1. The document discusses improving urban water utility performance in Sub-Saharan Africa through smarter use of development financing. 2. It proposes a phased financing approach to incentivize credible commitments to effective utility management practices and use funds to support operational and infrastructure improvements. 3. The goal is to shift norms to more financially sustainable utilities able to provide near universal access to water through collaboration between financiers.

1. Seite 1
Urban water utility finance
– fixing a leaking bucket
08.10.2018
An inefficient utility wastes about half of the resources available to it.

2. Seite 2
Access to Water and Sanitation in Sub-Saharan Africa:
Review of sector reforms and investments, and a way forward
for future support to sector development.
GIZ Competence Center “Water, Wastewater, Solid Waste”
Study leader: Dr Rolfe Eberhard (consultant)
Part 1 - Synthesis report
Part 2 - Briefing document
June 2018
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
GIZ Access Study

3. Seite 3
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
Burundi
Madagascar
Gambia,The
Uganda
Guinea
Nepal
Benin
Senegal
Zimbabwe
Myanmar
Bangladesh
Kenya
Coted'Ivoire
India
SolomonIslands
Vietnam
Honduras
Bhutan
Philippines
Micronesia,Fed.Sts.
Indonesia
Tunisia
Azerbaijan
Paraguay
ElSalvador
Guyana
BosniaandHerzegovina
Fiji
Colombia
Peru
Botswana
Bulgaria
Uppermiddleincome
LatinAmerica&Caribbean
Caribbeansmallstates
Mauritius
World
AmericanSamoa
Argentina
Chile
Lithuania
Barbados
Estonia
SaudiArabia
Malta
Korea,Rep.
EuropeanUnion
GDP per capita (2016, Current US$)
Burkina Faso
& Uganda
Senegal
Lowermiddleincomeaverage
Lowincomeaverage
Middleincomeaverage
Uppermiddleincomeaverage
Source: World Bankdata
Zambia Kenya
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
The good news: Success is possible in low income countries,
even in challenging political-economy contexts.
Success =
1. Financially viable
2. Efficient
3. High access 90+
1 + 2 + pro-poor = 3
Do not need to have
the income of Chile
to succeed

4. Seite 4
… despite GDCs significant attention to the “framework conditions” (policies,
legislation, institutional design, etc.)
This hurts the poor the most, because they still lack access.
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
The bad news: Good utility performance is still an exception
rather than the norm.
✔
✘
✘

5. Seite 5
Development finance did not translate into
expected improved performance & access
08.10.201808.10.2018
Utility
Performance
Utility
Management
Urban Water Infrastructure
Governance
Commercial
Finance
Development
Finance
billions of $ invested,
but not enough &
too many leaks
disappointing outcomes
very low use
…leaking pipes …and wasted money

6. Seite 6
The end goal
08.10.2018
Development finance incentivizes utility performance and increased
coverage. Utility is then able to attract commercial finance.
08.10.2018
Utility
Performance
Utility
Management
Urban Water Infrastructure
Governance
Development
Finance
Commercial
Finance
supports
reinforces
Operated & maintained sustainably, network expanded to the poor

7. Seite 7
Some important messages from the study
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
1. The utility must be financially viable (to eventually attract commercial
finance) and extend the network to the poor at the same time. This
requires an operating cost coverage ratio of substantially above one.
2. Good governance is the key differentiator between poor and good
performance. An important basis for sound governance is accountability.
3. As the owner of the assets (at national, regional, or local level),
government is responsible for good governance, but these conditions can
be created at the utility level. Human right to water also creates obligation.
4. As the main financiers of the sector, development partners could be
more focussed and more ambitious about utility performance and
increased access.
5. Scarce grant money would be more effective if it was used to incentivise
sound utility governance, and to fund extensions to the underserved (last
mile), rather than subsidising existing users.

8. Seite 8
So what? Four propositions:
(1) The essential conditions for good utility performance are
relatively easy to define and recognise
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
(1) The Jockey
Capable and committed
utility leader – manager
(2) Revenue model
Ability to charge a tariff that
generates surplus cash for
investment after O&M costs
Competence-based recruitment Corruption-free procurement
(3) Effective use of resources (people and money)
(4) Mandate and mission to serve everybody (pro-poor)

9. Seite 9Section 4D40 – Water, Wastewater and Waste Management08.10.2018
The Jockey
Capable and committed
utility leader – manager
Revenue model
Ability to charge a tariff that
recovers at least O&M costs
Competence-based recruitment Corruption-free procurement
Effective use of resources (people and money)
(2) It is less easy to define the contextual conditions
under which these conditions will be created and sustained
Enabling and protective conditions = “governance”
(4) Mandate and mission to serve everybody (pro-poor)

10. Seite 10Section 4D40 – Water, Wastewater and Waste Management08.10.2018
Reforms focussed on the formal rules … long timeframes,
not sufficient & may not be necessary in early stages

11. Seite 11
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
(3) We do not need to pre-define what the enabling conditions look like,
but a core set of credible commitments at utility level is essential
(4) It is possible to incentivise the creation of these
conditions through design of a financing ecosystem.
The jockey
person to make
it happen
Political principle
legal person to allow &
protect core conditions
Performance contract (owner/board/CEO)
Tariff agreement (revenue model)
Non-interference, with rules & practices
• Competence-based recruitment
• Rules-based transparent, competitive
procurement
Credible commitment to core conditions

12. Seite 12
The rest is detail …
Section 4D40 – Water, Wastewater and Waste Management
Effective management team
Core conditions at utility level will lead to …
Growing capability
Conducive organisational culture
Growing resource base
Improving outcomes

13. Seite 13
The rest is detail
Pace of progress will depend on intensity of effort and resourcing
Section 4D40 – Water, Wastewater and Waste Management
Effective management team
Financing
Know-how
People
• Management know-how
• Technical know-how
Growing capability
• Leverage and scale available
people resources
External support
Conducive organisational culture
Growing resource base
interface
Many programs and tools exist
eg. WOPs, WB turn-around framework

14. Seite 14
A change in trajectory can happen quickly (2-3 years)
& you can test commitment in 100 days
Section 4D40 – Water, Wastewater and Waste Management08.10.2018

15. Seite 15
What success looks like in Sub-Saharan Africa
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
Utility (country)
SDE
(Senegal)
Nyeri
(Kenya)
ONEA
(B. Faso)
Median
(SSA1)
Access to piped water 97% 91% 90% 68%
Hours of supply 24 24 23 18
Operating cost coverage ratio 1.39 1.39 1.18 0.92 3
Cash collection efficiency 98% ~100% 97% 91%
Nonrevenue water 20% 18% 18% 38%
Staff productivity 2 3 3 4 10
Source: GIZ access study

16. Seite 16
A proposal
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
1. Fixing the “demand side”
Search for and support the core conditions for effective utility
management, through smart use of grant money and technical
assistance. This will enable utilities to receive and use funds
(including commercial loans) efficiently and with transparency.
2. Fixing the “supply side”
Create greater flexibility in the allocation of finance to better
match the effective demand where these conditions exist,
including better DFI coordination, and linking TA with financing.
Success =
1. Financially viable
2. Efficient
3. High access 90+
1 + 2 + pro-poor = 3

17. Seite 17
6-8 months 12 - 18 months
1. Test credible
commitment to
necessary
conditions for
improvement
2a. Deepen commitment thru
operational improvement
2b. Investment
preparation
Threshold 1 Threshold 2
A phased financing eco-system
Create demand

18. Seite 18
6-8 months 12 - 18 months Year 0
1. Test credible
commitment to
necessary
conditions for
improvement
2a. Deepen commitment thru
operational improvement
Phase 3. Major infrastructure investments
together with continuous operational improvement
2b. Investment
preparation
3a. Concession loans
and grant finance
3b. Blended finance 3c. Commercial finance
Year n Year n
Threshold 1 Threshold 2 Threshold 3
A phased financing eco-system
Create demand Match supply to demand
(infrastructure finance)

19. Seite 19
6-8 months 12 - 18 months Year 0
1. Test credible
commitment to
necessary
conditions for
improvement
2a. Deepen commitment thru
operational improvement
Phase 3. Major infrastructure investments
together with continuous operational improvement
2b. Investment
preparation
3a. Concession loans
and grant finance
3b. Blended finance 3c. Commercial finance
Year n Year n
Threshold 1 Threshold 2 Threshold 3
A phased financing eco-system
Create demand Match supply to demand
(infrastructure finance)
How early can commercial loan finance
be harnessed?

20. Seite 20
6-8 months
Grant
(test credible
commitment)
±$1 million
1. Test credible
commitment to
necessary
conditions for
improvement
100 day program
Phase 1: Search, incentivise and test core conditions for success
Are you serious?
Can you put the core
commitments into place and
honour them?
Threshold1

21. Seite 21
Successor program
(Operational improvement)
6-8 months 12 - 18 months
Grant
(test credible
commitment)
±$1 million
Revolving loan
Small investments on
basis of improved cash
flows
(bridging finance)
1. Test credible
commitment to
necessary
conditions for
improvement
2a. Deepen commitment thru
Operational improvement
2b. Investment
preparation
100 day program
Project preparation grant,
so infrastructure projects
ready to launch …
±$5million
Phase 2:
Support operational improvements
while preparing for investments
Can you turn commitment
into action?
Can you be effective?
Threshold1
Threshold2

22. Seite 22
Successor program
(Operational improvement)
6-8 months 12 - 18 months Year 0
Grant
(test credible
commitment)
±$1 million
Revolving loan
Small investments on
basis of improved cash
flows
(bridging finance)
Threshold1
Threshold2
1. Test credible
commitment to
necessary
conditions for
improvement
2a. Deepen commitment thru
Operational improvement
Phase 3. Major infrastructure investments
together with continuous operational improvement
2b. Investment
preparation
3a. Concession loans
and grant finance
100 day program
3b. Blended finance 3c. Commercial finance
Project preparation grant,
so infrastructure projects
ready to launch …
±$5million
Grants
Grants Grants
Concessionary
loan finance
Concessionary
loan finance
Year n Year n
Commercial
loan finance
Own revenue
Commercial
loan finance
Own revenue
Threshold3
Own revenue
Commercial finance
Phase 3:
Infrastructure finance
follows in phases,
with commercial finance

23. Seite 23
Why would utility managers want to participate?
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
1. Immediate access to technical assistance and funds (grants and/or
a revolving loan fund) with low transaction costs, high flexibility to
improve cash flows and operations. (Phase 2)
2. Access to investment finance with lower transaction costs and
shorter timeframes. (Phase 3)
3. Managers of successful utilities are recognized and celebrated (cf.
William Muhairwe (NWSC), Neil Macleod (Durban), Ek Sonn
Chann (Phnom Penh)

24. Seite 24
A paradigm shift – changing the norm & expectation
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
1. A successful program will shift the norm from utilities with low
investments, low access and low tariffs to a new norm of
successful, effective urban water utilities able to provide near
universal access to safe and reliable piped water and be financially
sustainable.
2. Is there any reason not to support the creation of 100 successful
urban water utilities in the next five to ten years?

25. Seite 25Source: Financing Options for the 2030 Water Agenda (Kolker, Kingdom, Tremolet)
Consistent with financing pathway for SDGs

26. Seite 26Source: Financing Options for the 2030 Water Agenda (Kolker, Kingdom, Tremolet)
A practical way to move more effectively along the financing pathway
Are you
serious?
1
1
2
3
3
Revenue
Efficiency
Finance
TA & loans

27. Seite 27
Summary
Section 4D40 – Water, Wastewater and Waste Management08.10.2018
1. What? We can be smarter in how we use finance to
improve sector outcomes more quickly to reach SDG6.
2. How? Collaboration between financiers to both develop
and implement these solutions
3. When? Now and in next 6 to 12 months.
Success =
1. Financially viable
2. Efficient
3. High access 90+
1 + 2 + pro-poor = 3