COVID-19 Emergency Planning and Financial Liquidity Castalia - PowerPoint PPT Presentation

COVID-19 Emergency Planning and Financial Liquidity Castalia presentation by Shannon Riley & Lisa Nations

COVID 19 Reduces Cash Flow to Utilities (-) Utilities will be even more strapped for cash than usual (-) Governments will be less able to finance water projects than usual (-) Donors will lend more in total but priorities for financing are unclear (=) Utilities urgently need a source of finance

Two Viable Options Option 2: Non-revenue Option 1: Financing water (NRW) facility performance-based contracts (PBC) ▪ Rapid disbursement can ▪ Helps water supply help utilities stay afloat situation ▪ Locally-designed ▪ Provides economic solution stimulus

Option 1: Financing Facility Sources Facility Utilities Government WASCO 1 reserves Commercial banks WASCO 2 IMF WASCO…n MDBs

Estimating the Scale of Support Required Needed to keep Cost operating recovery Reduction in cashflow COVID

Estimating Scale of Support with Reforms Utility Gets utility Utility achieves through the achieves Action 1 emergency KPI 1

Sources of Finance Source Advantages Disadvantages ▪ ▪ Quick Cannot use it on other priority areas Government reserves Entirely in government’s control ▪ ▪ Tax receipts going down because of the or tax receipts pandemic ▪ ▪ Quick Carries a fiscal impact National government ▪ Entirely in government’s control ▪ National government must be commercial borrowing creditworthy ▪ ▪ Can allow for finance in local currency National government must be Commercial borrowing creditworthy ▪ Can enable access to commercial by the facility with ▪ finance that would not otherwise be Local financial institutions must be liquid sovereign guarantee possible ▪ ▪ Can be quick Decision may not be in the control of the IMF Ministry responsible for water ▪ ▪ May come with technical assistance Takes longer than other options Multi-lateral resources to national government ▪ ▪ No fiscal impact for the national Only limited quantity available Concessional finance of national government government

Modality of Disbursement Modality Advantages Disadvantages ▪ ▪ Rapid disbursement Fiscal impact Grant ▪ Financial burden not placed on the utility ▪ ▪ Lower fiscal impact for the national Financial burden placed on the utility government Loan ▪ Takes time to design, document, and come to terms of agreement ▪ ▪ Risk is shared between the national Requires utilities to already have access to government and the financiers (e.g. commercial loans Guarantee commercial banks) ▪ ▪ Utility never has to return the money, or to Not appropriate if utilities are wholly pay any set interest rate publicly-owned Equity ▪ Facility may be able to recover some or all of its investment ▪ ▪ Hybrid models Some mixes (e.g. loan paired with a grant) Increased complexity in structuring and can help utilities gain experience with loan managing the hybrid model (includes conditions and establish a repayment track elements of the above) record

Option 1 Option 2 Sources Facility Utilities Contractors Government WASCO 1 NRW-PBC reserves Commercial banks WASCO 2 NRW-PBC IMF WASCO…n NRW-PBC MDBs

Option 2: NRW-PBC NRW An incentivized form of Reduction outsourcing technical and Contractor construction activities related to NRW reduction $ for NRW-PBC outputs ✓ Takes advantage of the Utility expertise and incentivized performance of specialized private sector firms $ Services ✓ Retains control of utility operations and assets Customers

Results in Better Cash Flow Operating Cash Surplus/(Deficit) Increase collections by 10% Reduce commercial You can move losses by 25% from an operating cash 0 deficit to an operating cash Reduce physical surplus losses by 25% Operating Cash surplus available Operating Reduce deficit spending More Service improves water and assets are sold well-maintained Less Service worsens water and assets sold deteriorate

Examples of Successful NRW-PBCs Location Results Achieved Emergency Catalyst ▪ ▪ Kuala Lumpur, Saved 117 MLD of water City was running out of water Malaysia ▪ ▪ Avoided capital expenditure on alternative Emergency water rationing was entering its 5 th month water supply sources ▪ ▪ Saved 165 MLD of water City was losing about 40% of water Bangkok, Thailand produced ▪ Increased water supply in a large city ▪ ▪ Increased revenue by US$72 million over 3 Estimated that the utility was losing Sao Paulo, Brazil years (of which 75% was kept by the utility) revenues for 1,000 MLD ▪ Reduced under-reporting of consumption by 41 MLD, through meter replacement ▪ Collected an additional US$43 million ▪ Reduced the utility’s EBITDA loss by over 50 ▪ Utility was running an operating deficit New Providence, percent (US$10 million), contributing to for 7 years The Bahamas reduced subsidies from the Government ▪ Saved 30% of production (17 MLD)

Cashflows from a Stylized NRW-PBC Project IRR: 29%

Structure for Privately Financed NRW-PBC Specialized Management Expertise Contractor Equity NRW Reduction Co. (SPV) Debt Performance- NRW PBC Based Reduction Performance Escrow Payments -Based Agreement PBC Payments Utility Bill Payments (less Revenue Escrow Account Services Performance- Tariffs (at Bank) Based Payments) Bill Payments Key: Services Money flow Customers Contractual relationship Service flow

Templates and Resources Already Exist Contract • Water balance Data • Number of connections • Hydraulic boundaries Advisor Baseline https://pppknowledgelab.org/tools/performance-based- contracting-tools-non-revenue-water-reduction-tools-resources

Competitive Market of Service Providers Name Home country Countries of experience implementing NRW-PBCs Botswana, Honduras, Malawi, Mozambique, Nicaragua, Nigeria, South JOAT South Africa Africa, Suriname, Swaziland, Tanzania, Zambia, Zimbabwe MIYA Spain Bahamas, Botswana, Jamaica, South Africa, The Philippines SEURECA Guinea-Bissau, Cameroon, Ecuador, Mexico, Peru, Trinidad & Tobago, France (part of Veolia) Venezuela, Zambia SUEZ France Jamaica, Colombia Algeria, Barbados, Benin, Cameroon, Colombia, Djibouti, Dominican VINCI-WMI France Republic, Jamaica, Morocco, Tanzania, Vietnam VITENS-EVIDES The Netherlands Curaçao, Haiti, Kenya, Malawi, Rwanda, Tanzania INTERNATIONAL WRP Engineers South Africa Botswana, South Africa

Sources Facility Utilities Contractors Government WASCO 1 NRW-PBC reserves Commercial banks WASCO 2 NRW-PBC IMF WASCO…n NRW-PBC MDBs

Q&A