PPPLab Explorations 01

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PPPLab Explorations 01 Six categories of PPPs distinguished on the basis of their ‘change logic’ Initial observations and issues for discussion and follow-up

A portfolio scan of the Sustainable Water Fund (FDW)

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Colophon

Summary

PPPLab Food & Water is a four-year action research

This working document presents an initial

and joint learning initiative (2014-2018) to explore

analysis of the portfolio of projects approved

the relevance, effectiveness, and quality of Dutch-

under the first call of the FDW, and seeks to get

supported public-private partnerships (PPPs).

to grips with the basic ‘change logic’ of these

PPPLab is commissioned by the Dutch Ministry

projects from a public–private partnership

of Foreign Affairs and is driven and implemented

perspective. The main objective of this study

by a consortium of the Partnerships Resource

is to investigate the PPP dynamics that the

Centre (PrC), Aqua for All (A4A), the Centre for

different project partners are creating with

Development Innovation at Wageningen UR

their input to development cooperation in the

(CDI), and the SNV (Netherlands Development

water field. The study especially focuses on the

Organization). Comments and updates about this

engagement of private partners, while making

report are welcome. Please send them to: info@

a distinction between ‘private’ contributions

ppplab.org

(according to the broad FDW definition)

For more information, please visit our website:

and ‘commercial’ contributions that drive

www.ppplab.org

real commercial investments and business dynamics.

Any part of this publication may be reproduced, stored in a retrieval system, or transmitted in any

This document defines several groups of

form and by any means, electronic, mechanical,

projects within the overall portfolio. The change

photocopying, recording or otherwise, with proper

logic of each category is described in terms

referencing.

of the type of lead private partner, the other partners engaged, the core focus, the type of

© 2015, PPPLab Food & Water

projected benefits, and the ongoing business or financial proposition. In addition, specific observations and questions are raised for each category. This document concludes with some overarching insights and questions about the FDW portfolio as a whole.

It must be stressed that this scan is the result of a desk study conducted on the basis of the proposals alone. The projects have now evolved.

The further development of these projects since their approval will be among the issues explored in the Mid-Term Review of the FDW that is planned for the summer of 2015, in which PPPLab will participate.

PPPLab Explorations 01

Contents

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1. Introduction

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2. The ‘change logic’ of PPPs: key concepts and research methods

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3.The FDW portfolio and the six categories of PPPs

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A.Improving the performance of water utilities and operators

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B.Innovative technology development for water catchment and storage

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C.Watershed management/IWRM

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D.Irrigation and the management of irrigation infrastructure

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E.Microfinance for stimulating sanitation demand and private services

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F.Improving WASH governance through M&E

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4.Overall observations and issues emerging from this analysis Overall findings on the PPP portfolio

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Some emerging policy issues and questions

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Appendices I.The FDW in context

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II.List of projects classified into the six categories

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PPPLab Explorations 01

1. Introduction

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In 2012, the Ministry of Foreign Affairs (MoFA)

To learn about the relevance, effectiveness, and

of the Netherlands initiated two new financing

quality of Dutch-supported PPPs, the Ministry

instruments that aim to stimulate Public–

decided in summer 2014 to fund PPPLab Food and

Private Partnerships (PPPs) for development.

Water, a four-year (2014–2018) action research and knowledge initiative. Its mission is to extract and co-

The Sustainable Water Fund or FDW (an

create knowledge and methodological lessons that

abbreviation of its Dutch name) focuses on

can be used to improve both implementation and

stimulating public–private collaboration in the

policy. This PPPLab working document presents

water sector in order to contribute towards

an initial analysis of the FDW portfolio of projects

water safety and water reliability in developing

under its first call and seeks to get to grips with the

countries.

basic ‘change logic’ of these projects from a public– private partnership perspective. Six categories

The Facility for Sustainable Entrepreneurship

of PPPs will be delineated within this portfolio.

and Food Security (FDOV, again after its name

These categories appear to have clear and distinct

in Dutch) focuses on stimulating public–private

profiles on the basis of a) the developmental issues

partnerships within the sphere of food security

they seek to address and the related benefits

and private sector development.

they seek to produce and b) the types of business drivers, business cases, and financial sustainability

The creation of these two financing mechanisms

that propel them. Thus, this working document

is seen as an innovation in Dutch development

creates a first overview of types of PPPs that the

financing. It is based on the assumption that

FDW has attracted or funded.1 In a next stage,

PPPs can play a role in achieving development

this categorisation will be tested and validated

objectives, and perhaps do so in different and

against the projects that have been approved in the

more effective ways than other instruments

meanwhile through the second FDW call.

used to date. The two financing mechanisms are run by the Netherlands Enterprise Agency

The categories of PPPs can be useful in better

(Dutch abbreviation: RVO).

understanding and addressing the proposals, progress, sustainability, and impact dimensions of (groups of) individual PPPs, as well as the overall composition of the PPP portfolio. The categorisation may help the actors engaged in PPPs and the broader professional community to locate their own projects within that landscape, to deepen key strategies, to pose questions on the effectiveness of one’s own project, or to open up perspectives on alternative strategies or projects.

The findings may also be of direct interest to both the funding and supervising agencies (MoFA and RVO) in guiding and monitoring the current projects, as well as in shaping the FDW instrument towards the future and discussing priorities for future funding.

1 It is important to note that the observations and findings in this

document are based on the 13 approved projects from the first call of the FDW. It is expected that a broader study of all the submitted proposals will shed more light on the range of (possible) PPPs in the water domain. This may be taken up during the Mid-Term Review of FDW or in another context

PPPLab Explorations 01

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The findings presented in this working document

Key parameters of the first call of FDW

will be used by PPPLab for a further series of more specific research and learning questions.

• The first call for FDW projects took place in 2012,

The following studies are directly linked to this

leading to the approval of the 13 projects that

document and provide further analysis:

form the basis for this document. A second batch of ten projects was approved at the end of 2014,

• A parallel analysis of the FDOV portfolio (expected to be published in summer 2015). Where relevant in this analysis of FDW, similarities with the FDOV portfolio are also referred to.

• An analysis and comparison of various water sector financing instruments and the position of FDW in this field (also expected to be published in summer 2015).

but these are not incorporated in this analysis.

• Three FDW subthemes are defined by the Ministry of Foreign Affairs: • Improved access to drinking water and sanitation.

• Efficient and sustainable water use, particularly within agriculture.

• Safe deltas and improved basin management.

• A deeper analysis of the PPP projects in terms of

• FDW partnerships must consist of at least

business models and financing strategies. This

one company, one public body, and one

study was carried out in cooperation between

nongovernmental organisation (NGO). It may also

PPPLab, Rebel Group, and BoPInc. In the first

include research institutions. At least one of the

stages, a method was developed to more

parties must be based in the Netherlands, and at

systematically analyse the business models of

least one in the country where the project will be

PPPs. The method and first insights are to be

implemented. The applicant may be any kind of

published in summer 2015. Activities will continue through this and the next year.

• A Mid-Term Review, initiated by the Dutch

partner.

• The minimum financial contribution of the partners is 40% for the first two subthemes and

Ministry of Foreign Affairs, which feeds the

30% for projects focusing on the third subtheme.

general development of the instrument and the

At least half of this contribution should come from

preparations for the next FDW call. The MTR will be

private actors.

undertaken in the summer/early autumn of 2015.

• The extent to which projects are sustainable is

The Review will cover all FDW projects from calls 1

assessed against the FIETS criteria (financial,

and 2.

institutional, ecological, technological, and social sustainability).

The next batch of activities is to be start after

• The project should be financially sustainable

the summer of 2015, and includes studies on

but, as a whole, the project or partnership does

scaling and institutionalisation and on partnership

not need to be based on a business case (i.e. on

configurations.

a revenue model). See further explanation in Chapter 2.

2 The FDW has developed a specific set of definitions of private, public,

NGO, and knowledge partners. See the list of definitions of the Ministry of Foreign Affairs at http://english.rvo.nl/sites/default/files/2014/04/ Begrippenlijst_Fonds_Duurzaam_Water2013-2014v2.pdf.

PPPLab Explorations 01

2. The ‘change logic’ of PPPs: key concepts and research methods 6

In this study, the term ‘change logic’ refers to the

Secondly, according to the requirements of

key logic through which the PPP seeks to achieve

the FDW, the projects should be financially

development objectives. In this report, this change

sustainable; however, as a whole, a project or

logic of each project is analysed through the

partnership does not need to be based on a

following elements:

business case (i.e., on a revenue model). A project is financially sustainable when all the activities that

• The type of lead private partner driving or supporting the project.

are supposed to continue after termination of the PPP can continue without the subsidy of foreign

• The types of other partners engaged.

donors. Note that this continuation does not

• The core focus or intervention in relation to the

have to be based on commercial money, but may

water and sanitation value chain.

• The anticipated (pro-poor) benefits of the PPP. • The underlying medium or long-term business and financial case.

continue with the help of public funding. A business case is different in the sense that it is based on a revenue/earning model. A business case therefore usually contains the engagement of a private actor to commence and continue an activity (a product

With these five elements, the analysis does not

or a service) in order to create value or serve the

look at the specific theory of change for the issue

market. The business case is closely related to the

concerned (for example, managing an irrigation

business model, but is more detailed. The latter

system in country A or providing sanitary services

constitutes the overall idea of how an entrepreneur

to households in city B); rather, the interest is on

or partnership expects to create value.

the ‘meta Theory-of-Change’ level: how is a PPP

In this report, the focus is on an initial scan of the

used to create development results?

financial feasibility or the business case described in the proposal. A deeper look at these dimensions

To get to grips with these PPP logics, nine specific

of the projects is undertaken in a separate PPPLab

questions with sub-questions were asked for each

study that explicitly focuses on business models

project. On this basis, the key elements of each

and financing strategies.

individual project were described. 3 From the brief project logics that were extracted, an ‘emergent’ analytical process of simply listing the key common elements and differences between the projects was used. Projects with similar characteristics were grouped together, and it appeared that a relatively clear grouping of projects was possible along the water and sanitation value chains4, with related business logics.

In the following chapter, the key elements mentioned above are used to describe the categories. First, however, a few concepts need to be clarified.

3 Detailed interviews were not possible at this stage. The present

analysis will be checked and sharpened as projects develop in practice

The term lead private partner is used for the private partner5 with a key role in the business case or financial sustainability of the project (thus, not necessarily the applicant or the partner that provides the largest financial contribution).

Where necessary, a distinction is made between private contributions (according to the broad FDW definition) and commercial contributions that drive real commercial investments and related business dynamics.

PPPLab Explorations 01

and provide feedback and further experiences.4 The water value chain is often referred to as a ‘water management cycle’. An agricultural value chain is rather linear, bringing and transforming the product from producer via various steps to the consumer. Water management is a more cyclical and interconnected process, in which various types of water use and re-use can follow eachother in different sequences.

Moreover water flows can be part of diverse natural cycles. 5As

mentioned before, the FDW has developed a specific set of definitions for the different kinds of partners. It is important to note that a broad definition is used for private actors. Private actors are defined as “entities that are involved in economic activities, which means that they offer goods or services on the economic market. These activities may be ‘not for profit’ or ‘not for loss’ ”.

3. The FDW portfolio and the six categories of projects 7

To gain an initial sense of the overall playing field,

As indicated, six categories of PPPs can be

some general observations first:

distinguished in the portfolio, and their

The projects

distinction is based on two main parameters:

• There are large differences in scale of the

the developmental issue(s) that they seek to

projects, ranging from an irrigation project

address—or more particularly, their point of

targeting 3,000 farmers to improving the water

intervention in the water cycle; and the kind of

delivery of an area in Addis Ababa with 810,000

business drivers and models by which they are

water consumers.

propelled. The six categories are:

• The portfolio is clearly investing in longer-term collective action issues—for example, in water

A. Improving the performance of water utilities and

utilities and watershed management projects.

operators

• There are interesting examples of commercial

B. Innovative technology development for water

private sector contributions to a public good,

catchment and storage

such as integrated water resources management.

C. Watershed management/IWRM D. Irrigation, management of irrigation

Representation in the PPPs

infrastructure, and improved financial sustainability

• The private sector constitutes about 43% of the

E. Microfinance to stimulate sanitation demand and

total number of partners, while CSOs and research

private services

institutions make up about 31% of all partners, and

F. Improving WASH governance through M&E

public actors about 26%.

• Of the private partners in the FDW, some are

Note that the above is a more refined distinction

real commercial players while others are semi-

than the three main themes of FDW. This serves

public companies. Some commercial players

to better reflect the fundamental differences in

provide significant financial contributions. Others

the underlying PPP logics and drivers. Given the

participate as paid service providers.

limited number of PPPs, some of these categories

• There is strong public and semi-public

have only one PPP. Nonetheless, they have been

engagement in water utility and watershed

separated out as specific categories because they

management projects, but less in the irrigation and

do indeed represent a fundamentally different lead

sanitation projects.

business drive and related longer-term business

• In 7 out of the 13 cases, a private actor is the

case or financial sustainability perspective.

applicant6. In 4 PPPs, the applicant is a CSO, mostly taking the role of project manager.

• In at least 7 projects, ‘service providers’ (whether from commercial, civic, or knowledge backgrounds) have a lead function in initiating and/or managing the PPPs. They have significant own (commercial or non-commercial) ‘business’ interests in these projects, as their participation is (partly) funded by the project budget.

Contribution of partners • After the contribution of the Ministry of Foreign Affairs, it is the private sector that in almost all cases brings in the largest financial contribution to the project. The exceptions are two cases in which local water authorities are responsible for the second largest financial contribution.

•However, few real commercial private actors are engaged (whether internationally or within the countries); similarly, there is little non-grant money involved.

PPPLab Explorations 01

6 It should be noted, however, that the broad definition of ‘private’

in FDW means that this also includes public companies and the (noncommercial) international cooperation wings of these out as specific categories because they do indeed represent a fundamentally different lead business drive and related longer-term business case or financial sustainability perspective.

A. Improving the performance of water utilities and operators 8

This is the largest category, making up 5 out

that supervises and supports such water systems.

of the 13 PPPs approved under the first call of

Of course, such differences in scale do have

the FDW. These PPPs are located in Malawi,

implications for the intervention and the financial

Rwanda, Vietnam, Ethiopia and Tanzania. The key

and capacity development approaches of the

characteristics of the projects in this category are:

projects concerned.

• For all projects, the lead private partner is a

Representation in the PPPs:

Dutch drinking-water firm or, more precisely, its

- While the private engagement in these PPPs is

international cooperation branch.

mainly shaped by Dutch drinking-water companies,

• Other partners: The Dutch lead actor works

the engagement of local public and semi-public

with a public or semi-public water utility, group of

actors is quite extensive. In one project, two Dutch

utilities, or authority supervising local utilities. They

water boards are engaged, using their expertise

run the facilities (or supervise them). Involvement

and knowledge in integrated water management.

of CSOs is limited.

CSOs are also involved, but to a lesser extent

• The core focus is on improving the efficient

(they are present in two of the five projects); 7

management of piped water systems. This may be

their engagement mainly centres on programme

accompanied by infrastructure development and

management and inclusive BoP strategies.

environmental elements. Existing performance will

Specialised technical support is provided by

be improved, which in turn is expected to attract

research institutions (in four of the five projects)

more financing or (soft) investment at later stages.

and by smaller Dutch companies (in two cases).

• The benefits of the project are a) increased effectiveness and efficiency of water delivery and

Contributions of partners:

b) increased coverage of (poor) populations on

- The lead private sector players in this category

that basis.

are (international collaboration) branches of Dutch

• The business case/financial sustainability

drinking-water firms that support their ‘colleague’

underpinning the projects focuses on the medium

operators in developing countries. They operate

or long-term improvement of the financial and

on the basis of their corporate social responsibility

economic viability of utility operations. There is no

agenda and the money that they contribute is grant

direct earning objective.

money (which means that there is no commercial investment). In this sense, they simply leverage

In reviewing these PPPs, the following further

additional public grant money through these PPPs

observations and considerations come to the fore:

for their own projects.

- The medium and long-term business case in

The projects:

these projects mostly centres on the reduction of

-- Most of these projects are continuations of

non-revenue water. This is to make the utilities

already existing ‘operator partnerships’.

more financially and economically viable, covering

- In general, the assumption is that by saving

their operational expenditure and preferably also

water and serving new clients, a greater number

an increasing part of their capital expenditures.

of poor people will be reached, and the additional

This, in turn, allows the utilities to a) extend their

areas that will be serviced may also be the areas

services and coverage to additional consumers,

with poor inhabitants. Pro-poor outreach or

and b) over time to become more attractive to

targeting has, however, not been specified. There is

other investments, such as soft loans from the

no mention of efforts to cross-subsidise services for

World Bank or other sources. In general, however,

poorer people from the benefits of the increased

the case for such economic viability is relatively

services to richer consumers or companies.

long-term (for example, ten years or more) and not

- The levels of intervention of these projects

necessarily at the end of the present PPP project

vary considerably. Some focus on one specific

duration. The present PPPs are not expected to be

utility or water system, others are oriented

able to continue without additional finance after

towards improving utility management for a wider

the present project period.

geographic area (of several utilities), and one works with and through the national authority

7 But if one considers the international cooperation branches of the

Dutch water companies as CSOs as well, then the CSO participation can be seen as fairly dominant

PPPLab Explorations 01

B. Innovative technology development for water catchment and storage 9

This category contains one project that focuses

The following further observations can be made

on creating a water-harvesting solution for a

about this project:

community water supply in a dry region of South

- The project can be seen as closely linked with

Africa. This project falls into a unique category: it

the previous category, as it also concerns a utility

is the only project where technology export and

operation. This project is listed here in a separate

application by Dutch companies is the main driver.

category, however, as it has very different lead private partners and thus different business drivers.

• The lead private partners are a combination of

- The project shows similarities with a number of

four Dutch companies that provide components

projects in the inputs and technology category in

for the water catchment and storage solution.

the FDOV PPPs, where export and marketing by

They aim to test this under real conditions to

Dutch SMEs is also the main business driver.

show its effectiveness and thus work towards its application on a larger scale with lower costs. The project is unique within the FDW portfolio, as the lead private actors are small and medium-sized Dutch enterprises with true commercial ambitions.

• Other partners: The Dutch lead actors work with a public water utility responsible for water provision to local communities in the area concerned. Two research institutions support the Dutch companies in developing and installing the technological applications; a South African company takes care of embedding the system in the communities.

There are no CSOs involved (although the South African ‘company’ is doing community work that is usually undertaken by CSOs).

• The core focus is on developing and testing innovative and affordable technology by installing a new technical water catchment and storage solution in 20 communities.

• The benefits of the project are a) increased effectiveness and efficiency of water catchment and storage; b) increased security, coverage, and delivery; and c) reduced costs for water that would otherwise be imported from other regions.

• In terms of business case/financial sustainability, this project seeks to provide the regional public water authority with an alternative water source that is cheaper than the present practice of importing water from other regions. For the lead Dutch companies, the ongoing business case is the export of their technology.

PPPLab Explorations 01

C. Watershed management/IWRM

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The core rationale for the projects in this category is

In reviewing these two PPPs, the following further

built on improving integrated water management in

observations and considerations can be made:

large catchment areas (including their underground aquifers); they may also include specific measures

The projects:

in drinking water, irrigation, etc., at a lower

- Because of the broad integrated water

and more micro level. The two projects in this

management ambitions of these projects, they

category are in Ethiopia and Colombia. Their key

are both characterised by collaboration with a

characteristics are:

wide range of stakeholders, and an investment in the improved knowledge of water management practices and technologies.

• The lead actors in both projects are a mix of local

- While the projects aim at clear long-term

(public or private) sector organisations and the

water-management benefits, the direct business

international private sector. The major foreign

and financing cases for the continuation of the

multinationals engaged are interested in the long-

improved IWRM practices stimulated by the

term sustainability of water resources for their

projects have, however, not been clearly specified.

own business processes.

In this sense, sustainability remains unclear.

• Other partners: In both cases, there is significant involvement on the part of the (semi-)public actors

Representation in the PPPs:

concerned, including in financial contributions.

- In both cases, the major multinational firms

Research institutions, CSOs, and consultancy firms

engaged are fundamentally interested in the long-

with expertise in water are also engaged.

term sustainability of supply for their core process.

• The core focus is on improving integrated water resources management in large catchment areas.

• The benefits of the project are improved water

The commercial firms have decided to engage in and invest in what is basically a public good and a related public function: the sustainable availability

management in the catchment areas, thus

of water resources and its management in a large

safeguarding (as much as possible) the long-term

catchment area. Clearly, these firms have incentives

use of the water for productive and other uses.

to invest in such long-term public endeavours,

Both projects also relate to climate change and

because they see that the sustainability of their

environmental issues.

production base is at stake.

• The business case/financial sustainability

- In one case, this is the supply of water for

underpinning both projects is a combination

brewing beer; in the other case, investment is

of a) long-term macroeconomic advantages of

being made in IWRM to counteract the increasing

good IWRM with b) improved (cost-)efficiency

irregularities in water availability patterns (droughts

and sustainability of the specific productive uses.

and floods) for coffee cultivation. The direct

Whether these actually constitute a financial

engagement of large multinationals is, in itself, a

basis for the continuation of the current projects

fairly unique characteristic of these projects within

and PPPs beyond their present funding is not

the FDW portfolio. 8

immediately clear.

- The projects are not led by the multinational firms. In one case, the applicant is the international cooperation branch of a Dutch water company; in the other case, the applicant is a national coffee farmers’ organisation.

- A national ministry (in one case) and a regional public water body (in the other) are seriously engaged. This public engagement is also reflected in significant financial contributions from these parties. There are two local CSOs involved in the projects: the previously mentioned coffee federation and a CSO specialized in community

8In this sense, this category of projects in FDW has some aspects in

common with the sourcing category of PPPs in FDOV.

PPPLab Explorations 01

development projects. In the coffee project, research institutions are also strongly engaged.

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Contribution of partners: - In the case of the Colombian coffee project, the multinational is also providing major financial contributions. In the Ethiopian case, major financial contributions come from the international cooperation branch of a Dutch drinking-water company and the local public water authorities, while the financial contribution of the beer multinational is minor.

- The financing from the firms is probably from their social responsibility budgets (to be confirmed), and is thus used strategically to increase the likelihood of long-term operations and sourcing. As both projects also address broader water concerns in the regions concerned, they can also be expected to strengthen the ‘social and political licence to operate’ of those companies in the countries concerned.

PPPLab Explorations 01

D.Irrigation and the management of irrigation infrastructure 12

This category contains three projects located

The following further observations and

in Ghana, Palestine, and Sri Lanka. Their key

considerations can be made about these PPPs:

characteristics are: The projects: • The lead actor is a private actor in the country

- The business cases centre on irrigated

concerned (in two cases, a company; in the third

agriculture, the management of irrigation systems,

case, a cooperative users organisation) that seeks

and the sale of water to farmers. These projects

to manage an irrigation system for agriculture.

do not provide drinking water to consumers or

• Other partners: Forms of users’ organisations are

enterprises—only irrigation water to farmers. In

playing a prominent role in all the projects. Public

one case, the irrigation project uses wastewater

agencies and CSOs are also participating.

from urban consumption and can thus be

• A core focus is on improving and running

considered to be downstream from the utility and

the infrastructure effectively, and on creating

drinking-water projects.

economic drivers to make the irrigation systems

- All three projects have environmental elements:

more sustainable. In the case of Ghana, this is

sustainable productive use of water in general,

combined with a much broader engagement

more efficient use of water and, in one case, also

aimed at stimulating agricultural production.

the reuse of wastewater with productive use of the

• The benefits of the project are in terms of the

nutrients contained in it.

access of farmers to irrigation water (and services) and in the terms of sustainable management of

Representation in the PPPs:

the infrastructure (including some environmental

- Interestingly, in all cases, it is a private actor that

benefits).

seeks to operate the infrastructure. However, the

• The business case/financial sustainability

precise business drivers of these are quite different.

underpinning the projects is based on the

In the Palestinian case, a firm running a town’s

profitability of irrigated agriculture for farmers. In

sewage system will invest in irrigation infrastructure

turn, this feeds the financial sustainability of the

and seeks to operate it on a commercial or full-

infrastructure and its management. In one case,

recovery basis. The case in Ghana has some

this is combined with the lead PPP partner selling

similarities, but the commercial firm is an

inputs to and buying produce from farmers.

agricultural company that develops and manages a nucleus farm for modern irrigation farming within the system, and does business selling inputs to and buying produce from smallholders. In the Sri Lankan case, the infrastructure is owned by the farmers’ organisations and the PPP centres on a better financing model based on user fees.

- In these cases, one finds relatively less involvement of the local public sector than in the case of the other FDW categories. In Sri Lanka, the local public sector is absent from the partnership, while in Ghana and Palestine, the local public sector mainly plays a supporting role. In all cases, there is a clear degree of engagement of water users, sometimes supported by CSOs.

PPPLab Explorations 01

E.Microfinance for stimulating sanitation demand and private services 13

One project, located in Kenya, falls into this

Some basic observations and considerations on the

category. It’s characteristics are:

PPPs in this category are:

• The lead business actor is a provider of financial

The project:

services: a commercial bank.

• Other partners: Next to the bank, CSOs and a public actor play significant roles.

• The core focus of the project is on provision

- This project centres on the needs of households for adequate sanitation facilities. The business case is focused on two elements: a) the strengthening of demand by raising awareness and offering

of microfinance to consumers and households

adequate (micro-) finance products; and b)

specifically to improve sanitation. This is

the stimulation of private sector services for

expected to trigger private services for sanitation

these users by (small) private firms. Thus, this

construction and management.

constitutes the development of two interrelated

• The benefits of the project relate to access to

business models: one for the provision of financial

sanitation and strengthening of the supply chain

services to users (and to a more limited extent, to

and market in the sanitation domain.

producers) and the other for provision of services

• The business case/financial sustainability

to these users by enterprises engaged in sanitation.

underpinning the projects is based on the

- This project is a remarkable one within FDW, as it

readiness of households to invest in (or repay for)

focuses on creating a fully sustainable commercial

improved sanitation and the profitability of the

business in a way that most projects in FDW are not

support services.

capable of doing.

Representation in the PPP: - The Ministry of Public Health and Sanitation is involved to support creating the demand for sanitation and for alignment with public health policy.

- Two CSOs are involved: one CSO functions as a broker to attract investors for the microfinance products, while the other is involved to create demand for sanitation facilities among the poor communities.

PPPLab Explorations 01

F.Improving WASH governance through M&E

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This category contains only one project, located

Some considerations on this PPP:

in Ghana, which focuses on improving the WASH sector in rural areas through an improved

The project:

monitoring system. This focus makes the project an

- The key innovative proposition of the project is

exceptional case in the range of approved projects

to gather information on the status of water and

for the first call of FDW.

sanitation systems in rural Ghana on a large scale by using mobile phone technology and uploading

• The project has no clear lead business actor. The

the data to a central database. This will inform

private sector involved consists of the international

government planning, repair and maintenance

cooperation branch of a Dutch company, probably

activities and services. This will also be aligned with

for CSR reasons, and a local telephone provider,

other stakeholders, such as municipalities and local

which will benefit from the project through

services providers.

increased demand for its mobile services. Neither

- The project has attracted considerable support

can be considered a lead partner.

from other donors, but as far as can be seen, has

• Significant involvement comes from the Ghanaian

no business case or financing strategy for running

government, which also contributes financially

the activity more independently, apart from the

to the project. Other partners involved are a

continued use of public resources. The local

knowledge institute in water (the applicant), and

telephone provider will benefit from increased

two CSOs.

business because of increased service demand.

• The core focus of the project is on gathering and

However, this business case is only a (relatively

making available data on the status of rural water

small) part of the project and the mobile phone

and sanitation systems to improve planning,

provider is not investing in the project itself.

maintenance and repair.

• The benefits of the project lie in improvements in

Contributions of partners:

water governance through improved information

- The financial contributions are coming from

systems. These benefits will lead to increased

the local public sector and a major international

access and maintenance of water and sanitation

private foundation, but no real private financing or

facilities in certain rural areas of Ghana.

investment by firms is involved. In this sense, the

• The overall project does not have an explicit ongoing business case or a model for financial sustainability, and may thus be expected to require ongoing public finance or subsidy.

Some considerations on this PPP:

PPPLab Explorations 01

public–private character of this project is weak.

4. Overall observations and issues emerging from this analysis 15

Overall findings on the PPP portfolio

financial or economic logic or sustainability (this can be seen in the case of the water operators, for

Having distinguished six PPP categories, some

example). But the lack of introduction of a major

initial overall observations on the FDW portfolio

private sector driver or financing makes them look

can be made regarding the wider ambitions of the instrument. Has FDW managed to draw in

more like conventional aid projects.

• In particular, the business cases and financial

private sector engagement? What is the business

sustainability of the PPPs in the operator/utility

case of FDW PPPs and what their indications

(A) and watershed management/IWRM (C) PPPs

on sustainability? Finally, what is the extent of innovation of FDW and is FDW stimulating new approaches in the water sector?

are not always clear.

• Generally, a large part of the budgets consists of a combination of public and private grants.

This raises questions about the sustainability of

PPP Partners: who is involved in FDW?

the present PPPs and about their perspectives

• In the five projects in the technology development

for institutionalisation, moving on, replication,

(B), irrigation/infrastructure (D), and sanitation (E)

and scaling. It also raises the question of whether

categories, one can see the most clear-cut private

these PPPs really create more market-based

sector leadership through lead actors and

sustainability than other, more conventional

financial contributions.

• Real commercial engagement (commercial

projects in the water domain.

• The watershed management/IWRM project in

firms contributing financially in pursuit of directly

Colombia is remarkable, as the private sector is

improving their core business through the PPP)

contributing significant financial resources to

is only present in four of the five PPPs mentioned

a public good issue. This is the only case of such

above: the irrigation projects in Ghana and

direct financial support in the FDW portfolio.

Palestine, the sanitation microfinance case in Kenya (where the in-country bank is opening a new

Innovation: does FDW stimulate new

market), and the water-harvesting and drinking-

approaches and Dutch expertise?

water project in South Africa (where Dutch firms

• Eight of the thirteen FDW PPPs are focusing on

pioneer a new application for their technologies).

• Two FDW categories—the irrigation and

drinking-water utilities and irrigation management (categories A and D, the two largest categories

infrastructure (D) and sanitation (E) PPPs—have

in the portfolio). Both constitute fairly well-

very little engagement of semi-public and public

known domains of infrastructure development

actors compared to the other categories. The

and infrastructure and services management.

financial contributions of national governments

This raises the question of whether the projects

and (semi)public agencies are also almost absent

under FDW do help push the boundaries in these

from categories D and E.

domains and foster innovative approaches. This

• In addition, conventional development NGOs are largely absent from this portfolio. The presence of knowledge actors is slightly stronger.

is a question that cannot be answered on the basis of the present analysis.

• A number of PPPs, especially those involving Dutch service providers (both commercial and non-commercial consultants), market, promote,

PPP Business Case: indications of

and extend the coverage of Dutch expertise as

sustainability of the FDW PPPs

vested especially in the Dutch public water sector

• The five PPPs with real commercial engagement

(drinking-water companies and water boards) and

are also the only ones in which a more immediate

water and irrigation consultancy firms. However,

case for the self-sustaining continuation

broader Dutch expertise and business are largely

of activities (with less or no public money)

absent from watershed management/IWRM, as

is theoretically possible. In all other cases,

well as from the sewage and wastewater treatment

continuation will probably require significant

domains. The technology development project

public sector support. This does not mean that

in South Africa (B) is the only FDW PPP where a

the projects are not contributing to a longer-term

market for Dutch technology is directly promoted.

PPPLab Explorations 01

16

Emerging policy issues and questions The present scan aimed to distinguish ‘PPP

Promoting Dutch expertise

change logics’—that is, the variations in key logics

• To what degree is it desirable to use the portfolio

through which PPPs seek to achieve development

for promoting Dutch technology, knowledge,

objectives. The specific and overall findings have

and products? At this stage, the portfolio’s

been presented in the previous chapters. They

emphasis from this perspective (in line with

also point to some interesting policy issues and

the dominant types of PPPs) is mainly on two

questions relating to the FDW instrument

segments: public drinking water company expertise and irrigation consultancy expertise.

Types of PPPs

Other technical fields and other interests (from

• The first question is: to what degree is FDW

production and export firms to expertise vested

actually a portfolio of public–private partnerships?

in NGOs or in knowledge institutes around IWRM/

Or in other words, what types of PPPs and

deltas) are less well represented.

private sector engagements are aimed for?

This scan indicates that, in terms of funding

These larger questions may be addressed in the

and engagement, a substantial number of

upcoming Mid-Term Review of FDW to be held over

FDW projects have limited engagement of

the summer of 2015. This will require a deeper

real commercial parties (and related business

analysis and discussion of a) the PPP possibilities

dynamics and drivers). Is the Dutch Ministry really

and limitations of the various subthemes within

seeking such engagement and, if so, how and

FDW; and b) the ambitions and priorities of the

in what areas can this best be stimulated and

Dutch government vis à vis the FDW as a whole,

expanded? Or should PPP ambitions be adjusted

as well as in terms of the specific subthemes and

for certain segments of more public-good oriented

categories.

projects?

Focus of PPPs • A related question concerns the subthemes that are to be stimulated. The present portfolio focuses on specific parts of the ‘Drinking Water and Sanitation’ and ‘Efficient Water Use’ themes.

The third FDW subtheme. ‘Deltas and Water Basin Management’ contains few projects. Other illpopulated domains are sanitation (with only one project) and wastewater treatment.

Pro-poorness • Though all the projects have, of course, been screened against the FIETS criteria, the specific pro-poorness of PPPs has, on average, not been detailed very strongly. For example, disaggregation of the impact against wealth status and crosssubsidising for poor populations are not found, or are barely present.

PPPLab Explorations 01

Appendix I The FDW in context 17

The creation of the FDW and FDOV financing

• The ambition to make ‘aid and trade’ more

mechanisms in 2012 is seen as an important

mutually reinforcing, including putting a growing

development in the financing strategies of

emphasis in Dutch international collaboration

the Ministry. Four relevant dimensions of this

policy on serving the interests of the Dutch

innovation are:

private sector and using their engagement for development purposes.

a. Through these financing mechanisms, the

• A reduction in NGO funding and the anticipated

Ministry seeks to engage the private sector more

replacement of the existing civil society financing

actively and directly with the main development

mechanism (the so-called Cofinancing System or

cooperation objectives and themes: water and

MFS). The facilities thus constitute a space for new

food & entrepreneurship, respectively. Both offer

collaborations and endeavours.

broad space with several possible subthemes for which project proposals can be submitted.

d. While both facilities have several key

For both, the basic logic is to combine significant

characteristics and elements in common, they also

private sector contributions (40%–50%) with public

differ from each other in the following ways:

funding by the Ministry. The underlying rationale is

• The minimum requested private sector

that, by requesting the private sector to engage, a foundation will be laid for economic and financial sustainability and possible scaling up.

contribution in FDW is lower (at 40%) than in FDOV (50%) • In FDOV, the MoFA as financier also participates as a formal partner in the projects (often through the

b. While the Ministry has several funding mechanisms for private sector development, and is currently supporting the Dutch private sector in various ways to engage in developing countries, the FDW and FDOV are new in that they explicitly focus on funding mixed consortia of private, civic, knowledge, and public actors to address development challenges. This approach is also referred to as ‘the Dutch Diamond’. The approach seeks to use the potential innovation and realisation power of multi-sector collaboration. An underlying assumption is that this can help address more complex, systemic, or collective action challenges in the domains concerned, and may lead to innovative solutions for persistent problems. c. The creation of the two financing mechanisms must be seen in the context of broader changes that are still unfolding in the Dutch development cooperation landscape. In particular: • The recognition that the economies of many developing countries are growing, and that aid plays a diminishing role and should be used specifically for critical social or breakthrough issues.

PPPLab Explorations 01

Dutch Embassies in the countries concerned).

Appendix II List of projects as classified in four categories 18

Category A: Improving the performance of water utilities and operators FDW12RW01

FDW12CO01

Country:

Rwanda

Country:

Title:

PPP for increased access to Sustainable

Title: Intelligent Water Management -

Water Services in Rwanda (SusWas)

Colombia Public Private Partnership for the

Lead actor: Vitens Evides International BV

Implementation of an Integrated Water

FDW12BD03

Management System towards a Climate

Country:

Vietnam

Title:

Climate Change and Drinking-Water

Supply in the Mekong Delta, Vietnam

Intelligent Coffee Sector in Colombia Lead actor: NestlĂŠ

Lead actor: Vitens Evides International BV

Category D: Irrigation and the management of

FDW12MW01

irrigation infrastructure

Country:

Malawi

FDW12GH02

Title:

Malawi: Water Demand Management

Country:

to Mitigate Water Shortages

Title: Integrated Water Management and Knowledge Transfer in the Sisili

Lead actor: Vitens Evides International BV FDW12ET06 Country:

Ethiopia

Title:

Source to Tap and Back

Ghana

Kulpawn Basin, Ghana Lead actor: Wienco Ghana Ltd.

Lead actor: Vitens Evides International BV

FDW12OT01

FDW12TZ02

Country:

Palestina

Country:

Tanzania

Title:

Jenin Wastewater Reuse Project

Title:

Networking WASH projects in Mara

Lead actor: Padico

Region, Nwash

Lead actor: Dunea

Category B: Innovative technology development

FDW12SL01 Country:

Sri Lanka

Title:

Calling the Kings

Lead actor: Rabobank Foundation

for water catchment and storage FDW12SA01

Category E: Microfinance for stimulating

Country:

South Africa

sanitation demand and private services

Title:

Greensource: a Green, Sustainable, and

FDW12KE03

Safe Water Source

Country:

Lead actor: North West Provincial Government of

Kenya

Title: Financial Inclusion Improves Sanitation and Health (FINISH)

South Africa

Lead actor: SNS Asset Management Category C: Watershed management/IWRM FDW12ET03

Category F: Improving WASH governance

Country:

through M&E

Ethiopia

Title: Sustainable Water Services in Harar Regional State (SWSH) Lead actor: Vitens Evides International BV

FDW12GH06 Country:

Ghana

Title:

SMARTer WASH

Lead actor: Community Water and Sanitation

PPPLab Explorations 01

Agency (CWSA)

This publication is one in a series of PPPLab Explorations. These Explorations reflect research findings, questions and discussions that the PPPLab considers valuable to support improvements and innovations in how PPPs are designed, funded, implemented and evolve over time. The PPPLab Explorations are work in progress and thus contents, Post address: Burgemeester Oudlaan 50 Mandeville (T) Building Room T4-26 3062 PA Rotterdam The Netherlands info@ppplab.org www.ppplab.org

findings or models are not yet rigorously developed.

Nonetheless, they are shared in a spirit of open learning: to inspire and to stimulate healthy debate.

Publications may be updated or replaced as insights evolve.