June 21, 2016 Society

Sustainable financing: We know we can… but how?

Ensuring water and sanitation services for all depends on securing appropriate financing, an issue that has long been a major challenge for the water sector. The adoption of the Sustainable Development Goals (SDGs) makes this challenge all the more urgent. How much money do we need to expand and improve water services infrastructure? What about financing for operations and maintenance? Can we put a price on meeting the water, sanitation and hygiene-related targets of SDG6?

Solutions exist, challenges remain

A recent study by the World Bank [1] has done just that, and the numbers make for sobering reading. Extending basic services to the estimated 1.4 billion people with access to basic sanitation, and the 600 million people without access to safe water, is predicted to amount to an average investment of $28.4 billion per year.

The World Bank reports that globally current levels of financing are likely to cover the capital costs of achieving universal basic service for drinking water, sanitation, and hygiene by 2030. However, in going beyond the ‘basic’ services to achieve ‘safely managed’ services, which are the remit of targets 6.1 and 6.2 of SDGs, the capital investments required amount to about three times the current investment levels; approximately $114 billion per year.

The report also emphasises that sustained universal coverage requires more than capital inflows: ‘financial and institutional strengthening will be needed to ensure that capital investments translate into effective service delivery’. It specifies that in ensuring sufficient and quality spending on operations and maintenance, ‘institutions and regulation need to be strengthened’, including tariff policies that also safeguard affordability standards.

Solutions exist, though challenges remain to their effective implementation.[2] We know ‘what to do’, and stakeholders at all levels are aware of the need to take bold steps. We know that new sources for financing need to be found, tariff structures should be defined in a fair and equitable manner, and finance must be allocated for the required investments. Methodologies have been developed to ensure that investments are recovered under long-term planning, usually made in the units of decades. However, a survey conducted by the IWA at the 2nd International Water Regulators Forum, held last year in London, identified financing as a major concern for water regulators.[3] We are still in the process of creating an enabling environment for the ‘how’ of water financing.[4]

Do regulators hold the key to sustainable financing?

The ‘how’ probably has no absolute answer. The survey revealed that ‘economics and finance’ is an area of great interest to regulators, many reporting that they have reviewed the pricing mechanisms, been granted powers for tariff setting, or established new tariff codes. Individual practices, however, are not easily applied to other regulators as economic, demographic and climatic conditions heavily depend on local situations. Nevertheless, sharing of good practices and learning from each other stimulates insights and encourages steps forward. Defining the ‘how’ and ‘learning by doing’ are two sides of the same coin.

The International Water Regulators Forum is a ‘one of a kind’ global platform for regulatory authorities in the water, sanitation and wastewater management sector. Through it they can share best practices and build international collaborations. Last year, the Forum gathered to discuss existing ‘regulatory tools for sustainable financing’; the outcomes were further developed by the regulators and consolidated into a working paper, now available here, which includes recommendations and case studies of Italian and Scottish regulators.

The Forum will take the discussions even further this year by adding a big question mark over whether water security poses a threat to sustainable financing. In an increasingly water scarce world, where water security will become a major policy issue, this is a critical discussion for regulators.

For more information about the 3rd International Water Regulators Forum at the World Water Congress, please visit http://www.iwa-network.org/iwrf or contact Carolina Latorre at Carolina.Latorre@iwahq.org.

 


[1] Guy Hutton and Mili Chachyamma Varughese, The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation, and Hygiene (World Bank, April 2016). Available at http://documents.worldbank.org/curated/en/2016/02/25886251/costs-meeting-2030-sustainable-development-goal-targets-drinking-water-sanitation-hygiene.

[2] Addis Ababa Action Agenda agreed in the Third International Conference on Financing for Development (13–16 July 2015) declares: ‘Solutions can be found, including through strengthening public policies, regulatory frameworks and finance at all levels, unlock­ing the transformative potential of people and the private sector, and incentivizing changes in financing as well as consumption and production patterns to support sustainable development.’ Available at http://www.un.org/esa/ffd/wp-content/uploads/2015/08/AAAA_Outcome.pdf.

[3] The results can be accessed here.

[4] ‘Governance is about “who does what, when, why, at which level and how”’. High Level Panel on Financing Infrastructure for a Water-Secure World, Water: Fit to Finance? – Catalyzing National Growth through Investment in Water Security (WWC, OECD, April 2015), p. 70. Available at http://www.worldwatercouncil.org/fileadmin/world_water_council/documents/publications/forum_documents/WWC_OECD_Water-fit-to-finance_Report.pdf

Miharu Hirano

Specially Appointed Researcher
Miharu Hirano is a Specially Appointed Researcher at IWA, and works in the area of public policy and regulation.  He is also a Research Fellow of Japan Society for the Promotion of Science and is currently enrolled in the PhD program at Kyoto Univer... Read full biography