Financing from industrial company
► Winning entry submitted by WRP Pty Ltd (South Africa)
The concept relies on the presence of a water-intensive industrial company sharing an increasingly scarce water resource (river, aquifer or other water resource system) with a municipality. The industrial company has an interest in contributing to efforts to reduce water losses in the municipal system to help alleviate the water shortage that presses on both parties.
In the concept, the industrial company engages a jointly selected service provider (e.g. a consulting firm) to undertake activities with the municipal water utility to reduce water losses. The service provider (a private-sector or public-sector entity) is paid by the industrial company and operates on the basis of a three-to-five-year tripartite performance-based contract (PBC).
The industrial company is reimbursed on the basis of the gains realized by the utility from reducing water losses. The industrial company, based on its long-term relationship with the municipality, is willing to take the risk of non-payment by the utility, and this encourages service providers to participate.
Building on WRP’s experience implementing three projects along somewhat similar lines, the proposed PBC would be designed following current best practice principles, including incentive payments against a performance baseline, ring-fencing of relevant cash flows, and use of an independent auditor.
The project activities would consist of small-scale interventions (typically US$2–3 million for each project) that give the most value for money – the “low-hanging fruit”. Payback is expected to be six months to one year.
Typical activities would include repairing visible leaks in reticulation systems, internal household leak repairs, pressure management, logging, bulk metering, and community awareness efforts.
The project can be structured so that only a small amount of external funding is injected in the first instance. This generates savings which can then be used in combination with additional financing from the industrial company to fund larger projects – and so on for several more rounds.