Cambios en los marcadores de remodelado óseo

All in all a number of interesting innovative business models and financing arrangements have been recently upcoming in the water sector. In the report various cases are presented and interesting lessons can be derived.

Innovative business models

The interesting observations from the innovative business cases are the following. Scope extension from the water sector to other sectors can reap new revenue streams. Examples are water to energy and flood safety in relation to incomes from land development for urban functions or recreation. The income flows from other sectors can (partially) overcome the often lack of good private revenue potential in water projects. However, to grasp these income streams is not always easy. Stable feed in tariffs for renewable energy and proper connections to the energy grid are important issues for water to energy projects. Reaping the revenue streams from urban development often requires setting up more complex Public-Private Partnership (PPP) structures (such as development companies) in order to bundle the water and urban development functions. These PPP structures are often complex in nature and many governments and private bodies in developing countries or Water OS countries lack experience in PPP contracts. This might limit the potential for application of PPP in these countries or might create high risks.

Innovations in payment systems such as mobile payments can help to increase the billing rates and cost recovery problems in the water supply sector. In many developing countries cost recovery of water utilities is extremely low because of low tariffs, illegal taps and low billing. Therefore, introducing payment and tariff systems which increase billing rates is crucial. Examples with payments through mobile phones in a number of African countries seem promising. Apart from the usual TA projects aiming at improving financial performance of water utilities remain an important pre-condition for business models in the sector. Scaling up to regional utilities or scaling up sanitation demand and supply can especially help to reduce the costs side of business models.

In water security the involvement of basin stakeholders in program creation, combined often with incentives and micro-finance provision can create more viable business models. Commitment of stakeholders and enforcement of water intake regulations are essential elements for success.

Financing arrangements

The most important trend here is the increasing use of blending arrangements. Blending of grants, guarantees with loans or micro-credit schemes is both at the project level, but also at fund level are observed. Important lessons relate to optimal risk allocations and the need use also grants to promote and scale up the schemes. Important observation is that Worldbank, EU & EIB Trust Funds and KfW seem to be first movers in this area. Although there are some blending projects undertaken by Netherlands partners (with DGIS funds), overall Netherlands financing instruments are not ideally geared towards blending.

Another observation is the upcoming use of revolving fund structures. Revolving funds basically need projects or utilities which are credit worthy and can repay loans or generate dividends on equity. By pooling projects or utilities risks can be spread and transaction costs can be decreased. This is especially important for smaller projects or smaller utilities in the water sector, where transaction costs for banks are high. The applicability of these funds is most of all relevant for

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projects or utilities which are profitable (can pay interest and can repay loans). This is often more the case in developed countries and in the drinking water and industrial waste water sector. Revolving fund structures are less easily applicable in developing countries or for the other water subsectors. In order to introduce revolving funds in typical water OS or Water Mondiaal countries and WASH sector addition of grants or guarantee funds to these structures will be essential. Moreover, in case of pooled funds used to attract capital market resources, an assessment of the maturity of bond and equity markets in developing countries is crucial. Absence of mature or deep capital markets can limit the potential for pooled funds in a number of developing countries.

Finally, crowdfunding through internet platforms can play a role for small and easy to communicate development water projects. The significance of crowdfunding for the water sector as such is expected to stay limited due to the capital intensive nature of the sector.

Positioning instruments

The report presents a range of types of positioning instruments which can be used to promote the Dutch water sector in the target countries. The instruments vary from low risk, low commitment capacity building until sponsorship of full fledged development companies and concessional financing instruments. The aid to trade agenda and policies could make use of this toolbox and identify for which subsectors and countries which instruments are most suitable. Interesting to observe is that the Dutch water sector makes intensive use of low risk, soft positioning instruments such as capacity building and networks or business hubs, but very low use of higher commitment, higher risks instruments such as concessional financing or sponsorship of development companies.

By looking at two ongoing cases: Flood protection in Jakarta and development of Beira

Mozambique some issues in the Dutch instruments are highlighted. First of all it is advocated that a more strategic program cycle and value chain approach could be used for positioning, starting at the beginning of such positioning efforts. Program phases from masterplanning, feasibility, design, procurement and implementation and operation should be assessed in connection and interest and strengths of Dutch players could be assessed from the start. Secondly it is shown that current Dutch financing instruments are not well geared towards this types of projects where often equity or loans (or concessional loans to governments) for larger scale infrastructure projects are needed.

Conclusions

In short the analysis and report results in a number of key conclusions:

• The water sector is evolving towards other sectors. Technological innovation and scope extension foster the development of innovative business models with revenues from these other sectors (energy, urban development, agriculture);

• The water sector is opening up to more private sector participation and PPPs. Public Private Partnership is on the rise in the water sector. Traditionally PPP has been starting in the drinking water sector (especially in Australia, South Africa etc.). In waste water and (more limited) in flood protection PPPs are more recently introduced. PPP projects are however more complex by nature compared to traditional contracted projects and the applicability of these concepts might differ over the countries and subsectors. Availability payment based PPP schemes might be difficult in many Water OS and Mondiaal countries because of lack of experience with PPP contracts, no multi-annual budgeting in governments and high political risks;

• Blending of financing instruments is a key trend in international financing of the water sector, both at institutional level and at project level. Current Dutch financing instruments are not yet well geared towards blending with other financial products (equity, loans etc.) or resources (donors, IFIs);

• The Netherlands water sector makes use of a limited variety of different positioning instruments for promotion of the water sector (mainly capacity building and hubs). Other countries such as

Korea, Germany etc. make more heavily use of concessional financing instruments and blending these with grants from development agencies. There is currently in the Netherlands no adequate instrument available for sponsoring large scale infrastructure development companies (equity, loans, grants). Moreover, project preparation facilities are set-up by EU-EIB and others, but are not used by Netherlands agencies such as FMO or RVO;

• Several NL competitors strategically support home contractors using financing tools (tied aid, concessional loans, TA/grants, often using broader credit insurance instruments).

Recommendations:

• It is advisable to develop a more strategic program cycle/value chain approach for positioning of the Dutch water sector for specific countries, subsectors or projects. Currently, often positioning is assessed per phase of the project cycle. It is recommended to assess the strengths and interest of Dutch parties over the whole project cycle and value chain from the start. This could be done in a co-creation of Dutch public and private sector parties;

• Assess all possible positioning instruments in a systematic way before starting and funding a process relating to positioning the Dutch water sector in a target country. Proper selection of the most useful positioning instruments depends on likely effectiveness, strengths, possibilities and risk appetite of Dutch government and private sector and the match with possibilities in the country context. For example to opt for Netherlands government sponsoring PPP development companies might be too risky given the context in some countries. In certain situations positioning instruments can complement each other or some might be more relevant in some phases of the program and switches could be made to higher commitment instruments in later phases;

• Use or transform NL financing instruments to better position NL private parties. We regard it important to develop DRIVE together with the key sector players for investment projects to be suitable for supporting propositions and allow for blending with other instruments and banks, donors agencies/ IFIs. It is advisable to investigate a finance (equity, other) instrument for Development Companies with FMO or others. Moreover, the possibilities to develop a revolving fund for loans for water projects or utilities for developing countries could be assessed where OS grants could be used for TA or guarantees. Finally the possibilities for an NL sovereign (concessional) loan instrument could be investigated;

• For larger investment projects strategic partnership with countries (water sector players, development banks) that could mobilize complementary contractors or operators and large amounts of (concessional) finance could be considered. It might be considered to collaborate for example for NCICD Jakarta project with World Bank, German development bank KfW, ADB or the Koreans where they could cover some large scale expensive construction and financing parts.

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9 Glossary

Table 9.1 Glossary

Term Explanation

ADB Asian Development Bank AfDB African Development Bank

Blending Combining a variety of financing products (loans, equity, subsidies etc.)

Business Case A product/service package which delivers revenues for the investors or operators

Business model The way products or services will make money/ generate earning capacity (cash-flows)

Cash Flow Cash income or net revenues: yearly difference between revenues and operating and investing costs

Debt Loans (repayable finance: interest and repayments of loan amount) DGGF Dutch Good Growth Fund: loans, guarantees and export credit

insurance for SMEs investing abroad (implemented by RVO: Netherlands Enterprise Agency)

DRIVE Successor of ORIO: the Netherlands financing instrument for infrastructure and private development (implemented by RVO: Netherlands Enterprise Agency)

Equity Participation or investment by risk taking shareholders EIB European Investment Bank

FMO Netherlands Development Finance Company Grants Direct dedicated subsidies to programs or projects

Guarantee A coverage of certain risks (credit risk, losses) by a guaranteeor IFC International Financing Corporation: institution of World Bank group

with finance to private institutions

Interest rate subsidy A subsidy to decrease the market interest to be paid

KfW Kredietanstalt fur Wiederafbau is a German owned development bank Microcredits Small loans to SMEs or households

Microfinance Financial products (small scale savings, insurance, credits) for SMEs and households

Principal The initial full amount of the loan

Project pipeline facility A facility to support project development studies (designs, feasibility studies etc.) or capacity building for project development

Public Private Partnership (PPP) A contracting mode to deliver public services by a private entity Subsidy A contribution to an entity from the public budget (state, region,

municipality)

103 Innovative financing and positioning of the water sector