APPROACH AND METHODOLOGY
To improve water efficiency across the globe while addressing the financial difficulties associated with the undertaking of this goal, 2011, Arison Investments and its subsidiary Miya is launching this commitment to create and build a funding vehicle for the purpose of supporting water efficiency projects throughout the world, particularly in developnig countries. The funding vehicle will be a Public and Private Project Equity Fund (PEF) that will make the equity investment needed in water efficiency projects and will enable leveraging these equity investments to receive project financing. The participants in that fund are expected to be International Financial Institutions (IFIs), private sector investors such as pension funds, , private equity funds, hedge funds, insurance companies, and private sector companies that are in need for water rights.
IFIs are expected to play additional roles as payment guarantors (via credit insurance, political risk insurance, letters of credit, and other methods). Insurance companies are also expected to play an additional role in providing the project implementers with performance guarantee solutions.
Miya estimates that the fund will enable financing of about eight medium to large water efficiency projects. An average project will result in total water savings of about 450 million cubic meters over 20 years period, which translates to daily water savings of approximately 60 thousand cubic meters.
Examples of projects which are currently under development and that could have been assisted by the fund:
- New providence, Bahamas: a comprehensive 10-year water loss reduction and maintenance project for the whole island of New Providence. The project was tendered and Miya was selected for the job. The contract was already negotiated and agreed upon, however the project is on hold due to lack of financing for the initial first year investment.
- Ho Chi Minh City, Vietnam: a project for zone 3 in HCMC is currently being negotiated. Capital expenditures are planned to be financed by an ADB loan. The main challenge at this stage is the financing of operational expenditures over the first 2-3 years of the project, until significant savings can be achieved.
Miya is targeting Vietnam, Indonessia, Philippines, India, South Africa, Nigeria, Ghana, Brazil, Honduras, Guatemala, Peru, Ukraine as locations for additional projects.
The company has already begun feasibility studies and in some casesis already active in each of these locations. Specific cities that could undertake NRW projects an could be enabled by the fund this commitment creates are outlined here:
- Ho Chi Minh City: project is under development, but a financing solution is needed;
- Hanoi: high levels of NRW, feasibility study conducted by the World Bank;
- Jakarta:ongoing NRW efforts by both cocessionairs;
- Davao: acknoledged the need and interested in a NRW reduction project, have no budget to finance it;
- Hyderabad:a study was conducted by a consultant, need to launch NRW reduction efforts;
- Bangalore: one sixth of the city tendered out, other areas still not dealt with;
- New Delhi: major need for NRW reduction, few pilot zones about to be tendered, need to move to large scale implementation;
- Pune: tender has failed several times;
The specific locations that will be addressed by the fund will depend on the timing by which funds are made available and the progress vis-à-vis the potential clients until that point in time. Miya has identified the countries in which there is high need as well as high potential for NRW projects, and is working in those countries either through its subsidiaries (where relevant) or through local representatives and agents to target specific clients. In case NRW projects are being tendered (still very few cases), Miya is participating either on its own, or together with partners as part of a consortium.
IMPLEMENTATION, TIMELINE, AND DELIVERABLES
The Public-Private Equity Fund (PEF)framework should be defined by the end of 2011. PEF first closing is expected 6 months after that (end of June 2012) and is aimed to be at $10M (that should enable financing of $40M including bank debt). Second closing for additional $40M (that should enable financing of $160M including bank debt) is expected by March 2014.
One of the major challenges facing water utilities is the high levels of water loss, or Non-Revenue Water (NRW). Defined as the difference between the amount of water put into the distribution system and the amount which is billed to consumers, non-revenue water is a result of old infrastructure, under investment in pipe replacement and network maintenance and lack of resources and funding to deal with the problem. The numbers are staggering - more than one third of the world's drinking water supply is lost from municipal distribution systems before it reaches the consumer. These are many millions of cubic meters of clean, drinkable water that are lost daily around the world. Non-revenue water is estimated to be valued at over $18 billion per year worldwide.
Governments and utilities often try to overcome water shortage by increasing water production, developing new freshwater sources, constructing dams, and building treatment and desalination plants. While such investments may be necessary, they are not always the most cost-effective way of overcoming water shortage. In most cases funds would be put to better use by first fixing and optimizing the existing network, expanding coverage, improving metering and collection processes, and adequately maintaining the existing system. Although this type of undertaking requires considerable investment, its financial return is also significant and clearly beneficial both socially and environmentally. Solutions for reducing water loss for municipalities are proven and effective. A recent study by the Asian Development Bank ('The Issue and Challenges of Reducing Non-Revenue Water', November 2010) states, 'wherever active water loss reduction programs have been initiated and sustained, the gains to consumers and utilities alike have been significant
The costs of improved service delivery are much lower when undertaken through investments in non-revenue water reduction, rather than through investments in capital projects to augment supply capacities.'
A subsidiary of Arison Investments, Miya, has vast experience in implementing water efficiency projects around the globe, and particularly in Brazil, South Africa, Canada, and the Philippines. These projects have proven to not only improve the financial situation of the water utility, but also improve service levels to customers, reduce energy consumption, and lower contamination and health risks. In some cases the payback period was as low as a few months.
Despite these past successes, a persistent challenge is that water efficiency projects typically involve rehabilitation of an existing water system and hence they do not create a market-recognized and tangible asset. Therefore, these projects are typically not eligible for project financing despite their unparalleled contribution to sustainability and their minimization of waste. Lack of adequate financing creates a vicious cycle by which the water utilities are tied up with maintenance of an inefficient network and tend to prefer investing in increasing production capacity rather than improving the network's efficiency, as it is
Seeking Partnership: Financial Resources, Best Practice Information, Media/Marketing Opportunities
As mentiond above we expect IFIs to participate (World Bank, IFC, IADB, ADB, AFDB etc). In addition we expect insurance companies, private financial institutions, large corporations and funds to participate in the fund raising efforts