Cleaning Utility Balance Sheets Rsramanujam

8/3/2019 Cleaning Utility Balance Sheets Rsramanujam

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Theme 1 Cities and Water: Solutions for Efficienc

Cleaning Utility Balance Sheets:

. . amanu am



Possibilities are enticin

• Public resources are limited

•

• What are the real options, what does the utilityneed to do?



Possibilit is real thou h access is not universal

U.S. Public Finance

Ratings Distribution

As on Dec. 31, 2009

Ratin %

Asian and African ExamplesAsian and African Examples

AAA 4.13

AA 37.35Investment

Grade

Manila Water Aaa

Uganda (NWSC) A, Senegal (SONES) A+, Tunisia (SONEDE) A,

A 48.10

BBB 9.35

BB 0.85Below

Aetra (Jakarta) AKenya (NCWSC) BBB , Burkino Faso (ONEA) BBB+, PDAM KotaMalang BBB

PDAM Kota Surakarta BB-

B 0.15

CCC 0.03

nves mengrade

High • Market access is not universalCC 0.01

C 0.04

DefaultRisk

– ccess s easy an pro uc ve or u es w

investment grade

– Access becomes expensive for utilities below

investment grade

– And is almost impractical at default grade



Cleaning utility balance sheets, attracting

nves men s

Is often gradual, starting with utility internal reform



Sta e 1 – Core of utilit reform

1. Clean O erationsA South Asian capital cityA South Asian capital city

Maximumcustomercoverage

Indicator Value

Customer coverage 68.1%

Minimumcommercial losses

Achieve simple

Water consumption 22.1 lpcd

Continuity of service 2.75 hrs/day

Non revenue water 61%ec n ca oss

reduction

Responsivecustomer service

Consumption metering level 55%Production metering level 10%

Collection efficiency 78%

• The focus of this utility needs to be on coverage, supply efficiency Maximise supply

potential

• Market access would be difficult, and also not productive in these

circumstances

Core of Utility ReformFocus on improving areas that are under the control

of the utilit



Sta e 2 – Pre-re uisite for borrowin

NWSCNWSC -- UgandaUganda.

Volumetric tariff

Cost recoverytariff

Regular tariffrevisions

if required

Part funding ofinvestmentsthroughconnection

charges

• Utility reforms transformed NWSC into a viable entity which received a

shadow credit rating of A (by GCR)

Clean finances prepare the ground for

creditworthiness



Stage 3. External support is required to create ac ean a ance s ee

3. Clean balance sheet

Ring fenced utility

finances

reporting systems

Accounting forunfunded liabilities(retirement benefits)

Claims (bills unpaid,capital WIP, debt due)

(asset insurance)

With a clean-up of past, the utility is ready for

accessing markets



Sta e 4. An enablin environment

4. Clear framework

Borrowing powers

Financial support

Functional capitalmarkets andintermediaries

• poo e orrow ng o mn y seven c t es or water

projects

• State level intermediary leading the investment programme

Facilitators

• Multi level security arrangements – a) Escrow and debt service

fund arrangements at city level, b) State intercepts, c) Common,

d) Deferred payment loan from State level municipal fund

• Tax exemption to investors from the national Government

Even a strong utility needs a clear enabling

framework for attracting investments



Cleaning utility balance sheets, attractingnves men s

Cleanoperations

Cleanfinances

Cleanbalance

sheet

Clearframework

• Two further Issues

– Often the transition needs external support

– For sustainable investments, a stable framework is necessary

for the sector



1. Transition su ort is needed 1/4

Sindh Cities Improvement Project in Pakistan supported by ADBSindh Cities Improvement Project in Pakistan supported by ADB

TMA TMA TMA TMA TMA TMA

Customers Customers Customers North Sindh Urban ServicesCorporation

Transitionneeds support

Water Coverage <55%

Cost recovery <30%

Solid Waste Collection <50%Targetted 2018Water Coverage 80 %

Cost recovery 70 %Sewage connections 50 %Solid Waste Collection 50 %



1. Transition su ort in Sindh 2/4

USUSC will achieve cash cost recovery in 2017 and will need transition support till thenUSUSC will achieve cash cost recovery in 2017 and will need transition support till then

A component of the Sindh Cities

ADB provides financial support in thetransition period



1. Transition Su ort is needed 3/4

There is increased interest in India for market financing and PPPsThere is increased interest in India for market financing and PPPs

Non SovereignLoans

GovernmentGrants

Fiscal transfers



1. ADB is ex lorin transition su ort 4/4

LoansPPP Support

Nagpur Municipal

Corporation

ro ecro ecDevelopmentDevelopment

EnvironmentalServices Company

ADBConsidering anon Sovereign Loan

KohlapurKohlapur WWTPWWTPSuratSurat WWTPWWTP

Bulk water

investments

Distribution

operations through

PPP arrangements

Aurangabad WSAurangabad WS

Karnataka WSKarnataka WS

A longer tenure loan would make bulk waterinvestments feasible



2. A stable framework can sustain market access

•

• ar an operat ons governe t roug regu at on

• Corporatised operations, autonomous management tosustain commercial orientation

,

markets are still evolving



Issues

• What are the mechanics of a balance sheet clean-u ?

• What are the key factors that drive the credit rating, and therefore the

practicality of accessing markets?

• Often, the window available to introduce reforms is short. Is the risk of quick

launch worth taking?

• What are the key support measures that the Government, as utility owners,

should provide?

• What are the intermediate financial products that multilateral agencies can

offer to punctuate market access?

• What practical factors drive the choice of PPP Vs Public reform model?



Thank You

. . amanu [email protected]

+91 9833778822

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Cleaning Utility Balance Sheets Rsramanujam

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