International Symposium on

Sustainable Rural Water

Services at Scale ___________________________

Kampala

April, 12 -15th 2010Cheikh DIA

French Development Agency – AFD – Addis Ababa, Ethiopia

Summary

1. AFD commitment to the MDGs 2. Approach and financial instruments3. Accountability, social and environmental responsibility4. Critical factors to sustainabilty of RWS

4.1 Access to credit - AFD risk-sharing tool - Blending grant and loan

- Output-based Aid - Sovereign and sub sovereign loan

5. Sustainability and maintenance system6. Lessons learned and main challenges

1. AFD Commitment

AFD doubled its commitment in the Water Sector

since 2003

290 M€ in 2007 600 M€ in 200940 % dedicated to SanitationAchievements are beyond the objectives,except

in Sanitation : 1,6 millions people have access to safe drinking water 600 000 have access to sanitation

Note disparities among countries

2. Approach and financial tools in Rural Water sector

• Funds flow through bilateral or multilateral channels• Through NGOs and/or local governments• According to the context, with the involvement of the

private sector• SWAP approach if the local framework allows it• Participatory approach and real involvement of local

authorities

» Grants» Loans»Guarantee» Blend

3. Accountability, social and environmental responsibility

• AFD conducts ex post decentralized evaluations, for the sake accountability– Anticipate all the externalities

– Mitigate the negative effects of the projects

– Ensure that the modalities of implementing the mitigation measures are agreed upon

• Evaluations have shown that sustainability is at risk due to:– Lack of participatory approach, involvement of locals

authorities and long term vision approaches

– Lack of funds and human capacities for the maintenance

– Suitability of the financial tools to the counterpart

4. Critical factors to sustainabilty of RWS

• Access to credit in a context of financial crisis

• The way the funds are channelled and managed

• Consistent regulatory framework

• Adapting the financial tool to the context of the project:– Loan vs. Grant

– Small town vs. medium or big town

– Private vs. public operators

• A comprehensive maintenance system

4.1 Access to credit

• AFD is experimenting a guarantee tool:– ARIZ : A dedicated risk-sharing tool which facilitates

access to bank credit• It guarantees (sometimes to 50 % of risks) any type of loan,

either by SME start-ups, business development and transmission and microfinance institutions.

– AFD has identified pilot areas in Madagascar and Laos.

– Outcomes of the evaluation to be published by the AFD evaluation and research division…

4.1 Access to credit (contd)

• Blending grants and repayable financing– It combines concessionary financing (grant or loan

with a grant element) with repayable finance.

– It aims at supporting single project or a lending program

– It is relevant to establish financing vehiclesfinancing vehicles by combining diverse source of finance

4.1 Access to credit (contd)

• Output-based Aid– It is a subsidy tool payment based on effective

and measurable performances to service providers better inclined to deliver results.

• It can contribute in increasing the rate of access to water

• Difficult to scale up and mainstream due to the performance evaluation process

• High transaction costs

4.1 Access to credit (contd)

• According to their macroeconomic profile and policies, countries are provided with grants for TA, policy reforms…studies

• Sovereign loans (certain level of concession) directly guaranteed by the states

• Sub sovereign loans are given to the municipalities when they can afford it

4.1 Access to credit (contd)

• Among other financing tools that AFD has experimented :– Funds granted through decentralized cooperation

• City-to-city cooperation and twining

– Grouped financing vehicles

– National and regional funds dedicated to the sectorGrant or loans from bilateral or multilateral donors,

channelled to the regional Water Offices or Utilities

5. Sustainabilty and maintenance system

• Channeling fund is not enough to ensure sustainabilty :– Policy and regulatory framework should be in force– Adequate capacity building before the implementation of the

project - phasing out should be adequately prepared– Access to spare parts should be thoroughly thought about– The providers of spare parts should be better involved in

training caretakers since the scratch and build contracts with local merchants to continuously provide them with spare parts

– Caretakers should be supported and organized as a corporation

– Develop a strategy of communication towards the Water Users’ associations : “Pay for quality and maintenance service”.

– The money collected by Water Users’ Association should be secured and efficiently managed – Link with the microfinance institutions…

• For a sustainable maintenance system for RWS, funds should be available for a continuous availability of spare parts.

• Providers of pumps should be committed to train the caretakers. The money collected by the Water Users’ Association is managed with transparency.

• Rural Water supply should be subsidised – It’s a matter of justice and ethics

• In urban areas, Low customers are subsidised – Why not subsidise certains costs in RWS

• Affordability of loans in relation to the risk inherent to the exchange rate. Loan given in hard currency, while the business is run in local currency.

• Necessity of a close technical assistance to the SPP and to the financing institutions.

• The viability of the business model of the SPP in relation with the scale to which they operate.

• The difficulties met by the SPP, to have collaterals for their loans and benefit from a guarantee mechanism.

1. Lessons learned and main challenges