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Title: Perspectives from the Private Financial Sector EnvSec Advisory Board Meeting

Title: Perspectives from the Private Financial Sector EnvSec Advisory Board Meeting Bratislava, September 2005. By : Kajetan Hetzer SNS Asset Management, The Netherlands www.snsbank/assetmanagement.nl. Contents Business Environment / Playing Field Investment Approach

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Title: Perspectives from the Private Financial Sector EnvSec Advisory Board Meeting

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  1. Title:Perspectives from the Private Financial Sector EnvSec Advisory Board Meeting Bratislava, September 2005 By: Kajetan Hetzer SNS Asset Management, The Netherlands www.snsbank/assetmanagement.nl

  2. Contents • Business Environment / Playing Field • Investment Approach • Innovative Finance Mechanisms

  3. Problem Zones for Investing in Water water problems > available investments • Aim: > Sustainability • Problem zones - a brief selection: • Lack of finance by +/- factor 2 to reach MDGs • Private Investors have “cold water fear” • Complexity of water issues • Lack of comprehensive critical success factors • Lack of efficiency & effectivity • Political instead of more appropriate approach

  4. Water sector “Playing Field” of actors and conditions • Private Investment Conditions • National conditions • Local (water) conditions • Multilateral / bilateral conditions Based on:

  5. Country X Country Y Country Z Situation 1 Situation X Situation 3 Situation 2 Joint Action: Stakeholder Mgmt. Int. standards Regional Banks Int. laws agreements NGOs Civil Society …etc. Supra Banks Business Environment / Playing Field Development finance institutions National Conditions Banks & investment funds Financial conditions Insurance & re-insurance Local Conditions of Water Projects Export credit agencies & warranty providers Multilateral and Bilateral Conditions & Relations Companies and Associations Private investors

  6. ACTORS & THEMES AS VALUE DRIVERS CAPACITY VIRTUAL MONEY ECONOMICAL DEVELOPMENT SHAREHOLDERS INFRASTRUCTURE CUSTOMERS FOOD PARTNERS ENERGY SUPPLIERS SERVICES REGULATORS WATER USER COMMUNITY TRANSPORT LIFE/ POVERTY REDUCTION RECREATION NGOs ENVIRONMENT CULTURAL VALUES SANITATION/HEALTH DAMAGE REDUCTION RELIGION FINANCIAL PERFORMANCE Value Drivers ORGANIZATION/MANAGEMENT STRATEGY “Actors” INNOVATION RISK MANAGEMENT • VALUE • Create • Protect • Realize VALUE Create Protect Realize EFFICIENCY MANAGEMENT QUALITY REPUTATION CUSTOMER SERVICE GOVERNANCE & ETHICS

  7. AIMS & CONDITIONS OF PRIVATE FINANCIAL INSTITUTIONS • MISSION of BANKING: • Profit generation • Safety of investments • Continuity of investments • Efficiency • Reputation • Social Responsibility / Sustainability

  8. AIMS & CONDITIONS OF PRIVATE FINANCIAL INSTITUTIONS STRATEGIES of BANKING: • Investment risks versus • business opportunities • Anticipation • Analysis skills, valuation methods • Risk Management

  9. AIMS & CONDITIONS OF PRIVATE FINANCIAL INSTITUTIONS • PROCEDURES of BANKING: • Compliance • Heavily regulated framework & internal policies • Fiduciary role • Safeguarding and prudently handle funds entrusted • Efficiency • Decision making process • Transaction costs • Transparency & control • Risk Management • Trust/Confidence

  10. AIMS & CONDITIONS OF PRIVATE FINANCIAL INSTITUTIONS ASSESSMENT METHODOLOGY: Evaluation of projects on: • Commercial viability • Sound investment / business plan • Feasability and market analysis • Transparency & Good Governance • Compliance with legislation • Execution by international standards

  11. AIMS & CONDITIONS OF PRIVATE FINANCIAL INSTITUTIONS ASSESSMENT METHODOLOGY: Evaluation of project owner/sponsor on: • Financially healthy • Proven track record • Expertise, capacity • Ethical / trustworthy management

  12. Needs communication to water users Private Investment Conditions • Environment • adequate, transparent policies • legal instruments • standards • current water supply systems • service levels • operator performance • (technical) incentives 2. Capable regulatory bodies contracts, quality, tariffs, corruption • 3. Price mechanisms • water tariff reforms: politics vs. real value of water • valuation of risks and benefits

  13. Value measurement and effects on sustainability Environmental Human & Social Forms of value Intellectual Reputation • Investors Aims: • Safety • Liquidity • Profitability • Continuity Financial Assets CurrentlyMeasured Value SustainableBusiness Value Investors Customers Government Communities Business Partners(e.g. suppliers) Stakeholders • Sustainability? Water Companies Water user NGO’s

  14. Criteria for • Collateral needed • (un)defined tariff increase • balance sheet analyses • income statement analyses • cash flow generation capacity • financial planning systems • budget systems • Etc • Macro economic factors • Foreign currency impact • Political situation • Construction • Loan term / loan agreements • Legal issues • Operations • Image / Reputation • Quality Management • Etc Investment analysis

  15. Investment Approach • OUTCOMES • due diligences • loan schemes • enhancement policies • debt recovery strategies • cash generation policies • improved financial planning systems • Etc Sustainability?

  16. Sustainable investment strategy Tools and Methodology RESULTS (1) Key Words in the Methodology Role of end user in project concept Transparency in communication Information Sharing Opinion & option assessment

  17. Facilitate a process between all involved stakes including the investor in such a way that a perfect match on project concept, conditions and implementation will arise Balance between all value drivers in project RESULTS (2)

  18. Life Continuity % % % Ethics ??? Criteria Ranking Tree PROFIT PLANET PEOPLE Social demands Profitability environment Water as Value Driver +8 rISKS +7 health Political circumstances Time Agriculture Climate +6 Profit sanitation Birth +5 Pollution Available water Bio Diversity +4 ???? Local Market +3 Life ???? Reputation +2 Legal Framework Dividence Fresh water +1 0

  19. Investing in diversity of water Stakeholder Analysis Regions Sub-themes Sub-sectors Country A Climate Sanitation Country B Pollution Drinkwater Country C Health Infrastructure Country D Armoede Waterkracht Network & Partners

  20. Find Critical Succes Factors: Step-by-step Allocation volume Time Etc. 1 2 3 • 1.Start-up stagefase: inventory opportunities and risks, scouting of business cases & 1st investment targets aspilots • 2.Build-up stage: Optimalisation of processes based on increasing insights, scouting of business cases, selection of investment targets and further allocation • 3.Consolidation stage: Adjustment of processes & strategy on basis of experiences in previous years, allocation of bulk investment volume in projects, credits and/or private equity 13

  21. Fund Model Guarantee Fund = Money flow Private Bank or Fund Saving or credit organisation (Local) Bank, Trust Fund Intermediary (NGO, Supra, Government,...) Local beneficiary: Community Water user

  22. The End & Discussion

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