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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
8/3/2019 Cleaning Utility Balance Sheets Rsramanujam
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Possibilities are enticin
• Public resources are limited
•
• What are the real options, what does the utilityneed to do?
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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
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Cleaning utility balance sheets, attracting
nves men s
Is often gradual, starting with utility internal reform
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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
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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
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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
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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
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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
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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 %
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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
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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
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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
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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
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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?
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Thank You
. . amanu [email protected]
+91 9833778822