Climate Proofing the Water Sector: Investment and Financing

transcript

CLIMATE PROOFING THE WATER SECTOR: INVESTMENT AND FINANCING

Dr. Justin RamDirector, Economics Department

October 25-27, 2016Trinidad and Tobago

12th High Level Forum (HLF 12) of Caribbean Ministers Responsible for Water

Outline

• Macro-economic environment• Global importance of water• Caribbean context • The economics of water• Next steps• Opportunity for growth

– Water-Jobs Nexus• Financing water investments• The role of CDB

Average growth of 1.5 % over the past 5 years; high fiscal deficits and growing debt (domestic)

2011 2012 2013 2014 2015 2016

3.53.3 3.4

3.1 3.1

4.94.6

4.04.2

3.23.0

1.4 1.4

GDP GrowthWorld Emerging Markets and Developing Economies Latin America and the CaribbeanBMCs

Source: WEO, October 2016

Average growth of 1.5 % over the past 5 years; high fiscal deficits and growing debt (Domestic)

Debt to GDP(General Government Gross Debt)

2015 2016

Source: WEO, October 2016

Importance of water

The importance of water to the global economy

Source: Stefan Uhlenbrook, WWAP, UNESCO

3 out of 4 jobs that make up the entire global workforce are water dependent

WATER-DEPENDENT JOBS

Investing in Water – High Economic Returns

Tariff Structure• Low tariff• Subsidised by

Government

State Enterprises• Rigid labour contracts (unions)• Low productivity• Focus on operations and

maintenance not strategic planning

Poor Infrastructure• High inefficiency• High NRW • High demand• Not treated as an

economic good

Factors affecting the level and quality of water services in the Caribbean

An average of 47.5 MLD is consumed (exc. T&T)On average 92% of the population has access to water

Anguil

Antigu

a and B

Barbad

Belize BVI

Cayman

Dominica

Guyana

Jamaic

Monste

St. Kitts

St. Luc

St. Vinc

ent & th

Trinid

and Caic

Water Coverage % of Population

Anguilla

Antigua and Barbuda

Bahamas

Barbados

Belize

British Virgin Islands

Cayman Islands

Dominica

Grenada

Guyana

Monsterrat

Jamaica

St. Kitts and Nevis

St. Lucia

St. Vincent & the Grenadines

Trinidad and Tobago

Turks and Caicos

0 100 200 300 400 500 600 700 800 900 1000

Water Consumption (MLD)

An Average of 47.5 MLD is Consumed (Exc. T&T)on Average 92% of the Population has Access to Water

0 10 20 30 40 50 60 70 80

Turks and Caicos Trinidad and Tobago St. Vincent & the Grenadines St. Lucia St. Kitts and Nevis Monsterrat Jamaica Guyana Grenada

Dominica Cayman Islands BVI Belize Barbados Bahamas Antigua and Barbuda Anguilla

NRW averages 40-50 percent of water generated; Average tariff of USD1.6 per cubic meter

Anguilla

Antigua and Barbuda

Bahamas

BarbadosBeliz

Cayman Is

Dominica

Grenada

Guyana

Jamaica

Monsterra

St. Kitt

s and N

St. Lucia

St. Vince

nt & th

e Grenadines

Trinidad and Tobago

Turks and Caico

2.64 2.5

0.40.78

0.660.98

0.630.37

0.15 0.27

Tariff US$/ m³

NRW averages 40-50 percent of water generated; Average tariff of USD1.6 per cubic meter

Economics of Water

Priority areas in water management for investment that will boost the Caribbean’s resilience to climate risks include:

Augmenting / identifying alternative water resources

Treating and using wastewater as a resource

Protecting and restoring watersheds

Flood risk management

Strengthening water infrastructure and networks

Improving water use efficiency

How does the Caribbean compare –Performance characteristics for public water utilities, 2002

BMC Avg. 6,502,587

45.6 1.4 9.6 2.2 89.7 87.1 1.5

Water sector indicators: Caribbean

High water consumption – (90% above industry standard) agriculture, tourism and industrial production

Trinidad Dominica Monsterrat BVI St. Lucia Grenada Barbados0

Water Consumption l/p/c/d

Rural Standard Urban Standard

High water consumption – (90% above industry standard) agriculture, tourism and industrial production

Antigua & Barbuda

Barbados

Belize

Guyana

Jamaica

St. Lucia

St. Vincent

Trinidad & Tobago

0 5 10 15 20 25 30 35

% of Crop Land Irrigated by Water

Low water productivity; High operating costs

Anguil

Antigu

Barbad

Belize BVI

Cayman

Island

Dominica

Guyana

Monste

Jamaica

St. Kitts

St. Luc

St. Vinc

ent & th

Trinida

d & To

Water Productivity (Employees/1000 Connections

Developed Standard Developing Standard

Low water productivity;High operating costs

Anguil

Antigu

a and B

Belize BVI

Cayman

Island

Dominica

Guyana

Monste

Jamaica

St. Kitts

St. Luc

St. Vinc

ent & th

Trinid

Working Ratio (<0.70 is prudent)

Industry Average

The basic provision of adequate water, sanitation and hygiene (WASH) services at home and in the workplace enables a robust economy by contributing to a healthy and productive population and workforce, with benefit-to-cost ratios as high as 7 to 1 for basic water and sanitation services in developing countries (OECD, 2011a and 2012a).

Is water a social good or economic good?

United Nations, 2010 (Res 64/292)

Water and gender-equally important for economic growth

Source: United Nations Water Fact Sheet; UN Water.org; (The) World's Women 2010. Trends and Statistics. UNDESA, 2010

Next steps for the Caribbean

Revised Tariff Structures

Investment in Infrastructure (PPP)

Innovation

Financing

Management of Watersheds

Improving Efficiency

Ensuring the Sustainability of Water Resources and

Ecosystems

Strategic Planning

Climate Resilient Water Infrastructure

Training and Human Resource Development in Water Resource

Management

Getting incentives right

• Through Public Water Utilities, most countries subsidise water, creating incentives for overuse and imposing a fiscal burden;

• Subsidies are estimated at approx. 0.6 percent (US$456B) of Global GDP in 2012 (IMF, 2015);

• Water subsidies are inequitable, benefiting mostly upper-income groups in developing countries, (IMF, 2015)

• Water prices in advanced economies tend to be at or close to cost recovery levels (household and industry); some provide subsidised water for agriculture, electricity generation.

The case of a bottled water and willingness to pay

Global water market was valued at US$170 billion in 2014

Market driven by health awareness and changing consumer lifestyles

Demand for clean, hygienic and flavored water; also portability

Bottled water is one of the fastest growing industries in the Caribbean

Bottled water vs TariffsUSD1.03 vs USD0.0003

St. Lucia Barbados Trinidad Jamaica Belize Guyana Antigua Dominica Grenada St. Kitts St. VincentBahamas Cayman Mosterrat0.00

0.0000

0.0005

0.0010

0.0015

0.0020

0.0025

0.0030

0.0004

0.0012

0.0003

0.0007

0.0018

0.0001

0.0017

0.0004

0.0008

0.0006

0.0002

0.00260.0025

0.0010

Price of Water (US$ per 1 litre)

Bottled Water Tap Water

Water pricing reformsTariff structures/ metering

% of Customers with Meters

Investment in infrastructure development

An estimated US$5.5 billion investment in Water and Sanitation is

required in the Caribbean (CDB, 2014)

Water PPP Experiences in the Caribbean

Country Year Started

Year Ended

Result

St. Lucia 2005 & 2008

2009 Failed

Bahamas 2012 On-going

Positive Results

The Bahamas

PPP of $83m (10-Year Contract)

Goal: Reduce Leaks from The System

Performance-Based Contract

Daily water loss reduced to half and $6.5 M in savings in the first two (2) years

Opportunity for growth???

Source: Texas A&M Energy Institute

Infrastructural investment = Multiplier effect on job creation

Source: World Water Assessment Programme (WWAP) & UNESCO, 2016

The transition to a greener economy enhances opportunity for decent jobs

The Water-Climate Nexus

energy environment

Climate Finance in the Caribbean

Source: Global Water Partnership Caribbean & Caribbean Community Climate Change Centre (Information Brief 3)

27% of MDB finance allocated to water and wastewater in 2015

Source: 2015 Joint Report on MDB Climate Finance

Financing options

Tariffs, Taxes, Transfers

Government Investment

Donor Funding

Traditional Sources

Climate Funding W/ Water Investment

Carbon For Water

Green Bonds

Social Bonds

Innovative Sources

Sources of financing

Source: Assessment of the Water Sector in the Caribbean: Summary Report, Caribbean Development Bank, January 2015

The role of CDB

Green Climate Fund Accreditation;

CALC Funding; PPP Facility;

Concessional Lending

Leader in Climate Change

and Water Resource

Management

Thank You

Climate Proofing the Water Sector: Investment and Financing

Economy & Finance