Remarks by Angel Gurría, OECD Secretary-General, delivered at the High-Level Panel on Infrastructure Financing for a Water Secure World
26 November 2014, Paris, France
(As prepared for delivery)
Dear friends and colleagues,
I am delighted to welcome you to this first High-Level Panel Discussion on Infrastructure Financing for a Water Secure World, a joint initiative with the World Water Council.
Water security is one of the greatest challenges we face today, yet the situation has never looked more perilous.
By 2050 the OECD Environmental Outlook projects that nearly 4 billion people will live in river basins under severe water stress, and global nitrogen effluents from wastewater are projected to grow by 180%. Whilst, over the same period, global demand for water is expected to grow by 55%.
The international community is finally waking up to the gravity of the situation, and we have set ourselves a number of ambitious objectives. Initiatives like the World Water Council’s Pact on Water Security, the establishment of the Human Right to Water, and the Post-2015 Sustainable Development Goals are now helping to set the agenda for universal access and water security.
But let’s be clear: these efforts will fall short unless we resolve the question of access to finance for water infrastructure.
Both the Camdessus Panel on Financing Water for All, and later the Task Force on Financing Water for All - which I had the privilege to chair – helped to advance finance for water infrastructure on the international agenda. But more remains to be done.
Today I would like to highlight three aspects of infrastructure financing that will be crucial to promoting a water secure world:
For starters, we need to ensure that investment is channelled into creating the appropriate water infrastructure in developing countries, and targeted at upgrading existing networks in advanced economies.
Next up, we must also recognise that times have changed. In a post-crisis context of fiscal consolidation efforts to promote water security need to focus on tapping new sources of funding.
Finally, we need to ensure that the best use is being made of available finance for water infrastructure; that we do not lock ourselves into unnecessarily costly solutions; or solutions that do not adapt easily to future challenges.
Targeting investment where it is needed
On the question of infrastructure investment: developing and developed countries clearly have different needs. In developing countries, significant investment is required in new infrastructure to deliver improved human well-being and provide a platform for growth.
Our friend Gérard Payen who is joining us today rightly claims that “It seems that the [human] right to safe drinking water is inadequately satisfied for more than 3.4 billion people”.
In stark contrast, many developed countries are dependent on ageing infrastructure, and many water networks are nearing the end of their design lives. In the UK, 75% of urban water networks are more than 100 years old.
We should not bury our heads in the sand: the investment needed in global water infrastructure is enormous. Water supply and sanitation, on their own, are expected to require USD 6.7 trillion by 2050, and including a wider range of infrastructure could see that bill triple by as early as 2030.
The cost of inaction will be far-greater. As a consequence of under-investment, water infrastructure is inefficient with leakage losses as high as 45% in some OECD cities. This is a waste of water, energy and money!
The concentration of people and high-value assets in cities with aging or inadequate infrastructure has increased exposure to water-related natural disasters. In Thailand, the 2011 floods slashed 4th quarter GDP growth by a staggering 12%, motivating the Thai Central Bank to cut rates to aid the recovery.
Funding Infrastructure Investment
To act effectively we need to grasp how water infrastructure is financed. At present, funding relies on three sources, the three Ts: tariffs, taxes, and transfers. Each of these has an important part to play in infrastructure financing, but each has its limitations.
In the post-crisis world, tax revenues and public budgets are an unstable source of finance, especially in countries affected by fiscal consolidation. As a former Minister of Finance, I know that water investments have to compete for public funds with other pressing priorities.
Transfers from the international community can finance investment in large infrastructure or water supply and sanitation services in developing countries. Yet, they are less effective at financing the operation and maintenance of existing infrastructure.
Whereas, revenues from tariffs are constrained by the limited willingness-to-charge for agricultural or domestic usage, and affordability issues for the poor.
In this context, investors cannot secure the stable revenue they need to recoup investments.
Uncovering cost-effective solutions through innovation
So how can we begin to address these challenges? I believe we need to ensure that available financial resources are used in cost-effective ways. Innovation will play a key role in three areas: sources of finance, technologies and governance arrangements.
First, new financing instruments should be explored. In the US and the Philippines National Revolving Funds have successfully allowed central government to stimulate borrowing and on-lending by municipalities and utilities. The private sector also has a role to play in operating and financing water.
But, this will require more effective policies, regulatory frameworks and governance regimes to allow new sustainable business and financial models to thrive. In Brazil, private sector contracts help provide water and sanitation in 297 Brazilian municipalities, serving 27 million people, and injecting 28 billion Brazilian Real of investment.
Second, we need to explore innovative infrastructure solutions. We now have a better understanding of how ecosystems, such as wetlands or flood plains; small-scale systems; and strategic asset management can minimise costs and financing needs. We must harness this knowledge to avoid infrastructure “lock-in” failures and to enforce urban water security.
Third, any solution requires appropriate governance: to provide consistency across different levels of government, to engage with stakeholders, and to exploit synergies and align incentives across sectors. The OECD Water Governance Initiative is putting in place an important piece of the solution, drawing up an inventory of good practices across the relevant domains and developing principles for good water governance.
The good news is we have already begun to take action on these three fronts. Some countries have advanced rapidly. For instance, in the Netherlands, the 2012 Delta Act established the Delta Programme, a Commissioner and a Fund to advance an adaptive approach towards adaptive water management.
Across the OECD countries, money is already available to address the challenge. In 2013, institutional investors held over USD 87 trillion in assets and their interest in infrastructure investment is growing. Moreover, we have seen the creation of new financing vehicles, innovative technologies, and institutional arrangements that can be channelled into addressing the issue of financing a water secure world.
We need to trigger action, by governments, cities, financiers, service providers, water users, and civil society, to ensure that existing infrastructure finance is used more efficiently and further funds are provided where necessary.
Both today in Paris, and in six months time in Korea, we must focus our efforts to ensure that greater water security and access to quality water services is achieved at the lowest possible cost for our communities.
This session is our first opportunity to share views about where we are, regarding financing infrastructure for a water secure world. The objective today is to identify a first set of ideas to provide guidance to the Advisory taskforce that supports the High-Level Panel. The Advisory taskforce will collect data and evidence to support our next discussion.
The first part of the session will be dedicated to the major challenges and opportunities in financing water-related infrastructure. The second part of the session, after the coffee break, will be focused on how to take action and how this Panel can make an impact.
I now invite Benedito Braga, President of the World Water Council, to introduce himself and the panellists of this session, which he will be co-chairing.