Water sector financing strategies in EECCA countries Peter Börkey EUWI Finance Working Group

1. Water sector financing strategies in EECCA countries Peter Börkey EUWI Finance Working Group Stockholm, 20 August 2008

2. Outline of presentation • What is the OECD? • What are financing strategies? • Some results from selected countries • Conclusions for future work

3. What is the OECD? • A forum in which governments work together to address the economic, social and environmental challenges of interdependence and globalisation • A provider of comparative data, analysis and forecasts to underpin multilateral co-operation • 30 member countries – the world’s most industrialised economies • Supports policy dialogue with key transition and developing countries

4. Why Financing Strategies ? Because of • Lack of realism • Need to take account of affordability • For households • For public budgets Objective • Financing strategies allow to structure a policy dialogue involving all relevant stakeholders and to forge consensus • Initiate discussions and illustrate effects of differentobjectives/targets for a long-term perspective • Provide a missing link between sector policies and programs and feasibility studies • Pave the way for external financing by providing clear and transparent data on financing requirements

5. Structure of the FEASIBLE model Framework assumption and forecasts (e.g. macroeconomic variables, public revenue, sector outputs, population) • Specific, measurable, • time-bound targets • level • year Existing situation and baseline forecast • Demand for financing • (cost of meeting targets) • Investment expenditure • (rehabilitation & new) • Maintenance expenditure • Operational expenditure • Annual cost Supply of financing (forecast) • Financing institutions/financial products • Public budgets • private financiers • donors and IFIs • retained earnings (e.g.user charges) • Rules governing: • public transfers • private sector finance • user charges • Financing (cash flow) gap (with and without backlogs) • National affordability gap *Household affordability gap Gaps: Scenarios for closing the gaps (EFS sensustricto)

6. Outcomes • Shared understanding of issues • Consensus on realistic infrastructure targets • More objective discussion of tariff policy • Reflection on realism of social and environmental objectives • Opportunity to improve dialogue with MoFin • Opportunity to incorporate results into MoFin MTEF and into PRSP

7. Results from Moldova

8. Development strategies Moldova

9. Financial consequences of alternative strategies Higher cost strategies not realistic, at least in the near future Baseline scenario External support increased from EUR 5 million per year to 17 million per year Government support increased from 0.5% to 2.3% of national budget User charges increased to 5% of household income

10. Results from NPD in Moldova • Dialogue lead by Minister for Local Public Administration • Conducted over a period of 18 months • Provided input into National Water Strategy, initiated by president • Helped inject realism in those plans • Demand for follow-up to translate financing strategy into action/investment plan and to link strategy into MTEF

11. Results from Armenia • Dialogue on financing rural water supply and sanitation lead by State Water Committee • Focus on identification of realistic policy objectives for “minimal water supply standards” for rural populations • Law is in process of adoption

12. Scenarios simulated Armenia • Minimal Water Supply Standards for rural WSS (more ambitious than UN MDGs): • Minimal 50 lcd for all rural inhabitants • Maximal 100 meter from home • Regular supply (for piped water- min. 8 hrs/day) • Safe (chlorination, safety checks) • POLICY: Poverty Reduction Strategy Paper targets & MWSS • MWSS AND • On average 75% on plot supply (100 lcd) • MAXIMAL - 95% house connections (in-house taps), 150 lcd

13. Scenarios and expenditures • Additional annual expenditures mostly linked to renovation (AMD 2 billion/y) • Policy targets related expenditures -relatively small share in total (7-17%) • No big difference in expenditures between options (Baseline, MWSS and POLICY)

14. Results from Georgia NPD • Dialogue lead by Deputy Minister of Economy and Trade • Focus on urban water • Demonstrated extremely challenging situation in urban water sector • Follow-up project to develop rural WSS financing strategy now under way

15. Scenarios to achieve the MDGs Two scenarios with regard to those people who do not have sustainable access to save water: • Household connections – requires to triple present level of financing (to more than 4% of public expenditures) • Stand pipes – double present level of budgetary resources allocated to WSS sector (to 2.7-3% of public expenditures)

16. Conclusions for future work • Need to develop tools and approaches to support implementation of financing strategies, ie link into MTEF • Need to broaden scope beyond WSS to include other water resources management sectors • Continuation of current approaches, ie awareness raising

17. Thank you!! www.oecd.org/water/