At a session I attended during SIWW last week it was estimated that US$400bn is required to be invested in water and sanitation infrastructure in developing Asian economies over the next decade. That’s US$40bn/year for the next decade. Finance for this infrastructure will need to come from both public and private sector sources. A conservative estimate would have the private sector contribute about twenty percent of the total amount, or roughly US$8 bn/year.

Unfortunately private sector funding in global infrastructure projects over the last few years has hovered at around US$3-4bn/year. Half the figure that is estimated to be required for developing Asia: there’s clearly a large financing gap.

Water convention session on financing projects in developing economies

But what is this gap caused by? Is it a general lack of finance availability? That does not appear to be the case. The session panelists included individuals from banking organizations that have worked on many public-private partnerships. Generally these have been in the power, transport or telecommunications sectors. A high-ranking official from the ADB indicated that he had been involved in private sector financing for public infrastructure projects for the best part of 20 years. He estimated that during that time he had worked on around 150 such deals, of which only a handful had been for water projects. Other panelists had similar stories. Many investors are looking for suitable vehicles that provide reasonable rates of return over the long-term; these include pension funds. Savings rates in parts of Asia are also high compared to more developed economies. Money is there for investing and public infrastructure projects appear to provide a good fit. Perceived risks in the water sector appear to be a major constraint. Lack of regulatory control or the ability to raise tariffs at a later date are common issues raised by investors as doubts over the water sector. When the funds are found there then appears to be a lack of alignment between what the investors are looking for and what the projects can offer.

But it’s not all bad news. One of the panelists represented a venture capital firm that will be setting up a dedicated water infrastructure fund. He explained that he thought the water industry today looks a lot like the telecommunications industry looked in the 90’s. He also stated that in the US increased water scarcity and availability of public funds could threaten current levels of both water supply and quality of drinking water. The public will continue to have the same expectations and to meet that expectation will require innovations in terms of water distribution and technology. As he put it, that innovation tap has been turned on and exciting breakthroughs are starting to take place at the top universities in the US. For example, he forecast that in the future homes would have their own systems for treating water as advances in technology in terms of both treatment and energy efficiency became widespread. “If you are building advanced water treatment plants in Asia,” he said. “I’d be paying close attention to what is happening in these research centers.”

Currently in the infrastructure sector huge numbers are being used to indicate the cost of maintaining current service levels or building the infrastructure required to meet the needs of a growing population that is also becoming increasingly affluent. That level of finance is likely to never be available. We’ll have to rely on technological innovation and breakthroughs.

After all in London in 1894 in “The Times” one writer estimated that within the next fifty years the streets of London would be buried under 3m of horse manure. In the 1890’s some 100,000 horses where present on the streets of London helping with the movement of goods and people around the city every day; each horse produced 10kg of manure per day; with the population increasing dramatically in London at that time, the additional manure would literally pile up.

The invention of the car prevented that from happening, however.

Let’s hope the increasingly levels of innovation in the water sector helps rewrites how we (finance and) supply clean, affordable and sustainable water supply around the world.

Posted by Jim Howlett