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Recommendations of the Task Force

 

The Task Force on Financing Water for All was established to provide recommendations on innovative financing mechanisms and make concrete proposals for immediate action that enhances the access of local governments to financial resources for investments in water services and agricultural water management.

 

Water Service Action Plans to enhance access to finance for local governments

 

For water sector finance to reach its potential both national governments, especially those with PRSPs, and local governments give in their planning investments in water services for all the proper priority. This needs to be accompanied by the necessary reforms and capacity building to establish the required enabling environment.

 

National governments and Local Governments need to develop action plans to facilitate an increase of the levels of investments in water services at municipal and district levels. Quantitative and qualitative targets need to be set on water services goals, associated financial expenditure and cost recovery mechanisms (fees and subsidies). They need to ensure in their strategies the appropriate budget subsidies, cross-subsidies between users and subsidies targeting the poor. The Task Force believes that without such plans and their determined implementation the efficient management of the world’s most crucial natural resource, its access to all and its benefits for the poor will remain mere rhetoric.

 

 

The National Water Service Action Plans should distinguish clearly between urban and rural water supply and outline a package of interrelated measures incorporating:

 

• National objectives in terms of outputs like number of people to reach various types of access to water services.
• Policy reforms for sustainable cost recovery including: (i) efficient tariff systems with adequate public subsidies, cross-subsidies and pro-poor subsidies; (ii) Long term visibility to the parts of the funding that will come from public budgets; and (iii) policies regarding change of tariffs.
• Strengthening of dialogue structures between national and local governments on the implementation of investments, tariff structures and subsidy arrangements.
• Strengthening of local capacity for project structuring and development of proposals, based on partnerships of government, users, financers and service providers.
• Enhanced regulation on service provision and tariff structures including private sector participation modalities.
• Policy reform to develop and enhance access to local capital markets for local governments and water service providers.
• Development of a national framework to facilitate co-operation between local authorities in order to improve their borrowing capacity(pooling mechanisms).
• Policy aiming at lowering the cost of money and enhancing the duration of loans for water investments by local authorities/operators when they have not the creditworthiness that allows them to secure long-term loans at affordable rates.
These policies can include fiscal incentives, pooling mechanisms, guarantees or subsidies (soft loans) from the central government.
• Monitoring mechanism at national level.

 

 

Local Governments need to make Local Water Service Action Plans outlining:


• Local objectives in terms of outputs like levels of service and number of people to reach various types of access to water services in the various areas.
• Financial schemes that will ensure the overall short-term and long-term funding.
• Efficient tariff systems with adequate public subsidies, cross-subsidies and pro-poor subsidies.
• Creation of dialogue structures with users and communities on levels of services, payment for service and tariff structures.
• Phased investments plans – commencing with improvements in efficiency and reliability of existing service provision in association of the introduction of agreed tariffs and subsidies.
• Development of investment partnerships of government, users, public and private operators and financers.
• Monitoring mechanism at local level.

 

All governments must examine and take steps to increase the flow of budgeted allocations for water, focussing in particular on blockages in the flow of funds to local entities responsible for extending water services. More responsibility and financing should be devolved to local government authorities and municipalities to enable local financing, improved service delivery and direct links with customers and access to local capital markets.

 

Ministries of finance should allow local governments and service providers better access to local capital markets as part of their empowerment process, there-by reducing their reliance on foreign currency loans and the inherent exchange risk.

 

Bilateral and multilateral financing agencies coordinate aid to stimulate development of local capital markets making local currency loans possible and more attractive. Leveraging capital in these countries allows donors to provide more resources to those countries where financial markets are weak or non-existent to invest in their water infrastructure. Concertation of efforts of IFIs and bilateral donors in this direction will enhance the effective use of the limited resources available. 

 

Aid donors commit themselves to taking urgent action to increase the share of water in ODA and to increase the level of disbursement to the water sector. In particular, international aid donors pledge themselves to overcoming impediments to increased spending in the water sector.

 

Donor commitments and monitoring should be focussed on outputs like people provided with access to safe water and sanitation instead of dollars spent. Local and National Governments need to open monitoring processes to civil society and development partners to ensure that expenditure is effective and proportional to needs.

 

Governments, donors and IFIs to make sure that poorer groups are benefiting from their action and use financing mechanisms that facilitate this like output based aid, micro-finance and decentralised funding.

 

Regional Development Banks to gather information about pooling mechanisms, credit-enhancement frameworks and interest-rates available to medium-size local authorities/operators in the countries of their region.

 

Financing Water for Agriculture

 

Water institutions will need to make a strong effort for capacity development, including participation, empowerment, technical assistance and organisational development. The re-education and training of staff is an important part of this.
Staff exchanges, benchmarking, “south-south” cooperation, twinning, and other kinds of technical assistance all have a potential role to play.

 

The trend to give Water User Associations more delegated responsibilities needs to be accompanied by sufficient delegation of powers (“voice and choice”) to enable them to function effectively in this new environment.

 

Future spending by national governments should be more functional in order to support necessary reforms. Departments should examine the reasons for any under-spending that occurs and take action to remove administrative blockages.

 

External aid will continue to be needed in this sector, though on a more selective basis than in the past. Donors should be more receptive to new roles for aid, with the keynotes being facilitation, leverage and capacity building.

 

For Africa however, support to water and infrastructure development should be considered as part of public funding along with the reforms institution building and facilitation.

 

In order to secure finance for essential major infrastructure from IFIs and commercial lenders, working arrangements are required, which take account of the key elements of the World Commission on Dams report. However, these should avoid unnecessary delays and complex procedures, which deter both, financiers and borrowers. There should be a specific study of the experience of dams and other major hydraulic projects concluded since 2000 with IFI involvement.

 

Water charges to users are a grossly under-tapped source of finance with great potential, and the only sustainable source of finance for recurrent operations. However, service agencies will need to be more customer-oriented and provide a better service if this potential is to be realised. Further study is desirable of cases where irrigation tariff reform has been successfully introduced, and their lessons for implementation.

 

The key to involving a wider range of financial sources is to identify the specific risks of this sector to investors and lenders, and to address these risks through financing structures. Co-financing from various sources is feasible, with each funder assuming appropriate parts of the risk. Further study is recommended of recent cases of PSP in this sub-sector.

 

Governments, donors, and IFIs, with the support of international networks and other stakeholders, should develop appropriate fora (e.g.Round Tables) involving local financial service providers to identify ways of promoting microfinance in water for agriculture. Governments should also review the impact of existing credit and capital market controls on the potential development of a microfinance market for this purpose.