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IFC: "The concept of a circular economy has come into mainstream thinking in the water sector"

  • IFC: "The concept of circular economy has come into mainstream thinking in the water sector"
  • As a member of the World Bank Group, the International Finance Corporation (IFC) encourages private-sector development across less developed countries. Since 1956, IFC has leveraged $2.6 billion in capital to deliver more than $285 billion in financing for businesses in developing nations.

About the entity

International Finance Corporation
IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused exclusively on the private sector in developing countries.

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Currently, the majority of the World Bank Group’s activities in the water sector are destined to supporting publicly run water utilities, either through loans, technical assistance or grants; however, in some circumstances, private tenders or private-public partnerships (PPPs) can provide safe water to more people more quickly and efficiently than state operators can manage on their own. And this is when IFC comes in. The institution facilitates partnerships between private operators and governments to provide the necessary funding, know-how and innovative technologies to improve water access and services. To get an inside view on IFC’s role in addressing the global water issues of today, we spoke with Nico Saporiti, Senior Investment Officer, Infrastructure and Transaction Advisory, and George Butler, Water and Sanitation Specialist, both working at IFC.

Question: Firstly, we would like to briefly know your career path and your current role in the International Finance Corporation (IFC).

Nico Saporiti: I grew up in Northern Italy, not far from Milan. My playground was a system of irrigation and transportation canals which had been built in the 13th and 18th century: they inspired me to become a Civil Engineer and to specialize in Water. After graduating from university, I worked as water distribution network modelling and NRW consultant in the North of England; after getting a diploma in accounting and finance, I initially transitioned to an international business development role for various European water and power utilities and then specialized in infrastructure project finance. I joined the Latin America Team of the World Bank in 2003 and subsequently moved to the transaction advisory team of the IFC, where I am now the Global Water Sector specialist.

Most WSS are operated by public entities where the major challenges lie in attracting enough funding and expertise to the sector

George Butler: I was raised in Northern Nigeria and Ireland, both with water challenges so that may have influenced my choice of career! Like Nico, I am a civil engineer, specializing in public health engineering. After a few years as a military engineer, I delivered Water and Sanitation Services (WSS) projects around the world for Black & Veatch (consultants), CDC (UK development funding agency), OFWAT (UK economic regulator) and finally 10 years as the director for asset management for Northern Ireland Water. I joined IFC in 2015 as a global water specialist.

George Butler, Water and Sanitation Specialist, both working at IFC

Q: While most of the World Bank Group’s activities in the water sector involve supporting publicly run utilities, the IFC enables partnerships between governments and private operators. Why is a private investment also key to achieving SDG 6 in emerging markets?

A: Adequate water and sanitation services (WSS) are critical for development: people need water for life, as inadequate WSS causes increased costs to society from sickness, mortality, and loss of productivity. Globally, 660 million people lack adequate water services and 2.4 billion lack access to improved sanitation, leading to poor health and environmental conditions.

There is currently a large investment gap: increased water demand driven by population growth, urbanization, climate change, and increased agricultural/industrial use. This will continue to widen the gap between available supply and demand. To achieve the SDG 6 targets for clean water and sanitation by 2030, annual investments need to increase by US$150 billion p.a. to an estimated US$410 billion p.a. Yet most WSS are operated by public entities where the major challenges lie in attracting enough funding and expertise to the sector. There is a major need to mobilize increased private sector investment.

Nico Saporiti, Senior Investment Officer, Infrastructure and Transaction Advisory

Q: How do you think COVID-19 will impact the water and sanitation sector?

A: We have had mixed reports about the medium-term impact of COVID-19 on the sector. One undoubted short-term impact is the message to “Wash your Hands” which had thrown an unprecedented focus on the need for a readily available clean water supply. Hopefully, this will be an upside from the pandemic as to the importance of clean water and sanitation. The jury is out on the medium-term impact on utilities, and the answer is probably “it depends”. Many countries and municipalities have adopted measures to ensure customers are not disconnected during the pandemic and reduced payments from the poor. Also, where industries have closed due to COVID-19, the revenue from water supplies has been lost. Both have caused short term revenue losses, but for IFC clients this has not been a major issue and not as bad as was initially expected. So, for many water utilities, the medium-term impact will probably depend on the balance between domestic and industrial clients, and the proportion of revenue coming from poor customers. The revelation for sanitation has been the understanding that COVID-19 outbreaks can be anticipated from testing for COVID-19 nucleic materials in sewage. This may challenge the analytical capacity in some emerging markets but what a neat idea! Before we get an effective vaccine, the solution to preventing COVID-19 flare-ups may be in sewage testing.

IFC has launched an initiative to develop a product to scale up its engagement in the municipal wastewater treatment and reuse sectors

Q: How is IFC responding to the coronavirus pandemic in this sector?

A: IFC is a development institution which seeks to work with private and municipal clients to deliver solutions, often combined with investments. IFC is supporting existing municipal and private-sector clients with short-term liquidity problems linked to COVID-19.

We are also providing Advisory and Investment support to new clients who want to strengthen their resilience in the water sector, especially relating to the increasing risk of drought. As mentioned earlier, the raising of the profile of water for handwashing is one of the few positive aspects which has come out of the pandemic. Hopefully, it will give the WSS sector a higher profile with politicians and decision-makers to improve access and meet the SDG 6 goals.

Q: The IFC mentioned in a recent report that the health crisis may help boost the application of automation and remote-control processes in the water industry. What work is the IFC carrying out in this respect?

A: Yes, there is an old saying “Needs Must” and the pandemic has required more utilities to manage their systems remotely. The sector is relatively conservative to embracing new technologies, partly linked to the importance of public health, but the need for COVID-19 risk management has made utilities realize the potential benefits of system automation.

A wise old Operations Director I knew said: “what gets measured gets done”. Increasing automation invariably increases the quality of useful data which is beneficial to the efficient management of a water or sewerage network. IFC is working with clients and leading consultants in the water sector to improve information systems and make better operational and strategic decisions. Whether this is improved non-revenue water control, or more efficient pumping regimes, or better remote-control processes, it makes a more effective utility.

The increasing appetite from governments to implement PPPs relates mostly to capital intensive and technologically advanced projects

Q: In March, the IFC announced it will double its annual investment program to $48 billion by 2030 and triple its annual investments in the world’s poorest and most fragile countries. How much of this investment program will be dedicated to the water sector?

A: IFC does not have specific sector quotas. As we work towards trebling our investment volume, we expect significant growth in water sector investments. The aggregate effects of population growth, urbanization, environmental pollution, and climate-change-induced water scarcity combined with the need to feel the existing demand/supply and coverage gaps point to an increased need for investments in this sector.

At the same time, however, we continue to observe a dearth of well-prepared projects and bankable opportunities.

As mentioned earlier, the ability to respond to the specific sector challenges and reach the above-mentioned SDGs will depend on the capacity of member countries to crowd-in more private resources. Success will depend on the ability of governments to develop the enabling environment and incentives to push the boundary lines between public-private participation. In addition, success in the WSS sector will depend on increased efficiency and investment in publicly owned utilities.

Within the World Bank Group’s Maximizing Finance for Development strategy, IBRD helps strengthen public institutions and build capacity for private participation and financial sustainability, while IFC brings private capital and global experience.

Q: In the context of climate change, some experts believe that we need to move away from the ‘single-use’ engineering approach to more circular water systems. What is your assessment? Is the IFC re-examining the economics, engineering, and water management paradigms?

A: Population and economic growth are driving a rapid rise in demand for water resources. As a result, 36% of the world population already live in water-scarce regions. In low- and middle-income countries, rapid urbanization has created various water-related challenges, including degraded water quality and inadequate water supply and sanitation infrastructure services, particularly in expanding peri-urban and informal settlements.

As cities continue to grow, there is a need to minimize resource consumption and focus on resource recovery, following principles of the circular economy. A circular economy is an economic system aimed at eliminating waste and the continual use of resources. As the demand for water increases and new sources of supply become more expensive to develop, there is an increasing need to use water more than once during the hydrological cycle.

Wastewater is and should be considered a valuable resource from which energy and nutrients can be extracted, as well as an additional source of water for agricultural, industrial and potable uses.

We are also providing Advisory and Investment support to new clients who want to strengthen their resilience in the water sector

Reuse of treated wastewater can provide significant environmental, social, and economic benefits. When compared to alternative sources of water supply such as desalination or water transfer, water reuse often requires lower investment costs and energy, also contributing to reducing greenhouse gas emissions. Reused wastewater is effectively a reliable water supply, independent from seasonality and weather variability and able to cover water demand peaks.

Wastewater can be treated up to different levels of quality to satisfy demand from different sectors and processed in ways that support the environment. Wastewater treatment reduces downstream pollution by reducing or improving the quality of effluent discharge to surface waters and frees scarce freshwater resources for other uses, or environmental preservation. Improved wastewater management offers a double value proposition. While financing sanitation infrastructure and recovering its costs is a challenge in most emerging markets (many utilities do not collect sanitation tariffs that cover the costs of operation and maintenance, not to mention capital investment or future expansion), one of the key advantages of adopting circular economy principles in the processing of wastewater is that resource recovery and reuse can transform sanitation from a costly service to one that is self-sustaining and adds value to the economy, as the additional revenue streams can help cover operation and maintenance costs.

IFC has considerable experience advising and financing circular projects such as the one in New Cairo (a wastewater treatment plant with agricultural reuse), the Clean Ganga program (which includes some industrial reuse projects) and the ongoing Durban (industrial) Water Reuse plant.

Leveraging this experience, IFC has recently launched an initiative to develop a new product to scale up its engagement in the municipal wastewater treatment and reuse sectors globally, by offering a complete advisory and investment solution to municipal clients and state-owned-enterprises.

Q: Governments are increasingly turning to public-private partnerships (PPPs) to finance and operate bulk water supply and wastewater treatment. Why do you think this is?

A: The increasing appetite from governments to implement PPPs relates mostly to capital intensive and technologically advanced projects, with limited direct interface with end-users, such as – for example – the design, financing, construction and operation of wastewater treatment and reuse plants, or of desalination plants.

The implementation of such projects under a PPP model is an effective tool to mitigate risks and minimize the lifetime cost of service, ensuring the long-term technical and financial sustainability of the service.

There is a need to minimize resource consumption and focus on resource recovery, following principles of the circular economy

Q: What are the latest trends in PPPs in the water supply and sanitation sector?

A: IFC being a development finance institution, our countries of operation and clients face very specific and often daunting challenges, which may not be relevant for more advanced economies, such as – for example – increasing access to basic water and sanitation services.

According to the World Bank’s Private Participation in Infrastructure database, in 2019, 51 water projects were closed. Water sector investments through PPPs saw a 5% increase (to US$4.0 billion) over 2018 levels and a 13% increase over the five-year average. We are observing increased acceptance of PPPs as a viable alternative for public entities to procure the development of water and sanitation infrastructure.

Larger countries are benefiting from the increased efficiencies of programmatic approaches and standardization (e.g. India’s “Clean Ganga” program).

PPPs are being used also to deliver services in segments of the water value-chain – such as NRW reduction - that were previously considered an exclusive “core” activity of public utilities.

For the public sector, our municipal clients in cities have a greater awareness of the impacts of climate change. This translates into a pressing need to develop infrastructure to increase their resilience and reduce environmental pollution. As a result, we observe an increased appetite to incorporate clean energy generation and resource recovery in their projects. The concept of a circular economy has come into mainstream thinking in the water sector.

IFC is also supporting increased efficiency in the water sector by leveraging technology.As mentioned previously the water sector can be conservative in adopting new ways of working while there are significant opportunities to reduce the cost of services, for both water supply and wastewater treatment. Some of these benefits will come from technology, such as the wider use of membranes for treatment, and others from improved workforce management, driven by better operational data.

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