Citywide Inclusive Sanitation Part 2: Long-Term Financing of Water Supply and Sanitation Projects

Summary

The video script addresses the urgent need for innovative sanitation solutions in urban areas, emphasizing the challenges of managing water and sanitation amidst growing populations. It introduces 'City-Wide Inclusive Sanitation' (C-WISE), an approach that involves all stakeholders and considers unconventional technical solutions. The script discusses the financial complexities of sanitation projects, the importance of local knowledge and partnerships, and various financing mechanisms like blended finance and outcome-based instruments. It also highlights the role of public-private partnerships and the potential of innovative solutions like the Jokaso system for wastewater treatment. The script concludes by underscoring the importance of a comprehensive, collaborative approach to achieve sustainable sanitation by 2030.

Takeaways

• 🌍 By 2030, nearly half of the global population still lacks access to safely managed sanitation, despite global efforts to ensure availability and sustainable management of water and sanitation for all.
• 🏙️ 'City-wide inclusive sanitation' or C-WISE is an approach that considers technical solutions beyond conventional sanitation systems and works closely with all stakeholders to create an enabling environment for the entire service chain.
• 💡 Sanitation projects are complex due to geographical distribution, fragmented governance, and overlapping mandates among various government agencies, which hampers effective planning, coordination, and management.
• 🏡 Addressing household ability or willingness to pay for sanitation services is crucial, as poor unit economics and the need for subsidization are realities of the sector.
• 🌐 High operating expenses, local partnerships, and expertise increase counterparty risks when international financing is mobilized for sanitation, making investments vulnerable to exchange rates and macro risks.
• 🏛️ The potential for education and capacity development programs is highlighted as a way to bring projects to the forefront and develop or support public counterparties.
• 💼 The importance of local knowledge in the sanitation sector is emphasized, allowing for innovation at the local level with the flexibility required from investments.
• 💵 Blended finance is introduced as a strategic use of development finance to mobilize commercial capital towards projects contributing to sustainable development, making projects more attractive to private investors by absorbing much of the risk.
• 🌱 Impact investing, which uses investment capital to actively contribute to improvements in people's lives and the environment, could help fill the gap in financing for sanitation projects.
• 🔄 Public-Private Partnerships (PPPs) can efficiently manage and assign risks between the public and private sectors, introducing innovative and high-quality services from the private sector.

Q & A

What is the global challenge regarding water and sanitation management in cities?

The global challenge is managing water and sanitation in expanding cities with higher population densities, where nearly half of the global population still lacks access to safely managed sanitation.

What is the goal set by global efforts for water and sanitation by 2030?

The goal is to ensure the availability and sustainable management of water and sanitation for all by 2030.

What is the City-Wide Inclusive Sanitation (C-WISE) approach and how does it differ from conventional sanitation systems?

C-WISE is an approach that considers technical solutions beyond conventional sanitation systems and works closely with all stakeholders to create an enabling environment for the entire service chain.

Why is the sanitation sector tied to people, place, and politics, making it a financial puzzle?

Sanitation is tied to these factors because it involves geographically distributed projects with fragmented governance, overlapping and ambiguous mandates, which hampers effective planning, coordination, and management.

What are the financial realities of the sanitation sector that pose challenges?

The financial realities include high operating expenses, the need for local partnerships and expertise, and the need for subsidization due to poor unit economics.

How does the investment in sanitation projects face risks such as exchange rates and macro risks?

Investments in sanitation are exposed to unfavorable moves in exchange rates and are vulnerable to macro risks like political or civil unrest and changes in monetary policies.

What role can education and capacity development programs play in the sanitation sector?

Education and capacity development programs can help bubble up project opportunities and create regional coordination, bringing projects to the forefront and fostering local knowledge and innovation.

What is blended finance and how does it help in mobilizing resources for sanitation projects?

Blended finance is the strategic use of development finance to mobilize commercial capital towards projects contributing to sustainable development. It makes projects more attractive to private investors by having concessional funding absorb much of the risk.

How does the Development Impact Bond (DIB) work in the context of the sanitation sector?

A DIB is a results-based financing instrument involving an impact investor, an implementing organization, an evaluator, and an outcomes funder. The outcomes funder repays the impact investor only if pre-agreed outcomes are achieved.

What are the benefits of Public-Private Partnerships (PPPs) in the delivery of sanitation projects?

PPPs can deliver projects on time and within budget, introduce innovative and high-quality services from the private sector, and lower coordination costs through a bundling effect.

How does the private sector contribute to the sanitation market, and what is an example of an innovative solution they provide?

The private sector contributes by delivering product solutions like the Jokaso on-site sewage treatment system, which treats all domestic wastewater more effectively than traditional septic tanks.

Why is collaboration and cooperation between countries essential in addressing the sanitation puzzle?

Collaboration is essential because the issues in the sanitation sector are multi-layered and connected, requiring simultaneous problem-solving and coordination across different layers and sectors.

Outlines

00:00

🌎 Urban Sanitation Challenges and Innovative Solutions

This paragraph discusses the increasing difficulty of managing water and sanitation in expanding cities due to higher population densities. It highlights the global goal of ensuring availability and sustainable management of water and sanitation for all by 2030, but points out that nearly half of the global population still lacks access to safely managed sanitation. The paragraph introduces the concept of City-Wide Inclusive Sanitation (C-Wise), an approach that considers technical solutions beyond conventional systems and involves all stakeholders to create an enabling environment for the entire service chain. It also touches on the financial challenges of the sanitation sector, including the need for new institutions and laws, the reality of poor unit economics, and the risks associated with international financing.

05:00

💼 Financing Sanitation: Blended Finance and Public-Private Partnerships

The second paragraph delves into the financial mechanisms needed to achieve the goal of safely managed sanitation for all. It explains the concept of blended finance, which uses development finance to mobilize commercial capital towards sustainable development projects. The paragraph emphasizes the importance of early project development, institutional design, and direct catalyzation of private capital. It also discusses the role of Official Development Assistance (ODA) and the potential of the global impact investment market to fill the financing gap. The paragraph introduces the Development Impact Bond (DIB) as a results-based financing instrument and provides an example of its successful implementation in Cambodia. Additionally, it explores the benefits of Public-Private Partnerships (PPPs) in delivering projects on time and within budget, and the importance of capacity building and local problem-solving in achieving sustainable sanitation.

10:02

🌱 Sustainability and Innovation in Sanitation Solutions

The final paragraph focuses on the role of the private sector in delivering product solutions to the sanitation market, such as the Jokaso on-site sewage treatment system. It discusses the importance of promoting awareness and education among communities for the sustained maintenance of sanitation facilities. The paragraph also highlights the role of sanitation in building climate adaptation and mitigation efforts, and the potential of multilateral environment funds to support water and sanitation projects. It concludes by emphasizing the complexity of the sanitation puzzle and the need for a comprehensive system that coordinates multiple layers of problem-solving, technical assistance, and finance to achieve the goal of safely managed sanitation.

Keywords

💡Sanitation

Sanitation refers to the systems and practices for the safe and effective disposal of human waste and wastewater. In the context of the video, sanitation is a critical issue in urban areas due to increasing population densities, and it is a key component of sustainable development. The video discusses the challenges of managing sanitation in cities and the need for innovative solutions to ensure access to safely managed sanitation for all.

💡C-WISE

C-WISE stands for City-Wide Inclusive Sanitation, an approach mentioned in the video that considers technical solutions beyond conventional sanitation systems. It emphasizes working closely with all stakeholders to create an enabling environment for the entire service chain. C-WISE is highlighted as a comprehensive approach that requires significant investment to scale globally and is tailored to the specific realities of individual cities.

💡Fragmented Governance

Fragmented governance refers to a situation where different government agencies have overlapping and ambiguous mandates and responsibilities. This can hinder effective planning, coordination, and management, especially in the context of sanitation projects. The video points out that this fragmentation poses a financial puzzle and is a barrier to achieving the goal of safely managed sanitation.

💡Subsidization

Subsidization is the act of providing financial support to reduce the cost of a service or product. In the video, subsidization is discussed as a reality in the sanitation sector due to poor unit economics and the need to make sanitation services accessible to underserved communities. It is part of the broader financial puzzle that needs to be solved to ensure sustainable sanitation management.

💡Counterparty Risks

Counterparty risks are the potential losses an investor might face if a counterparty to a financial contract fails to meet its obligations. In the context of the video, these risks are increased due to high operating expenses and the need for local partnerships and expertise in sanitation projects. International financing for sanitation is exposed to these risks, as well as to unfavorable exchange rate movements and macroeconomic risks.

💡Blended Finance

Blended finance is the strategic use of development finance to mobilize commercial capital towards projects that contribute to sustainable development. The video explains that by having concessional funding absorb much of the risk, projects become more attractive to private investors who require lower risk and seek market rate returns. Blended finance is presented as a mechanism to bridge the gap between public sector investments and the substantial financing needs of the sanitation sector.

💡Impact Investing

Impact investing is an investment approach that aims to generate social or environmental benefits alongside financial returns. The video discusses how the global impact investment market could help fill the financing gap in the sanitation sector. Impact investors actively contribute to improvements in people's lives and the health of the environment, which aligns with the video's theme of promoting sustainable sanitation solutions.

💡Development Impact Bond (DIB)

A Development Impact Bond (DIB) is a results-based financing instrument that involves various stakeholders, including an impact investor, an implementing organization, an evaluator, and an outcomes funder. The video provides an example of the Cambodia Rural Sanitation DIB, which is the world's first DIB for the water, sanitation, and hygiene (WASH) sector. The DIB is used to eradicate open defecation, with outcome payments made for each village that achieves open defecation-free status.

💡Public-Private Partnerships (PPPs)

Public-Private Partnerships (PPPs) are collaborations between the public and private sectors to deliver services or projects. The video discusses the benefits of PPPs in the context of sanitation, including on-time and within-budget project delivery, and the introduction of innovative and high-quality services from the private sector. PPPs are recommended as a way to efficiently manage and assign risks between the public and private sectors in sanitation projects.

💡Capacity Building

Capacity building refers to the process of enhancing the skills, knowledge, and effectiveness of individuals, organizations, or communities to perform better. In the video, capacity building is highlighted as a crucial element for fostering sustainability in sanitation projects. It involves training stakeholders such as masons, plumbers, and local entrepreneurs to ensure proper operation, maintenance, and advocacy for sanitation and hygiene practices.

💡Climate Adaptation

Climate adaptation refers to the process of adjusting to actual or expected climate change effects. The video emphasizes the role of sanitation in building climate adaptation and mitigation efforts. Effective sanitation practices, such as flood and drought management, can make cities more resilient, while wastewater treatment and recycling help protect ecosystems and increase food security, which are essential in the face of escalating climate impacts.

Highlights

The management of water and sanitation is increasingly challenging in expanding cities.

Nearly half of the global population lacks access to safely managed sanitation.

City-wide inclusive sanitation (C-WISE) promotes tailored solutions and works with stakeholders.

Sanitation is a complex sector due to fragmented governance and overlapping responsibilities.

Investments in sanitation require addressing household ability and willingness to pay.

High operating expenses and local partnerships increase counterparty risks in sanitation projects.

Blended finance can mobilize commercial capital for sustainable development projects.

Development Impact Bonds (DIBs) are a results-based financing instrument for social programs.

Public-Private Partnerships (PPPs) can efficiently manage and assign risks in sanitation projects.

Capacity building is crucial for fostering sustainability in sanitation.

The private sector brings innovation and efficiency to the sanitation market.

Jokaso is an innovative on-site sewage treatment system that treats all domestic wastewater.

Sanitation plays a key role in climate adaptation and mitigation efforts.

Multilateral environment funds can be mobilized to address water and sanitation issues.

Citywide inclusive sanitation aims to create a comprehensive system to tackle sanitation challenges.

Sanitation solutions require simultaneous problem-solving across multiple layers.

Innovation, open-mindedness, and collaboration are key to addressing global sanitation challenges.

Transcripts

[Music]

in our ever-expanding cities higher

population densities are making the

management of water and sanitation ever

more challenging

despite global efforts to ensure the

availability and sustainable management

of water and sanitation for all by 2030

nearly half of the global population

still lacks access to safely managed

sanitation

with less than a decade to 2030 it's

time for business unusual a new approach

to urban sanitation that promotes

methods and innovations tailored to the

specific realities of a given city

city-wide inclusive sanitation or c-wise

is such an approach

one that considers technical solutions

beyond conventional sanitation systems

and works closely with all stakeholders

to create an enabling environment for

the entire service chain

because of its comprehensive scope

c-wise requires an extraordinary level

of investment to scale globally

one would think that the business of

water and sanitation essential to human

life and part of everyday living would

be an easy sell

but sanitation is tied to people place

and politics thus posing a financial

puzzle

[Music]

the solution to sanitation is complex

because most sanitation projects are

geographically distributed the sector is

characterized by fragmented governance

various government agencies often have

mandates and responsibilities that

overlap and are ambiguous

this hampers effective planning

coordination and management

for an investment to work there's a need

to change or establish new institutions

and implement new laws

to bring safely managed sanitation to

underserved communities we must address

a household's ability or willingness to

pay making poor unit economics and the

need for subsidization a reality of the

sector

in the sanitation sector

it's particularly relevant right the

most knowledge about what the community

needs and what investments will work

well most of that knowledge is local

high operating expenses coupled with a

need for local partnerships and

expertise increase counterparty risks

when international financing is

mobilized for sanitation the investment

is exposed to unfavorable moves in

exchange rates it is also vulnerable to

macro risks such as political or civil

unrest and changes in monetary policies

given these characteristics of

sanitation long-term investments are

needed requiring higher order

intermediation i wanted to mention the

potential for education and capacity

development programs is a process

through which project opportunities can

kind of bubble up right regional

coordination the creation of education

and capacity development programs really

can kind of bring projects to the floor

i think developing

or supporting public counterparties is

crucial

i also think screening for those

challenges

is something that the intermediary could

could kind of bring to the table right

when there is a counterparty or when

there's a serious issue with the

counterparties to bring those issues

identify bottlenecks

and bring those to the surface the

importance of local knowledge uh in this

sector

to allow that innovation at the local

level and that flexibility right when we

talk about innovation we're really

talking about flexibility with the

standardization that's required from the

investment

that's what an intermediary does that's

what a middleman that's the value

created by a middleman and so there's an

opportunity for

finding that appropriate balance

although sanitation projects have been

largely financed with public sector

investments the public sector alone

cannot fill the gap

projections of global financing needs

for water infrastructure range from 6.7

trillion us dollars by 2030 to 22.6

trillion us dollars by 2050.

to make safely managed sanitation a

reality for everyone everywhere we need

to explore various financial mechanisms

blended finance is the strategic use of

development finance to mobilize

commercial capital towards projects that

contribute to sustainable development

by having concessional funding absorb

much of the risk the project is more

attractive to private investors who

require lower risk and seek market rate

returns

blended finance is most effective where

it's measurable and can maximize impact

it is measurable when used in early

project development institutional design

or to catalyze private capital directly

it is impactful when it addresses

barriers to capital markets through

transaction costs risk allocation

technology risk and credit enhancement

there always has to be an eye towards

not needing

uh blended capital in the future right

becoming financially sustainable or

economically sustainable and getting to

that point that's always part of the

development process

for decades official development

assistance or oda has been an important

source of development financing helping

startup projects in sectors or areas

that have been left behind

but in recent years oda disbursements to

the water sector have become stagnant

remaining stable at 8.8 billion us

dollars from 2015 to 2019.

the global impact investment market

estimated to be at 715 billion us

dollars could help fill the gap impact

investing is an approach used by

investors to harness the power of their

investment capital to actively

contribute to improvements in people's

lives and the health of environment

the financial markets needs clarity

unexpected impact transparency along

performance data will be very important

my personal idea is that outcome

oriented type of supports such as

result-based financing

development impact bond a development

impact bond or dib is a results-based

financing instrument that involves the

impact investor who provides working

capital for a social program

the implementing organization who

provides the service

the evaluator who independently verifies

results and provides an outcome report

and the outcomes funder who repays the

impact investor but only if pre-agreed

outcomes are achieved

this results-based approach motivates

the impact investor and the implementing

organization to work closely to achieve

outcomes

focusing on results also gives the

implementer more room for innovation and

local problem solving

the cambodia rural sanitation dib is the

world's first development impact bond

for the wash sector

to eradicate open defecation the

outcomes funder will make an outcome

payment for each village in the program

that achieves open defecation free

status a little over a year into

implementation 500 villages have

achieved open defecation free status

nearly 89 000 households have confirmed

access to sanitation

and the outcomes funder has made more

than 3 million us dollars in outcomes

payments

[Music]

the delivery of the components of

public-private partnerships or ppps are

bundled in order to efficiently manage

and assign risks between the public and

private sectors

the benefits of ppp include on time and

within budget project delivery

this partnership also introduces

innovative and high quality services

from the private sector with a bundling

effect lowering coordination costs to

increase a share of ppp

it is recommended to promote branded

finance or utilize development

institutions concessional loans

effectively in order to incentivize both

public and private to mobilize ppp

projects

we've had incredibly

good success in our public private

partnerships for us that's really around

how do we think about buying down our

risk as a private sector partner and

establishing

a more market-based supply chain

establishing a sustainable market

approach it's really around developing

more of a sustainable way of doing

things less some of this project way of

doing things

a significant element of fostering

sustainability is capacity building the

training of stakeholders on the ground

to do things right

mason's plumbers local entrepreneurs you

know we're exploring multiple different

business models how do we empower those

last mile

agents to really advocate for sanitation

and hygiene give them the tools to do

that efficiently and reliably

sustainable and safely managed

sanitation goes beyond installation

it extends to the proper operation and

maintenance of facilities and this is

where local governments are called upon

to promote awareness and education among

communities

we can't just install

you know toilets and schools and

institutions and in households and not

advocate for their sustained maintenance

we need to partner with the public

sector to think about how we as

suppliers

of more effective and affordable and

aspirational toilet and

hygiene solutions

can get these products and access but we

have to solve that for the long term if

we're going to get to the safely managed

sanitation goal i mean there's unique

capabilities the private sector brings

in terms of the ability to move fast

bring innovation think about supply

chains think about efficiency and think

about long-term sustainability and

there's a eagerness to partner

private enterprises have a lot to bring

to the table

one of their most significant roles is

delivering product solutions to the

sanitation market

one such solution is a japanese

innovation jokason an on-site sewage

treatment system yokoso is completely

different from septic tank

which treats only black water or toilet

with water

yoga so can treat all domestic waste

water such as from kitchen toilets baths

laundry etc

yoga saw has both anaerobic and aerobic

treatment and it can decompose organic

cyber sciences faster and better than

septic tanks

while the jokoso system may be too

expensive for most households in

developing countries it could still

serve other needs in the market that is

the needs for commercial buildings one

side of the total research of wastewater

in jakarta comes from commercial river

so that is i think the conversation in

developing countries to improve the

management of the wastewater for these

commercial buildings are very important

while tides and currents nurture life

they are also capable of destruction and

the least developed countries have

suffered the brunt of it sanitation

plays an essential role in building

climate adaptation and mitigation

efforts

flood and drought management makes

cities more resilient while wastewater

treatment and recycling help protect

ecosystems and increase food security in

response to the escalating impacts of

climate change numerous multilateral

environment funds can be mobilized for

water and sanitation

and because climate change knows no

borders collaboration and cooperation

between countries is essential

the puzzle of sanitation is undeniably

complex raising challenges not only in

financing but in political social and

environmental areas as well

these scattered pieces of this puzzle

need to come together in a comprehensive

system

this is what citywide inclusive

sanitation hopes to be these issues in

this sanitation sector both uh

on site as well as are connected

is difficult

because it's multi-layered and we have

to do simultaneous problem solving in

designing the best market structure or

institution for each layer and yet

coordinate everything and we cannot jump

to project we cannot jump to technical

assistance or finance without solving

this set of equations

unraveling the complexities of

sanitation creates both questions and

answers

as 20 30 looms we must face them with an

even greater sense of urgency

it's an uphill battle

but consider what mankind has achieved

through innovation

open-mindedness and collaboration

when we approach the problems of

sanitation not from our little corner of

the world but as a united front

better ideas

systems and solutions can truly flow

[Music]

[Music]

you