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The cost of water: financing water improvements for wellbeing

By Ellie Leaning
EcoCiv Projects Director

60% of the human body is water.

71% of the earth’s surface is water.

Yet, 844 million people currently lack access to safe drinking water.

Every day, more than 800 children under age five die from diarrheal diseases attributed to poor water and sanitation.

1.8 billion people use a source of drinking water contaminated by feces.

Water is, arguably, the most essential resource for sustained life on earth. It is a finite resource vital for sanitation, hygiene, agriculture, economic activity, and recreation. Clean water keeps girls in school, reliable access to water keeps women safe, and high-quality water keeps families healthy. It is easy to talk about the right to water. Most global cities, countries, and the international community at large agree that water is a fundamental human right.

The challenge arises when we recognize that such a vital resource — which is, in fact, a human right — must be managed properly and that management has associated costs and difficult questions that demand answers. Who should manage the water supply? Should people have to pay for water? How do we finance necessary water treatment? Even nature-based solutions and maintaining ecosystem services cost money to manage, monitor, and maintain.

Solving the puzzle of water security for all is an expensive one, unfortunately. Many cities around the world are plagued with outdated or inadequate infrastructure, urban population growth exerting additional pressures on existing systems, and a climate crisis compounding the stressors on an already fragile system through increasingly erratic weather patterns. An estimated $1.7 trillion USD is needed to close the gap to achieve Sustainable Development Goal (SDG) 6: Clean water and sanitation for all.

In the 21st century, water security — which is a collective reference to clean, safe, reliable, affordable, and accessible water for all — is a challenge that is multisectoral and global, yet distinctly localized at the same time. Advancing water security is a leverage point for creating an ecological civilization. Part of working towards an ecological civilization is identifying systemic interventions that will bring about catalytic change towards wellbeing for people and the planet. These systemic interventions in areas like water security are often complex with deeply rooted challenges. Such interventions require a holistic understanding of “where we are” and “how we got here,” as well as creativity and solutions-oriented innovations.

Historically, big water improvement projects were funded through public domestic finance, such as revenue from taxes, or public international finance such as official development assistance (ODA). The Bretton Woods Conference in 1944 formed the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which later became the World Bank. The Bretton Woods Institutions were designed to provide loans and assistance to “developing” countries, but the IBRD focused primarily on middle-income countries — in the beginning, specifically around rebuilding Europe post-WWII. For many reasons, the institutional model created in the European post-WWII-era failed to provide answers to key challenges it sought to solve on a global scale; it often created dependency and enabled exploitation, land degradation, expropriation, and corruption. It also often attempted to provide silver-bullet solutions that didn’t actually solve anything. However, in the 1990s, we began to see slow transitions in these big post-WWII institutions like the United Nations and World Bank to early forms of public-private-partnerships, whereby governments would work with private companies to provide high technology solutions, banks would provide funding, and governments would fill a more regulatory role. Oftentimes these arrangements lacked adequate checks and balances, excluded local stakeholders from decision-making processes, and still failed to address environmental concerns … but it was a start. 

Increasingly, in the 21st century, we are seeing shifts to new types of private-public partnerships and increased water funding from domestic private finance, such as domestic enterprises, sovereign wealth funds, or pension funds; and international private funding, such as remittances, private philanthropy, or venture capital funds. International public funding is evolving and becoming more nimble, creative, and inclusive. Groups like the World Bank’s Water Resources Group are now developing Multi-Stakeholder Platforms (MSPs) at the watershed- and country-level to catalyze new, truly representative “public-private-civil society” partnerships. New types of international private equity firms are emerging, like the International Water Bank and Upwell. The concept of a sole bottom line (profit or financial return) is clearly outdated. Innovative types of finance include blue bonds for water infrastructure at the city level. These aim to reduce risks for private investors and to provide cities with a long-term finance option at preferential rates to finance water projects. Innovative blended finance models and partnerships are likewise emerging to catalyze creative solutions beyond larger, and often necessary, infrastructure solutions. 

For example, an innovative blended finance program for infrastructure upgrades in Quang Tri, Vietnam, brought together four diverse organizations: the Asia Society for Social Improvement and Sustainable Transformation (ASSIST), the Viet Nam Water Supply and Sewerage Association (VWSA), Grundfos Water Solutions, and the Danish Investment Fund for Developing Countries (IFU). This partnership funded three significant pump upgrades with a cost-recovery period of only five years due to the savings in water and energy consumption at the Quang Tri water utility. Without this blended financing model, the Quang Tri water utility would not have been able to overcome the financial gap to pay for the pumps due to the low revenue of highly subsidized water and a risk-averse private sector. 

It can be tempting to cast the private sector or multilateral development banks as the enemy; they certainly are not without fault in creating some of the pervasive issues we are dealing with today. Yet, as can be seen in new initiatives like the World Bank’s Water Resources Group and new PPPs, in Quang Tri, these institutions are and have been reinventing themselves and are now part of the solution.

Quang Tri provides a successful example of a blended financing model that helped improve water projects.

EcoCiv’s work as an organizer of W12+ Programs is to facilitate this institutional transition between multilateral organizations, cities around the globe, private enterprises, intergovernmental organizations, and civil society organizations. We have tough conversations about contentious issues close to peoples’ hearts and health. We clarify language: what are the differences between commercialization, privatization, and market-based approaches? We ensure there is adequate stakeholder and community representation and balance the immediacy of these issues with long-term planning. We question assumptions: evidence tells us that poor people often pay 10 – 30x more for water from informal vendors, yet a common misconception is that poor people won’t pay for water — why do we assume poor people will not pay for water? Does evidence support that?

We don’t believe in silver-bullet solutions to pervasive issues of water insecurity. We do believe in multisectoral, longer-term, and innovative solutions that target leverage points for change. Sometimes the solutions we work on aren’t “flashy” or “feel good” — they’re about catalyzing real impact, at scale, towards the wellbeing of people and the planet. 

The task is great. The need is omnipresent. The impact potential is momentous.

Join us this fall in our #WaterIsWellbeing campaign and learn more about our work catalyzing sustained water security for all.

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