specified by the Jordanian Ministry of Water and Irrigation and, with a few modifications, it has been delivering in excess of the contractually specified amounts each year since 2021 (115 mcm delivered in 2023). Feasibility studies are underway to increase the sustainable output to 120 mcm per year by 2026.

HOW WOULD YOU ASSESS THE ADDED VALUE AND CONSTRAINTS OF WORKING WITH INTERNATIONAL FINANCIAL BACKERS LIKE AFD GROUP IN THE DIFFERENT PROJECT PHASES?

The project is currently exceeding initial technical expectations, while adhering to best practices recommended by renowned DFIs, AFD and Proparco. Their presence has also facilitated dialogue with the Government, resulting in a better regulatory framework, which has in turn fostered an improved investment climate in the country. Financing solu-

tions for such large-scale infrastructure projects in emerging markets are very limited. The DFIs were key to raising the necessary financing and providing the requisite technical, environmental, social, regulatory and legal assistance, culminating in a successful project.

IS THIS TYPE OF PROJECT LIKELY TO ATTRACT LOCAL AND INTERNATIONAL COMMERCIAL BANKS?

It is common to see many of the infrastructure projects of this scale are exposed to commercial risk, even if they are developed by a top-tier

global investor in a country with a sophisticated regulatory and operating environment. As a result, commercial banks are generally reluc -

tant to finance these projects, particularly if they are located in emerging markets and are exposed to extra geopolitical risks. Due to its proven design features and perfect operating track record, the project is attracting interest

WHAT

WERE

from a number of investors as well as international and local commercial banks for potential financing. Hence, compared with peer projects, DIWACO is unique in this regard.

THE MAIN ENVIRONMENTAL AND SOCIAL CHALLENGES

OF THE PROJECT, AND HOW ARE THEY BEING MANAGED?

DIWACO needs to ensure the reliability of the system – which spans nearly 400 km across the country – while maintaining a close relationship with locals. DIWACO contributes to the community by fully employing the local residents to maintain the security and for other service related requirements of the pipeline network.

As far as the environmental challenges are

concerned, the impact analysis was thoroughly conducted during the construction phase with the highest standards in compliance with AFD, Proparco and other IFIs requirements. On an annual basis, such impact analysis is reviewed and necessary actions are taken to protect the natural habitat which may directly and indirectly be impacted by the DIWACO operations.

WHAT HAVE THE TECHNICAL CHALLENGES BEEN IN PUMPING WATER

OVER 400 KM IN A MOUNTAINOUS

The project was implemented in a highly challenging geographical context, with substantial logistical constraints. The well drillings required an extra skill set, often involving unconventional practices, which resulted in delays. In terms of operations, due to the project’s vast length, it is extremely challenging to monitor components

DESERT REGION?

like air vents and washouts across 200 km of desert. Our technical teams, together with our operational and maintenance contractor, liaise with the police, who also monitor the pipeline and respond to incidents when needed. With the additional collaboration of local partners, the downtime is generally marginal.

In Jordan, another PPP to maintain sustainable access to drinking water

To address water shortages in Jordan, the Ministry of Water and Irrigation has awarded the Amman-Aqaba Water Desalination and Conveyance Project (“AAWDCP”) to Meridiam-Suez consortium after an international procurement process. The primary objective was to secure the future supply of drinking water at an affordable cost to users. Other objectives include optimizing the use of public funds and supporting economic development, including promoting private sector involvement in the water sector. The project includes the design, finance, construction, operation, and maintenance of new facilities to desalinate seawater and convey potable water to Amman and Aqaba, over a distance of over 430 km. Facilities will consist of the following.

A pumping station will capture the seawater and it will be transported to the desalination plant in Aqaba via four parallel pipelines. The reverse osmosis desalination plant will produce 300 million cubic metres of water a year. A supply system will transport the desalinated water to the delivery and switching points. This system will comprise an underground pipeline, three reservoirs and four pumping stations. Lastly, a 281MWp solar power plant will supply around 28% of the project's electricity needs. This project benefits from unprecedented support from the US government, the European Union and all the major development financial institutions, including AFD and Proparco.

FOCUS

DIWACO

DIWACO is a fully owned subsidiary of GAMA Enerji which is one of the largest infrastructure and energy generation companies in Turkey. GAMA Enerji’s ownership structure is comprised of three main stakeholders, namely GAMA Holding with a 50.5% majortiy share followed by Malaysian TNB with 30% and IFC with 19.5%.

Non - Revenue Water is water wasted - is resource wasted

Noam Komy, CEO, Miya Water

About a third of the world’s drinking water supplied to water utilities is lost before it reaches any users. This loss, referred to as Non-Revenue Water (NRW), is the most crucial metric in the management of water utilities. It represents the volume of water that is produced and enters the distribution system but does not generate revenue because it is either lost or unaccounted for before it reaches the end consumer.

AN ARTICLE BY NOAM KOMY

The global volume of non-revenue water is estimated to be 346 million cubic meters per day or 126 billion cubic meters per year. Conservatively, the total global cost/value of water lost amounts to USD 50 billion per year 1. The main components of non-revenue water, are physical and commercial, as elaborated below.

poor maintenance, and inadequate pressure management. They represent a direct waste of water resources and often require significant investment to address.

Commercial Losses: Also known as apparent losses, these include water theft, unauthorized consumption, and metering inaccuracies. Commercial losses are a major challenge in many developing countries, where water theft and illegal connections are prevalent. Accurate metering and billing are essential to minimizing these losses.

WHY PRIORITIZE REDUCING WATER LOSSES?

NRW has significant economic implications for water utilities. That the lost water could otherwise be sold means a direct loss of revenue. In many developing and developed countries, high levels of water loss can undermine the financial viability of water utilities, limiting their ability to invest in necessary infrastructure improvements and expansions. This creates a vicious circle where inadequate infrastructure leads to higher levels of loss, further limiting revenue and investment capacity. According to a recent S&P Global report2: “NRW can influence

Physical Losses: These include leaks, pipe bursts, and overflows from storage tanks. Physical losses are often due to aging infrastructure, 1

the credit quality of public water utilities rated by S&P Global ratings” since it is a reflection of the overall operational health. Hence NRW can also impact the cost of debt for utilities which adversely affects their ability to raise capital necessary for capital improvements. Moreover, it has been documented time and again that the cheapest way to increase water capacity for any utility is to reduce losses and prevent or delay the need to add additional water sources, which come with significant financial and environmental costs.

In the international context, many developing countries have high levels of lost water, preventing the safe and reliable delivery of water to these populations. Reducing this helps to maximize the available water supply, delaying the need for new water sources and reducing the environmental impact of water extraction and treatment. Saving lost water would equate to supplying water to almost an additional billion people throughout the world.

Furthermore, NRW has broader environmental and social impacts. Water losses contribute to unnecessary energy consumption and greenhouse gas emissions associated with water treatment and pumping. Water utilities

are amongst the heaviest consumers of energy in any country, due to the need to treat and pump water; this is even more apparent in places that rely heavily on desalination as their main water source. According to S&P Global report, this amounts to11.9 billion kg of co2 per annum. By not cutting water losses, water utilities face the dual issues of water supply and a severe impact on global warming

Additionally, ensuring a reliable and efficient water supply is essential for public health and well-being. Communities with high levels of NRW often face frequent water outages and reduced water quality, which can lead to health issues and a lower quality of life.

MITIGATING NRW – COMPLEXITIES AND CHALLENGES

On paper, reducing NRW is a straightforward task that any water utility should be able to tackle. Unfortunately though, the reality is more complex and challenging. The main challenges utilities face are:

Lack of organizational courage to admit the problem. Many water utilities do not want to face the reality of being so inefficient: admitting you are losing more than 50% of the water you produce is a psychological, professional, and political challenge.

Lack of experience in designing and implementing these types of programs. Unfortunately, only a handful of large-scale projects to reduce NRW have ever been commissioned: many utilities and regulators just lack the necessary experience.

Misconceptions and short-term outlook. Many utilities believe that a lack of water can be bridged by producing more water. Naturally, when a water system leaks a sizable portion of its supply, adding more water to the system will not solve the problem, and can often can make it worse. Another false premise is that the only way to overcome NRW is with massive pipe replacement programs.

Lack of clear direction, goal setting and coherent strategy. Most water utilities deal with NRW by addressing separate tasks and works without sufficient coordination and without making sure the whole organization works together towards the joint goal.

Reducing lost water helps to maximize the available water supply, delaying the need for new water sources and reducing the environmental impact of water extraction and treatment.

FOCUS MIYA WATER

Miya Water is the global leader in water efficiency solutions for utilities, using innovative technical and contractual approaches, with the aim of improving operational efficiency. It has executed over 200 projects in Europe, the Middle East, Asia, North America and South America. Miya has had shareholdings by leading private equity firms such as Bridgepoint and Antin Infrastructure, and has created approximately 1 billion dollars in shareholder value in recent years.

ATTAINING NRW OUTCOMES WITH PERFORMANCE-BASED CONTRACTS

Performance-based contracts (PBCs) are an innovative approach to managing NRW. Under a PBC, a water utility engages a private contractor to reduce NRW, and the contractor’s compensation is directly linked to the performance achieved. This aligns the incentives of the contractor with the utility’s goals, ensuring that the contractor is motivated to achieve substantial and sustainable reductions in NRW. PBCs typically include specific performance targets, such as a specific volume of water saved 3. The following are the key elements of successful performance-based contracts: Clear objectives and targets: PBCs should be structured around clear and measurable objectives. These targets are established based on a thorough assessment of the existing NRW levels and the potential for reduction. The targets may include both short-term milestones and longterm goals to ensure continuous improvement.

Output-based approach: The most important deliverable is actual savings. As such, a well-designed PBC allows the contractor a very high level of flexibility on the way to achieving targets. Most utilities are used to applying inputbased contracts, whereby they buy a specific list of works. This does not allow sufficient flexibility, and tends to increase capex investment instead of using low-cost ways to impact system performance.

High performance component – the higher the flexibility the contractor has, the higher the risk they should be able to assume. The utility should seek to increase the portion of PB fees vs fixed fees and ensure that no profit can be made by the private contractor without achieving the desired results.

Emphasize quality as a key component in the bid selection stage. The utility must make sure that only competent contractors that have both the relevant experience and a robust and well-thought-out plan can compete.

MULTIFACETED APPROACH

Non-revenue water is a significant challenge for water utilities worldwide, with far-reaching economic, environmental, and social implications. Addressing NRW requires a comprehensive and multifaceted approach, including leak detection and repair, improved metering, pressure management, community engagement, and the adoption of advanced technologies. Performance-based contracts offer an innovative and effective way to align incentives, share risks, and achieve sustainable reductions in lost water.

Successful case studies from around the world, including projects by Miya Water, demonstrate the potential for significant improvements in NRW management. The future of water-loss reduction lies in the integration of advanced technologies, collaborative efforts, supportive policies, capacity building, and a focus on sustainability and climate resilience. By taking these steps, water utilities can ensure the efficient and sustainable use of water resources, improve service delivery, and contribute to the well-being of communities and the environment.

The future of water-loss reduction lies in the integration of advanced technologies, collaborative efforts, supportive policies, capacity building, and a focus on sustainability and climate resilience.

Technical and contractual approaches on the road to efficiency: Miya Water’s experiences

Miya Water’s involvement with Maynilad Water Services, in Manila, Phillippines; the National Water Commission (NWC), in Kingston, Jamaica; and the Bahamas Water and sewerage cooperation, in the Bahamas, are examples of its leading role in water efficiency solutions for utilities. The following Miya case studies illustrate the technical and contractual approaches implemented to improve operational efficiency.

In Manila, Phillippines, Miya Water partnered with Maynilad Water Services (concession operator for the western sector of Manila) to reduce NRW in an area of more than nine million inhabitants. At one of the largest and most complex water utilties, Miya took a comprehensive approach, including network diagnostics, leak detection and repair, and pressure management. Miya Water trained more than 500 engineers and technicians and created an NRW unit within the utility.

By implementing these strategies, Miya Water helped reduce NRW from 66% to 30% over a few years. This significant reduction resulted in connecting more than 2.7 million people to 24/7 water supply, which in turn resulted in a quadrupling of the utility’s net income. Total investment in the project amounted to approximately $400 million.

Turning to the Bahamas, the main island had until 2012 been losing more than 60% of it’s water supply. This – in the context of its reliance on desalination due to not having natural water sources – led to immense operational issues and threatened to collapse the Bahamas Water and sewerage cooperation. A turnkey 10-year $100million project – which included two phases, one for implementation and the other for maintenance and training – resulted in NRW dropping to 22%. This translated into 24/7 supply to all customers without the need to build an additional desalination plant.

Lastly, in Kingston, Jamaica, Miya Water worked from 2015 to 2020 with the National Water Commission (NWC) to address the high levels of NRW. The project included implementing a District Metered Area (DMA) approach, which involved dividing the water distribution network into smaller, manageable zones. This allowed for more accurate monitoring and targeted leak detection. The project led to a reduction in NRW from 60% to 30%, significantly improving the efficiency of the water supply system and ensuring a more reliable service for customers.

Drinking water for rural and semi-urban areas in Africa: the need for private sector involvement

Mikaël Dupuis, Deputy Director, Uduma

The drinking water sector in semi-urban and rural Africa has long been considered unprofitable and has not attracted the interest of the private sector. However, over 50% of the continent's population is affected by unsafe services, highlighting a significant market opportunity. Developing sustainable drinking water services in these regions remains a challenge, and the involvement of the private sector must be tailored to local conditions. Nevertheless, it is possible to create profitable, sustainable, and equitable services by considering economic constraints, establishing an appropriate regulatory framework, and developing suitable financing solutions.

AN ARTICLE BY MIKAËL DUPUIS

Sustainable drinking water services are crucial for the health, well-being, and economic development of populations. Access to this vital resource is essential, particularly

in rural and semi-urban areas of sub-Saharan Africa, where it plays a key role in regional security and development. 1

THE PRIVATE SECTOR, AN ESSENTIAL PARTNER

However, unlike urban areas, drinking water services in small towns and rural areas have never been seen as economically viable2, resulting in them remaining the responsibility of the state by default. Despite decades of investment and successive development programs 3, these services are still not functioning properly. With continuing demographic growth and increased demand, many African countries are struggling to ensure access to drinking water for their populations. The lack of investment and chronic inefficiencies in the sector’s management and maintenance systems mean that new solutions

are necessary. Private sector involvement is essential in facing these challenges; while it is not the only solution, sustainable solutions may be challenging to find without it. Although various private sector models exist, few have been implemented in West Africa thus far.

The Odial Solutions Group, through its subsidiaries Vergnet Hydro and Uduma, has been developing viable business models adapted to local contexts for over 15 years and has co-invested in several ambitious innovative projects4. By utilizing new technologies and appropriate management techniques, the group has suc -

1 According to the ILO, by 2030 almost half the world’s population will be living in areas of high water stress, which will lead to major population movements. Source: Water for Improved Rural Livelihoods (2019 – ILO)

2 “The provision of maintenance services to rural and isolated populations is not financially viable in many contexts”, quoted by UpTime Source: Performance-based Funding for Reliable Rural Water Services in Africa – Working paper (2019 – UpTime)

3 In her blog, Johanna Koehler of Oxford

Faso with Unicef and in Mali with the Dutch group RVO.

cessfully provided sustainable drinking water services in areas where traditional solutions have failed. For instance, Uduma has implemented automatic standpipes in neighbourhoods suitable for this technology, creating a completely

autonomous water distribution system powered by solar panels. Users receive a key that they can add credit to, allowing them to access water easily from the standpipes.

SOLUTIONS ADAPTED TO THE CONTEXT

The private sector possesses several inherent strengths that are essential in enhancing the impact and sustainability of drinking water services. These include efficient management practices, technical expertise, innovation, access to advanced technologies, and the ability to expedite project implementation. By ensuring the availability of necessary resources to compensate operators, infrastructure maintenance, renewal, and continuous service operation can be guaranteed, promoting long-term viability and profitability.

In contrast to urban areas, rural areas and small towns face challenges such as dispersed populations, lower incomes, and difficulties in affording water services. As a result, balancing the business model in these areas is more financially

FAVOURABLE CONDITIONS

To effectively engage the private sector in operating drinking water services in small African towns, conducive conditions for success must be established. Economic constraints should be acknowledged and considered by all stakeholders, particularly governments and investors. Furthermore, regulatory frameworks need to be tailored to facilitate private sector involvement while safeguarding public interests, encompassing tariff regulations, resource protection, and equitable water access. Additionally, innovative financing solutions specific to the sector, such as targeted subsidies, low-interest loans, special

challenging. Management systems and operators must adapt to these unique circumstances. Unlike large urban utilities, rural and semi-urban regions require small and medium enterprises (SMEs) capable of adjusting to local conditions. Although these organisations may possess fewer resources and be more vulnerable, they benefit from flexibility and proximity, critical aspects in integrating appropriate technologies to reduce management costs. However, attention must be given to their ability to secure the necessary funds5 to invest in the infrastructure and de-risk potential short-term losses from services. An estimated one third of the US$30 billion annual investments in the water sector are required in rural areas.

FOCUS UDUMA

The Odial Solution Group has been doing business for more than 45 years via its Vergnet Hydro and Uduma entities and it is currently the French leader in supplying drinking water in rural and semi-urban areas in Africa. It is increasingly involved in deploying technically and financially innovative projects. For the past 15 years, the Group has been investing in public water concessions with one clear ambition: to make access to water in these areas a profitable and therefore sustainable service.

public-private partnerships, and creative co-financing arrangements, need to be developed and implemented.

The future of the water sector in Africa, especially in small towns and rural areas, is a critical issue not only for economic advancement but also for the continent’s social, environmental, and political stability and security. With half of Africa’s population affected, this sector serves as a pivotal vector for development. Recognizing and encouraging private sector involvement is essential in addressing these challenges, aligning with the sector’s evolving needs.

Enhancing water security in Africa: Metito’s mission in action

Rami Ghandour, CEO, Metito Utilities

Metito, a leader in water management solutions, has addressed water scarcity across Africa since its founding in 1958. Specializing in desalination, wastewater treatment, water reuse, and industrial solutions, Metito’s impact spans key global markets. Its contributions to water security and efforts to navigate water stress have been integral to its mission, helping communities thrive despite challenging conditions.

AN ARTICLE BY RAMI GHANDOUR

Rami Ghandour joined Metito in 2004 and set up Metito Utilities in 2007. Metito Utilities is the investment arm of the Group, providing complete water and wastewater outsourcing and partnership solutions to endusers. Rami also leads Metito’s endeavours in strategic partnerships, mergers, and acquisitions as well as equity investments. Rami has an MBA in Finance and Entrepreneurial Management from the Wharton School, as well as a MEng, MA, and BA in Chemical Engineering from the University of Cambridge.

Africa faces severe water stress, affecting millions of lives. The continent grapples with outdated infrastructure, rapid population growth, and a lack of funding. According to the World Bank, one in three Africans experiences water scarcity, shaping the continent’s history and future, and underscoring the urgency of sustainable water management solutions. As climate change intensifies, in the form of severe droughts and floods, efficient management of water resources is becoming even more imperative.

Africa’s substantial untapped water resource potential to meet the needs of its growing population presents a significant opportunity. However, the challenge is how to tap into it and secure the necessary funding to do so. Metito has been at the forefront of addressing these issues, developing and investing in sustainable projects across 25 key markets in Africa. Its successful, pioneering efforts in introducing the Public-Private Partnership (PPP) model in Rwanda demonstrates the potential for positive change through strategic planning and collaboration.

COMMERCIAL VIABILITY AND SUSTAINABILITY: THE PERFECT MIX

In Rwanda, only 57% of the population has access to safe drinking water. The lack of safe water forces children, particularly girls, to spend time collecting water instead of attending school. Even when water is available nearby, it is often neither clean nor safe to drink, elevating the risk of water-borne diseases, severe illness, and even death (UNICEF, 2022).

To address these needs and further engage foreign direct investment and the private sector, the Government of Rwanda awarded, as part of the Kigali Bulk Water Supply, a PPP with Kigali Water Ltd, a wholly owned subsidiary of Africa Water Infrastructure Development (AWID) – a Metito and British International Investment (BII) platform. AWID integrates green technologies and alternative energy components, reducing the environmental footprint of water infrastructure projects.

The Kigali Water project is the first PPP of its kind in sub-Saharan Africa outside South Africa, and today supplies 25% of the potable water requirements of the City of Kigali. The impact of access to sustainable water on the community has been overwhelming, demonstrating the power of a common, progressive vision and a close partnership between the private and public sectors.

EGYPT: LEADING THE WAY IN AGRICULTURAL WASTEWATER REUSE

In Egypt, Metito with its partners developed the AlMahsama Water Reclamation Plant, the world’s largest agricultural wastewater reuse plant. Operational since May 2020, the plant treats 1M m3/day, and treated water is used for irrigation. This is enhancing Egypt’s water security and agricultural land sustainably in an area of significant political and environmental importance. Building on this success, Metito and JV partners teamed up with the Egyptian authorities on the New Delta Irrigation Water Treatment plant, the world’s largest water treatment facility, capable of processing 7.5M m3/day. Serving the North Coast area, including Greater Alexandria, this project effectively reduces dependence on

the Nile River’s water. Egypt’s challenges with its neighbours regarding Nile water usage highlights the critical importance of these projects. Agriculture is typically the largest consumer of water, but by supplying treated wastewater for agricultural and industrial use, Metito’s initiatives significantly decrease overall water demand.

The New Delta project represents one of the significant sustainability initiatives, incorporating state-of-the-art sustainable technologies and solutions. Completed within a record-setting time of 24 months, the plant serves as a pivotal component of Egypt’s national water resource plan, aiming to ensure water security and foster prosperity for future generations.

Africa Water Infrastructure Development (AWID), a pioneering initiative to finance water and sanitation in Africa

In March 2023, Metito and British International Investment (BII), the UK's development finance institution, announced the creation of a new joint venture, Africa Water Infrastructure Development (AWID), to develop large-scale water and sanitation projects in Africa. The platform has integrated three existing operational assets (the Kigali potable water treatment plant mentioned in the earlier article, as well as two desalination plants in Egypt) and will provide equity financing for water and wastewater treatment infrastructure, focusing on African countries most vulnerable to climate change.

Large-scale projects in the water and sanitation sector require a great deal of capital, and therefore greater cooperation between public authorities, investors and private sector players. Metito's partnership with BII to create the AWID platform embodies this collaborative approach, and aims to demonstrate the viability of a business model for water and sanitation infrastructure in Africa, thus helping to mobilise long-term investment in the sector. This is a pioneering initiative for Africa, where the number of PPPs in the water and sanitation sector financed by private capital is still extremely limited; historical examples of renowned PPPs, such as the leasing concession for the supply of drinking water in Dakar, were mainly financed out of public funds1. The Kigali potable water treatment plant, for which Metito managed to close financing in 2017, is often presented as the first large-scale pure BOT in the sector in Africa (outside of South Africa). However, its financing – the debt portion at least – was provided by development banks. From this perspective, another emblematic project is the Luanda Bita drinking water project in Angola (2021), for which a partial guarantee provided by the World Bank made it possible to put together a round of commercial bank funding, alongside the French export credit agency, BPI France.

FOCUS METITO

Metito is a pioneer in the water industry. The company was the first to introduce the reverse osmosis technology for desalination outside the USA in 1972 and has been innovating ever since and paving the way for the first Public-Private Partnership agreements to deliver water and wastewater solutions to several countries including, Saudi Arabia, The United Arab Emirates, Qatar, Egypt, Uzbekistan, Rwanda and Serbia.

SUEZ is innovating to improve access to essential water services

Interview with Jérôme Bailly, SVP Innovation, SUEZ

The strategic importance that the SUEZ group attaches to innovation is reflected in increased resources and a specifically designed organisation chart. Innovation at SUEZ underpins the transformation of businesses throughout the water and waste management value chain. Although it is based on technological progress, it also relies on training and knowledge transfer. As a structurally determining operating basis for the Group, it meets both commercial and environmental objectives.

JÉRÔME BAILLY

WHAT IS THE ‘RAISON D’ÊTRE’ OF A PRIVATE COMPANY LIKE SUEZ WHEN IT PROVIDES A PUBLIC SERVICE?

We provide essential services to safeguard and improve the quality of life wherever we operate, in the face of growing environmental challenges. This is our raison d’être 1 This is what drives the commitment of all our employees, enabling SUEZ to provide the continuity of service needed in drinking water production and wastewater treatment. Today, SUEZ is a world leader in these businesses. In 2023, the Group provided drinking water to 57 million people worldwide and wastewater services to more than 36 million users.

Our ‘Raison d’être’, which we adopted in 2022, guides the major transformation that SUEZ has been conducting for over two years. As Director of Innovation, I am especially committed to the following maxim: ‘We innovate to preserve water and recover waste, in the form of energy and recycled materials’. Indeed, thanks to innovation, we are transforming our businesses to meet the challenges of preserving water and raw materials resources, helping regions to transition to a low-carbon pathway and improving the resilience of infrastructures in the face of extreme climate events.

In 2023, our circular solutions generated 7.7 terawatt hours (TWh) of energy from waste and wastewater, and 2.7 million tonnes of secondary raw materials.

Thanks to innovation, we are transforming our businesses to meet the challenges of preserving water and raw materials resources, helping regions to transition to a low-carbon pathway and improving the resilience of infrastructures in the face of extreme climate events.

1 See https://www.suez.com/fr/groupe/raison-d-etre

HOW DO YOU DESIGN INNOVATION AT SUEZ?

Innovation is both a real differentiating factor in our markets and an ecological transition accelerator. That’s why we are quadrupling the budget allocated to decarbonisation solutions between now and 2027, and doubling the budget for innovation in waste management. We are also aiming to double revenue from our digital activities. A ‘differentiation unit’ dedicated to innovation has also been set up within the Group reporting directly to the CEO. This team supports our business activities in water and waste management and ensures that innovation at SUEZ continues to be a differentiating factor in our markets – in the same way as our expertise in engineering and construction – as well as in digital solutions. We have also chosen to structure a community of experts and position it at a high level within the Group hierarchy.

SUEZ is quadrupling the budget allocated to decarbonisation solutions between now and 2027, and doubling the budget for innovation in waste management.

Consequently, 25 lead-experts - with leading-edge expertise in our businesses - have been integrated into the Group’s TOP 250. And to promote our innovative new solutions externally, we regularly organise ‘Innovation Days’ for our customers and partners. The last event, held in June 2023, was attended by over 200 people from around 20 countries.

COULD YOU GIVE EXAMPLES OF THIS DESIRE TO STRENGTHEN AND INVEST IN INNOVATION?

Strengthening innovation means first and foremost investing in teams over fairly long periods (five years minimum). It is these teams of a critical size – which learn both from their successes and failures – that enable us to develop projects over the long term, underpinned by stable goals and innovation priorities, like those we currently have with our consortium of shareholders and the SUEZ executive management team. We also seek out good ideas in external ecosystems as part of an ‘open innovation’ approach. Since 2010, we have invested nearly €80 million via our SUEZ Ventures fund to unlock synergies with French and international start-ups. We work to support their growth and accelerate the

deployment of their technologies in relation to our activities, with a focus on decarbonisation and digital solutions. I’m thinking, for example, of our investment in Airex Energie, which is developing an innovative technology for producing biochar. This material, produced from forest and agricultural residues, provides a number of benefits: powerful carbon sequestration capacity, increased nutrient retention, and optimal water availability and soil aeration. Together, we are aiming to develop a biochar production capacity of more than 350,000 tonnes a year worldwide, from agricultural and forestry biomass deposits that are currently largely neglected or poorly exploited.

FOCUS SUEZ

With a presence in 40 countries, 40,000 employees and 160 years of history, SUEZ delivers innovative and resilient water and waste management solutions. The Group reported revenue of €8.9 billion in 2023 and has over 1,100 expert consultants worldwide, 10 centres of research and excellence, and nearly 1,700 patents (a third of them in digital). SUEZ is a pioneer in the management and preservation of the environment – it has been strengthening its innovation capabilities since 2022, notably with a 50% increase in resources earmarked for R&D by 2027.

These investments are all the more important as we have observed that our customers expect innovation when it effectively targets their needs. More than 50% of our contract wins now include some form of innovation. This figure was 44% in 2023, and we are aiming for 80% by 2027. In the Philippines, for example, SUEZ has won a major contract alongside Maynilad

to treat wastewater and clean up Manila Bay. The treatment plant will process 180 million litres/day using a technology - Cyclor Turbo - that guarantees the integrity and quality of the plant in a limited space, while reducing the site’s overall environmental footprint thanks to low energy consumption.

HOW DO YOU MEASURE THE IMPACT OF YOUR INNOVATIONS ON LOCAL COMMUNITIES?

The important thing is to measure the overall impact of our contribution, whether this involves deploying innovations, commissioning new infrastructure, or optimising a water service operation. In Senegal, SUEZ is helping to improve access to water via SEN’EAU. In 2020, the population of Dakar only had water for a few hours a day, with 403 neighbourhoods suffering from water shortages. Thanks to the combined effect of commissioning a third drinking water plant at Keur Momar San (KMS3) and water resource optimisation, only around ten neighbourhoods are still experiencing water shortages. More generally, since January 2023,

we have been deploying an ambitious sustainable development roadmap, with 24 operational commitments to step up our action on the climate, nature conservation and corporate social responsibility. For example, SUEZ is committed to cutting greenhouse gas emissions from its Water activities by 39% by 2030. We track the implementation of these commitments carefully through quantified performance indicators. Every year, we publish the results achieved in a ‘progress report’. This is the transparent approach that both our internal and external stakeholders expect.

HOW DO YOU FACTOR IN CURRENT CHALLENGES IN TERMS OF ECONOMIC USE OF RESOURCES?

Water is a key issue in climate change adaptation. In the face of dwindling resources, technological solutions will be necessary but not sufficient, so we need to recycle and cut back. We have effective solutions for recycling water by reusing treated wastewater to replenish groundwater, or by creating new resources - from seawater desalination, for example. In Tunisia, as part of the country’s first public-private partnership in the water sector, we are increasing the availability of this resource while at the same time supporting economic development in the south of the country by reusing treated wastewater for agricultural purposes.

But the first step is always to cut back on the resource by avoiding waste and unnecessary consumption. This involves upgrading networks and detecting leaks, as well as raising awareness among users of reasonable consumption levels adapted to needs. Deploying smart meters, for example, means that consumption can be more accurately monitored – and more effectively controlled.

Water management also has a role to play in climate change mitigation through the production of biogas from wastewater sludge, for example. The largest wastewater treatment plant on the eastern bank of the Nile, Gabal

El Asfar in Egypt, is an industry reference here. The site treats the wastewater produced by 5 million inhabitants, some of which is reused to irrigate a 200-hectare forest park. The Gabal El Asfar plant also recovers sewage sludge through anaerobic digestion and cogeneration. The biogas produced will enable the site to achieve 65% energy self-sufficiency and avoid emitting 28,000 tonnes of CO2 equivalent every year.

WHAT ROLE DO TRAINING AND CAPACITY BUILDING PLAY IN IMPROVING ACCESS TO WATER AND SANITATION?

A really important role! We work in many countries – at their request – precisely to help bolster local expertise through training and knowledge sharing. In Saudi Arabia, we are helping the National Water Company (NWC) to manage water and wastewater services in the Western Cluster - which has a population of 9 million, including the cities of Jeddah, Mecca and Taif – specifically by training its employees. We are providing skills and expertise to the Uzbek water company, supporting its 4,000 employees with 14 international specialist consultants. We are also operating an ambitious skills transfer

programme: 1,500 training days, 350 days of study abroad and more than 1,200 days’ worth of technical assistance. Local capacity building also guides the work of the AgroParisTech ‘SUEZEau pour tous’ Chair (Water for all), funded mainly by the SUEZ Foundation and AFD. This Chair is testimony to our joint efforts to train managers and heads of water and sanitation services in developing countries. Over nearly 15 years, 280 students from 54 countries have benefited from Master’s courses and more than 200 professionals from short courses.

Innovative water treatment and loss reduction projects in India

SUEZ has been operating in India for more than 45 years. The Group is leveraging its capacity for innovation to boost access to essential water services (drinking water, wastewater treatment) and optimise their management.

At Mangaluru, SUEZ is deploying AquaDaf Filter, a solution that combines flotation – the removal of solid particles (flocs) – with water filtration to remove fine particles and other contaminants at a single plant. This ultra-compact solution produces high quality drinking water in large quantities - the plant will be able to produce 125,000 cubic metres of water a day - with a minimum footprint.

In the Cossipore district of Calcutta, the French group is enhancing the performance of water networks, reducing water losses from 56% to 13% between 2017 and 2022. In addition to deploying analytical tools that use artificial intelligence, SUEZ is developing innovative cooperation arrangements with local communities. In liaison with Jal Bandhus, a women’s self-help group, SUEZ is rolling out campaigns to raise water conservation awareness and providing training in plumbing to enable local people to diversify their sources of income.

A concession success story: the private sector’s role in water and sanitation in Manila

Virgilio C. Rivera Jr., Founder and Managing Consultant, WatSan Analytics

Prior to 1997, the East Zone of Metro Manila was faced with numerous water problems, for example only 26% of the area’s population had access to a continuous water supply. However, the city was able to overcome this serious problem with the emergence of Manila Water whose efforts led to a significant overall improvement in water supply and sanitation services.

AN ARTICLE BY

VIRGILIO C. RIVERA JR.

Virgilio “Perry” C. Rivera Jr. was employed by the Ayala Corporation, one of the Philippines’ leading and largest conglomerates, for almost 33 years where he held various positions, most notably that of Managing Director. He moved to Manila Water Company, Inc. (MWCI) in 1997 and held key leadership roles including the position of Chief Operating Officer for New Business/ Subsidiary Operations and Business Development until 2021. After retiring, he founded WatSan Analytics, a management consulting firm catering to the water and sanitation sector.

Manila Water’s journey toward excellence is a unique story. The benefits the company continues to reap are the results of its beliefs and investment in “pipes and people;” in infrastructure and individuals. Above all else, the transformation of Manila Water is thanks to the value of the employees and their contributions. It demonstrates how individuals, teams, an entire organization transitioned

from a “reactive and complacent” workforce into a much more desirable state, “proactive and responsible.”

Change became evident not only among Manila Water’s employees, but also among the customers who began to take notice of the improved quality of service they received. This “always changing for the better” standard around which Manila Water has built its reputation through the years has tremendously contributed to its continued success.

CHALLENGES POSED IN STRUCTURING THE PHILIPPINE WATER MARKET

The Metropolitan Waterworks and Sewerage System (MWSS) is the Philippine government’s corporate sector which is mandated to provide water and sewerage services in Metro Manila. It serves a total of 15 million people. In the mid1990s, the water sector in Metro Manila was trapped in a “vicious” cycle. Supply was intermittent, with more than 63% water loss due to leakages and water theft, among other issues. As of 1996, MWSS supplied potable water directly to 67% of the 10.6 million residents within its service area. Wastewater management was also almost non-existent with barely 3% of households connected to the drinking water network. Due to its poor service, the government was unable to increase water tariffs because the customers were unwilling to pay, which was further aggravated by poor collection practices. The situation translated into a very low cash flow and made the utility incapable of maintaining financially viable operations. With the Philippines experiencing increased industrialization and population growth, MWSS was trapped in a vicious cycle and unable to cope with the demand for efficient and quality supply of water.

A CONSTRUCTIVE CONFLUENCE: AN INFRASTRUCTURE IN CRISIS, POLITICAL LEADERSHIP AND A LEGAL FRAMEWORK

The impending ‘water crisis’ was finally what pushed the national government to prioritize the need for an improved water and sewerage service in the metropolitan area. When President Fidel Ramos succeeded President Corazon Aquino in 1992, he broadened the PPP program to include critical infrastructures such as: 1) the Build-Operate-Transfer (BOT) Law of 1990, and 2) the Telecom Deregulation Law of 1995. The BOT Law in particular provided the key framework by which the Philippine government initiated contractual arrangements under the PPP program. With BOT, the government was able to establish a partnership with the private sector in infrastructure provision and development wherein the latter is responsible for the design, financing, construction, operation and management of the infrastructure facility. Then after a specified concession period, ownership of the facility is to be transferred back to the government.

Finally in 1994 when the government became open to the concept of PPP through a concession for the water sector and the National Water Crisis Act (NWCA) was introduced and passed. The NWCA provided the mandate for the MWSS management and Board of Directors to look at several forms of PPP and saw that the concession model was ideal for improving and expanding the availability and coverage of water in Metro Manila. Two 25- year concessions were bid out - the East Zone and the West Zone. Dividing the service area further helped facilitate negotiations for the concession contracts and provide objective criteria for performance evaluation of the two concessionaires. These milestones achieved under the administration of President Ramos clearly reflected a strong political will. The authorities recognized that if the looming water crisis in Metro Manila was not addressed, the entire economic sustainability of the country would be

at risk.Without an efficient and reliable water service infrastructure, it would be impossible to sustain any economic gains in the future. When Manila Water took over, the company inherited over 2,200 former government employees, aged 45 to 55. The average employee profile was characterized by (a) low productivity, (b) highly educated managerial pool but poorly compensated, (c) a limited capacity to manage operations ‘like a business,’ and (d) concern about job security under a privatized setup. Clearly, there was a need to introduce a new mindset and a corporate style of management, where there is shared responsibility for sustainable development across all levels of the organization. As the employees were the key driving force, it was evident that Manila Water needed to start its transformation internally—starting with employees. Manila Water set out to rejuvenate the existing organization especially in terms of the employees accepting greater responsibility. Through the reevaluation and realignment of roles, the existing knowledge and skill sets of the employees were tapped and retooled to enable the delivery of the highest value services. Additionally, Manila Water also started a Cadetship Training Program to attract fresh talent into the workforce. Here, the cadets are trained to develop the highest level of technical, business, and management skills with the goal of educating Manila Water’s future leaders and managers.

From being stuck in a “vicious” cycle” characterized by decades of underinvestment that led to poor service and low coverage, Manila Water was able to transform into a water utility that is identified with a “virtuous cycle” wherein they were able to expand and provide better quality service.

FOCUS MANILA WATER COMPANY, INC.

Founded in 1997, Manila Water Company, Inc. is a publicly listed company with extensive experience in the Philippine water sector, including water treatment and distribution, wastewater management, and sanitation services. The company is the concessionaire of the staterun Metropolitan Waterworks and Sewerage System, providing water supply, wastewater, and sanitation services in the East Zone concession in Metro Manila and the province of Rizal, which serves a population of over 7.3 million people. In 2021, the company was granted a 25-year franchise to operate by the Philippine government.

Under the old MWSS operations were very centralized. Targets were set at the corporate level rather than in smaller units; creating issues in communicating and coordinating across the organization. To solve this, Manila Water decided to involve management on the ground level through the creation of a

decentralized territory management system which involves dividing the East Zone into several business areas and further subdivided into smaller territorial boundaries. This approach made operations more manageable and strengthened community relations and customer management.

HIGHLIGHTS OF MANILA WATER’S ACHIEVEMENTS: INCREASED INVESTMENTS AND IMPROVED SERVICES

From being stuck in a “vicious” cycle” characterized by decades of underinvestment that led to poor service and low coverage, Manila Water was able to transform into a water utility that is identified with a “virtuous cycle” wherein they were able to expand and provide better quality service —a major feat that was accomplished thanks to the PPP reform. One of Manila Water’s greatest operational achievements was how it reduced NRW levels from 63% in 1997 to 13% in 2022, even reaching an unprecedented low of 11% in 2010. Considered the biggest system loss reduction in the history of the country, the NRW level even eclipsed the regulatory target of 25%. With reduced NRW, there was a visible increase in water supplied to customers. This is equivalent to 99% 24-hour coverage, or around three times more customers served. In addition, Manila Water was also able to provide affordable rates especially for marginalized communities, which account for the largest portion of the company’s customer base.

As more people gained access to clean water, waterborne diseases were reduced, thereby contributing to improved community health, and

families no longer needed to devote their time and energy to going out to get water each day. Moreover, Manila Water’s efforts to improve service have been validated through their high customer satisfaction ratings which are based on network quality, water quality, and service quality. In terms of investments, Manila Water disbursed over PHP 111 billion (around 1,8 billion euros) in capital expenditure for water and wastewater infrastructure, roughly twice the value of MWSS assets earmarked for the East Zone Service Area of Metro Manila and Rizal Province. Operating expenditure grew from PHP 416 million (around 6,75 million euros) in 1997 to a cumulative value of about PHP 74 billion (around 1,2 billion euros) at the end of 2021, highlighting its commitment to provide the best service possible within its territory. It was the success of Manila Water in the East Zone that paved the way for other business initiatives that have helped the company expand and introduce the best practices that it has acquired from its experience over the years in both local (Laguna, Boracay, Clark, Cebu) and international (Vietnam) regions.

From experience, the lesson from the Manila Water story can be summed up in three letters: PPP! Alignment of Politics, Prices and Performance!

TESTING THE FORTITUDE OF PPP: CHALLENGES AND OPPORTUNITIES

Looking back, Manila Water’s 15 years can be summed up in four phases: survival, expansion of coverage, alignment of business sustainability goals, and ventures outside of the East Zone. Despite having established a strategy that resulted in it becoming a beacon of success in the water management sector, strategies must evolve with changing business landscapes. There will always be a need to constantly rethink, improve, and when necessary, revise the strategy to keep up with the challenges and issues that Manila Water continues to face moving forward. These challenges include: 1) urbanization and increase in population, 2) regulatory risk, 3) climate change, 4) replicating the PPP model in top metro cities within the Philippines and in the region, and 5) developing new talents and leaders in the water sector. No plan can stand the test of time forever. Manila Water understands that as it outlines its future plans, it is crucial that the organization develops new strategies to be resilient and mitigate the impacts of the challenges and issues that it will have to face. In any case, Manila Water promises to continue ensuring reliable service not only to their present customers, but also to the next generation.

Provision of water services is arguably the most politically sensitive among the basic infrastructure services (power, telecom, roads) since it is imbued with public interest. Private interests must have the wherewithal to align political circles, maintain their support over a long period and effectively manage the political economy for sustainability. This is an extremely difficult task to accomplish and sustain given the ever-changing world of politics. Once the political support and enabling framework are in place, the concession model, such as the Manila concessions, can be tested over time. This then allows the private operator to charge appropriate tariffs given the capital intensity of the water utility business. Political support and an enabling legal framework, however, must be matched by consistent performance of the operator because without it the relationship among the political forces, regulator, operator, and consumers immediately spirals into a very uncertain and high risk situation. From experience, the lesson from the Manila Water story can be summed up in three letters: PPP! Alignment of Politics, Prices and Performance!

Private Sector & Development (PS&D) is a half-yearly publication that provides analyses of the mechanisms through which the private sector can support the development of southern countries. Each issue compares the views of experts in different fields, from academia to the private sector, development institutions and civil society.

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