Lynton ulrich bank financing for pda ms 14 june 2011

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  • 1.
    • Bank Financing for PDAMs
    • Lynton Ulrich
    • IndII Wrap-up Conference
    • 14 th June 2011
  • 2.
    • Background
    • PDAMs have grown to more than 350
    • 1997 Asian financial crisis - conditions det eri orated
    • By 2007 38% were rated less healthy and 37% unhealthy
    • Current PDAM expenditure levels insufficient to maintain existing infrastructure or increase distribution networks or improve water quality
    • Millenium Development Goal – 10 million new household connections by 2013
  • 3.
    • Objectives
    • Develop full cost recovery tariff structures for participating PDAMs
    • Develop bankable 5 year Business Plans
    • Develop good corporate governance regimes in participating PDAMs
    • Assist participating PDAMs access commercial borrowings to accelerate infrastructure provision
    • Develop guidance materials to assist/facilitate PDAM commercial borrowings
  • 4.
    • PDAM Selection
    • Local Government commitment to reform including full cost recovery tariff adoption
    • Surplus plant capacity
    • Access to raw water
    • No debt or membership of the debt-restructuring program
    • Rated unhealthy by DGCK
    • Approved by DGCK following presentation and interview
  • 5.
    • Perpres 29/2010
    • Acknowledges water as a basic need and must be available in sufficient quantities, equitably and be of good quality
    • In order to achieve the Millenium Development Goals, new revenue streams need to be available to PDAMs through investment loans from national banks
    • Perpres 29/2009 provides:
      • Loan guarantees 70% - 40% national, 30% local government
      • Banks provide up to 30% unsecured but cashflow control
      • Loan interest subsidy of up to 500 basis points for up to 20 years
  • 6.
    • Perpres 29/2009
    • To qualify , PDAMs must have no outstanding debt to the Central Government or will obliged to enter the restruction program and obtain Minister of Finance approval
    • Open a bank account with an approved bank
    • Have proposed investment projects approved by the Minister fro Public Works
    • Be rated by BPKP as healthy and have higher than full cost recovery tariffs during the guarantee period
    • Be monitored by the Coordination Team – CMEA, MoF, MPW, MoHA, Bappenas and BPKP
  • 7.
    • Key Problems/Constraints
    • Tariffs not set by PDAMs but by local governments hence political constraints
    • Forced to deal with less healthy PDAMs which increased the scope and complexity of the task
    • Lack of consistent commitment by stakeholders
    • Poor socialisation of Perpres 29/2009 principles and procedures among national banks and PDAMs
    • Lack of capacity at many PDAMs to successfully undertake reform initiatives
  • 8.
    • Lessons Learned and Successes/Failures
    • More care needs to be taken in PDAM selection
      • Initial time was too short
      • Evaluations were too simple, some PDAMs not suitable
    • Stakeholder support is critical to successful implementation
    • Beware the political pendulum – full recovery tariffs are not universally accepted
    • Coordination of stakeholders including national banks requires constant vigilance
    • MoF approval processes need to be reformed
  • 9.
    • Lessons Learned and Successes/Failures
    • Three PDAMs completed which will result in 80,000 new household connections and improved PDAM cash flows
    • Another five to be completed by 30 June 2011 which will result in approximately 150,000 new household connections
    • National bank accepted business plan and good governance regime templates completed as well as “Best Practice” guidance manuals for PDAMs
    • Additional technical and environmental consulting assistance is required by many PDAMs
  • 10.
    • Key Challenges/Opportunities
    • The program needs to be able to re-focus on healthy PDAMs which will require less work to get them across the line and therefore increase new connections at a faster rate .
    • MoF approval processes need urgent review.
    • Need to improve national banks’ understanding of Perpres 29/2009 and the lending opportunities it presents .
    • Templates and training materials need to be constantly updated to reflect current and best practice .