This document discusses using private finance to support sustainable development in the water and sanitation sector. It notes that while official aid to water has declined, significant investment is still needed to achieve access goals. Blended finance, which strategically combines development finance with private funds, can help bridge the investment gap. The document outlines different water subsectors and their suitability for blended approaches based on risk-return profiles. It shares preliminary data on how blended finance has mobilized private funding in water and concludes with messages on effective use of blended approaches going forward.

1. Private Finance for Sustainable Development
in Water and Sanitation
PF4SD Conference, Tuesday, 15 January 2019
16:00 - 17:30
Kathleen Dominique & Wiebke Bartz-Zuccala, OECD
#PF4SDG

2. The need for financing in the water sector
• Water will play a key role in achieving the Sustainable Development Goals
(SDGs) by 2030, making water-related investments a necessary
foundation for sustainable development and inclusive growth.
675 000
premature deaths
annually stemming from
water and sanitation
7%
of GDP annual
economic loss in some
countries
2.1 billion
people lack access to safely
managed drinking water
services
4.5 billion
people lack access to basic
sanitation
Source: World Bank (2018), Water Overview. http://www.worldbank.org/en/topic/water/overview; WHO-UNICEF (2017), Progress on drinking
water, sanitation and hygiene: 2017 update and SDG baselines.

3. Official aid to water is reducing in relative terms
• While official aid has increased overall, the share of water as a
percentage of all aid flows has declined from 5% in 2005-06 to 4.5% in
2015-16
0
2
4
6
8
10
12
0
50
100
150
200
250
300
2005-06 2007-08 2009-10 2011-12 2013-14 2015-16
PercentofTotalOffcialAid
USDBillions(Constant2016Prices)
Total Official Aid Water Supply & Sanitation Energy Agriculture, Forestry, Fishing

4. Blended finance can help bridge the investment gap for
the SDGs
• Blended finance is the strategic use of development finance for the
mobilisation of additional finance towards sustainable development in
developing countries.

5. OECD DAC Blended Finance Principles present a blueprint
for better blending
• The Principles will be complemented by a Policy Guidance Note in
2019/20 in order to support ministries and agencies in applying these

6. Blended finance instruments used to mobilise private
finance in the water sector (preliminary results)
• From 2012 to 2017, USD 2.1 billion (1.4%) of the six year total of private
finance mobilised targeted the water and sanitation sector.
• Guarantees account for almost 60% of private finance mobilised, followed
by syndicated loans mobilising 28% of private finance.
Source: OECD DAC Statistics. This includes regular CRS reporting and Surveys on amounts mobilised from the private
sector in 2015, 2016 and 2018.

7. A spectrum of water-related investments
• Sub-sectors vary considerably in terms of their potential to generate cash
flows and attract commercial finance

8. A deep-dive into subsectors
• Water supply services
• Small-scale off-grid sanitation, wastewater collection and
treatment
• Multipurpose infrastructure, including landscape-based
approaches

9. Suitability for blending: distinct risk-return profiles
• Political sensitivity of
water pricing
• Hydrological risks can
undermine asset
performance
• Large-scale water
infrastructure can raise
environmental/ social
concerns
• Poor track record
of cost recovery
• Lack of revenue
model (e.g. flood
protection)
• Small municipal level
systems; rural off-grid
• Long-lived infrastructure,
long payback periods
• Nature-based solutions
often context specific
(high transaction costs)

10. Emerging messages
• Focus on local currency financing and domestic resource
mobilization.
• Efforts to mobilise additional sources of financing must be
accompanied by efforts to maximize the effectiveness of existing
sources of funding and assets.
• Allocation of development financing should seek to strengthen
the enabling conditions to promote sustainable financing; avoid
inefficient subsidies that can crowd out commercial financing.
• Need to evaluate distributional impacts of subsidies to ensure
targeting the poorest and improving access to services.
• Lack of cooperation among finance providers can generate
barriers for uptake of blended finance and undermine incentives
for creditworthy borrows to access commercial finance.
Source: GIZ-OECD Conference outcomes Closing the financing gap for water in line with SDG ambitions: The role of blended finance (4-5 October 2018, Eschborn).

11. Continuing the discussion: Feedback and examples
• What are good practice blended finance
operations or programmes ongoing in your
organisation in the sub-sectors:
– (1) Large-scale urban water utilities,
– (2) Small-scale off-grid sanitation, and
– (3) Multipurpose infrastructure (including landscape-
based approaches)?
• Please share your examples by 27 January 2019.

12. Continuing the discussion: Next steps
• Presentation of first results at the World Bank/IMF Spring
Meetings 2019
• Seminar at Stockholm World Water Week
• Roundtable on Financing Water:
– 4th meeting, Washington DC (June 2019) with IDB and USG
– 5th meeting, Manila (Nov 2019) with ADB

13. Thank you
More on OECD’s work on blended finance:
http://oe.cd/blended
More on the Roundtable on Financing Water:
http://oe.cd/water-roundtable

14. Continuing the discussion: The Roundtable on Financing Water
A global public–private platform to facilitate the flow of financing and investments
that contribute to water security and sustainable growth.
• 1st meeting: Paris, April 2017
• 2nd meeting: Tel Aviv, September 2017
• 3rd meeting: Paris, November 2018

15. Source: Adapted from OECD (2010) Innovative Financing Mechanisms for the Water Sector.
Expanding the range of potential sources of funding and
financing

16. Attributes of investments that influence their suitability for
blended finance
• Does the investment support development objectives?
• Can the risk-return profile of the investment be designed to attract
commercial finance?