'Innovative Financing for Asia's Water Sector'

Geert H.P.B. van der Linden
Vice-President for Knowledge Management and Sustainable Development
Asian Development Bank

At the Regional Conference on Water Financing,
Hosted by the Philippine Water Partnership

30 May 2006
EDSA Shangri-La Manila
Mandaluyong City, Philippines

Introduction

Ladies and gentlemen, distinguished guests, good morning. Thank you for the opportunity to talk to you about some exciting, new directions that ADB is embarking on in the water sector. ADB has taken its decades worth of experience in water financing, reforms and capacity building and packaged them together in a bold new “Water Financing Program,” which we announced last March at the 4th World Water Forum in Mexico. With a clearly defined approach and specific targets, the Water Financing Program is expected to result in a doubling of our investments in the water sector between 2006 and 2010. These increased investments will focus on three areas: rural and urban water services, and management of water in river basins. The program aims to provide 200 million people in the region with access to safe and affordable drinking water, 100 million people with sanitation, and 40 million rural dwellers with improved irrigation services for their livelihood. The program will also reduce the risk of flooding for 100 million people, and introduce integrated water resources management in 25 river basins in the Asia-Pacific region, including several in Southeast Asia.

ADB estimates that the Water Financing Program alone will contribute well over $2 billion annually to meet the region’s investment needs in the water sector. However, we expect that ADB’s investments will also leverage significantly higher levels of financing from governments, the private sector, and other development agencies.

In implementing ADB’s Water Financing Program we also expect stronger regional cooperation. We particularly appreciate the recent launch of the new Asia-Pacific Water Forum, which will establish—for the first time— a water network for the whole Asia-Pacific region. The forum will organize regular Water Summits, with the first such summit expected to be organized in Japan in 2007.

We expect the Asia-Pacific Water Forum to add further value to the good work of existing organizations and networks, such as the subregional and national networks of the Global Water Partnership, including the Philippine Water Partnership here, and that it will produce specific and practical guidance to leaders of government, private sector, and civil society throughout the region.

Ladies and gentlemen, ADB’s new Water Financing Program is now available to our developing member countries. It offers a variety of new financial products, such as subsovereign and nonsovereign public sector lending, multitranche financing, local currency financing for the public sector, refinancing, financing syndications and risk-sharing arrangements. These products are more suitable for governments undergoing decentralization, and several products appeal especially to local governments. For the central level, they also give governments more flexibility in managing long-term investment partnerships and carry reduced commitment fees.

The Water Situation in Southeast Asia

So why this particular program, and why now? Well, for two reasons. First of all, as a development institution, we are concentrating our efforts in the water sector because water is so important for reducing poverty and increasing economic development. For ADB, it made excellent sense to prioritize the water sector as part of our core business. Second, we have launched the program this year because investments must be increased now in order to reach the Millennium Development Goal targets by 2015. We have passed the halfway mark, and recent data tells us that without significant increases in resources invested into the sector, much of the region will miss the water MDG target, and as a result, may miss several of the other MDGs.

ADB, together with UNDP, UN-ESCAP and WHO, recently published Asia Water Watch 2015, which reveals that while some progress has been made, the Asia and the Pacific region still has far to go to reach the water MDG target. Approximately 669 million, or one in five, Asians still lack access to improved water supplies. Far worse, 2 billion, or one in two, Asians lack access to improved sanitation. In Southeast Asia, there is both positive and worrisome news to report on the water MDG achievement. There are pockets of impressive results, like in Thailand and Malaysia, where cities are on course to exceed the MDG clean drinking water target and reach 100% coverage by 2015. In contrast, Indonesia, Philippines and many others show signs that past achievements are being undone by rapid population growth in their urban areas. Urban water supply coverage is actually regressing in these countries.

The situation for sanitation is also dramatic, and this is increasingly recognized as crucial for public health and economic activity. Historically, sanitation is an area that has not received enough investment. Most countries began their MDG campaign with very low sanitation coverage levels. Even though they are reasonably on track to meet their MDG commitments, this still means millions of people will be without adequate sanitation by 2015.

The MDG targets concentrate on water and sanitation service delivery, but the equally important issue of better water resources management has gained more recognition. ADB continues to receive more requests from clients to develop projects that will create or strengthen existing water resource management strategies, laws and policies, river basin organizations and help in the areas of flood management and pollution control.

ADB’s Comprehensive Approach

To solve the issues facing the water sector, ADB knows it must understand its clients’ needs and offer them cost-effective solutions. So we are taking a responsive, comprehensive approach, which embraces three strategies. Firstly, raising awareness of the need for reform and assisting in implementing reforms; secondly, helping to build organizational capacity and involve partners including the private sector and civil society; and thirdly, updating ADB’s own financial products and procedures to meet the changing circumstances.

To raise awareness levels of government and the general public on reforms, we have—for some time now—conducted campaigns through television, print media and the Internet that reinforce the importance of water and its links to poverty reduction and economic development.

Our work to help clients build capacity comes in many forms and is integrated into projects as well as through regional cooperation among practitioner organizations. Recently, we have introduced benchmarking approaches to assist key water organizations identify their performance gaps and initiate improvement programs. These programs will lead to stronger water service utilities and more effective river basin organizations and national water sector apex bodies. By making water service providers more effective, they will be able to attract financing for bankable projects. This performance-driven cycle will help countries reach the water MDG target. Many of you here are active in the networks that are receiving ADB’s support for developing performance benchmarking and peer reviews. These organizations include the Network of Asian River Basin Organizations or NARBO, the Southeast Asian Water Utilities Network or SEAWUN, and the network of national water sector apex bodies.

Regarding the need for attractive financial products, ADB has updated its products in a direct response to what our government clients have said they needed from us. Already in Indonesia and the Philippines, we are engaged in discussions on using multi-tranche financing for urban water and basin water projects.

As you can see, ADB is not just about investments. Our approach combines expanded investments in water infrastructure with a strong emphasis on good governance to manage water as a resource and as a service, with people in the center, leadership at the national level, and a focus on better decision-making and implementation. This approach requires effective partnerships.

Closing

In closing, I challenge you to tackle the specifics of financing at different levels of government, in each subsector, and blend finance with reforms and capacity development. This conference presents a unique opportunity to move past general discussions. The participants of this conference bring a variety of perspectives to the table—of governments, regulators, small and large water service providers, river basin organizations, development institutions, and the private sector.

This conference also offers countries in the region an opportunity to review and revitalize plans for their water sector, and to discuss how available strategies, products, and partnerships can best be used. Towards the end of the conference, my colleagues will add further perspective by discussing with you ADB’s new Water Financing Program and its new financial products to suit the needs of your countries and organizations. I encourage you to take a closer look at ADB’s Water Financing Program and the products we are now offering. I also encourage you to talk with ADB here in Manila and in your own countries to see how we can help in your respective countries.

The Global Water Partnership deserves much congratulation on its tenth anniversary and the progress this partnership has made in Southeast Asia. GWP has branched out by developing a subregional group as well as country water partnerships, including the active and vibrant Philippine Water Partnership as the main organizer of this conference. GWP’s efforts have brought water to the agenda of ASEAN, and various regional experts have contributed their valuable experience to water dialogues at the global level.

I wish you every success in your discussions at this conference, and ADB looks forward to working with you in your respective countries and organizations.

Thank you.