The role of ‘blended finance’ in achieving Sustainable Development Goal 6.1 and 6.2 by 2030: A case study in Tanzania
Faculty of Engineering
School of Civil Engineering
Author: OSCAR TIMOTHY BALONGO
This dissertation is presented in partial fulfilment of the
requirements for the
award of the MSc in Water, Sanitation and Health
Engineering of the University of Leeds
Date: September 2021
Word Count:
14959
ACKNOWLEDGEMENTS
I would like to express my deepest and sincere appreciation to my
supervisor, Professor Barbara Evans, for her endless support and inspiration and
as well as PhD candidates under her tutorship; Jonathan Wilcox and Mariam Zaqout
for providing close guidance¸ mentorship, and valuable insights none of which this
work would have been possible to realise. Special thanks to the UK Government through
the Chevening Scholarship Programme for funding my MSc studies at the University
of Leeds; a truly life changing and enriching educational experience I hope to extend
by helping others. I would further like to extend my appreciation to my mom,
Jonia Balongo, and family, the WaSH MSc course leader, Dr Paul Hutchings, classmates,
close friends, and lecturers in the school of Civil Engineering for their
patience and emotional and mental support during such a significantly difficult
year gripped by COVID-19.
ABSTRACT
This research adopted a descriptive case study approach that used
secondary data to investigate two case studies (Philippines and Kenya), towards
examining the role of ‘blended finance’ in funding Tanzania’s WaSH sector towards
reaching its SDG 6.1 and 6.2 targets by 2030 (in only nine years). The impact
of the Covid-19 pandemic has collapsed the financial sources for the already grappling
WaSH sector in Tanzania, widening the financial gap for SDG 6.1 and 6.2.
Exploring alternative potentials to finance the sector is most important now than
ever before. ‘Blended finance’ has recently gained global attention as a strategic
instrument to mobilize additional resources from domestic private investments
into the WaSH sector. This research used the case examples from the Philippines
Water Revolving Fund (PWRF) and Kenya Creditworthiness Index to design an ‘idealised
financial framework’ for attracting and incorporating blended finances into
Tanzania’s WaSH sector. This research identified five key components for
attracting blended finances to Tanzania’s WaSH sector: a revolving fund;
technical assistance; a guaranteeing system; legal and regulatory reform; and a
credit rating system. These components were used to develop an ‘idealised financial
framework’ that will potentially attract and incorporate ‘blended finance' into
Tanzania’s WaSH sector. It is the aspiration of this research that the
idealised framework will inspire WaSH sector policy makers to better-use the
potential of the growing ‘blended finance’ market to attract additional
resources for Tanzania’s WaSH sector and increase finance flows to accelerate
rates of fulfilling SDG targets 6.1 and 6.2 by 2030. Further research topics
identified during the course of this study include deepening the understanding
of financial accounting for the WaSH sector in Tanzania – identified as a
constraint to deepen this study; as well as studies related to the liabilities and
potential negative impacts associated with utilising ‘blended finances’ in WaSH
sectors.
Key words:
Blended finance, WaSH finance, repayable
finances, domestic private finance, water revolving fund, creditworthiness,
credit rating.
DECLARATION
I, OSCAR TIMOTHY BALONGO declare that this dissertation and the
work presented in it are my own and has been generated by me as the result of
my own original research.
I confirm that:
1. This work was done wholly or mainly while in candidature for a
degree at this University;
2. This dissertation has not been previously submitted for the
purposes of obtaining any other qualification at this University or any other
institution.
3. Where any part of this dissertation has previously been
submitted for any other qualification at this University or any other
institution, this has been clearly stated;
4. Where I have consulted the published work of others, this is
always clearly attributed;
5. Where I have quoted from the work of others, the source is
always given. With the exception of such quotations, this thesis is entirely my
own work;
6. I have acknowledged all the main sources of assistance with the
preparation of this work;
7. Where the thesis is based on work done by myself jointly with
others, I have made clear exactly what was done by others and what I have done
myself;
8. None of this work has been published before submission.
Signature:
CONTENTS
1.1
Understanding what needs to be achieved for SDG 6.1 and 6.2 by 2030
1.2 Financing
needed to meet SDG target 6.1 and 6.2
1.3 The
traditional financial flows within the WASH sector
1.4 Why
urgent mobilization of financial resources is needed?
1.5
Mobilizing additional finance in WaSH sector through attracting repayable
finances
2.1 Repayable
finance in the WaSH sector
2.1.1
Critical limitations of flows of market-based repayable finance into the WaSH
sector
Lack
of effective Tariff-Settings and reliable revenue stream for cost recovery
2.2 Blended
finance: A new approach to attracting commercial finance into the WaSH sector
2.2.1
Benefits of blending finances in WaSH sector
2.3 Blended
finances in Tanzania
2.4
Institutional service delivery management framework for WaSH in Tanzania
A. Urban Water
and Sanitation Authorities (UWSA)
B. Rural
Water Supply and Sanitation Agency (RUWASA)
2.5 Status of
WaSH service levels in Tanzania
A. Status of
Water Supply Service levels in Tanzania
B. Status of
Sanitation service levels in Tanzania
C. Status of
Hygiene service levels in Tanzania
2.6 Trends of
the financial investment gap in the Tanzania WaSH sector
2.7 The
existing Financial structure for the Water sector in Tanzania
3.1.1
The rationale of descriptive approach Case Study
3.2 Graphical representation of the
methodological steps
3.4
Research approach and strategy
CHAPTER
4: ANALYSIS OF CASE STUDY/RESULTS
4.1
Key sectoral issues affecting the financial investments into the Tanzania WaSH
sector
4.2 The Philippines Water Revolving Fund
(PWRF).
4.2.2 Financial
Structure and Approach to Blended Finance
4.2.3.
Influence of PWRF blending system on addressing WaSH sectoral investment
issues.
4.3
The Kenyan creditworthiness Index of WaSH Service Providers
4.3.1 Background of Credit rating in Kenya
4.3.2 Structure of a Commercial Finance
Transaction in the Kenya Water Sector
4.3.4
Influence of PWRF blending system on addressing WaSH sectoral investment
issues.
4.4 Summary of five main components for
attracting blended finances in Tanzania WaSH sector
CHAPTER
5: DISCUSSIONS AND RECOMMENDATIONS
5.1
Discussion of the five key components of blending and their application to
Tanzania’s context.
5.2 Sectoral
investiment issues and their potential solutions to attract blended finance
5.3 Idealised framework for attracting blended finances to Tanzania’s WaSH sector
5.6 Moving Forward and Suggestions for
Further Research
ANNEX 1: CORE CONCEPTS AND
DEFINITIONS
ANNEX 2: BACKGROUNDS OF CASE STUDY
COUNTRIES
Annex 2.1 Tanzania
Social-Economic Overview
Annex 2.2 Philippines
socio-economic and wash sector overview
Philippine
WaSH sector overview
Impact/Results
of the PWRF approach
Annex 2.3 Kenya
socio-economic and wash sector overview
Kenya Water
Supply and Sanitation (WSS) Sector Overview and financial needs
Impacts/Results
of creditworthiness in Kenyan WaSH sector
ANNEX 3: KENYA CREDITWORTHINESS
INDICATORS
ANNEX 4: WASH SECTOR INVESTMENT
ISSUES AND HOW COUNTRIES HAVE RESPONDED TO SOLVING THEM.
LIST
OF TABLES
Table 1: Table of key underpinning terminology which will be used
throughout this dissertation…………………………………………………………………………………6
Table
2: Status of water supply
accessibility in rural and urban Tanzania between 2015 & 2020…………………………………………………………………………...…………..17
Table
3: Status of sanitation access in rural and urban Tanzania between 2015 &
2020 2020……………………………………………………………………………………….18
Table 4:
Status of access to hygiene facilities in rural and urban Tanzania, 2015 &
2020 ………………………………………………………………………………………….…19
Table 5:
Tanzania annual WaSH Sector Financial plan…………………………………………………………………………………..……20
Table 6:
Annual approved budgets against WSDP II requirements…………………………………………………………………………..…..21
Table7:
Criteria for case study selection……………………………………………………………………………….….25
Table 8:
Addressing Reliability and validity in case study methodology……………………………………………………………………………...28
Table 9: Key
issues affecting the Tanzania WaSH sector financial investment scalability………………………………………………………………….………….…..30
Table 10: How
Philippines addressed the key sectoral investment issues using the PWRF…….……………………………………………………………………………....35
Table 11: How
is Kenya addressed the key sectoral investment issues using the Creditworthiness
Index…………………………………………………………………..38
LIST OF FIGURE
Figure 1: Trend of ‘blended finances’ transactions
into SDGs from 2015-2018………….4
Figure 2: Repayable finance as a source of
finance to bridge the financial gap for the WASH sector……………………………………………………………………………..10
Figure 3: Schematic Overview of the
Investment Financing Facility (IFF) Scheme in Tanzania………………………………………………………………………………..…14
Figure 4: The current water sector
financial flow structure in Tanzania……………...….22
Figure 5: Case study research: Design and
procedure……………………………………24
Figure 6: Philippine Water Revolving Fund
(PWRF): Financial Structure……………...34
Figure 7: Structure of a Commercial
Finance processes in the Kenya Water Sector….…38
Figure 8: Summary of five components to
address the key sectoral issues while attracting domestic repayable finances
for blended finance in WaSH sector………………….……41
Figure 9: Summary of application of the 5
key components between Philippines and Kenya……………………………………………………………………………………..41
Figure 10: WaSH sector issues and
their potential be solution WaSH sector
in Tanzania……………………………………………………………………………………...……48Figure 11: Idealised framework for ‘blended finance’ into
Tanzania’s WaSH sector…...49
ACRONYMS AND
ABBREVIATIONS
|
DBP |
Development Bank of the
Philippines |
|
DCA |
Development Credit Authority |
|
EWURA |
Energy and Water
Utilities Regulatory Authority |
|
GDP |
Gross Domestic Product |
|
GNI |
Gross National Income |
|
GLAAS |
Global Analysis and Assessment of Sanitation and Drinking-Water |
|
GRP |
Gross Regional Product |
|
IFF |
International Finance Facility |
|
JMP |
Joint Monitoring Program |
|
JBIC |
Japan Bank for International
Cooperation |
|
JICA |
Japan International Cooperation
Agency |
|
KfW |
Kreditanstalt
für Wiederaufbau / Credit Institute for Reconstruction |
|
LGU |
Local Government Unit |
|
LGA |
Local Government Authority |
|
LGUGC |
Local Government Unit Guaranteeing Cooperation |
|
MDG |
Millennium Development Goal |
|
NWIF |
National Water
Investment Fund |
|
OBA |
Output-Based Aid |
|
ODA |
Official development Assistance |
|
OECD |
Organisation for Economic Co-operation and Development |
|
PWRF |
Philippines Water Revolving Fund |
|
RUWASA |
Rural Water Supply and Sanitation Authority |
|
SDG |
Sustainable Development Goal |
|
Tsh |
Tanzania Shillings |
|
TrackFin |
Tracking Financing |
|
TZA |
Tanzania |
|
UNICEF |
United Nations International Children's Fund |
|
UN |
United Nations |
|
URT |
United Republic of Tanzania |
|
UWSSA |
Urban Water supply and Sanitation Authority |
|
USAID |
United States Agency for International Development |
|
WaSH |
Water, Sanitation and Hygiene |
|
WASREB |
Water Services Regulatory Board |
|
WSP(s) |
Water/WaSH Service Provider(s) |
|
WSSR |
Water Sector Status Report |
|
WHO |
World Health Organisation |
|
WSPD |
Water Sector Development Plan |
CHAPTER 1: INTRODUCTION
This chapter is set to
introduce the research topic by giving global background information about the
Sustainable Development Goals (SDGs) ambitions which are planned for fulfilment
by 2030, their global indicators, the financing needed for their achievement,
and the current main sources of finance. Furthermore, this chapter explains the
context for Tanzania - this research project’s study area, the motivation for
conducting this research, defining key terminology, the research aims and
objectives, its justification, methodology and finally an outline of the onward
chapters within this dissertation.
1.1 Understanding
what needs to be achieved for SDG 6.1 and 6.2 by 2030
SDG number 6 on clean water
and sanitation is a more expensive and ambitious goal aiming at “ensuring
availability and sustainability of water, sanitation and hygiene for all by 2030”
(UNEP, 2021), which was extended from its predecessor – the Millennium
Development Goal (MDG) target 7C which aimed at reducing world’s population without
access to safe drinking water and basic sanitation by half by 2015 (UN, 2020).
SDG target 6.1 and 6.2,
as agreed by the United Nations member states are associated with their
respective indicators as follows.
Target 6.1: “By 2030,
achieve universal and equitable access to safe and affordable drinking water
for all.”
●
Indicator 6.1.1: “Proportion of population using safely managed
drinking water services”
Target 6.2: “By 2030,
achieve access to adequate and equitable sanitation and hygiene for all and end
open defecation, paying special attention to the needs of women and girls and
those in vulnerable situations.”
●
Indicator 6.2.1: “Proportion of population using (a) safely managed
sanitation services and (b) a hand-washing facility with soap and water.”
The term ‘safely
managed’ used in indicators 6.1.1 and 6.2.1 for monitoring SDG 6.1 and 6.2
holds significant indication of higher expectations of WaSH services than the
‘improved’ requirement which was stressed during the MDG goals period (World
Bank Group and UNICEF, 2017).
The JMP developed
different metrics for using ‘safely managed’ and ‘improved’ services. The definitions
of these metrics are given in Chapter 01.
1.2 Financing needed to meet SDG target 6.1 and 6.2
It is significant to note
that large investment is needed for countries to reach ambitious goals (listed
above in 1.1) in such short period of time left before 2030. Hutton and Varughese, (2016) estimate that the
current level of investment flowing for contributing towards SDG target 6.1 and
6.2 are only enough for meeting the ‘capital costs’ of services and infrastructure
for WaSH and do not account for the costs associated with the ongoing operation
and maintenance of WaSH services, systems, and their management (World Bank Group
and UNICEF, 2017). Estimates suggest that approximately US$ 114 billion, three
times the current global capital investments per year, is required to meet world-wide
access to ‘safely managed’ level by 2030 only for SDG 6.1 and 6.2. Therefore,
significant spending is needed in areas with slow progress such as in
Sub-Saharan Africa, where capital expenditures of 0.64% of the gross regional product (GRP) would be needed to close
their financial gap (Hutton and Varughese, 2016).
1.3 The
traditional financial flows within the WASH sector
Typically, service
providers within the WaSH sector get the funding from three main supplies:
tariffs, taxes, and transfers - often called the “3 T’s” (World Bank, 2017,
Winpenny, 2003). For the
clarity of this study, the definitions of 3Ts used in this report are provided
in Chapter 01. The 2018/2019 WHO-GLAAS country survey report
in 35 countries (including Tanzania) representing 1.3 population, estimated
that “3’T’s” represented 95% of the WaSH expenditures sources. These sources
are usually preferred in the sector because they do not require repayment,
although they can infrequently fulfil existing financial gaps due to nature of
the WaSH sector needing large capital investments and relatively longer payback
times from its invested infrastructure (World Bank, 2017). Many emerging
countries are using an innovative financial mechanism such as ‘repayable finance’
to pre-finance the WaSH sector in order to supplement where the sector falls
short (World Bank Group and UNICEF, 2017).
1.4 Why urgent
mobilization of financial resources is needed?
More attention is needed
to increase the investments in WaSH beyond traditional sources because the
threat of underinvestment cannot be neglected. The negative socio-economic, and
ecological impacts of not investing in universal access to basic water and
sanitation services are immense. These impacts are associated with avoidable
medical treatment costs, loss of productivity, premature deaths, loss of time
during travel and collection of water and queuing for sanitation services and
causing avoidable nuisance to the environment (World Bank, 2018). Hutton (2012)
documented economic losses linked to inadequate water and sanitation services ranging
between 0.7% and 4.3% of GDP in developing regions, or 1.5% globally, with the
highest losses in Sub-Saharan Africa. On contrary, every dollar invested in WaSH
infrastructure has been estimated to present a four-fold socio-economic,
health, and environmental return benefit to society (Hutton and Varughese,
2016).
1.5 Mobilizing
additional finance in WaSH sector through
attracting repayable finances
The OECD definition of repayable finance is given in Table 1 below. OECD, (2010) stresses that repayable finance is not a separate source of funding because it requires compensation, repayment in the future, as well as remuneration in the form of interest or dividends (OECD, 2010). While it presents much potential to expand the WaSH financial sources, repayable finance is significantly under-utilised, representing only 9% of expenditure sources in the sector (WHO, 2019). For many years, the WaSH sector has been identified as the ‘business risky’ sector for private investment due to low capacity in generating revenue, inability to recover costs on time, weak regulatory framework, and poor leadership (United Nations, 2018). Since private investors are looking for more reliable and stable businesses, usually the WaSH sector falls out of the criteria to access these investments. Since the Addis Ababa Agenda (Third International Conference on Financing for Development) in 2015, many international communities including international development institutions endorsed ‘blended finances’ as one strategic tool that can potentially resolve the perceived market failures of private finances to improve the allocation of financial resources into development sectors in developing economies (OECDa, 2020). OECD has recently set-up the blended finance principles guiding the international development institutions to apply blended finance in their portfolios and is already recognised by many G20 and G7 countries in their financial frameworks for supporting financing for SDGs (OECDa, 2020). This shows a changing development architecture, and blended finance approach is increasingly a trusted method for mobilizing additional finances from private investments into development sectors. Figure 1 below shows a steady growth of blended finances deployed into SDGs since 2015 to 2018.
1.6
Study Area
Chapter 0 on this report provides a summary of Tanzania social economic
background and progress, population growth and the recent impact of Covid-19 on
the financial systems and its projection. Tanzania has been chosen as the case study for
this research because its budget for SDG 6.1 and 6.2 falls short from the
needed investments for reaching and attaining the ‘safely managed’ level of
WaSH services by 2030. The estimates by the government of Tanzania show that
the country needs annual investments of about US$ 1.2 billion to attain
universal access to WaSH targets by 2030, but only US$ 885 million is
reasonably available annually (USAID, 2020). A recent report on ‘Tanzania’s
Mainland WaSH budget briefing’ further indicates that the annual allocation for
the WaSH sector has significantly decreased to US$ 273.8 million in the year
2019/20, indicating a funding gap of about US$ 926.2 million (UNICEF, 2020).
The sector WaSH service access gap in Tanzania is covered in detail elsewhere
in Chapter 0 in the next chapter.
1.7
Motivation for research
The recent hit of the
global COVID-19 crisis has triggered the major financial setback for most
developing countries to financing their national SDG visions and targets (OECD,
2020). The Tanzania WaSH sector, which had already struggled to establish
sustainable financial sources before COVID-19, has significantly been knocked
even harder by the crisis. The indispensable public development aids for WaSH
sector in developing economies has also significantly reduced as even developed
global economies are also struggling to recover from the crisis.
To recover from such
stresses and deliver towards the SDG targets for 2030, Tanzania will need to
diversify its financial sources for the WaSH sector and mobilise funding at a
larger scale in speeds than traditionally known. It is time for the country to
explore ‘blended finance’ and develop financial structures that will help the
sector recover from the crisis and ensure the SDG targets are sustainably met
or strived towards by 2030.
1.8 Key
Terminology
Table 1: Table of key
underpinning terminology which will be
used throughout this dissertation (OECD, 2010).
|
Term |
Definitions |
|
Repayable finance |
“Financial flows that require repayment at a
future date plus remuneration for the use of capital, in the form of
interest or dividends. This may include loans, bonds and equity and can only
bridge the financing gap, i.e., help finance upfront investments” (OECD, 2010). |
|
Blended finance |
“A strategic use of development finance for
the mobilisation of additional finance towards sustainable development in
developing countries. Blended finance attracts commercial capital towards
projects that contribute to sustainable development, while providing
financial returns to investors” (OECD, 2010). |
|
Creditworthiness |
“Is a measure of a
borrower’s ability and willingness to service its debt obligations, which is more likely to
occur when they recover 150 percent or more of their operating costs and
have good debt service coverage ratios”. To be creditworthy, the utility must
demonstrate a reliable stream of positive cash flow from operations as well as
sufficient cash reserves in the case that future cash flows are not sufficient. |
1.9 Aims and
Objectives
The basic aim of this
research project is to draw examples from other countries – notably the
Philippines and Kenya, on how blending ‘repayable finance’ with public funds
can play a role on improving the sources and resources of finance for
Tanzania’s WaSH sector, while also closing the financial gap and exploring an
innovative financial framework to mobilise such finance. The principal research
question of this study is, ‘how can blended repayable finances help attain SDG
6.1 and 6.2 for Tanzania’. The following objectives were identified as stepwise
components in fulfilling the aim of this study:
1. To investigate existing
literature, financial documents, and sector budgets and reports to identify the
current status of WaSH services and its
institutional arrangement for delivery, trends of financial investment gap, the existing financing
structure and its challenges for the WaSH sector in Tanzania.
2. To identify the sectoral
issues affecting and hindering the financial investments into the Tanzania WaSH
sector.
3. Identify the key components
the Philippines Water Revolving Fund (PWRF) and Kenya Creditworthiness Index used
to address the key sectoral issues using innovative blending mechanisms in
their funding portfolio.
4. To develop an idealised
financial framework presented as a schematic for mobilising blended finance in
Tanzania’s WaSH sector by drawing examples from the Philippines and Kenya key
lessons and improvements and adapted to the context for Tanzania.
5. To suggest recommendations
needed for mobilization of ‘blended finance’ of the WaSH sector in Tanzania.
1.10
Research Methodology
This research project
adopted a descriptive case study methodology. A method of qualitative secondary
data collection was used to capture the information for this research. All
secondary data were collected online through publicly available documents.
1.11 Outline
This dissertation is split
into the following chapters:
Chapter 1: Gives the background information and detail with respect to this
research project dissertation.
Chapter 2: Examines the available secondary data about the research topic.
This covers the literature review about repayable finance, institutional service delivery management framework for WaSH in
Tanzania, trends of financial investment gap in the Tanzania WaSH sector, and the existing financial structure for the WaSH sector in
Tanzania.
Chapter 3: Discuss the methodology
used for this research
Chapter 4: Provides the analysis of Tanzania’s key WaSH sectoral issues for
financial investments and the key lessons of how the Philippines and Kenya addressed
their key WaSH sectoral issues by adopting the use of blending financial
mechanisms. From the Tanzania sectoral issues and key lessons from the
Philippines and Kenya, an idealised schematic financial framework is proposed
with its following justification.
Chapter 5: Provides the discussion, recommendations, and limitations of the
study.
Chapter 6: Gives a conclusion of the research.
CHAPTER 2: LITERATURE REVIEW
This chapter seeks to
address the first of the five objectives associated with this research project
as listed in section 1.9. This review draws an understanding from existing knowledge
regarding the WaSH financing gap in Tanzania and how it is linked to poor
realization of national WaSH-related targets and SDG 6.1 and 6.2. The review
further investigates the knowledge of repayable finance and their potential
role in financing the sector. The knowledge from this chapter will be useful to
enlighten the comprehensive understanding of financial gaps for the WaSH sector
in Tanzania, brighten the role of repayable finance in fulfilling such a gap,
and most importantly, provide the knowledge on the institutional arrangement
for currently delivering WaSH services which will be significantly useful when
recommending and proposing a financial structure/framework for supporting and
attracting domestic repayable finance sources into the sector.
2.1 Repayable
finance in the WaSH sector
Section 1.5 of this
research briefly explained repayable finance and their limitations in WaSH
sector. This section further gives details on the mismatch between repayable
finances and WaSH sector. Repayable finance allows authorities and WaSH service
providers to borrow and allocate capital expenditures in their WaSH sector over
a period and repay the finance through potential taxes, transfers, and tariff
revenues (World Bank, 2017). Figure 2 below shows how
repayable finance can play part in bridging the financial gap water sector.
Figure 2: Repayable finance as a source of finance to bridge the
financial gap for the WASH sector (Adopted from OECD 2009, cited in Machete, 2021).
2.1.1
Critical limitations of flows of market-based repayable finance into the WaSH
sector
This subsection
discusses several challenges that the WaSH sector faces which impact its
ability to mobilise commercial/private finance.
· Lack
of effective Tariff-Settings and reliable revenue stream for cost recovery
For the well-established
WaSH sector, revenues from tariffs are the utmost operational and conventional
source for WaSH service providers to recovery capital costs and operate the
service system sustainably (Leigland, 2016). In most emerging economies,
tariffs are often set well below and do not meet amount required to recover the
capital, operational, and maintenance costs associated with service delivery (Leigland,
2016). This ideology comes from a wider political and religion expedient,
holding a public impression that water is naturally available from the earth
and should be provided by their public utilities for free or at an absolute low
cost (Leigland, 2016).
In the absence of a
well-regulated cost recovery system - especially tariff revenues, infrastructure
erodes as a result of inadequate operation and maintenance investments, locking
the sector into low services levels, consequently leading to poor customers’
willingness to pay for the service (Leigland et al, 2016). The cycle of
dependence on public funds and external aid then repeats itself. This affects
the most reliable source of revenue for the sector (tariffs), leading to financial
inefficiencies in the sector, with no cost recovery. Subsequently, this reduces
sector trust from financial institutions who could be potential funding
sources, labelling the sector as a ‘business risky’ sector. Most commercial
lenders are reluctant to disburse commercial finance because they need to be
sure that the service providers are capable of sustainably and consistently operating
and delivering a service that will guarantee returning the agreed debt during
the maturity period (Lesley et al, 2019).
· Private
Investors provide shorter loan tenors whilst the WaSH sector has longer payback
periods of return on their investments
The primary aim of
private financers is to ensure that their investment strategies claim their
ability to shift move their investments in as many projects as possible by
keeping their loan maturities shorter, in order to generate more profits, but
also to reduce the liquidity risks especially with less creditworthy borrowers
(Leigland et al, 2016). On the other hand, the WaSH sector requires higher
initial capital investments with an allowance of longer-term investment
payback. For example, commercial financers often offer loans with shorter
tenors between 5 to 7 years, while the sector needs at least 15 to 25 years (OECD,
2019a).
Despite the long-time of
return, the sector holds positive economic prospects as many types of WaSH
infrastructure are very long-lived, with an economic life extending to 100
years or more – stressed that a key factor on lifetime will be operation and
maintenance investments (OECD, 2018a). The limited experience and knowledge of
private financers on the financial systems within the WaSH sector and their
economic life cycles also contributes to the limited flow of loans to the WaSH
sector (OECD, 2019a).
2.2 Blended finance: A new approach to attracting commercial
finance into the WaSH sector
The briefing of ‘blended
finance’ is given in section 1.5 and the OECD definition in section 1.8. The
recent OECD (2019) publication on “Making Blended Finance Work for Water and
Sanitation: UNLOCKING COMMERCIAL FINANCE FOR SDG 6”, provides an in-depth
insight on how development actors in WaSH sectors can take advantage of scarce
domestic financial resources and de-risk the sector through blending of
domestically available commercial finance with concessional and public funds
(OECD, 2019a).
2.2.1 Benefits of blending finances in WaSH sector
Blending of repayable
finance with public funds offers business advantages to both the borrower-side
(demand side) and lender-side (supply side) as explained below:
●
Borrower side: Offers affordable borrowing interest rates and
improves repayment schedules by providing longer tenor and grace periods as
compared to market-based loans (World Bank, 2017). Blending is an important
tool for guaranteeing the security of private funding and stimulating the flow
of private investment into the WaSH sector. It serves as a tool to prove the
commercial viability of the service providers, and thus addresses the denial of
credit loans from lenders due to creditworthiness (World Bank, 2017).
●
Lender side: Reduces the risk perception of lenders to the WaSH sector
through improved risk management strategies and due diligence of donors or
international development institutions (World Bank, 2017).
In addition to these two
benefits, blending of concessions and domestic loans decreases foreign exchange
risks and ultimately reduces the borrowing cost (World Bank, 2017). For
instance, a loan blended of 80% concessional and 20% domestic commercial loans
has only 80% foreign exchange risks instead of 100% from a loan (World Bank,
2017).
2.3
Blended finances in Tanzania
Blending of finances is a new experience in Tanzania’s WaSH sector. The resources allocations in the sector have typically come from three sources: local treasury resources; external loans; and grants and internal revenues (URT, Ministry of Water, 2020). In 2014, the German Development Bank (KfW) and the Ministry of Water agreed to establish an ‘Investment Financing Facility (IFF)’ aimed at facilitating ‘Urban Water Supply and Sanitation Authorities (UWSSAs)’ to access private finance from local banks through providing output-based aid (OBA) and technical assistance to lenders and borrowers (IFF, 2021). Figure 3 below shows the setup of this ‘Investment Financing Facility (IFF)’. Despite the progressive changes initiated through this facility such as the improved quality of loan applications and an increase of local banks interest in lending to the sector, the bureaucracy from the imposed conditions of the Ministry of Finances to block the approval of commercial loans reduced the interest of banks to lend into the UWSSAs (USAID, 2020). The credit assessments conducted by the banks do not accurately reflect the specific business setup of the WaSH sector and are more similar to pure commercial lending (USAID, 2020). USAID (2020) suggested that the sector service providers should request technical assistance to train the non-WaSH experts in the domestic financial institutions to establish an understanding of the sector and improve their financial products that better-suit WaSH business strategies specifically. Additionally, the project was only tailored for large UWSSAs, and therefore did not approach or assist small urban and rural service providers who are less commercially viable with potential to scale if provided with adequate technical support (USAID, 2020). This opens a space for an argument for the establishment of a nation-wide facility for ‘blended finance’ that will be more inclusive.
Figure 3: Schematic Overview of the Investment Financing Facility (IFF)
Scheme in Tanzania (Adopted from USAID,
2020. Page 52).
2.4
Institutional service delivery management framework for WaSH in Tanzania
The delivery of water
and sanitation services in Tanzania is legally authorised and politically bound
to the country’s Ministry of Water. The ministry is responsible to oversee,
lead, direct, and coordinate the management and supervision of all activities
related to water and sanitation undertaken and assigned to different
ministries, administrative bodies, and ministry structures (URT, Ministry of
Water, 2020). On a management level, water and sanitation service delivery
services are focused in two main groups, service delivery in ‘urban’ areas, and
rural’ areas (URT, Ministry of Water, 2020).
UWSSA are responsible
for water and sanitation service delivery in regional centres, district headquarters
and township centres, whilst the Rural Water and Sanitation Agency (RUWASA) is
responsible for the equivalent to rural areas (i.e., all areas outside of
regional centres, district headquarters and township centres boundaries) (URT,
Ministry of Water, 2020). Principally,
the entire sector budget for both
UWSSA and RUWASA is controlled and accounted for by the Ministry of Water.
A. Urban
Water and Sanitation Authorities (UWSA)
UWSA are composed of
several semi-independent authorities for the delivery of water and sanitation
services, agreed objectives and jurisdictions at regional, district and township
headquarters (URT, Ministry of Water, 2020). Each UWSSA, led by boards and
management teams, is responsible for the plans, budgets and implementation of
WaSH interventions to achieve a set of agreed targets developed by the Ministry
of Water (URT, Ministry of Water, 2020).
UWSA are followed up, monitored, supported and regulated by the Ministry
of Water both directly and through an official Government Regulatory Authority
the EWURA (Energy and Water Utilities Regulatory Authority). All authorities
are constantly evaluated and regulated against their performance, efficiencies
and effectiveness to their service provisions, cost recovery and sustainability
(URT, Ministry of Water, 2020).
B. Rural
Water Supply and Sanitation Agency (RUWASA)
RUWASA’s operations are
a result of the recent reform in the sectoral management arrangement affected
by the reform of the ‘Water Supply and Sanitation Act Na.5’ of 2019,
with the aim to improve cost effective and sustainable water supply and
sanitation services in rural areas (URT, Ministry of Water, 2020).
The RUWASA takes full
supervisory implementation powers and service management of rural water and
sanitation schemes which previously were by the Local Government Authorities
(LGA) (URT, Ministry of Water, 2020). As opposed to the UWSSA service delivery
system whereby each area (region, district, or township) receives a respective
UWSSA, there is a single nationwide RUWASA for WaSH (URT, Ministry of Water,
2020). Community Based Water Supply Organizations (CBWSOs), formed under the
supervisor of District RUWASA offices and LGA, are the main WaSH service
outlets in respective rural areas (URT, Ministry of Water, 2020).
2.5
Status of WaSH service levels in Tanzania
The new JMP report which
produces global and national WaSH data from 2015 to 2020 shows that Tanzania
has displayed slow progresses towards universal access to WaSH services. A
large disparity of access to services between rural and urban, and poor and
rich classes, exists at alarming levels and therefore extends the challenges of
the country efforts in ‘leaving no one behind’. As a result, 70% of Tanzania
health budget is expended on avoidable WaSH-related diseases (UNICEF, 2021).
A.
Status of Water Supply Service levels in Tanzania
Slow
progress on accessing safe levels of drinking water can be observed by
comparing data from 2015 and 2020 as indicated in Table 2 below. Currently, only
61% of Tanzania’s population have access to basic drinking water (progressing
from 53% in 2015) (WHO/UNICEF, 2021). The national annual rate of change in
accessing basic water services stands at +1.65%/year, while in rural areas it
stands at +1.43%/year and +1.18%/year in urban areas (WHO/UNICEF, 2021). Disparities
of access to basic water supply is higher between rural and urban places, with
45% in rural and 83% in urban (WHO/UNICEF, 2021).
Non-functional water points
Although
Tanzania through government and donor funds has significantly improved its investment
in water supply infrastructure coverage, the Tanzania Ministry of Water,
through its Water Sector Status report-2015/2020 mentions that about 30.2% of
139 water points built in 2019 are non-functional. This is an increase from the
previous World Bank (2019) estimate which stated that in 2015, around 29% of
water points were non-functional, out of which 20% collapsed only after one
year after construction. A study by Cronk and Bartram (2017) revealed that the
functionality of water points functions steadily and continuously where there
are “reliable funds available” for regular operation and maintenance of water
points rather than responding to the breakdown of the whole system.
Non-Revenue Water (NRW)
NRW
is a critical issue causing the stunting of water service delivery especially
in urban areas. According to the Water Utilities Performance Review Reports
produced by EWURA in 2018/2019, the NRW for all combined authorities stands at
30%, having increased by 2.2% from the previous year (EWURA, 2020). This is by
far below the national tolerable NRW level of 25% (URT, Ministry of Water,
2020). NRW has impacts of reducing performance and growth of utilities and
authorities, reducing efficiency of service delivery, and reducing
affordability of the service (URT, Ministry of Water, 2020). The causes for
high NRW ranges from poor management, financial, operational, and maintenance
issues (URT, Ministry of Water, 2020).
Table 2: Status of water supply accessibility in rural and urban
Tanzania between 2015 & 2020 (Adopted from JMP (2021).
|
Service
levels |
Rural 2015 |
Rural 2020 |
Urban 2015 |
Urban 2020 |
Total 2015 |
Total 2020 |
|
Surface |
19.75% |
19.35% |
2.64% |
2.67% |
14.34% |
13.48% |
|
Unimproved |
28.19% |
21.22% |
6.66% |
2.19% |
21.39% |
14.52% |
|
Limited |
13.19% |
13.98% |
7.23% |
6.34% |
11.31% |
11.29% |
|
Improved |
38.86% |
45.45% |
83.46% |
88.79% |
52.96% |
60.72% |
|
Safely
managed |
- |
- |
- |
- |
- |
- |
B. Status
of Sanitation service levels in Tanzania
Less attention has been
dedicated towards sanitation and ensuring the provision of safe and reasonable
space and systems to safely isolate excreta from human contact. The estimates
from the 2020 JMP report records that only 32% of the country has access to at
least ‘improved’ sanitation services which are not shared among homes, whilst
the majority (42.06%) have a ‘limited’ sanitation service level (WHO/UNICEF,
2021).
Since 2015, access to
basic sanitation facilities has improved by only 6% - from 26% in 2015 to 32%
in 2020 (WHO/UNICEF, 2021). The national annual change for basic access to
sanitation is as low as +1.33%/year, with the rural annual change being
+0.98%/year and +1.85%/year for urban areas (WHO/UNICEF, 2021). Further
statistics of the country performance of access to sanitation facilities is displayed
in Table 3 below.
Table 3: Status of sanitation access in rural and urban Tanzania
between 2015 & 2020 (Adopted from JMP (2021).
|
Service levels |
Rural 2015 |
Rural 2020 |
Urban 2015 |
Urban 2020 |
Total 2015 |
Total 2020 |
|
Open
defecation |
15.32% |
16.07% |
1.62% |
1.38% |
10.99% |
10.89% |
|
Unimproved |
60.66% |
54.70 |
23.64% |
9.22% |
48.96% |
38.68% |
|
Limited |
4.64% |
5.94 |
35.23% |
42.06% |
14.31% |
18.66% |
|
Improved |
0.94% |
1.54% |
9.57% |
12.58% |
3.67% |
5.43% |
|
Safely managed |
18.44% |
21.75% |
29.93% |
34.75% |
22.07% |
26.33% |
C.
Status of Hygiene service levels in Tanzania
According to the Water
Sector Development Program (WSDP), the sector’s hygiene target was to ensure
access to improved sanitation and hygiene services and eradicate open defecation
practices for both rural and urban places, reaching 75% of population (7.8
million households) by 2019 (URT/Ministry of Water, 2014). According to the
2020 JMP report, the country fell far short from achieving this set of targets
even one year later after establishing the objective. The JMP national
estimates state that the current access to basic hygiene facilities stands at
40% (as it is highlighted in Table 4 below), showing no
progress from the baseline year (2015). The annual rate of change in basic access
to facilities remains almost negligible for both urban and rural areas
(WHO/UNICEF, 2021).
Table 4: Status of access to hygiene facilities in rural and urban
Tanzania, 2015 & 2020 (Adopted from JMP (2021).
|
Service
levels |
Rural 2015 |
Rural 2020 |
Urban 2015 |
Urban 2020 |
Total 2015 |
Total 2020 |
|
No facility |
19.23 |
19.23 |
12.09 |
12.09 |
16.97 |
16.71 |
|
Limited |
40.29 |
40.29 |
24.83 |
24.83 |
35.40 |
34.84 |
|
Basic |
40.48 |
40.48 |
63.08 |
63.08 |
47.63 |
40.48 |
2.6
Trends of the financial investment gap in the Tanzania WaSH sector
The financial
investments for the WaSH sector in Tanzania are guided by the WSDP, which was
set to progress from 2006 to 2025, within 20-years with four implementation
phases each of five years (World Bank, 2019). The WSDP was set with the main
objective of improving the institutions for water services, integrated water
resources management and improve access to water supply and sanitation services in urban and rural areas through improved infrastructural
investment, capacity building to ensure efficient and sustainable development
the systems that allows ease data management, monitoring and evaluation, and
reporting of progress, thereby meeting the targets aspired by national
macroeconomic policies such as the National Development Vision by 2025
(URT/Ministry of Water, 2014).
Since its establishment,
WSDP has filed for extensions of its plan due to failures in meeting its 5
years phase plans (URT, Ministry of Water, 2020). Amongst other factors, the 2014
WSDP report advises that the failure to meeting WSDP targets was attributed
majorly by a lack of financial plans that were in line to meeting the of new
infrastructure demanded by rapid population growth, and operational and
maintenance costs (URT, Ministry of Water, 2020). For example, the first phase of the WSDP
(WSDP I) was originally set to operate from 2007 to 2012 at a projected cost of
US$ 951 million, but after the 2010 Mid Term Review (MTR) of the programme, it
was agreed for the program to be extended to 2014 with an additional financial
requirement increasing from the original budget to US$ 1.4 billion in order to
meet new revised targets (World Bank, 2018). Of these commitments, 26% (US$ 367
million) came from the government, 74% was obtained from development partners,
and the private sector did not contribute (World Bank, 2018).
By 2014, most of WSDP I
targets were not met, leading to an extension of one additional financial year
of implementation to 2015 (URT, Ministry of Water, 2014). It was further agreed
that the addition of one financial year from 2014 to 2015 did not meet the
target and thus the program was once again extended to June 2016 and the
financial commitment increased to US$ 1.63 billion, after which the WSDP was
concluded (URT, Ministry of Water, 2020). By the end of the first phase, WSDP
had spent US$ 1.42 billion, of which 42% came from basket financiers, 22.3%
from the government, and 35% from earmarked financiers (URT, Ministry of Water,
2020).
Since the start of the
second phase of the WSDP (WSDP II) in 2016, the sector has fallen short in
financial resources to meet the annual requirements of the implementation needs.
The 2020 Water Sector Status Report suggests that the sector would need a
minimum of US$ 646.8 billion (TZA 1.5 trillion) annually (URT/Ministry of
Water, 2014). Table
55 shows the trends of gap
between the sector requirements and the actual annual budget allocations
(Values given are in TZA billions).
Table 5: Tanzania annual WaSH Sector
Financial plan (Adopted from (URT, Ministry of Water, 2020. Page 93).
|
|
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
Total |
|
Sector (WSDP II) Requirements |
876.7 |
1938.6 |
2175.6 |
1437.0 |
10006.6 |
7434.4 |
|
Actual annual
allocations |
781.7 |
623.6 |
673.2 |
616.1 |
- |
2694.6 |
|
Actual Audited spending |
326.4 |
383.4 |
480.9 |
- |
- |
1190.7 |
Additionally, despite being the largest priority, the annual budget approval water and sanitation has shown inconsistency since the start of the WSDP II (See Table 6 below) (UTR, Ministry of Water, 2020).
Table 6: Annual approved budgets against WSDP II
requirements (Adapted from URT, Ministry of Water, 2020. Page 94).
|
WSDP
II plans vs actuals |
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
|
Annual
approved budget against WSDP II |
89% |
32% |
31% |
43% |
- |
|
Approved
Water resources management budget against WSDP II requirements. |
72% |
18% |
7% |
9% |
- |
|
Approved
Water supply and sanitation budget against WSDP II requirements. |
112% |
38% |
43% |
61% |
- |
2.7
The existing Financial structure for the Water sector in Tanzania
The recent water sector reform resulting from by the passing of the Water Supply and Sanitation Act, 2019, Tanzania re-established a National Water Fund (NWF), which was initially developed under the Water Supply and Sanitation Act of 2009 and started operating in 2015 (URT, Ministry of Water, 2020). NWF was established to discharge its function as the main water sector financial instrument for addressing the long-standing inadequate funding challenges for water and sanitation schemes in rural and urban Tanzania by providing alternative investment supports and guaranteeing steady financing to the implement agencies such as RUWASA, UWSSA, and CBWSO (URT, Ministry of Water, 2020). On the other hand, the users of WaSH services pay tariffs and connection fees to the service providers who are regulated by EWURA (URT/Ministry of Water, 2014). Currently, NWF collects funds through the tax imposed on the buying of fuel for vehicles, presently fixed at 50 Tanzanian shillings per litre (URT, Ministry of Water, 2020). Since its operation, NWF has realised some benefits of mobilising additional funds to the sector. For example, in 2016/2017, NWF raise a significant fund of up to 43% of total WSDP financing sources in that financial year from this vehicle fuel levy tax (URT, Ministry of Water, 2020). Although the instrument holds a significant potential for raising finance for the sector, the established source of finance through tax imposed on fuel is not enough to meet the sectoral financial needs (URT, Ministry of Water, 2020). An innovative lending program through NWF is needed to lever private financing from domestic financial institutions. The Figure 4 below summarises the institutional arrangements for the sector’s financial flows.
Figure
4: The current water sector financial flow structure in Tanzania (Adopted from
USAID, 2020. Pp 22).
Conclusion
The next chapter now
describes the research methodology employed during the selection of research,
data collection, case analysis, and limitations of the methodology, which come
together to design a new idealised financial framework to enable full operation
of Tanzania’s WaSH sector with financial sustainability.
In the effort to better
understanding how ‘blended finances’ can promote the attainment of SDG 6 target
6.1 and 6.2, this research investigates multiple cases of experience of using
blended finances to fund the WaSH sector.
This section is divided into several subsections such as description of the proposed methodology, graphical representation of the methodological
steps research approach and strategy, data collection
methods, data analysis and finally the validity and reliability of the
research.
To achieve the objectives and research questions of
this study, a descriptive approach to case study methodology was adopted as the
best suitable methodology to explore the research topic. Case study research is
defined as a qualitative method in which the researcher explores a case or
multiple cases overtime through comprehensive and in-depth data gathering that
involve many sources of information such as primary data or secondary data (Yin,
2003 cited in Rashid et al, 2019).
The case study approach for this study has been chosen
on the bases of its reputation to investigating and understanding complex
issues facing the real world and has historically been used across many disciplines
such as social sciences, education, business, law, health and can address
varieties of research questions. Yin (1984) defined
case study method as “an empirical inquiry that investigates a contemporary
phenomenon within its real-life context; when the boundaries between phenomenon
and context are not clearly evident; and in which multiple sources of evidence
are used.”
3.1.1 The rationale of descriptive approach Case
Study
Descriptive approach is defined as “the
one which is focused and detailed, whereby the known phenomenon and questions
about the topic are sensibly studied, analysed and articulated to reveal any patterns,
connections, and in relations of the existing theory in order to enhance its development
and application (Mills et al, 2010). Mills et al, (2010) adds that the power of the descriptive case study lies in its potential
promise of extracting crucial information for interpretations of data and
developing a theory. This aligns well with the objectives of this study, which
asks how blended finances help attain SDG 6.1 and 6.2. The study will extract
information from the existing theories of blending finances from different
cases, and finally produce a generalizable framework that can be replicated for
Tanzania case. Blending of finance is not a new concept. Many examples of
financial facilities for blending repayable finances exists in many countries
around the world. A descriptive case study is suitable for this research as it
only attempts to investigate the existing theories, in doing so it allow
articulating that theory to generate new concepts, replication of the theory,
and expand to inform, confirm and further re-shape it (Mills et al, 2010).
3.2 Graphical representation of
the methodological steps
The flowchart (Figure 5) below describes the step-by-step activities
that were taken in order to achieve the desired outcome of this research.
Figure 5: Case
study research: Design and procedure (Adopted from Dooley, 2002, page 347).
Table7: Criteria for case study selection
|
|
Type of case selection strategy |
Defining the case sampling |
|
1 |
Convenience of access to
qualitative data online |
Both cases (Philippines
and Kenya) were chosen based on the convenience to access data online,
information-rich data, from credible sources and less effort and money. |
|
2 |
Appropriateness of the case |
The cases were select to fit both the aim of the research and respond
to the set of questions. Both Philippines and Kenya cases have well
documented resources for the experience on using blended finance to fund
their WaSH sector. |
|
3 |
Similarity across the
cases to allow generalization of the results |
The cases were chosen to
reflect similarities along some cross-cutting variables such as rapid
population growth, sectoral financial issues, |
|
4 |
Diverse cases to ensure full representation |
Cases were selected to reflect diverse variables in order to achieve a
maximum variation among the dimensions of representation. For example, while
Kenya case may exhibit similarities with Tanzania in terms of politics and
culture to simply because they are neighbouring countries, Philippines on the
other hands, represent a very diverse political and cultural set-up. |
3.4 Research approach and strategy
Given
the relevance of the research topic and its descriptive nature, using a
qualitative method based on cross-case study between cases gave an opportunity
to capture holistic and in-depth information into ‘blended finances’. The
qualitative method is generally aimed at analysing a previously developed theory
to further strengthen it replicability in another context (Yin, 1992). This
aligns well with the research objective which is to analyse the previous
theories of blended finances in Philippines and Kenya and develop a theory
which fit in Tanzania context. Quantitative method on the other hands focusses
more on testing hypotheses and statistical generalisations (Saša, 2013) and thus, does not necessarily lead
to supporting the main objective of this study.
A
multi-case study analysis was used to allow a more rigorous and comparative
description for building a new framework (Ebneyamini and Sadeghi
Moghadam 2018). Because of
the constrained time and the global pandemic hit, secondary qualitative data
was the most appropriate source to meet the demand of the dissertation. Additionally,
secondary data are inexpensive as they are publicly available online, unlike
primary data which require travelling to the filed areas, or conducting
interviews online, and consume more time for data collection (Allen, 2017).
The
information was primarily gathered from online secondary sources such as
journals, google scholar, governments and international organizations websites,
government sector reports. The primary criteria for searches were the use of
keywords such as ‘Repayable finance’, ‘blended finances’, ‘domestic private
finance’, ‘Creditworthiness’, ‘Market-based repayable finance’, ‘Public funds’,
‘water revolving fund’, and ‘water’, ‘sanitation’, ‘hygiene’, ‘water and
sanitation’, ‘WASH’ and ‘water utilities’. Additionally, specific searches for
data from case studies were conducted using the same key words and adding the
case name or country name to generate information specific to the case.
The
data generated from the searches were reduced by screening relevant titles,
abstract and table of content to find the data related to the research topic.
Those that showed relevance to the research topic were collected and stored
into secure and safe data file (database) for further detailed analysis. Saša, (2013) advise that developing a database facilitate easy retrieval, systematic tracing
and enhance the reliability of the collected information.
The
analysis of the case study methodology remains less advanced, and thus requires
a researcher to depend on their experience, innovation and creativity and the nature
of literatures during presenting the generated evidence which could be in
various forms or presentations (Tellis, 1997). Yin,
(1994) said that data analysis comprises of “examining, categorising, tabulating,
or otherwise recombing the evidence to address the initial propositions of a
study”. Miles and Huberman (1994) define data reduction, data display and
conclusion and verification as the phases case study data analysis. Marshall and
Rossman (2006) also describes data analysis of case study research as the practice
of putting together a structure, meaning and making sense of the messy and
ambiguous collected data in search of general statement. Yin
(2009) suggests “pattern matching, explanation
building, logic models, and cross-case analysis”. This study combined the
discourses of both Yin (1994) and Miles and Huberman (1994)
and Marshall and Rossman (2006).
In
this study, the analysis was delt by summarising and tabulating the key variables
of the enquiry by comparing the cases. By comparing the variables across the
three cases, the key findings were used to inform and predict the outcomes used
to modify the initial proposition (Tanzania WaSH sector financial framework).
Case study design is highlighted as one of the research methods considered as less objective and lacks rigor. The lack of methodological guideline makes case study prone to falling short to the criteria are commonly used to assess the rigor of research which are validity and reliability (Campbell, 1975). Reliability is related to the consistency and the ability of the approach to reproduce the same results of repeated under the same conditions while validity is mainly a measure of accuracy of data (Fiona, 2021). Both reliability and validity dimensions are fundamental elements of verifying credibility of the case study and confirms that the case study cam be transferable and dependable (Ferreira, Andrade et al. 2020). Yin, an expert in case study design suggests that research should maximise the quality of research design by addressing four conditions (three validity conditions: construct validity, internal validity and external validity) and reliability (Yazan 2015). The research design for this study were based on the accepted guidance described in the third Edition of Case Study Design and Methods book by Yin Robert (2003). Table 8 below shows the steps taken in this research ensure reasonable steps to address threats to validity and reliability were taken into consideration.
Table 8: Addressing Reliability and validity in case study
methodology. (Adopted from Yin, 1994).
|
Test |
Case study method for addressing
reliability and validity |
Phase of research in which tactic happens |
|
|
Construct validity |
· Use multiple sources of
evidence enabled the author to cover extensive opinions and issues and assisted
the triangulation of in-depth sources while enhancing the validity of the
study (Gaya & Smith, 2016). Use of multiple
case studies (Philippines and Kenya) which tended to collect multiple
perspectives on the blended financing mechanisms. Mills et al (2010) and
Towgood et al, (2009) highlighted that the use of multiple cases is a more vigorous
than using a single case study method. · Establishment of chain
of evidence as suggested by Meyer (2001) Morse (2011) and Yin (2009, 2012)
provided the linkage of key research questions to the data collected, data
analysis, discussion of key findings, and the case study conclusion helped to
deliver the valid evidence of the report. |
Data
collection Research
design Data
analysis |
|
|
Internal validity |
· As suggested by Yin (2009), this was addressed by building explanation
and addressing any immerging rival explanations. · Triangulation of data sources (use of varieties of data from different
sources). |
Data analysis Data collection |
|
|
External validity |
· Use of a well-designed
case study approach to ensure the replicability of the research design · Description of the reasons
for the case study selection: The two case studies were selected considering
the different socio-political set up of governance of the WaSH sector. Each
of the cases offered different legal frameworks, sector management setup · Presentation of the context
of each case |
Research design Data presentation |
|
|
Reliability |
· Use of case study protocol · Developing a case study database on the computer (folder file) helped
to assemble, handle, and manage correct and high-quality data. Files for each
case study (Tanzania, Philippines and Kenya) were stored in a separate file
for easy analysis. Key references were stored in Endnote for simplified report
writing process. · Data were collected from the reliable sources such official websites
of the international institutions working in the area of WaSH and government
website. |
Data collection Data collection Data collection |
|
The following chapter offers the discussion of the
case analysis of the key issues facing financial investments in Tanzania WaSH
sector, followed by the discussion of the key lessons learned from Philippines
and Kenya case studies presenting how their financial framework for blending finances
helped to address the limitations of financial investments in WaSH sector.
CHAPTER 4: ANALYSIS OF CASE
STUDY/RESULTS
This chapter discusses the analysis of innovative
financing mechanisms for ‘blended finance’ from two main case studies
(Philippines and Kenya). As suggested by Kohlbacher, (2005), in this chapter,
documents are systematically analysed using both descriptions and tabulations
method to organise and synthesize information in order to uncover patterns across
the cases and generate detailed evidence. The goals and outcomes of this
analysis is to describe the cases studied and draw the main components that will
be used to generalise the new idealised financial framework for attracting blended
finances for WaSH sector in Tanzania.
This chapter is essential for responding to the
second and third objective of this research. The first part of this chapter
identifies the key financial investment issues facing the Tanzania WaSH sector
which consequently affects the country’s vision towards attaining SDG 6.1 and
6.2. The second part discusses the key lessons of how Philippines Water
Revolving Funds addressed the key sectoral financial issues. Third part discusses
how the Kenyan Creditworthiness Index is helping to revolve the sectoral financial
issues. At the end of this chapter, the diagram for the key components for
improving the financial investments that attract blended finances is given.
4.1 Key sectoral issues affecting the financial
investments into the Tanzania WaSH sector
Further to the sectoral issues given in the literature
review chapter, this section presents the key sectoral financial issues related
to WaSH investments in Tanzania. The literatures were carefully scrutinised to find
the key issues facing the sector investments in Tanzania. The data are
tabulated to develop clarity and easy to read format as presented in Table 9.
The detailed descriptions of Tanzania WaSH sector have been covered in Chapter
2.
Table 9: Key issues
affecting the Tanzania WaSH sector financial investment scalability
|
WaSH
sectoral issue |
Tanzania
WaSH sector situation |
Mechanism
of coping/what improvements are needed |
|
Limited capital investments and inability of the utilities to meet operation and maintenance costs |
· Annual US$ 1.2 billion is required to realise the sector vision of
universal access to water and sanitation by 2030, but only US$ 885 million is
available annually (USAID, 2020). ·
The budget allocation
for Water and Sanitation accounts for only 2% of the total national budget and
0.5% of the national GDP (UNICEF Tanzania, 2020). |
·
In 2005, Tanzania established
a National Water Investment Fund (NWIF) which came into operation since 2015
with the objective of mobilising finances for water supply and
sanitation service (URT, Ministry of Water, 2020). ·
Currently, the only
source of fund for NWIF is tax collected through the imposed charges on buying
every litre of fuel (URT, Ministry of Water, 2020). |
|
Dependence on
external grants |
·
An average of 35% of the total Water sectoral budget each year come
external funding, especially bilateral and multilateral donors (USAID, 2020). Tanzania stood fourth as the top Africa recipient of ODA for WaSH
sector in 2017, from OECD countries, receiving about US$ 316 million,
commitments (OECD, 2019b). |
·
Although the government established the National Water Fund to cope
with the unpredictable foreign funds, the government investment in WaSH in
2019/20 has declined by 10.5% and 16.6% respectively between
FY 2017/18 and 2018/19 (UNICEF Tanzania,
2020). |
|
Lack of regulatory framework to support
commercial borrowing |
·
USAID (2020) report
stated that private
institutions are not satisfactory of the current regulatory framework to
addressing the sector investment risks, instead the current regulation
framework discourages private financial institutions to extend their investment
into the sector. |
·
The new Water and
sanitation Act still does not provide clear guidance for private investors in
WaSH sector. |
|
Unprofitable
investment due to poor returns |
·
Water utilities are run as a free social service and are highly
politicised (USAID, 2020). Often, water utilities serve the interests of
politician by charging very low tariffs in favour to secure political
positions and thus significantly affecting pricing and financial returns
(USAID, 2020). ·
Utilities are faced by high non-water revenue, with a national average
of 30.2%, well beyond a national target of 25% (URT, Ministry of Water, 2020). |
·
Clear regulations for tariff setting are needed. ·
Technical assistance is needed to assist utilities to develop an
understanding of the sector as a business sector. |
|
High interest rates that do not fit the sector
nature of business. |
·
The average lending
rates of private bank in Tanzania ranges between 15 and 16% (Bank of
Tanzania, 2019). |
·
No existing financial
and regulatory framework for lowering borrowing costs from commercial lenders
in Tanzania. |
|
Loan tenor
limitations |
·
Although some banks prefer not to publicly announce the tenor period
for loans, some banks such as National Microfinance Bank (NMB) NMB stated
that it is willing to provide a maximum of 5 years tenor time for cooperate
loans with a grace period of only up to 12 months (NMB Bank, 2021). Additionally, the institution borrowing must demonstrate the
capacity to provide up to 25% of the total capital investment (NMB Bank, 2021). ·
Few Banks, such as Tanzania Investment Bank (TIB) has
formulated separate loan framework to complement the government vision in
investing in infrastructure, including WaSH infrastructure. Their offer provides
loan tenor up to 20 years, including grace period during project
implementation (TIB, 2021). |
· The recent water sector
report identifies repayable finances and Public-Private partnership as the
alternative financial source for the sector, however a detailed plan for
attracting private lenders need to be developed (URT, Ministry of Water, 2020). ·
Technical assistance is needed to familiarise
private banks with the special needs of WaSH sector to improve their loan
packages. |
|
Domestic private financial institutions lack experience
in lending to the WaSH sector |
·
Lack of financial
documentations by the water authorities to allow private financial institutions
to evaluate the financial performances thus lead to lack of trustworthy. It’s
a strong requirement for private banks to have a clean financial performance
and must be demonstrated through financial statements of the previous
transactions. |
·
EWURA is mandated to regulate
the performance of the WaSH service providers, their report focuses mainly on
the overall general performance ranking for utilities and not the potential
of the utilities to attract private loans (USAID, 2020). |
|
WSPs lack experience
to borrow from domestic private financial institutions |
·
WSPs (utilities) still lack the necessary technical and financial
skillset to professionally run water utilities (USAID, 2020). The technical support programmes for public WaSH authorities are often
underfunded, relying solely on foreign assistances to support programmes (USAID, 2020). |
·
commercial altitude and business development skills is needed for WSPs
staff to familiarise with the lending procedures and improve their potential
to reach commercial viability (USAID, 2020). |
|
WSPs lacks creditworthiness |
·
There is lack of strong,
independent credit evaluator for the Water and sanitation authorities in
Tanzania, which lead to poor financial transparency and consequently lack of
creditworthiness. |
· Currently, UWURA provides general performance review of water
utilities by ranking them using performance in service coverage, water supply
service hours, metering ratio, staff productivity, non-revenue hours and
their general financial performance (EWURA, 2020). |
4.2 The Philippines Water Revolving Fund (PWRF).
This section summarises the key lessons of the Philippines
Water revolving Fund (PWRF) helped the Philippines WaSH sector overcome the key
issues that limited the scalability of financial investments into the sector.
4.2.1 Background of PWRF
In 1990s, Philippines realized that
the reliance on the traditional financial sources possessed significant
constrains for development of water and sanitation sector (World
Bank, 2016). Such constraints were characterised by insignificant funds to
cover the infrastructural investments and operation and maintenance, and thus
the government generated attention to mobilizing domestic private commercial
finances into the sector through innovative financial arrangements (World Bank,
2015). In 2004, Philippines enacted an Executive Order 279 to modify their
financial policies for local WaSH service suppliers (Local Government Unit and
Water Districts) by categorising them corresponding to their creditworthiness
(World Bank, 2016). Those that qualified according to a set of standards for
creditworthiness where granted a permission to borrow from market-based
domestic finances and shift away from depending on the public funds (Asia
Development Bank, 2013). However, this reform generated no significant results
to the sector investment because majority of the domestic private banks in Philippines
either had no experience of lending investments into the WaSH sector or
distrusted the sector, and saw the WaSH service providers as politically corrupted,
weak, financially inefficient and unable to repay back any potential loans (Asia
Development Bank, 2013).
Additionally, the WaSH service
providers requested for longer-term tenor loans (15-20 years)
that matched their cost recovery rate while the lenders sticked to their tenor
systems (7-10 years) that matched their investment
objectives (World Bank/WSP, 2015). To
address this constraint, in 2008, the Government of Philippines collaborated
with Japan Bank for International Cooperation
(JBIC) (currently, Japan International Cooperation Agency or JICA) and USAID to
set up the PWRF, a multifaceted financial facility that seeks to leverage
domestic private finances. PWRF were created to meet three main objectives; a)
use inadequate available public funds to pull-up private finance into WaSH
sector, b) To lobby private financers to invest into WaSH sector on affordable
terms that can be met by local service providers c) To establish a trust fund
that can resolve to finance other projects. The formation of PWRF was complimented
by the establishment of two other components: (1) Credit rating system which was
developed earlier in 2004 with the aim of providing financial credibility of
WSPs to the investors (2) provision of technical assistance to the lenders with
no/little experience of lending into WaSH sector and help WSPs improve their
internal operations and creditworthiness for qualifying for commercial loans (Alma,
2009).
4.2.2 Financial Structure and Approach to Blended Finance
The financial structure and approach
of the PWRF was characterised by the following main features:
- The
PWRF lends and blend the loans from two sources: (1).
Official Development Assistance
(ODA) funding borrowed from JBIC (2). Funding from private domestic financial institutions (USAID,
2008). The two sources provided
financing in the ratio of 50-75% form DBP/JBIC loan and 25-50% from
private financing institution (PFI) (World Bank, 2016).
· Two guaranteeing systems were developed to reduce liquidity risks of the investment and enhance the lenders’ assurance of their funding (World Bank, 2016). First guarantee was provided by the Department of Finance (government sovereign), which provides a stand-by credit-line for liquidity risks associated with ODA finances from JICA (World Bank, 2016). The second guarantee was offered by the Local Government Unit Guarantee Cooperation (LGUGC), a third-party guarantor to guarantee LGU (WSPs) access loans and bonds (World Bank, 2016). LGUGC guarantee 85% of LGU loan defaults by intercepting the tax revenue from the central government offered to the LGU leaving only 15% of PFI’s risk exposure (Alma, 2009). 50% of the LGUGC’s exposure is also guaranteed by the USAID Development Credit Authority (World Bank, 2016). Additionally, the PWRF holds stand credit-line option for the LGUCG to guarantee liquidity risks of PFI funding (Worl Bank, 2016).
Figure 6: Philippine
Water Revolving Fund (PWRF): Financial Structure (Adopted from World Bank, 2016).
4.2.3.
Influence of PWRF blending system on addressing WaSH sectoral
investment issues.
Table 10 below summarizes how PWRF helped the Philippines address the key WaSH sector investment issues.
Table 10: How Philippines addressed
the key sectoral investment issues using the PWRF
|
Philippines
WaSH sector situation before PWRF |
Innovation
resolved the issue |
|
|
Limited capital investments and inability of the
utilities to meet operation and maintenance costs |
·
Before the PWRF,
Philippines depended on insufficient traditional financing sources, mainly a
combination of government revenues, foreign funds and tariffs collected from
service users (World Bank, 2016). |
·
Establishment of
revolving fund which encouraged the recirculation of loan to develop other
projects (World Bank, 2016). |
|
Dependence on
external grants |
·
For many years before the enactment of the Executive Order, 279, Philippines
overwhelmingly depended on overseas’ financial contributions to water sector
(Smets and
Susanna.2015). |
·
The 2004 Executive Order 279 mandated creditworthy local WSPs to tap
into market-based financing sources and shift from overdependence on public funds
(Smets and
Susanna.2015). |
|
Lack of regulatory
framework to support commercial borrowing |
·
Before the 2004 policy
reform for the WaSH sector, Philippines was fragmented by poor institutional
arrangement that discouraged the flow of commercial finances into the sector (Alma, 2009). |
·
Regulatory and institutional strengthening
through enactment of Executive Order (EO) 279 was issued in 2004 delegating creditworthy WSPs to move from government
funds to private finances (World Bank, 2016). |
|
Unprofitable
investment due to poor returns |
·
Until very recent, provision of water related service was perceived as
a free service that citizens deserved without any contribution (Asia Development
Bank, 2013). |
·
A massive institutional and policy reform backed by the enactment of
the Executive Order 279 in 2004 supported running of water utilities as
business rather than a free social service (World Bank, 2016). |
|
High interest rates that do not fit the sector
nature of business |
·
The interest rate for
pure commercial finances in Philippines is 12% (USAID, [No
date]). |
·
Blending of ODA component with domestic commercial finances
lowered the interest rate by at least 1-2%. Currently, the interest rate for
commercial lending in Philippine’s water sector ranged from 6% to 10.5% (Miha, 2019). |
|
Loan tenor limitations
|
·
PFIs in Philippines lends for 7 - 10-years, while utilities require 15
- 20-years tenor (Alma, 2009). |
·
Blending nature of the PWRF resulted into longer grace period (up to 10 years), longer tenor up to 20 years, with an option for private lenders to
terminate their loan agreement and get their repayment early (Alma, 2009). |
|
Domestic private financial institutions lack experience
in lending to the WaSH sector |
·
Lack of Information and
Commercial Banks perceptions of the WaSH sector as the high risk amplified
the perceived risks of water utilities in Philippines (Jeremias,
2011). |
·
Additional technical
support/assistance provided by USAID to the commercial banks. |
|
WSPs lack
experience to borrow from domestic private financial institutions |
·
Utility leaders from Water Districts and LGUs did not have sound business
plans to convince PFIs for lending (Jeremias,
2011). |
·
USAID provided an additional technical assistance worth of US$ 6.8
million to both DBP, commercial banks and service providers (Water and Sanitation for All, 2020). |
|
WSPs lacks creditworthiness |
Before the establishment of credit rating system, the challenge of commercial
investments in WaSH sector was the lack of credible way of convincing private
lenders to extend their credit to the sector (Lawrence et
al, 2020). Water utilities were
operating on a high non-revenue water (average of 39%), and thus large volume
of water was left unbilled (Lawrence et al, 2020). |
·
In 2004, the government
introduced credit rating scales for Water Districts and LGU conducted by an
independent credit rating agency, CRISIL, an Indian-based rating agency (USAID, 2013). ·
Both USAID and JICA
provided technical assistance to improve WSP creditworthy (Water and
Sanitation for All, 2020) |
4.3 The Kenyan creditworthiness Index of WaSH
Service Providers
This subsection presents the key lessons drawn from
the Kenyan Water Service Provider Creditworthiness Index.
4.3.1 Background of Credit rating in Kenya
In
order to achieve the goal of the Kenyan 2030 vision for water and sanitation
under the increasingly competitive and difficultly available public funds to balance
with the investment needs for the sector and the ever-fast-growing population,
the Kenyan Water Services Regulatory Board (WASREB) collaborated with the Water and Sanitation Program (WSP) of the
World Bank to facilitate the development of ‘shadow credit ratings’ of
43 Water Services Providers in Kenya (World Bank/WSP and WASREB, 2015a). The
exercise aimed at facilitating private commercial lending into WaSH sector by
identifying and enhancing the creditworthiness of Water Service Providers that
operated in a full cost recovery under effective regulatory climate thereby
providing the best credit analysis for private financiers and enhance the bankability
of WaSH sector (especially private banks) (World Bank/WSP, 2015a). The results from the shadow credit rating were
published in the report titled “Financing Urban Water Services in Kenya:
Utility Shadow Credit Ratings” (World Bank/WSP, 20111). The report was shared
with potential private financiers, and this was a milestone for water sector in
Kenya to accessing commercial finances (World Bank/WSP and WASREB, 2015b).
Despite that the report from the shadow credit rating inspired the interest of
private lenders and other development partners into investing to the sector,
the report could not be updated annually for periodic updates of new creditworthy
Water Service Providers due to complexities, difficulties and costs of manual
data collection and analysis (Bender, 2017). To resolve the issue, WASREB and
WSP developed an automated Creditworthiness Index for the WSPs (Bender, Kevin.
2017).
4.3.2 Structure of a Commercial
Finance Transaction in the Kenya Water Sector
The
Figure 7 depicts the structure of the processes in which the WSPs in
Kenya can access loans for private finances using their credit history
(creditworthiness) without using assets as the guarantee. The WASREB is a water
industry regulator, oversees the overall WSP performances and approves tariff
rates (World Bank/WSP and WASREB, 2015a). Based on the creditworthiness annual
report, WASREB licence which WSP can borrow from private loans in order to
ensure that they are commercially viable and can potentially repay the loan
(World Bank/WSP and WASREB, 2015c). Often the commercial banks require
utilities to contribute 20% as the equity investment, while the bank
contributes 80% of the total capital investments (Bender, 2017). Output-Based Aid (OBA) programme through the World
Bank provides 50% subsidies for commercial loans to WSP projects that targets
inclusiveness of poor households (Bender, 2017). The
USAID’S Development Credit Authority (DCA) offers a 50% partial credit-line guarantee
cover for lending risks in water projects (World Bank/WSP and WASREB, 2015a).
Figure 7: Structure of a Commercial Finance processes in the Kenya Water Sector (Adapted from Advani and Darche, 2011, cited in Bender, 2017, p. 35).
4.3.4 Influence of PWRF blending system on addressing WaSH
sectoral investment issues.
Table 11 below summarizes how Kenya’s creditworthiness Index
helps the WaSH sector respond to addressing the sector investment issues.
|
Sectoral Constraint |
Kenya WaSH
sector situation before the creditworthiness Index |
How
Creditworthiness Index is solving the issue |
|
Limited capital investments and inability of the utilities to meet operation and maintenance costs |
· According to the Kenya
Ministry’s Sector Investment Plan, annual investment in the sector has
averaged Kenyan Shillings (Kshs) 20 billion (US$ 184.2 Millions) against Kshs
300 billion (US$ 2.76 billion) needed (WSP and WASREB, 2015 A). |
· In 2011, The government
of Kenya through its regulatory body for water service providers (WASREB) set
a shadow credit rating system to facilitate commercial lending into WSP (WSP
and WASREB, 2011). In 2015, the shadow
credit rating system was further reformed into the creditworthiness index to
provide cheap and automated financial information (WSP and
WASREB, 2015 A). |
|
Dependence on external
grants |
· Approximately, over 50% of the Kenyan water sector budget comes from
foreign development partners. In 2013/2014, out of KShs 24 billion (US$
221 Million), KShs 13.9 billion (US$ 128 million) came from foreign donors
(World Bank/WSP and WASREB, 2015b) |
· As of 2018, creditworthiness Index has facilitated about 50 transactions
from private local lenders into the water sector (World Bank, 2018). Over US$
25 million of private capital has been mobilized to finance new WaSH projects
in Kenya (World Bank 2018) |
|
Lack of regulatory framework to support commercial borrowing |
· Before the 2002 Water Act, service
providers did not have opportunity to borrow from private institutions. |
· In 2002, the Kenyan
government established an ambitious regulatory reform for the WaSH sector
through enactment of Water Act of 2002. The Water Act among other things, mandated
the WSPs as the private entities that are independent, autonomous, and run
professionally as business and can source finances from private investors
(World Bank/WSP and WASREB, 2015b). |
|
Unprofitable investment due
to poor returns |
· Water is considered a social good that everybody should have access to
freely, and therefore it generates very little financial return (World
Bank/WSP and WASREB, 2015b). |
· After its establishment, the WASREB established guidelines for tariff settings in order to limit the political influence of the
price of WaSH services (World Bank/WSP and WASREB,
2015b). |
|
High interest rates that do not fit the sector nature of business |
· Commercial lending is
usually expensive with higher interests and hard to obtain in water sector
due to low commercial viability of the sector (World Bank/WSP and WASREB, 2015b).
|
· Creditworthiness
increased the business conversation between lenders and borrowers, which
provided an opportunity for negotiation of loan interest with regards to capital
investment (World Bank/WSP and WASREB, 2015c). |
|
Loan tenor
limitations |
· The commercial banks in Kenya provides lending periods not more than 7
years long while the economic life of WaSH asset is much longer than the
preferred tenor time (World Bank/WSP
and WASREB, 2015b). |
The guaranteeing system
provided by the USAID provided the confidence of the investment and reduced the
lending risks, consequently the private lenders extended the loan tenor and
reduced interest rate (Bender, 2017). |
|
Domestic private financial institutions lack experience in lending to
the WaSH sector |
· Conventionally, due to
lack of financial arrangement of the sector, private lenders have categorised
the WaSH sector in Kenya as high-risk area of investment, with complex financing
settings
(World Bank/WSP and WASREB, 2015a). |
· The Creditworthiness
Index Report provided annually by the WASREB has offered an insight to
private lenders on the WSP financial performance and credit ratings, allowing
private banks to evaluate the investment risks of the WSPs (World Bank/WSP
and WASREB, 2015a). |
|
WSPs lack experience to
borrow from domestic private financial institutions |
· The WSPs lacks experience of borrowing from private lenders because of
the limited flow of commercial finances into the sector and therefore are
often unfamiliar with borrowing criteria of private financers (World Bank/WSP
and WASREB, 2015a). |
· The World Bank through its Global Partnership on Output Based Aid
(GPOBA) provides technical assistance to both lenders and borrowers involved in
commercial lending of the designated project (World Bank/WSP and WASREB, 2015a).
|
|
WSPs lacks creditworthiness |
· Private financiers are
reluctant to lend to water sectors because of high liquidity risks World
Bank/WSP and WASREB, 2015c). |
· Creditworthiness Index
allows the rated WSP to identify the areas of weakness that reduces their
credit scores and establish actions of improvement and are allowed to apply
for foreign technical assistance under regulations (World
Bank/WSP and WASREB, 2015b). |
4.4 Summary of five main
components for attracting blended finances in Tanzania WaSH sector
A close look at Table 11 and Table 12
shows that there are five main components for attracting blended finances which
includes the revolving fund, reform of legal and regulatory framework that
supports blended finance, technical assistance, guaranteeing system and credit
rating system. Figure 8 below summarise the five components. Figure 9
shows the components that are applied in Philippines and Kenya case. Chapter 4
of this research provided a discussion of the five identified components in
great details.
Figure 8: Summary of five components to address the
key sectoral issues while attracting domestic repayable finances for blended finance
in WaSH sector.
Figure 9:
Summary of application of the 5 key components between Philippines and Kenya.
The next chapter will discuss the key points of
discussion and recommendations for attracting blended finances and improving
the financial framework of the sector.
CHAPTER 5: DISCUSSIONS AND RECOMMENDATIONS
The case study design brings a novel understanding
into blended financing for the WaSH sector, which allows exploration of a variety
of financial mechanisms in addressing the key financial barriers for the WaSH
sector, and more specifically how blending of finances can play its part in fulfilling
SDG 6.1 and 6.2. Using a descriptive case study approach, this research sought
to investigate the Philippines and Kenya case study on how they are using blended
finances to address their key investment gaps in their respective WaSH sectors,
and using their experiences, to support inspiration and creation of the framework
that will potentially address the investment deficit for Tanzania’s WaSH sector
through blending. The aspired outcome of this research is to inform the
Tanzania WaSH sector decision makers about the role of blending private and public
finances on fulfilling the large financial gap towards attainment of SDG 6.1 and
6.2. Chapter 4 generated the key five components of blending experience
from Philippines and Kenya, this chapter now intends to expand the discussion
of these components in greater detail. The first section of this chapter discusses
the five key components of blended finances presented in Figure 8 (from Chapter
4). The second section discusses key recommendations, the third section expands
upon the main limitations of this study, and the fourth section gives
recommendations towards potential areas of future study.
5.1 Discussion
of the five key components of blending and their application to Tanzania’s
context.
Broadly, the findings from the cases indicate that
the WaSH sectors in Philippines, Kenya, and Tanzania shared the common WaSH
sector constraints preventing the flow of domestic private investments. Table
9, Table 10, and Table 11 in chapter 4 provide a tabulated summary
of the investment issues and how they are addressed between the countries of
study. From the analysis (chapter 4), five key components were derived from the
cases for improving the Tanzania WaSH sector through financial investment from blended
finances. These are discussed in the five respective subsections below.
Component 1:
Make the Tanzania National Water Fund a revolving fund: The Philippines
experience of ‘revolving principal’ allowed the re-circulation of loans between
the fund and borrowers where the repayments from the borrowers were reused to finance
new borrowers or new projects before the period of principal repayments to the
private financiers (World Bank, 2016). In the Kenyan case, the revolving fund
did not seem to be viable because WSPs are more independent and can directly
apply for funding from private financial institutions under the licence of
WASREB and therefore blending exists at the utility level. While Tanzania has
already set up a national-wide financial facility (NWF) for the sector, it is easy
to establish blending at national level. The revolving nature of the loan will,
in the longer term, generate a more stable, sustainable, and viable finance solution
for the sector through the accumulation of returns from the fund resources which
are used multiple times compared to an average
credit line (Wasser
et al, 2020). The funding accumulated
through the returns from the revolving funds can be used as a guarantee to new
loans or used as collateral insurance to the other potential financiers (EPA,
2021). Revolving funds allow for diversification of investment risks through
spreading of finances among a portfolio of borrowers (several projects) (Wasser et al, 2020). Building a stable revolving fund in Tanzania
will mainly be challenged by the sector’s inability to raise capital investments
for both public and private financial resources. Building a revolving fund
model will particularly require building trust with private financial institutions,
a strong political drive, strengthening regulations for blending, and supply of
sufficient information to improve communication with potential financiers.
Component 2: Legal and regulatory framework reform: For a shift from dependence on external donors to a
more domestically-financed investment portfolio into the Tanzania WaSH sector, will
desire a full legal and regulatory policy needed to support the blending of finances
and offer guidance for a smoother transition. The two cases (Philippines and
Kenya) show that the blending process was preceded by a strong legal and
regulatory reform. An example of Philippines’ 2004 ‘279 Executive Order’ and
Kenya’s 2002 ‘Water Act’ has been discussed earlier in this report. In addition
to this, the government of Kenya in collaboration with the World Bank’s Water
and Sanitation Program (WSP) developed toolkits for county governments, WSPs
and commercial lenders, to provide guidance and insights of how the commercial
lending sector works in Kenya and how it facilitates borrowing and lending (World
Bank/WSP and WASREB, 2015c). The review of Tanzania case literatures identified
that the current policy framework specifically does not give clear guidance of
domestic private investment into the Tanzania WaSH sector. Developing clear policies,
regulations, and draft toolkits for lenders and borrowers will improve the blending
experience in Tanzania’s WaSH sector. As Tanzania is moving to the
implementation of WSPD III, the incorporation of new reformed regulations that
encourages the use of ‘blended finances’ could play its part in mobilizing
additional resources to reach the WaSH targets.
Component 3: Establishment
of a guaranteeing system: As
described in Table 9, addressing
collateral risks for private finances in Tanzania’s WaSH sector is one of the key
aspects needed to improve private investments in WaSH. The confidence of private
financiers to invest in any business is confidence of guaranteeing returns on
their investment. Very recently (May 2021), OECD has produced a working paper
(Titled: The Role of Guarantees in Blended Finance) discussing the role
of guarantees as a functional blended finance tool (Garbacz
et al, 2021). The lesson from
Philippines and Kenya shows that having an arrangement for reducing and
diversifying risk exposure of the commercial lenders attracts their investments
into the sector. During the analysis, it was identified that USAID – through the
Development Credit Authority (DCA), was observed as common guarantor for both
Kenya and Philippines, providing a 50% partial credit guarantee to the loan
borrowed from domestic funds. Guarantee/insurance will provide a liquidity
cover in case there is a default of repayment from the WSPs, or if the lenders
require early repayment of their investments (World Bank, 2016). Many global development
agencies, Multilateral Development Banks and Development Finance
Institutions such as USAID-DCA
and the UK’s Foreign, Commonwealth and Development Office (FCDO), Multilateral
Investment Fund, Green Climate
Fund, German Ministry of Economic Co-operation and Development
(BMZ), the Dutch Good Growth Fund, European
Commission and World Bank Group are encouraging ‘blended finances’ by providing
guarantees to de-risk development sectors in developing countries (Convergence,
2018). The role of guarantees in attracting ‘blended finance’ is notable with a
high mobilisation ratio (OECD, 2020). Globally, risk guarantee is present in
about 21% of all blended finance transactions (OECD, 2020). A study by the Climate
Policy Initiative found that despite the risk guarantee standing for only about
5% of the global financial commitments, it generated 45% of the finances
mobilised from private sector in their portfolio (Convergence, 2018). A similar
study by OECD-DAC surveys between 2012 and 2015 found that
guarantees represented 44% of the total mobilization of the private sector (OECD, 2018b). Providing guarantees is particularly
relevant to Tanzania’s WaSH sector which is currently exposed to both political,
regulatory and liquidity risks; perceived as very high risk by private sectors
who demand for compensated risk returns (guarantee). If combined with other instruments
within its enabling environment (revolving fund, technical assistance, regulations,
and credit rating system), the guaranteeing system will help catalyse the flow of
private finances and allow for the provision of WaSH services to the unserved
population (OECD, 2020).
Component 4: Establishment of
a credit rating system (creditworthiness): Water and sanitation services rated by an independent
and trusted credit rating institution provides a more robust benchmark of information
required by private financers as a measure of proof of maturity of the utility
(OECD, 2020). Credit ratings give a formal opinion from an independent and
specialised institution on the ability and willingness of the potential borrower
to repay the loan timely (World Bank/WSP and WASREB, 2015b). As identified
earlier in this chapter, WaSH service providers in Tanzania are not credit
evaluated and are not rated as per a standardised credit rating system. Instead,
the water utilities regulator (EWURA) produces annual performance reports for
all water utilities. Going forward, this can be incorporated into EWURA, ensuring
reports of credit rating are credible and accessible to potential domestic investors.
For the less creditworthy utilities, credit ratings give an opportunity for
internal improvement towards better performing benchmarks and allows identification
of areas that hinder them from qualifying to put responsive action in addressing
their key indicators of failure (WSP, 2012). The Kenyan Creditworthiness Index
looks at different indicators ranging from technical indicators (poverty rate,
water supply and sanitation coverage, non-revenue water, staff per 1000 connections)
to financial indicators (revenue, operational costs, cost recovery, liquidity
& solvency indicators, grant dependency and billing efficiency) (World
Bank/WSP and WASREB, 2015a). The further list of indicators and their weighing has
been provided in ANNEX
3:
KENYA CREDITWORTHINESS INDICATORS.
Moving towards creditworthiness assessments will not only benefit WaSH
utilities to access blended finances but also will support the improvement of
their operational efficiency, financial management, and increase overall sector
transparency (OECD, 2019a).
Component 5: Incorporation of technical assistance
into the blending system:
The capacity constraints of local private investors
and utilities can potentially prevent financial flows to the WaSH sector if
there is a lack of WaSH sector business knowledge and inability to assess the
actual sector risks. TA is a commonly applied blended finance instrument used to
de-risk the business uncertainties in the sector by developing its enabling
environment (pre-investments), increasing the technical capacity of both
lenders and borrowers, or by magnifying the impact of the investment through
improving capacity and providing training for improving operation and
maintenance, and improving the bankability of the project (Convergence, 2019). TA
is usually complemented as a part of concessional (grants) funds by donor
institutions (Convergence, 2018). Globally, nearly half (46%) of blended
finance funds are supplemented with technical assistance, released to integrate
business principles into the project as well as improving the operation of the
specific project (Convergence, 2018). TA was found to be a common and an essential
tool for both PWRF and Kenya’s creditworthiness index, providing capacity building
for utilities. In this report, the Tanzania WaSH sector was identified to suffer
a 30.2% non-revenue water rate, 30.2% non-functional water points, and difficulties
in financial recovery of the investment and setting appropriate tariffs. Incorporation
of TA is necessary to address operational knowledge gaps and improving the bankability
of WaSH-related projects. Technical Assistance (TA) will help borrowers to gain
insights to developing project proposals, improve their operational performance,
cost-recovery and financial recording, increase their transparency to the
lenders, increasing their creditworthiness, and ultimately attract commercial
finances (OECD, 2019a). World Bank’s Water and Sanitation Program (WSP) has
been supporting the Tanzania Water sector with TA since WSDP I (World Bank-a,
2018) and this can be incorporated into the new established national financial
facility to achieve the level of bankability required by domestic commercial
institutions. Although TA can be procured using public funds (tariffs), it can
be expensive and my affect the level of affordability of service for less
affluent service users. Alternatively, the sector can take advantage to lever
the TA complemented to the concessional funds.
5.2 Sectoral investiment issues and their potential
solutions to attract blended finance
Figure 10 shows some of the water sector investment issues with their potential solutions among the five identified components for attracting blended finance in Tanzania’s WaSH sector.
Figure 10:
Each rectangle represents the sectoral
issues which can potentially be solved by each of the 5 main components of the ’idealised
framework’ proposed by this research study in attracting ’blended finance’ to
the WaSH sector in Tanzania.
5.3 Idealised framework for attracting blended finances to Tanzania’s
WaSH sector
The diagram below is an ‘idealised framework’ of
financial institutions, instruments and mechanisms to attract blended finance
into the WaSH sector for Tanzania. The five components proposed by this
research study have been adapted into Tanzania’s current WaSH sector,
governmental, and financial institutions arrangement.
LEGENDS
Figure 11: Idealised framework for ‘blended finance’ into Tanzania’s
WaSH sector
5.4 Recommendations
Based on the findings from this complete study and
the relevant literature reviewed during this research, this section gives the
recommendations needed to support the implementation of the ‘idealised
financial framework’ for attracting blended finances.
- The analysis of the cases from Philippines and
Kenya, as well as the currently operating sector in Tanzania all recognise
the role of appropriate policies in attracting blended finances to fulfil SDG
6.1 and 6.2 targets by 2030. Policy and legal frameworks for attracting
blended finances are diverse among countries and more specific to each
contextual country. Tanzania’s government needs to develop WaSH sector-specific
legal and regulatory frameworks compatible to the specific sectoral needs
and institutional arrangement. The policy will need to stimulate the
interaction of donors, government institutions, service providers and potential
lenders.
- The Tanzania Ministry of Water is recommended
to develop and produce WaSH accounts, inspired by the tool developed by the
WHO called ‘TrackFin’, which provides a methodology in giving a snapshot
of WASH-related financial flows for the WaSH sector in a comparable format
using a software tool (WASH accounts production tool (WAPT)), aiding in
supporting the collection, classification, analysis of WASH spending data
and summarizing the financial gap and taking steps to actively fill these
gaps using alternative financial sources (Water and Sanitation for All,
2021). Coupled together with a credit rating system, WaSH accounts will
provide additional comprehensive financial evidence and transparency for
developing the lenders’ confidence for the sector’s commercial viability.
- The WaSH sector must maximize value from
existing public funding before endorsing substantial investments from domestic
markets. This will help the sector to first improve their expenditures of
public funds while slowly transitioning the sectoral mindset into the changes
in the proposed financial arrangement.
5.5 Research limitations
- The
findings presented in this research are limited to the available
literature, government reports, official websites, and official fact
sheets from officially recognised organizations and companies. There was
inadequate access to the sensitive sectoral data related to Tanzania’s
WaSH sector. Financial data for Tanzania’s WaSH sector were challenging to
source due to the absence of a publicly available sector database. More
specifically, financial spending for ‘sanitation’ is not clearly covered
in sector reports and therefore even more difficult to review at this disaggregated
level. Also, the sector reports did not provide specific data on the financial
amounts currently generated through domestic private investments and
therefore limiting the understanding of contributions from the private
sector in financing for WaSH. Where possible, this was addressed by
applying multiple search strategies as mentioned in the methodology
chapter.
- The
relatively limited time for the MSc research was also a constraint to
fulfil a sizeable and bounded aim within the time period provided within
the degree term. All interesting and useful areas of future research were
noted throughout this research process and have been presented in the
following subsection (5.6) as a summary of future works which would strongly
support the WaSH and development sector around the boundary of this
specific research topic.
- Despite
of having many advantages, the descriptive case study design relies primarily
on researchers’ experiences, their world view, values, and perspective and
ability to interpret information and develop theory (Ben, 2013). This is
limited to misinterpretations and personal biases that may be inherent in
the available literature. Yin (2009) suggests that the lack of systematic
procedures for case studies in one of the main issues of concern due to
absences of methodological guidelines. This limitation was addressed by
visiting multiple sources of data to support the interpretation and
arguments. Additionally, class peers were invited to review and discuss this
work, provide their different points of view and confirm missed knowledge or
identify gaps that needed to be addressed to strengthen arguments.
5.6 Moving Forward and Suggestions for Further Research
Blended finance is a fresh idea for the Tanzania
WaSH sector, and thus, more is needed to understand the complex financial and
institutional arrangements of the sector and the potential for sourcing the
finances in Tanzania. The following are suggestions for future research in
blended finances for Tanzania:
- A more in-depth study of Tanzania’s readiness
to mobilise blended finances. Attracting a range of financial investments
requires foundational understanding of regulatory climate, governance and
leadership structure, tariff arrangements, budgetary frameworks, and political
commitments (Pories and Delmon, 2019). As the country is moving to implementing
a new WSDP III and the use of blended finances are globally peaking
(almost the market size is doubling each year), it is essential that wider
research of the Tanzania WaSH sector readiness to attracting blended
finances is conducted to generate a deeper and more accurate understanding.
- Allow for appropriate time to investigate the
domestic financial institution perception of the WaSH sector investments
to understand their willingness to lend into the Tanzania WaSH service
providers. It was particularly difficult to get information related to the
private investors’ perception and willingness to lend into Tanzania’s WaSH
sector.
- The research objectives in this study can be
replicated in other countries without experience of blending public finances
and domestic private finances in order to gain further understanding of
the role of ‘blended finances’ in the WaSH sector towards attainment of
SDG target 6.1 and 6.2. Covid-19 has affected many southern economies, potentially
jeopardising the efforts towards the attainment of SDG 6 by 2030.
Expanding of potential sources for financing the sector in these countries
is now necessary than ever before. Therefore, exploring the possibilities
of blended finances will hopefully show a greening light towards the
targets.
- There is a need for research into
understanding the liabilities and debt burdens associated with blended finances
in the WaSH sector across the world. There are general criticisms that
blended finances could lead into increasing the debt burden in developing
countries. Or ‘blended finances’ could be a political idiom endorsed by donor
countries to reduce their aid commitments (0.7 Gross National Income, GNI)
to developing countries under the umbrella of the term. To address these criticisms,
a stronger research is needed to understand inherent interactions and implications
to provide accurate answers to possible financial mechanism scenarios.
CHAPTER 6: CONCLUSION
In summary, this research
fulfilled the aim of investigating how ‘blended finances’ can help mobilise
additional financial resources for attaining SDG 6.1 and 6.2 targets in
Tanzania’s WaSH sector by drawing success examples from the Philippines Water
Revolving Funds and Kenyan WSPs creditworthiness Index. The relevant literature
reviewed indicated that Tanzania is currently relying on traditional sources for
funds for its WaSH sector and there exists a significant financial gap estimated
at US$ 926.2 million annually to attain universal access to water and sanitation
by 2030. Based on a descriptive case study design, this research study highlighted
the importance of the WaSH sector to promptly review suggestions at reforming
the WaSH sector in Tanzania and move from the dependence on external donor funds, towards ‘blended finances’
and taking advantage of domestic
private financial resources. The case study analysis for Philippines and Kenya
indicated several benefits of blending public funds and domestic public
finances. It reduces the WaSH sector’s overdependence on already decreasing
foreign aid, reduces domestic interest rates, and improves tenor times and
grace periods. Additionally, the professionalism of the WaSH sector is further
established, with more informed business planning and an ultimate operational
performance increase of the overall WaSH sector in terms of coverage, quality,
and sustainability.
The outcome of the case
studies analysis suggested ‘five components of improvement’ needed for the
Tanzania WaSH sector to mobilize additional financial resources through
blending. The five components include: making the Tanzania National Water Fund
a revolving fund; modifying the current regulatory framework and financial policies
for ‘blended finances’; establishing a guaranteeing system; creating a credit
rating system (creditworthiness); and incorporation of technical assistance/appraisal
into the financial framework. These components were used to create and propose a
financial framework of the operation and interaction between WaSH-related, financial,
and governmental institutions, all underpinned to incorporate blended finances within
the Tanzania WaSH sector.
The case studies were carried
out to investigate the financial setup of countries, and therefore may not
represent all sectoral aspects, but they do provide general insights of the new
financial landscape (blended finances) at a national level recognized by many
development institutions around the world. The new and innovative financial
model in this research may be used as an informed solution to the growing
financial challenges faced in the Tanzania WaSH sector. The time left before
reaching the SDG deadline is short and fast approaching. Globally, countries
are left with only 9 years to achieve ‘universal access to clean water and
sanitation and ensuring no one is left behind’. In the world full of
possibilities, it is injustice for governments not to make change and adapt to
an ever-changing world in order to maintain their responsibilities, deliver
quality services to people, and protect public health.
REFERENCES
Anis
Chowdhury. 2018. Blended Finance: A 'honey-trap' for development? [Online].
[Accessed 3rd July 2021]. Available from: https://thefinancialexpress.com.bd/public/index.php/views/blended-finance-a-honey-trap-for-development-1525273162
Alma D. Porciuncula. 2009. Creative financing solution for water supply
and sanitation in the Philippines, Ocean & Coastal Management, Volume
52, (7), Pp. 374-377.
Asia Development Bank. 2013. Water Supply and Sanitation Sector Assessment,
Strategy, and Road Map Philippines. 6 ADB Avenue, Mandaluyong
City, Philippines: Asian Development Bank.
Bank of Tanzania. 2019. TANZANIA FINANCIAL STABILITY REPORT--
December 2019. Dar es Salaam, Tanzania; BOT
Bender, Kevin. 2017. “Introducing Commercial Finance into the Water
Sector in Developing Countries.” Guidance Note. Washington, DC: World Bank
Campbell DT. III. 1975. “Degrees of Freedom” and the Case Study. Comparative
Political Studies, 8(2):178-193. doi:10.1177/001041407500800204
Convergence. 2018. CONVERGENCE
THE STATE OF BLENDED FINANCE 2018. Toronto, ON M5C 1T4, Canada: Convergence.
Convergence. 2019. BLENDING WITH TECHNICAL ASSISTANCE:
Data brief.
Toronto, ON M5C 1T4, Canada: Convergence.
Cronk,
R. and Bartram, J. 2017. “Factors Influencing Water System Functionality in
Nigeria and Tanzania: A Regression and Bayesian Network Analysis.” Environmental
Science & Technology, 51. Pp. 11336-11345.
CRDB BANK. 2019. Annual Report-2019: Value Beyond Numbers. Dar es
Salaam; CRDB Bank Group
DAI. 2014. Innovative Fund Enables Philippine Water Utilities to Invest,
Deliver Safe Water to New Customers. [Online]. [Accessed 15th
June 2021]. Available from: https://dai-global-developments.com/articles/innovative-fund-enables-philippine-water-utilities-to-invest
Deloitte. 2021. Tanzania Budget Highlights Navigating new realities.
Dar es Salaam, Tanzania: Deloitte Touche Tohmatsu Limited.
Dooley LM. Case Study Research and Theory Building. Advances in Developing
Human Resources. 2002. 4(3), pp. 335-354.
EWURA. 2020. WATER UTILITIES
PERFORMANCE REVIEW REPORT FOR FY 2018/19: REGIONAL AND NATIONAL PROJECT WATER
UTILITIES. Dar es Salaam, Tanzania: EWURA.
EWURA. 2020. WATER UTILITIES PERFORMANCE REVIEW REPORT FOR FY
2018/19. Dar es Salaam: EWURA.
Ebneyamini,
S. and M. R. Sadeghi Moghadam (2018). "Toward Developing a Framework for
Conducting Case Study Research." International Journal of Qualitative
Methods. 17(1). [no pagination].
Fiona Middleton. 2021. Reliability vs validity: what’s the difference?
[Online]. [Accessed 15th July 2021]. Available from: https://www.scribbr.com/methodology/reliability-vs-validity/
Ferreira,
C., et al. (2020). "How to Improve the Validity and Reliability of a Case
Study Approach." Journal of Interdisciplinary Studies in Education.
9. Pp. 273-284.
Flora, K and Richard, M. 2016. WATER, SANITATION AND HYGIENE SERVICES
IN TANZANIA: ACCESS, POLICY TRENDS AND FINANCING: THDR 2017: Background Paper
No. 11. Dar es Salaam, Tanzania: The Economic and Social Research Foundation
(ESRF).
Garbacz
W., D. Vilalta and L. Moller 2021, “The role of guarantees in blended finance”,
OECD Development Co-operation Working Papers, No 97 OECD Publishing, Paris.
Gaya, H. J., & Smith, E.E. 2016. Developing a Qualitative Single Case
Study in the Strategic Management Realm: An Appropriate Research Design? International Journal of Business Management and Economic Research (IJBMER), Vol 7(2), pp. 529-538.
Government of Philippines. 2021. About the Philippines [Online].
[Accessed 30th January 2021]. Available from: https://www.gov.ph/es/the-philippines.html
Institute for Government. 2021. Financing infrastructure.
[Online]. [Accessed 20 August 2021]. Available from: https://www.instituteforgovernment.org.uk/explainers/financing-infrastructure
Investment
Financing Facility (IFF). 2021. HISTORY – BACKGROUND. [Online].
[Accessed 21st June 2021]. Available from: http://iff-oba.org/index.php/about-us/history
Machete I, Marques
R. Financing the Water and Sanitation Sectors: A Hybrid Literature Review. Infrastructures.
2021; 6(1):9. [No pagination].
Miha MATSUBAYASHI. 2019. ASIA Focus: Inclusive Financing for
Water: A Case Study of The Philippine Water Revolving Fund (PWRF). [no
place]: JICA.
Jeremias N. P. 2011. MAKING WATER REFORM HAPPEN: The experience of the
Philippine Water Revolving Fund*. OECD Conference Centre, Paris: OECD.
Kenya Ministry of Water & Sanitation, 2019. Financing water
sector in Kenya [Online]. [Accessed 30th June 2021]. Available from: https://www.waterreforms.go.ke/financing-water-sector-in-kenya/
Lawrence G. Velasco, Charlotte Justine Diokno-Sicat, Angel Faye G.
Castillo, and Ricxie B. Maddawin. 2020. The Philippine Local Government Water
Sector: DISCUSSION PAPER SERIES NO. 2020-33-DECEMBER 2020. Philippines; PHILIPPINE
INSTITUTE FOR DEVELOPMENT STUDIES.
Leigland
J, Trémolet S, and Ikeda J. 2016. Achieving Universal Access to Water and
Sanitation by 2030. The Role of Blended Finance. Washington, DC: World Bank.
Marshall, C., & Rossman, G. B. (2006). Designing Qualitative Research
(4 th ed.). Forum Qualitative Sozialforschung / Forum: Qualitative Social
Research, 9(3). [No pagination].
Meyer,
C.B. 2001. A case in case study methodology. Field Methods, 13(4). Pp.329–352.
Mills, A. J., Durepos, G., & Wiebe, E. 2010. Encyclopedia of case
study research. 1. Thousand Oaks, CA; SAGE Publications.
Morse, J.M. 2011. Molding qualitative health research. Qualitative
Health Research, 21(8). Pp.1019–1021.
UN-Water global analysis and assessment of sanitation and drinking-water
(GLAAS). 2019. National systems to support
drinking-water, sanitation and hygiene: global status report 2019- report.
Geneva: World Health Organization.
United Nations. 2018. Sustainable Development Goal 6 Synthesis Report
2018 on Water and Sanitation. New York: United Nations.
National Microfinance Bank (NMB). 2021. Cooperate Banking-Loan.
[Online]. [Accessed 17 July 2021]. Available from: https://www.nmbbank.co.tz/business-banking/corporate-banking/bank-loan
OECD.
2009, Managing Water for All: An OECD Perspective on Pricing and Financing.
OEC D, Paris: OECD Publishing.
OECD.
2010. INNOVATIVE FINANCING MECHANISMS FOR THE WATER SECTOR. OECD Studies
on Water. Paris: OECD Publishing.
OECD.
2018a. Financing water Investing in sustainable growth; Policy Perspectives,
OECD ENVIRONMENT POLICY. PAPER NO. 11, OECD Studies on Water, Paris: OECD Publishing.
OECD.
2018b.
OECD
DAC BLENDED FINANCE PRINCIPLES for Unlocking Commercial Finance, for the
Sustainable Development Goals, OECD Studies on Water, Paris: OECD Publishing.
OECD.
2019a. Making Blended Finance Work for Water and Sanitation: Unlocking
Commercial Finance for SDG 6, OECD Studies on Water, Paris: OECD Publishing.
OECD. 2019b. Development Aid at A Glance, Statistics by Region:
Developing Countries 2019 edition. [Online]. [Accessed 20th
July 2021]. Available from: https://www.oecd.org/dac/financing-sustainable-development/development-finance-data/World-Development-Aid-at-a-Glance-2019.pdf
OECD, 2020a. OECD Policy Responses to Coronavirus (COVID-19): The
impact of the coronavirus (COVID-19) crisis on development finance. Paris: OECD
Publishing.
OECD.
2020b. OECD DAC BLENDED FINANCE PRINCIPLE 2: DESIGN BLENDED FINANCE TO
INCREASE THE MOBILISATION OF COMMERCIAL FINANCE. Paris: OECD Publishing.
Pories,
L., Fonseca, C. and Delmon V, 2019. Mobilising Finance for WASH: getting the
foundation right. Water.org, IRC and The World Bank.
Rashid,
Y., Rashid, A., Warraich, M.A., Sabir, S.S., Waseem, A., 2019. Case Study
Method: A Step-by-Step Guide for Business Researchers. International Journal
of Qualitative Methods. 18(1–13). [No pagination].
Sanitation and Water for All (SWA). 2020. WATER & SANITATION: HOW
TO MAKE PUBLIC INVESTMENT WORK. New York, NY 10017, USA. SWA.
Saša Baškarada. 2013. Qualitative Case Study Guidelines. Fishermans
Bend, Victoria 3207 Australia: Joint and Operations Analysis Division.
Smets, Susanna.2015. Water supply and sanitation in the Philippines:
turning finance into services for the future (English). Water and
Sanita-tion Program Washington, D.C.: World Bank Group.
Tellis.
W.n1997. Application of a case study methodology [81 paragraphs]. The
Qualitative Report. 3(3). Pp. 1-19.
Tanzania Investment Bank. 2021. About Infrastructure Financing.
[Online]. [Accessed 17 July 2021]. Available from: https://www.tib.co.tz/tibdfi/index.php/en/services/infrastucture-financing
Towgood, K. J., Meuwese, J. D., Gilbert, S. J., Turner, M. S., & Burgess,
P. W. 2009. Advantages of the multiple case series approach to the study of
cognitive deficits in autism spectrum disorder. Neuropsychologia, 47(13),
pp. 2981–2988.
United Nations Environment Programme (UNEP) UNEP. 2021. [Online]. [15TH
June 2021]. Available from: https://www.unep.org/explore-topics/sustainable-development-goals/why-do-sustainable-development-goals-matter/goal-6
United Nations Children's Fund (UNICEF). 2021. Water, sanitation and
hygiene Providing adequate water, sanitation and hygiene (WASH) services is
critical to improving the survival, health and development of children. [Online].
[Accessed 10th June 2021]. Available from: https://www.unicef.org/tanzania/what-we-do/wash
United Republic of Tanzania (URT), National Bureau of Statistics, 2018. TANZANIA IN FIGURES 2018. [Online]. [Accessed 5th May 2021]. Available from: www.nbs.go.tz/nbs/takwimu/references/Tanzania_in_Figures_2018.pdf
UNICEF. 2021. Water, sanitation and hygiene: Providing adequate water,
sanitation and hygiene (WASH) services is critical to improving the survival, health
and development of children. [Online]. [Accessed 07th July 2021) Available from:
https://www.unicef.org/tanzania/what-we-do/wash
UNICEF. 2021. KENYA: Water, Sanitation and hygiene. [Online]. [Accessed
30th June 2021]. Available from: https://www.unicef.org/kenya/water-sanitation-and-hygiene
United
Republic of Tanzania (URT)/Ministry of Water. 2014. Water Sector Status
Report: Marking the End of WSDP I. Dar es Salaam: Ministry of Water.
URT,
Ministry of Water. 2020. Water Sector Status Report-2015-2020. Dar es Salaam: Ministry of Water.
USAID. 2008. The Philippine Water Revolving Fund Support Program: ANNUAL REPORT
October 1, 2007 - September 30, 2008. Washington, DC: USAID.
USAID. 2013. Philippine Water Revolving Fund (PWRF) Follow-On Program – Final
Report. Washington: DIA.
USAID. 2020. Tanzania
Water Sector Assessment for Strategy Development. Dar es Salaam: USAID.
USAID. [No date]. Philippine Water Revolving Fund Design Framework.
[Online]. [Accessed 12th June 2021]. Available from: https://www.rmaconsult.com/files/123419625.pdf
Wasser, N. M., Ruhstorfer, P., Kurzrock, B. M. 2020. Advancing
Revolving Funds for the Sustainable Development of Rural Regions. Sustainability, 12(20). pp. 8455.
Water and Sanitation Program. 2012. Sustainable Services for Domestic
Private Sector Participation: Using Credit Ratings to Improve Water Utility
Access to Market Finance in Sub-Saharan Africa. Nairobi: WSP.
Water and Sanitation Program. 2015. Lender’s Manual for Commercial Financing of
the Water and Sanitation Sector in Kenya.
World Health
Organization (WHO). 2014. COUNTRY HIGHLIGHTS • PHILIPPINES • GLAAS
2014. [Online]. [Accessed from 30th June 2021]. Available from: https://www.who.int/water_sanitation_health/monitoring/investments/philippines-01-jul-16.pdfhttps://www.who.int/water_sanitation_health/monitoring/investments/philippines-01-jul-16.pdf
WHO/UNICEF. 2021. Progress
on household drinking water, sanitation and hygiene 2000-2020: Five years into the
SDGs. Geneva: World Health Organization (WHO) and the United Nations
Children’s Fund (UNICEF).
Joseph, George; Andres, Luis Alberto; Chellaraj, Gnanaraj; Grabinsky
Zabludovsky, Jonathan; Ayling, Sophie Charlotte Emi; Hoo, Yi Rong. 2019. Why Do So Many Water Points Fail in Tanzania? An Empirical
Analysis of Contributing Factors. Policy Research Working Paper;No.
8729. World Bank, Washington, DC: World Bank.
World Bank/
Water and Sanitation Program. 2015. Water Supply and
Sanitation in the Philippines; Turning Finance into Services for the Future.
World Bank, Washington, DC: World Bank.
World Bank/
WSP and WASREB. 2011. Financing Urban Water Services
in Kenya Utility Shadow Credit Ratings. Nairobi, Kenya: World Bank/WASREB.
World Bank. 2016. CASE STUDIES IN BLENDED FINANCE FOR WATER AND SANITATION:
Water Revolving Fund in the Philippines. [No place of publication]. World
Bank.
World Bank. 2017. Easing
the Transition to Commercial Finance for Sustainable Water and Sanitation.
World Bank, Washington, DC.
World Bank. 2018. International
Development Association Program Appraisal Document on A Proposed Credit in The
Amount of SDR 243.4 Million (Us$350 Million Equivalent) To the United Republic
of Tanzania For the Sustainable Rural Water Supply and Sanitation Program. [No
place of publication]: World Bank.
World Bank. 2018. Kenya: Using Private Financing to Improve Water
Services. [Online]. [Accessed 29th July 2021]. Available from: https://www.worldbank.org/en/about/partners/brief/kenya-using-private-financing-to-improve-water-services
World Bank. 2020. The World Bank in the Philippines. [Online].
[Accessed from 30th June 2021]. Available from: https://www.worldbank.org/en/country/philippines/overview
World Bank/ WSP The
Water Services Regulatory Board (WASREB). 2015A. Water Service Provider Toolkit
for Commercial Financing of the Water and Sanitation Sector in Kenya. Nairobi,
Kenya: World Bank/WASREB.
World Bank/WSP and WASREB. 2015b. Kenya Water Service Provider Creditworthiness Index Report. Nairobi,
Kenya: World Bank/WASREB.
World Bank/WSP and WASREB. 2015c. County Government’s Manual for
Commercial Financing of the Water and Sanitation Sector of Kenya. Nairobi, Kenya:
World Bank/WASREB.
Yazan, B. 2015. Three
Approaches to Case Study Methods in Education: Yin, Merriam, and Stake. The Qualitative
Report, 20(2), pp. 134-152.
Yin, R. K. 1984. Case study
research. Beverly Hills, CA: Sage.Yin, R. (1993). Applications of case study
research. Newbury Park,California: Sage.
Yin, R. K. 1994. Case Study
Research Design and Methods: Applied Social Research and Methods Series. Second
edn. Thousand Oaks, CA: Sage Publications Inc.
Yin, R. K. 2009. Case study
research: Design and methods (4th Ed.). Thousand Oaks, CA: Sage.
Yin, R.K. 2012.
Applications of case study research (3rd ed). Thousand Oaks, CA: Sage.
ANNEXES
ANNEX 1: CORE CONCEPTS AND
DEFINITIONS
|
Term |
Definition |
|
3Ts |
“Refer to the mix of tariffs, taxation and transfers
from Official Development Assistance (ODA) and other forms of solidarity that
provide revenues for water service providers and fill the financing gap (OECD, 2010). |
|
Market-based
repayable finance |
A sub-set of repayable finance, where financing is provided through the market by private actors” (OECD, 2010). |
|
Concessional loans |
“Concessional
loans are extended on terms substantially more generous than market loans.
The concessions are achieved either through interest rates below those
available on the market or by grace periods, or a combination of these.”
Concessional loans typically have long grace periods (OECD, 2010). |
|
Public funds |
“Financial flows coming via governments and charitable organisations
from taxation and transfers. This may include public investment in
infrastructure, public subsidies for operations and maintenance costs or the
grant element in concessionary repayable finance” (OECD, 2010). |
|
Financing |
“Financing is how
you pay upfront for
infrastructure” (Institute for Government, 2021) |
|
Funding |
“Funding is how
taxpayers, consumers or others ultimately pay for infrastructure, including
paying back the finance from whichever source government or private owners
choose” (Institute for Government, 2021). |
Tariffs
includes the service user fees, household investments, charges and payments
made by the service users themselves in exchange for the WaSH services they
receive (OECD, 2019a). Tariffs can be charged in different schemes depending on
local areas where the services are provided, but in most countries, service
providers are responsible for collecting tariffs in order to cover their expenditures
(World Bank and UNICEF, 2017). Tariffs from users are very important
contribution towards sustainable cost recovery for WaSH services and long-term
financial sustainability in the sector as well as providing incentives for efficient
use of the service (OECD, 2009).
Taxes
are revenues include all funding allocated from domestic public budgets,
channelled to the public WaSH service providers. These budgets are usually supplied
by the governments to the service providers either for building new infrastructures
or operational subsides (WHO, 2012).
Transfers
are funds that comes from international donors, charitable organizations, and
decentralised corporations, primarily in the form of official development
assistance (ODA) or grants or concessional loans (OECD, 2009).
‘Safely managed’ and ‘improved’
services
For water supply services, safely managed
services are calculated by the population of people using an improved drinking
water source which is within the location, available when required and free
from contaminations (feacal, arsenic and fluoride). ‘Improved’ water sources comprise
of piped water into houses, yard or plot; public taps or water points; boreholes
or tube-wells; protected dug wells; protected springs; packaged water;
delivered water and rainwater. Safely managed sanitation, including
hand-washing facility with soap and water is measured by “the proportion of
population using ‘improved’ sanitation facility, which is not shared with other
households, where excreta is safely disposed onsite or treated off-site” (JMP,
2021). ‘Improved’ sanitation facilities are defined as “those designated to
hygienically separate excreta wastes from human contacts and include flush or
pour flush toilets to sewer systems, septic tanks or pit latrines, VIP
latrines, pit latrines with a slab, and composting toilets” (JMP, 2021).
ANNEX 2: BACKGROUNDS OF CASE
STUDY COUNTRIES
Annex
2.1 Tanzania
Social-Economic Overview
Socio-economic background
Tanzania is located in the East Africa region,
with the largest population in the region of 59 million people, annual
population growth of 3%, and ranking 24th in global population ranking (UN
data, 2021). It is estimated that 63% (37 million) of the population stays in
the rural areas of Tanzania, while urban
population accounts for 37% (22 million) plus a rapid rate of urbanization in
major cities. After a two-year sustained eco-nomic growth, Tanzania made a
significant economic milestone in July 2020 of formally graduating from a ‘low-income
country’ status to a ‘lower middle-income country’ with the
cumulative GDP of US$ 63 billion as of 2019 (World Bank Group, 2021).
In July 2020, the World Bank announced that the GNI
per capital raised from US$ 1020 in 2018 to US$ 1080 in 2019, and therefore exceeding
the low-middle income threshold of $1,036 (The World Bank, 2021). Overall, in
the past five years, Tanzania has sustained the GDP growth rate averaged 5.5%,
ranking third in East Africa behind Ethiopia (7.6%) and Rwanda (6.9%) (World
Bank Group, 2021). Despite this growth in recent decade, the occurrence of the
novel covid pandemic since 2020 has hindered economic progress of many
countries. Tanzania has seen its economic growth rate fall from the previous
rate of 7% to about 4.8% in 2020 and expected to grow by 5.6% in 2022
(Deloitte, 2021). Com-pared to other countries in the region and continent, the
economic performance of Tanzania is amongst the few economies that did not
experience negative economic contraction caused by COVID-19 in 2020 and 2021
(Deloitte, 2021).
The challenges for the country remain to recover
to its sustained growth rate in achieving its development vision and SDG
targets while ensuring inclusive growth amongst the population who have been
impacted by COVID-19. While most of the major economies in the world have
started resuming to recover from the recent pandemic’s shocks, it may be the
case that Tanzania will take longer to adapt and recover from its aftermath.
Annex 2.2 Philippines
socio-economic and wash sector overview
Socio-economic overview
The republic of the Philippines is an island
country in the Southern of Asia and Western of Pacific Ocean consisting of
about 7,641 islands. (Government of Philippines, 2021) with a population of about
109.5 million and a population growth rate of about 1.35% (World Bank, 2021).
Philippines is among of the best economies performing well in the East Asia
with the GDP of US$ 361.5
billion with a maintained average annual GDP growth of 6.4% from 2010 to 2019,
which grew from 4.5% between 2000-2009 (World Bank, 2020).
Philippines is on its way to attain another
economic milestone of moving from lower income country with per capita income of
US$ 3,850 in 2019 to an ‘upper middle-income country’) in the few years (World Bank, 2020). The economy
has, however been heavily challenged by recent hit of COVID-19 pandemic which
caused shutting down of businesses as a measure, although the economy is
expected to improve slowly in 2021/2022 as the domestic and global control of
the disease continue (World Bank, 2020).
Philippine
WaSH sector overview
Philippines
has made a considerable improvement to ensuring its population have access to
basic access to water drinking water supply and sanitation facilities.
According to the JMP data, 94% of the population of Philippines have access to drinking
water services, of which 47% have access to ‘safely managed’ level while the
other 47% have access to basic level of service.
Additionally,
the data indicates that 82% of Philippines have access to basic sanitation and hygiene
facilities at their home. The Philippines WaSH sector roadmaps shows a vision
of attaining universal coverage of drinking water by 2025 and sanitation by 2028
(World Bank/WSP, 2015). To
achieve such ambitious goals which are beyond the SDG ambitions of 2030, with
population growth of 1.35% per year (1.5 million per year), it is predicted that US$ 838 million annual investment
of would be needed for drinking water (World Bank/WSP, 2015). On the other
hands, sanitation would need annual investment of US$ 619 million (World Bank/WSP,
2015).
To
reach to this level of investments needed, Philippines made a significant step
of reforming their financial arrangements for water and sanitation sector.
Previously, the water and sanitation sector of Philippines, like many other
countries (like Tanzania, a case study for this research) suffered the lack of
investments from private sector and thus depended on traditional financial
sources (3Ts) which were dominated by international development funds (World
Bank, 2016). Furthermore, WSPs (Local Government Unit and Water Districts)
faced strong political tension to keep water tariffs lower to below the
cost-recovery levels leading to failure of operation and maintenance of the
existing infrastructures (ADB, 2013). This led to the reform of financial
structure to allow the flow of private domestic finances into water and
sanitation sector.
Impact/Results
of the PWRF approach
The PWRF
achieved the following:
- 4 years after setting out the PWRF, 22 Water Districts
were assisted to secure loan agreements of about 87 US$ 87 million (4.3
billion Philippine
peso) for financing new projects, transmission, and expansion of
distribution networks (Alma, 2009).
- By 2014, loans worth more
than US234 million (11.7 Billion Philippine peso) had been borrowed to
finance 21 water and sanitation projects benefiting over six million people,
60% of the raised loans were collected from private financiers (World
Bank, 2016).
- The technical assistance provided by the USAID
to the water utilities, Development Bank of the Philippines and commercial
banks helped to build strong WaSH projects appraisal and evaluated the
risks and provided further opportunities for the investments in the sector
(Water
and Sanitation for All, 2020). As of
2017, USAID provided technical assistance worth a total cost of US$6.8
million (Water and Sanitation for All, 2020).
Annex 2.3 Kenya
socio-economic and wash sector overview
Socio-Economic
Overview
Kenya is also East Africa with an estimated
population of 54 million as of 2021, with an average population growth rate of
about 2.2% per annum and expected to hit 63 million people by 2030 (CEIC,
2021). In 2015, water coverage in areas covered by Water Service Providers
stood at 53% while sewerage coverage stood at 16% (The Water
and Sanitation Program, 2015). Kenya became a lower middle-income country
since 2014, ahead of Tanzania. Kenya has a GDP of US$ 95 billion and 5.7%
averaged economic growth rate compared to 5.5% of Tanzania, making it one of
the rapid expanding economies in Sub-Saharan Africa (World Bank, 2021).
Kenya
Water Supply and Sanitation (WSS) Sector Overview and financial needs
The basic water access in Kenya stands at 59%,
29% have access to basic sanitation while 25% have access to basic handwashing
facilities (UNICEF/WHO, 2017). Significantly, around 10 million people drinks
from contaminated water sources while an estimate of 5 million people practice
open defecation (UNICEF, 2021). Despite these challenges, Kenya has a 2030 vision
of attaining 100% coverage of safe water supply and basic sanitation services
(Water and Sanitation Program, 2015). The Kenyan water sector has heavily
depended 70% of their annual WaSH capital investments coming from donor aids
and grants while the government contributes a larger percent of the rest budget
and private sector contributing almost a negligible percent (Kenya Ministry of
Water, Sanitation and Irrigation, 2019).
For Kenya to progressively achieve universal
access to WaSH services by 2030, 200,000 new water networks and 350,000 new
sewer connections (for around 3.2 million Kenyans) are needed annually in urban
areas, while more challenging connectivity will need to be carried out in rural
areas to guarantee equal access (Kenya Ministry of Water & Sanitation,
2019). This demonstrates the urge for the Kenyan WaSH sector to practical ways
to mobilize domestically available private funds. To ensure full realization of
their national 2030 vison of universal access WaSH services all Kenyan is
reached with the service, a heavy budget provision of US$ 16.36 Billion (translating
to US$ 927.2 million) must be committed into the sector
by 2030, of which only US$ 370.9
million is available annually (Ministry of Water, Sanitation and Irrigation,
2019).
Impacts/Results of creditworthiness in Kenyan WaSH sector
The following
are the benefits of creditworthiness Index for both WSPs, lenders and
regulators:
- Creditworthiness
Index provided an independent and transparent credit evaluation of WSP’s
creditworthy to lenders (World
Bank/WSP
and WASREB, 2011).
- The
creditworthiness Index results has been proven as an accurate predictor of
liquidity risks and its severity, thus helping the lenders to decide whether
to lend into the utility or not (World Bank/WSP and
WASREB, 2011).
- It
improved a negotiating environment for between utilities with lenders in
regard to financial terms (interest rates and tenor time)
(World Bank/WSP and WASREB, 2011).
- It also allows less creditworthy utilities understand their credit weaknesses and focus on the key areas of addressing key problems (World Bank/WSP and WASREB, 2011).
ANNEX 3: KENYA CREDITWORTHINESS
INDICATORS
ANNEX 4: WASH SECTOR INVESTMENT ISSUES AND HOW COUNTRIES HAVE
RESPONDED TO SOLVING THEM.
|
Sectoral issue |
Tanzania WaSH sector situation |
Mechanism of coping/what
improvements are needed |
Philippines WaSH
sector situation before PWRF |
Innovation
resolved the issue |
Kenya WaSH
sector situation before the creditworthiness Index |
How Creditworthiness
Index is solving the issue |
|
Limited capital investments and inability of the utilities to meet operation and maintenance costs |
· Annual US$ 1.2 billion
is required to realise the sector vision of universal access to water and
sanitation by 2030, but only US$ 885 million is available annually (USAID, 2020). ·
The budget allocation for Water and Sanitation accounts for only 2% of
the total national budget and 0.5% of the national GDP (UNICEF
Tanzania, 2020). |
·
In 2005, Tanzania established a National Water
Investment Fund (NWIF) which came into operation since 2015 with the
objective of mobilising finances for water supply and
sanitation service (URT, Ministry of Water, 2020). ·
Currently, the only source of fund for NWIF is tax collected through
the imposed charges on buying every litre of fuel (URT, Ministry
of Water, 2020). |
·
Before the PWRF, Philippines depended on insufficient traditional
financing sources, mainly a combination of government revenues, foreign funds
and tariffs collected from service users (World Bank, 2016). |
·
Establishment of revolving fund which encouraged the recirculation of
loan to develop other projects (World Bank, 2016). ·
|
·
According to the Kenya Ministry’s Sector Investment Plan, annual
investment in the sector has averaged Kenyan Shillings (Kshs) 20 billion (US$
184.2 Millions) against Kshs 300 billion (US$ 2.76 billion) needed (WSP and
WASREB, 2015 A). |
·
In 2011, The government of Kenya through its regulatory body for water
service providers (WASREB) set a shadow credit rating system to facilitate
commercial lending into WSP (WSP and
WASREB, 2015 A). In 2015, the shadow credit rating system was further reformed into
the creditworthiness index to provide cheap and automated financial
information (WSP and WASREB, 2015 A). |
|
Dependence on external grants |
An average of 35% of the total Water sectoral
budget each year come external funding, especially bilateral and multilateral donors (USAID, 2020). Tanzania stood fourth as the top Africa recipient
of ODA for WaSH sector in 2017, from OECD countries, receiving about US$ 316
million, commitments (OECD,
2019a). |
· Although the government established the National Water Fund to cope
with the unpredictable foreign funds, the government investment in WaSH in
2019/20 has declined by 10.5% and 16.6% respectively between
FY 2017/18 and 2018/19 (UNICEF
Tanzania, 2020). |
·
For many years before the enactment
of the Executive Order, 279, Philippines overwhelmingly depended on overseas’
financial contributions to water sector (Smets
and Susanna.2015). |
·
The 2004 Executive Order 279
mandated creditworthy local WSPs to tap into market-based financing sources
and shift from overdependence on public funds (Smets and Susanna.2015). |
·
Approximately, over 50% of the
Kenyan water sector budget comes from foreign development partners.
In 2013/2014, out of KShs 24 billion (US$ 221 Million), KShs 13.9 billion
(US$ 128 million) came from foreign donors (World Bank/WSP and WASREB, 2015.
A) |
·
As of 2018, creditworthiness
Index has facilitated about 50 transactions from private local lenders into
the water sector (World Bank, 2018). Over US$ 25 million of private capital
has been mobilized to finance new WaSH projects in Kenya (World Bank 2018) |
|
Lack of regulatory framework to support commercial borrowing |
·
USAID (2020) report stated that private institutions are not satisfactory
of the current regulatory framework to addressing the sector investment
risks, instead the current regulation framework discourages private financial
institutions to extend their investment into the sector. |
·
The new Water and sanitation Act still does not provide clear guidance
for private investors in WaSH sector. |
·
Before the 2004 policy reform for the WaSH sector, Philippines was
fragmented by poor institutional arrangement that discouraged the flow of commercial
finances into the sector (Alma, 2009). |
·
Regulatory and institutional strengthening through enactment
of Executive Order (EO) 279 was issued in 2004 delegating creditworthy WSPs to move from government
funds to private finances (World Bank, 2016). |
·
Before the 2002 Water
Act, service providers did not have opportunity to borrow from private
institutions. |
·
In 2002, the Kenyan government established an ambitious regulatory
reform for the WaSH sector through enactment of Water Act of 2002. The Water
Act among other things, mandated the WSPs as the private entities that are
independent, autonomous, and run professionally as business and can source
finances from private investors (World Bank/WSP and WASREB, 2015. B). |
|
|
·
Water utilities are run as a free
social service and are highly politicised (USAID, 2020). Often, water
utilities serve the interests of politician by charging very low tariffs in
favour to secure political positions and thus significantly affecting pricing
and financial returns (USAID, 2020). ·
Utilities are faced by high
non-water revenue, with a national average of 30.2%, well beyond a national
target of 25% (URT, Ministry of Water,
2020). |
·
Clear regulations for tariff
setting are needed. ·
Technical assistance is needed
to assist utilities to develop an understanding of the sector as a business sector. |
·
Until very recent, provision of
water related service was perceived as a free service that citizens deserved
without any contribution (Asia Development Bank, 2013). |
·
A massive institutional and policy
reform backed by the enactment of the Executive Order 279 in 2004 supported
running of water utilities as business rather than a free social service (World Bank, 2016). ·
|
·
Water is considered a social good
that everybody should have access to freely, and therefore it generates very
little financial return (World Bank/WSP and WASREB, 2015. B). |
·
After its establishment, the WASREB
established guidelines for tariff settings in
order to limit the political influence of the price of WaSH services (World Bank/WSP and WASREB, 2015. B). |
|
High
interest rates that do not fit the sector nature of business. |
·
The average lending rates of private bank in Tanzania ranges between
15 and 16% (Bank of Tanzania, 2019). |
·
No existing financial and regulatory framework for lowering borrowing costs
from commercial lenders in Tanzania. |
·
The interest rate for pure commercial finances in Philippines is 12% (USAID, [No
date]). |
·
Blending of ODA component with
domestic commercial finances lowered the interest rate by at least 1-2%. Currently,
the interest rate for commercial lending in Philippine’s
water sector ranged from 6% to 10.5% (Miha, 2019). |
·
Commercial lending is usually expensive with higher interests and hard
to obtain in water sector due to low commercial viability of the sector
(World Bank/WSP and WASREB, 2015. B). |
·
Creditworthiness increased the business conversation between lenders
and borrowers, which provided an opportunity for negotiation of loan interest
with regards to capital investment (World Bank/WSP and WASREB, 2015. B). |
|
Loan tenor limitations |
·
Although some banks prefer not
to publicly announce the tenor period for loans, some banks such as National
Microfinance Bank (NMB) NMB stated that it is willing to provide a maximum of
5 years tenor time for cooperate loans with a grace period of only up to 12
months (NMB Bank, 2021). Additionally, the institution borrowing must demonstrate the
capacity to provide up to 25% of the total capital investment (NMB Bank, 2021). ·
Few Banks, such as Tanzania
Investment Bank (TIB) has formulated separate loan framework
to complement the government vision in investing in infrastructure, including
WaSH infrastructure. |
· The recent water
sector report identifies repayable finances and Public-Private partnership as
the alternative financial source for the sector, however a detailed plan for
attracting private lenders need to be developed (URT, Ministry of Water, 2020). · Technical assistance is needed to familiarise private banks with the
special needs of WaSH sector to improve their loan packages. |
·
PFIs in Philippines lends for 7
- 10-years, while utilities require 15 - 20-years tenor (Alma, 2009). |
·
Blending nature of the PWRF
resulted into longer grace
period (up to 10 years), longer tenor up to 20 years,
with an option for private lenders to terminate their loan agreement and get
their repayment early (Alma, 2009). |
· The commercial banks in Kenya provides lending periods not more than 7
years long while the economic life of WaSH asset is much longer than the
preferred tenor time (World Bank/WSP
and WASREB, 2015. B). ·
|
·
The guaranteeing system provided by the USAID provided the confidence
of the investment and reduced the lending risks, consequently the private
lenders extended the loan tenor and reduced interest rate (Bender, 2017). |
|
Domestic
private financial institutions lack experience in lending to the WaSH sector |
·
Lack of financial documentations by the water authorities to allow
private financial institutions to evaluate the financial performances thus
lead to lack of trustworthy. It’s a strong requirement for private banks to
have a clean financial performance and must be demonstrated through financial
statements of the previous transactions. |
·
EWURA is mandated to regulate the performance of the WaSH service
providers, their report focuses mainly on the overall general performance
ranking for utilities and not the potential of the utilities to attract
private loans (USAID, 2020). |
·
Lack of Information and Commercial Banks perceptions of the WaSH
sector as the high risk amplified the perceived risks of water utilities in
Philippines (Jeremias, 2011). |
·
Additional technical support/assistance provided by USAID to the
commercial banks. ·
|
· Conventionally, due to
lack of financial arrangement of the sector, private lenders have categorised
the WaSH sector in Kenya as high-risk area of investment, with complex financing
settings
(World Bank/WSP and WASREB, 2015.A). ·
|
·
The Creditworthiness Index Report provided annually by the WASREB has
offered an insight to private lenders on the WSP financial performance and
credit ratings, allowing private banks to evaluate the investment risks of
the WSPs (World
Bank/WSP and WASREB, 2015.A). |
|
WSPs lack experience to borrow from
domestic private financial institutions |
·
WSPs (utilities) still lack the
necessary technical and financial skillset to professionally run water
utilities (USAID, 2020). The technical support programmes for public WaSH authorities are
often underfunded, relying solely on foreign assistances to support programmes
(USAID, 2020). |
·
commercial altitude and business development skills is needed for WSPs
staff to familiarise with the lending procedures and improve their potential
to reach commercial viability (USAID, 2020). |
·
Utility leaders from Water
Districts and LGUs did not have sound business plans to convince PFIs for
lending (Jeremias, 2011). |
·
USAID provided an additional technical assistance worth of US$ 6.8
million to both DBP, commercial banks and service providers (Water and Sanitation for All, 2020). |
·
The WSPs lacks experience of
borrowing from private lenders because of the limited flow of commercial
finances into the sector and therefore are often unfamiliar with borrowing
criteria of private financers (World Bank/WSP and WASREB, 2015.A). |
·
The World Bank through its
Global Partnership on Output Based Aid (GPOBA) provides technical assistance
to both lenders and borrowers involved in commercial lending of the
designated project (World Bank/WSP and
WASREB, 2015.A). |
|
WSPs
lacks creditworthiness |
·
There is lack of strong, independent credit evaluator for the Water
and sanitation authorities in Tanzania, which lead to poor financial
transparency and consequently lack of creditworthiness. |
· Currently, UWURA provides
general performance review of water utilities by ranking them using
performance in service coverage, water supply service hours, metering ratio,
staff productivity, non-revenue hours and their general financial performance
(EWURA,
2020). |
·
Before the establishment
of credit rating system, the challenge of commercial investments in WaSH
sector was the lack of credible way of convincing private lenders to extend
their credit to the sector (Lawrence et al, 2020). Water utilities were operating on a
high non-revenue water (average of 39%), and thus large volume of water was
left unbilled (Lawrence et al, 2020). |
·
In 2004, the government introduced credit rating scales for Water
Districts and LGU conducted by an independent credit rating agency, CRISIL, an
Indian-based rating agency (USAID, 2013). ·
Both USAID and JICA provided technical assistance to improve WSP
creditworthy (Water and Sanitation for All, 2020) |
·
Private financiers are reluctant to lend to water sectors because of
high liquidity risks World Bank/WSP and WASREB, 2015.A). |
·
Creditworthiness Index allows the rated WSP to identify the areas of
weakness that reduces their credit scores and establish actions of
improvement and are allowed to apply for foreign technical assistance under regulations
(World Bank/WSP and WASREB, 2015. B). |
Comments
Post a Comment