IFC CEO Says Public-Private Partnerships Can Avert Water Crisis

Stockholm ─IFC Executive Vice President and CEO Lars Thunell said today an opportunity is emerging for the public and private sectors to collaborate on solutions to the world’s critical water and sanitation challenges.

Speaking at the conclusion of the 2008 World Water Week conference, Thunell said governments and businesses worldwide now see a strong economic incentive to work “as partners” to ensure a sustainable supply of clean water. Partnerships between the public and private sectors could help prevent the specter of a “food, fuel, and water crisis in an increasingly populated world,” he said.

Providing clean water and sanitation services is not only a business opportunity but also an opportunity to improve lives. Thunell said businesses have begun to recognize the possibilities. Investors see an opportunity in the $450 billion global water sector: stocks in that sector are performing strongly worldwide. Private firms also regard water supply as a business risk and are tackling it as an integral part of their risk-management strategy.

“I believe the moment is right,” Thunell said. “We can avert a crisis –as partners, working together.” He said IFC, a member of the World Bank Group, will do its part by investing in companies that pursue opportunities in water conservation and quality, and by fostering public-private partnerships in the water sector.

Below are key excerpts from Thunell’s remarks:

“Action is crucial because much is at stake, and time is running out. Five thousand boys and girls under age 5 die every day around the world from diseases spread by dirty water and inadequate sanitation. This morning, more than a billion people woke up without clean water to drink.”
“I believe we are at a tipping point …The specter is of a food, fuel, and water crisis in an increasingly populated world facing climate change. It means the private and public sectors have a shared interest in working together to solve the world’s water and sanitation challenges.”
“In an increasingly urbanized world, water conservation involves both demand and supply-side management. Between 40 percent and 70 percent of water distributed by city networks in emerging markets is lost to leakages and theft. Reduce the losses by 20 percent in Jakarta, and some 800,000 people can have reliable access to drinking water.”
“Now that companies are seeing water as a business risk, they are making comprehensive water strategies an integral part of risk management. They are going to governments and asking, ‘How can we be part of the solution?’ This is what gives me confidence.”

A full text of Thunell’s prepared remarks is provided below:


IFC Executive Vice President and CEO Lars H. Thunell Speech at World Water Week, Stockholm, Sweden

August 22, 2008

Embargoed until August 22, 11:00 a.m. local Stockholm time

Check Against Delivery


Good morning, Madam Minister, Honorable Colleagues, Ladies, and Gentlemen. Thank you for your introduction, Professor Lundqvist. I would also like to thank the Stockholm International Water Institute for giving me the opportunity to speak at World Water Week and to address such a distinguished audience.

I understand that this has been a week rich with exchanges of ideas and debate: how to protect health and ecosystems; how to cooperate for equitable and responsible allocation of water; the role of business and the private sector; the challenges of climate change and the opportunities for action. I want to acknowledge the leadership of SIWI. You have created a tremendous platform for action, beyond this conference hall.

Action is crucial because much is at stake, and time is running out. Five thousand boys and girls under age 5 die every day around the world from diseases spread by dirty water and inadequate sanitation. This morning, more than a billion people woke up without clean water to drink. And more than two and a half billion men, women, and children lacked the dignity and safety of a proper toilet facility. Ecosystems, our security, and economic growth are at risk. For instance, a new World Bank study found that the economic costs of poor hygiene and sanitation reached 2.3 percent of Indonesia’s GDP in 2006. The scarcity of water poses a threat to the food supply, just when the agricultural sector is stepping up production in response to riots over food prices, growing hunger, and rising malnutrition.
Unless we take action, water will be the next global crisis, emerging from the shadow of climate change and today’s food and fuel crises.

We are on a dangerous path. Water itself is at risk because we tend to overuse it. Water efficiency practices are still limited in agriculture and industry, which represent 90 percent of total fresh water use. Climate change is making water supplies more unpredictable, with serious consequences for agriculture. People and fresh water are often not in the same place—the Amazon has 15 percent of the earth’s fresh water, yet only 1 percent of its population.

Growing demand is outpacing supply. The world’s population is forecast to be 9 billion by 2050; more than 60 percent will be living in mega cities. Since water consumption goes up where there is development and improved lifestyles, we can expect even greater demands on fresh water. The most water intensive sector, agriculture, is expanding. Industrialization and energy production are further driving demand.

Competing pressures from municipalities, agriculture, and industry are raising complex questions about who gets to have water and how it is used. There are political and social obstacles to getting water allocation right. We also lack the incentives for optimal water allocations where water is priced below the cost at source and at the tap. Without this basic market mechanism, water projects will struggle to attract investors and waste will continue.

If we are not careful, our societies could end up with a quandary of food versus drinking water versus electricity—and even conflict. Some aspects of this challenge are playing out in Central Asia, where I was last week. Upstream Kyrgyzstan relies on hydropower to generate electricity, and it releases more water from its reservoirs during the winter to meet peak demand. By contrast, downstream Uzbekistan requires a uniform supply of water to maintain crops. Without it, food prices are skyrocketing and cotton farmers are going out of business. Such situations are creating serious tensions in the region. That people froze to death last year during the coldest winter in Tajikistan in 50 years is a grim reminder—places such as Central Asia need regional solutions to trans-border water and energy issues. The World Bank Group and other multilateral organizations can help with such complex matters, which brings me to the opportunity of this moment.

I believe we are at a tipping point. The growing awareness of the effects of high fuel and food prices on economic growth—combined with water scarcity—raises a specter. The specter is a food, fuel, and water crisis in an increasingly populated world facing climate change. Businesses see the risk—and this new mindset is a significant opportunity. It means the private and public sectors have a shared interest in working together to solve the world’s water and sanitation challenges. I want to talk about what I believe is an enormous opportunity to turn things around. And I want to talk about the possibilities that IFC is pursuing with our clients, as part of the World Bank Group that fosters sustainable private sector development in emerging markets.

It is going to take action by private sector firms, governments, multilateral organizations, and individuals. First consider the private sector. Water issues are leading companies to focus on a variety of risks: the cost of water, community and regulatory pressures, supply chain interruptions, and competitive demand for water from other firms and municipalities. Agriculture in particular has a big role to play in conservation. For example, Cyprus, Israel, and Jordan use efficient technologies for 55 percent and 90 percent of their total irrigated areas. While the use of efficient technologies for farming in India, China, and the United States is less than 1 percent. In Uzbekistan, at least 30 percent of water is wasted due to faulty irrigation. Second, the use of treated wastewater to irrigate farm land is practiced in Latin America and the Caribbean, in Africa, and extensively in Israel. This approach should be adopted elsewhere. Third, farmers should make a shift toward water efficient crops wherever possible. Governments must resist the political temptation to encourage the raising of inefficient crops.

Smart regulations and the need to cut costs have prompted water-intensive companies to achieve greater water efficiencies in developed countries. In emerging markets there is scope to do much more. Sharing and adopting regulatory approaches that work across the world is critical. Partnering with companies experienced in water efficient technologies should be a priority. Governments must also do their part to encourage conservation through sensible regulation.

In an increasingly urbanized world, water conservation involves both demand and supply side management. Between 40 percent and 70 percent of water distributed by city networks in emerging markets is lost to leakages and theft. Reduce the losses by 20 percent in Jakarta and some 800,000 people can have reliable access to drinking water. It is another opportunity for governments. The mispricing of water’s value is one of the biggest challenges to developing water and sanitation services for poor and low-income communities. Reasonable tariff reform is essential to ensure cost recovery on water projects. More broadly, reform of the power, irrigation, as well as water supply sectors benefits the poor. The World Bank and other multilateral organizations are playing a strong role in helping governments improve water resource management and infrastructure, for example through municipal bonds. Increasingly, large industrial companies are water service providers and see this as their role in the future. Mining, manufacturing, metals – these firms can be harnessed as part of the solution.

I want to take a moment to acknowledge the leadership of the United Nations. The UN has been absolutely instrumental in keeping water at the top of the global development agenda and advancing the progress on water-related goals. The Secretary General’s eloquent warnings of the connections between water, climate change, population growth, and conflict are being heard in the right places.

IFC is committed to doing our part to avert a crisis, working with the private sector while the World Bank focuses on policy issues and the public sector. Let us take the issue of access. We believe that providing clean water and sanitation services is a real business opportunity. It is also an opportunity to improve people’s health and liberate them from the drudgery of fetching water. Spending on infrastructure in emerging markets is expected to reach around $180 billion during the next 20 to 25 years. This level of investment will need to come from both private and public sources.

IFC’s goal is to develop a pipeline of ‘bankable’ projects in poor countries and regions that are well structured and attractive to private capital. As one part of this, we have also launched a $100 million fund to provide risk capital for early stage development of infrastructure projects in the poorest countries, mostly in Sub-Saharan Africa. We are also working with public and private partners to introduce performance based innovative grants that address market failures and bring services to people who otherwise would have no access.

We are fostering public-private partnerships through project design and development and training, as well as innovative financing solutions. The number of successful public-private partnerships is growing. One example is Manila Water in the Philippines. The government—using IFC’s advisory services—privatized a state-owned water and sewage utility. The benefits to neighborhoods have been significant. The number of households in Manila with water connections has risen to a million, of which 98 percent have a 24-hour water supply. This is life-changing. Equally important, the new set up has resulted in a significant reduction in water losses, keeping the system sustainable for more customers in the future. I am glad that in time IFC was able to provide Manila Water with financing to support the company’s growth.

Beyond access, IFC invests in companies that are pursuing opportunities in water conservation, efficiency, and quality. In China, we are an equity investor in a company that provides turnkey waste water treatment solutions to municipalities and industry. In India, we are financing Jain Irrigation, the country’s largest provider of micro-irrigation systems. Jain’s clients are increasing their water efficiency by as much as 95 percent. The technology can be as simple as a gravity drip system of a 20 liter bucket and irrigation tape designed for small-scale farmers.

The opportunities are without limits, and not just in emerging markets. The developed economies also have a responsibility to conserve. Consider that the average American uses about 380 liters of water a day and the average European about half that amount. This compares to an average 15 liters per capita in developing economies. Imagine what we could accomplish if water efficiency became second nature to citizens of Los Angeles and Stockholm.

So will the world act? I am optimistic that we will, and this conference has been an important step in the right direction. There is growing recognition that water is a finite resource, it is essential to every sector, and therefore entire economies could be at risk.
It is a new opportunity: to bring together the public and private sectors to work on integrated solutions to manage competing demands. The debate is shifting. Instead of ‘should the private sector be involved in water?’ the question is ‘how can we work together for sensible and fair solutions?’ Now that companies are seeing water as a business risk, they are making comprehensive water strategies an integral part of risk management. They are going to governments and asking, ‘how can we be part of the solution?’ This is what gives me confidence.

We also see strong economic incentives for the private sector. Equities in the water sector have financially outperformed the industrial average globally. The sector is worth about $450 billion worldwide. This is a considerable market opportunity for private capital and innovative companies, especially in poorer countries that are the future sources of economic growth for the world.

Water will be a key challenge to humanity’s welfare and security over the coming decades—along with energy, climate change, and food. It will require all stakeholders in water—public and private—to work together to balance competing demands on a finite resource to create opportunities for sustainable development. I believe the moment is right. We can avert a crisis—as partners, working together. Thank you.