Transcript Financing Strategies and FEASIBLE Jesper Karup Pedersen ([email protected]) Bucharest 15 May 2008 # 15.05.08 Workshop on Water and Health Bucharest.

Financing Strategies and FEASIBLE
Jesper Karup Pedersen ([email protected])
Bucharest
15 May 2008
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Content
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Environmental financing strategies - what and why?
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Three phases
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In fact, a policy dialogue
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Toolbox, including FEASIBLE
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Major challenges
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Advantages
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Environmental Financing Strategies
- What and Why?
Possible definition
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A time-bound plan for sustainable financing of capital
investments and O&M costs in an environment sector adopted
by a national, regional or local government and embraced
by major stakeholders involved in environmental
management and operation in the country, region or
municipality in question with a view to achieving a set of
targets that are SMART.
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"Sustainable financing" implies that expenditures (investment
expenditure and operation and maintenance expenditure) are
balanced with revenues (from public budgets, user charges and
loans/grants from domestic and international sources).
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Rationale is simple: Lack of financial realism is to be replaced by
"sustainable financing" (this is particularly true in SEE and EECCA)
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Consensus that environmental financing strategies may be used to:
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Assess total investment needs of alternative policy targets
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Bring about practical implementation programmes taking into
considerations what the economy and households can afford
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Identify investment projects and build short to medium-term
project pipelines
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Identify the policies and measures which are necessary to
ensure effective financing of the project pipelines
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Support claims of environment to other ministries
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Measure and report on the progress in the implementation of
programmes and policies
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Improve financial planning and budgeting
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Improve legal and regulatory framework
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Three Phases
1. Preparation
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Need acknowledged
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ToR
2. Development
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Set-up of Steering Committee
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Baseline scenario
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Development scenarios
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Final financing strategy
3. Implementation
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Implementation plan
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Approval
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Implementation and monitoring
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In fact, a policy dialogue
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Development of an environmental financing strategy is, in fact, nothing
but a policy dialogue
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The work on the development scenarios is an iterative process during
which the financing gap is closed due to changes in policy variables
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Policy variables include:
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Service levels
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Technology options
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Coverage of population
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Spread of investment over time
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Affordability of households
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User charges
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Public budget spending
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Level of support from donors and IFIs
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Key issues discussed in Armenia - an example:
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Country-specific interpretation of MDGs through introduction of
Minimal Water Supply Standards (MWSS):
• Water quantity (minimal 50 lcd for ALL rural population)
• Regularity (min 8 hours/day)
• Distance (< 100 meter from home)
• Safe (chlorination, safety checks)
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Targets - on plot supply to be increased to 70% of rural
households
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Increase user charges (and collection rates)
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Affordability - max % shares of rural household income and
public budget available for WSS (threshold for affordability set at
3%)
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– How to improve institutional framework?
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responsibilities and ownership
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scale of operations
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ability for cross subsidisation
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private or public operators
– Steps towards implementation
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implementing agency
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adopt MWSS and adjust targets on WSS in Poverty Reduction
Strategy Paper (PRSP)
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integrate the financing strategy into Medium-Term Expenditure
Framework (MTEF) and annual budgets
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mobilise additional international loans and grants
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– In baseline scenario accumulated financing gap totals
AMD 16.5 bln (till 2015)
5000
mln AMD
4000
3000
2000
1000
0
2007
-1000
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2008
O&M
charge revenues
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2009
2010
2011
planned renovations
budget
2012
renovation
loans grants
2013
2014
2015
re investments
financing gap
Toolbox, including FEASIBLE
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Many tools…
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… which complement each other
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FEASIBLE, which originally was developed by COWI under
supervision of the OECD and with financial support from the Danish
EPA, is only one tool in the toolbox
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FEASIBLE facilitates the iterative process of balancing the required
finance with the available finance
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It is in the public domain (e.g. www.cowi.dk/feasible)
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FEASIBLE Model - Overview
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Ukraine, Example (profiles of expenditure needs and
supply of finance to safely operate the infrastructure)
2.5
Loans
Environmental funds
Public budget
Collected non-HH user charges
Collected HH user charges
Operating costs incl. Loan service
O&M incl. Loan service
Total cost
2.3
2.0
EUR billion
1.8
1.5
1.3
1.0
0.8
0.5
0.3
0.0
2003
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2005
2007
2009
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2011
2013
2015
2017
2019
2021
2023
Turkey, Example (realistic financing:
Affordability by agglomeration size)
400
350
250
200
150
2022
2017
2013
2007
2003
100
50
>1,000,000
User Charge
150,000
50,000
2,000
1,000,000
150,000
50,000
Establish territory-wide water and sewerage corporations
Implement needs-based transfers from central government
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<2,000
Operation Maintenance and Reinvestment
Policy recommendations
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million EUR
300
EECCA, Example (affordability of
water bills for households)
4.5%
water bill as % of household income
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Novgorod
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Georgia
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Ukraine
Pskov
Moldova
Kazakhstan
Potential
affordability
limit
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Scope of FEASIBLE
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Costing of water supply, wastewater
and municipal waste
Assessing supply of finance from user
charges, public budgets and external
sources
Assessing affordability of households
Structure and functionality
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General module to define and
delineate the modelled area
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Water supply, wastewater and
municipal waste modules
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Supply of finance module
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Results module to assess financing
gap
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Autonomy
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Stand-alone tool
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Requires limited out-ofmodel calculations
Underlying concepts
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Assesses expenditures
using generic cost
functions (not unit
costs) which easily may
be adjusted to local
context
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Entry data requirements
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Large amount of input data,
though much less than for a
feasibility study, but…
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… FEASIBLE uses a lot of
default values, which can
substitute for missing data
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No need to derive countryspecific cost functions
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FEASIBLE Technology Options, Rural
Module, Sanitation
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Collection
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Simple dry pit latrine
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Improved latrine
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Pour flush latrine with holding
tank
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Small communal sewerage with
septic tank, reed bed,
biological sand filter and
stabilisation ponds
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Sewered interceptors
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Simplified sewerage
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Conventional waterborne
sewerage
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Treatment
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Conventional mechanical and
biological/chemical treatment
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Reed bed treatment
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Biological sand filters
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Stabilisation ponds
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Major strengths
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Costing analysis in stand-alone
model
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Limited data requirements
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Allows to model large number
of regions and municipalities
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Allows to model a large
number of policy variables
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Helps anticipating affordability
problems for income groups
and calculating the budget
needed for social protection
measures
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Major constraints
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Supply of finance module is
relatively simplistic (e.g.
aggregates all public finance in
one line)
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Affordability module with
income distribution not yet
inside the FEASIBLE
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Can not substitute for
feasibility studies (in this case
other tools are relevant - e.g.
Financing Planning Tool for
Water Utilities)
Major Challenges
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True policy dialogue is anything but simple to ensure - leadership,
transparency and iterations matter
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Development targets have to be SMART - if not, the credibility of
the whole process and all parties involved will be undermined
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Tools should be solid - it is not only about process
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Attention should be paid to implementation - a well-developed
environmental financing strategy takes you only half way
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Advantages
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Environmental financing strategies offer a wide range of
advantages to governments, donors and IFIs, including:
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They support the introduction of good governance, which is just
as important as finance to improve the situation in the
environmental sectors
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They facilitate a change in the minds of decision-makers - e.g.
from focus on wish-lists to Santa Claus to focus on realistic
targets
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They assist in establishing a regulatory framework for financial
sustainability and promote cost-effective use of resources.
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They offer a way out of the vicious circle of financial unsustainability and declining service provision that many
countries are caught in
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They contribute to the development of road maps for achieving
the MDGs - and may be used by all parties to check realism
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