Inter-American Development Bank Seminar

BackgroundDespite the significant efforts made thus far, the Latin America and Caribbean region continues to face serious problems with its water resources. Weak water-management systems have led to shortages, poor water-quality control, and a lack of preparedness for natural disasters, such as drought and floods. In addition, drinking water and sanitation systems are inefficient. Some 120 million residents of the Americas have no access to sanitation services, and 78 million lack access to safe drinking water. Water system losses have reached an alarming level, as has the sewage treatment situation. The management of water for irrigation is also plagued by problems. Solving these problems will be a complex matter, but one thing is sure: there is a shortage of public and private financing to meet the most pressing needs in this sector.Context of the SeminarThe seminar counted with the presence of Mr. Michel Camdessus, former Director of the IMF. Mr. Camdessus will chair the task force on finance for the World Water Forum in Japan, 2003. Also present at the seminar was the General Secretary of the 3rd World Water Forum, Mr. Hideaki Oda. And, naturally, the President of the Inter-American Development Bank, Mr. Enrique Iglesias.Mr. Camdessus is also exercising the function of leading the task force on finance at the Monterrey Conference on Finance for Development, March 2002, appointed to that effect by the Secretary General of the United Nations, Mr. Kofi Annan.Keynote Address: The Evolution of Water Resources Management in BrazilThis address was given by Mr. Jerson Kelman, President of the National Water Agency of Brazil. He eloquently painted the picture of the development of the Water Resources Management sector in the country, focussing on water in the cities, on droughts, on water for transport and on water resources management systems and water governance in the country. For each of those issues, an analysis and a brief action plan was presented. Mr. Kelman’s recommendations included:” an emphasis on private finance for infrastructure provision with a change of paradigm with respect to finance agreements: a shift from input-financing (e.g. finance for the construction of a wastewater treatment plant) towards output-financing (e.g. payment for the actually removed pollution loads)” addressing difficult issues, such as the building of new dams. With only 25% of its hydropower potential realised, Brazil needs to come to terms with the issue of dams, and define the conditions under which the construction of dams is acceptable.Mr. Kelman’s address was accompanied by the publication, for the occasion of World Water Day 2002, of the commemorative issue of the annual report of the National Water Agency: a very beautiful and stylish box of three reports, giving a brief but consistent and comprehensive overview of the water resources of Brazil and of their management.Panel 1: Analysis of Water Resources Issues and Solutions in the RegionPresided over by Benedito Braga, Director of the National Water Agency of Brazil and former President of the International Water Resources Association, this panel presented an overview of issues in a number of countries, in particular in Chile. Humberto Peña, Director General for Water Resources of the Ministry of Public Works, presented the experiences of that country. An overview paper by Orlando San Martin was also presented. Panellists responding to the presentation were:Cesár Herrera Toledo, of the National Water Committee of Mexico,Víctor Pochat, of the Secretariat for Water Resources of Argentina,Max Campos, of the Regional Committee on Water Resources in Central America.Panel 2: Water GovernancePresided over by Margaret Catley-Carson, President of the Global Water Partnership. Professor Peter Rogers of Harvard University presented a special paper on water governance. Panellists were:Raymundo Garrido of the Water Resources Secretariat of Brazil,Ãdrian Baltanás García, previously Director General of hydraulic works in Spain,Arnold Sánchez of the Association of Municipalities of Honduras,Hermán Rosa, Salvadoran Programme on Development and EnvironmentPanel 3: Financing Water Resources Presided over by Michel Camdessus. There was no formal presentation, but each of the panellists gave his view on the issues of financing water infrastructure and water resources management.For the public sector and the development banks:Enrique Iglesias, President of the Inter-American Development Bank,Jamal Saghir, Director of the Water and Energy Sector of the World Bank,Aser Cortines Peixoto Filho of the Federal Economic Fund of Brazil,Hyperides Pereira de Macedo, Water Resources Secretary of Ceará State, Brazil.For the private sector:Linda Kemeny, Treasurer, Thames Water.Seminar ResultsThe focus of the seminar was clearly twofold and could be summarised as an emphasis on better water governance, and on private financing for water infrastructure.There was consensus that water governance issues are absolutely essential for the well functioning of the water sector and that water (management) sector reform is necessary and should precede or accompany investments in water infrastructure. On a question from Margaret Carson, each of the panellists agreed that the International Financing Institutions can and should make reform for better water governance a pre-condition for investment in the water sector, and should play a role to facilitate such reform.Interesting in the context of water governance issues is that there was consensus among the panellists about an emphasis on the various roles of the state and the reinforcement of water management institutions as part of a good and strong regulatory framework. Or, as Jerson Kelman put it: “We are not talking about large government or small government, we are talking about right government!”A further emphasis was given to the linkage between water management and land management. In that context, importance was given to the development of zoning plans as a general practice in municipalities, a land management system which is relatively underdeveloped in Latin America. Another approach to land management that has gained some momentum in the region is the payment of environmental services to land owners in the upper parts of catchments, in order to maintain their lands or part of it under forest cover for the retention of water. The funds for the payment of environmental services are normally raised by a topping-up of the tariff for potable water.The panel on finance focused very much on private finance for water infrastructure.Jamil Saghir of the World Bank made a presentation showing that 150 billion USD per year would be needed in the region until 2015 for the improvement of water services. He went on to say that public funds would not be able to achieve this level of investment, and that the engagement of private sector financing was imperative. He stressed that already around 50 million people in the region were being served by private water operators, and that number should increase, making use of lessons learnt in the process so far.Mr. Saghir paid special attention to the situation of the private water operators in Argentina under the financial crisis of that country. Although he considered the Argentina water privatisations a success, he indicated that there were important lessons learnt from mistakes, and that a coping strategy was needed to deal with the current crisis.Mr. Iglesias, President of the Inter-American Development Bank, in reaction to Mr. Saghir’s final point presented one possible role for the International Financing Institutions in providing certain guarantees to private operators against unmanageable risks, such as the present crisis in Argentina, and risk reduction in general to improve competition, improve services and lower prices.The panellists from the private sector confirmed the views of the earlier speakers. They pointed out that for private investors the two major issues are and will remain: risk and return on investment. Risks must be reduced as much as possible to protect the investment and lower the cost of risk insurance. Return on investment must be realised. Most private sector speakers in this context mentioned the insensitivity of public sector regulators to the issue of return on investment, with regulators being more interested to protect the interest of the public by maintaining low prices.Link to IADB site report