Opening the Floodgates
Moore, Howard, Global Finance
Water has been called the next great infrastructure challenge. Privatization has barely begun and the opportunities are vast in developed and emerging markets alike. Global Finance's Howard Moore moderated a panel of leading participants in the sector.
(GLOBAL FINANCE: What are some of the opportunities in financing water and wastewater projects?
DAVID LYNN, director, global infrastructure finance, Chemonics: Privately operated water utilities are currently found primarily in the United Kingdom and France. There is still the rest of the world. The United States is a huge market. Latin America is on its way. Two countries, India and China, have more than two billion people combined, with the private sector not yet established in terms of capital and expertise. It is only beginning to happen now.
JOAN EDWARDS, director of investment services, Overseas Private Investment Corporation: Despite all the complexities and complications with water projects, new companies are taking a hard look at this sector and are planning to make money in it. We are committed to working with the US companies. We'll see water project deals of all sizes being made.
GF: What are the barriers to attracting private investment on a greater scale?
ANGELA BROCK-KYLE, managing director, global project finance,TIAA-CREF: One of the issues we face is the willingness and ability of the recipients of the water to pay. In some areas, people have not historically paid for water, or they have diverted the supply of fresh water.
NEIL M. McDOUGALL, CEO, Biwater Capital: We find that when we go into a new operation where people haven't had water for more than six to eight hours a week, and when quality water is put into their system 24 hours a day, they are prepared to pay the higher tariffs.
WILLIAM BULMER, unit manager, telecommunications, transportation and utilities, International Finance Corporation: One of the major hurdles is the lack of adequate regulation and legislation. That means the whole creditworthiness issue becomes unmanageable from the point of view of both investors and project developers.
EDWARDS: Getting political recognition that investors have the expectation and right to have a return on investment is key. The entire politicization of the issue often means that investors will not participate in a project if there is not a recognition of their rights.
DAVID HAARMEYER, executive consultant, Stone & Webster: Risks differ depending on the country and kind of project, whether a concession for an entire treatment and distribution system or a BOT (build-- operate-transfer) for a single facility. Concession contracts can be complicated because of the risk of multiple consumers' abilities to pay and risks involved in financing a systemwide investment program over a long period of time. BOT projects are set up more like power projects with risks centered on the ability of the single purchaser of the bulk services to pay and with investment program limited to a few years.
KATHERINE DOWNS, director, Emerging Markets Partnership: In Latin America it is unlikely that a BOT would be financed on a nonrecourse basis because few Latin American municipal governments have investment-- grade ratings.
GF: How useful are power financing models in the water sector?
DANIEL RIORDAN, senior vice president and managing director, Zurich US Political Risk: There are some similarities between water and power and the fledgling water privatization industry can learn a great deal from the experience of IPPs (independent power producers). Often foreign hard-currency loans are sought for these projects, which generate significant amounts of local currency and can create a financial imbalance. Water privatizations are often local, municipal projects. That makes them somewhat different from power projects which are typically at a national or regional level.
LYNN: Water projects require a much higher degree of due diligence in project packaging than any other sector. …