for investments in infrastructure development to local governments and utilities. This tends to target smaller and rural local governments and providers.
provide loans directly depends on the performance of utilities in obtaining a stable and sufficient revenue flow from their service provision roles.
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Technical support in structuring finance and establishing co-finance mechanisms. This includes also establishing PPP arrangements necessary for the cofinance. The technical support may become part of the loan, if successful.
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Fiscal discipline legislation. The extent to which the water sector takes on debt is not only limited by the financial performance of utilities, but also by the laws on fiscal discipline that local governments need to follow.
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Administrating trust funds. This may refer to trust funds into which the PDB itself also puts parts of its own profits, as well as ones that are replenished by others.
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Funding sector studies and research. This includes broad sector assessments, or studies that serve as input into subsequent policy development. These are usually grant-funded; we have not come across loans for such sector support work.
Water sector performance regulations. The extent to which utilities perform in their service provision roles also depends on the extent to which their performance is regulated at sector level.
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Project preparation. Most PDBs indicate that the limited capacity of borrowers in project preparation affects the low demand for PDB loans.
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Capacity for project execution. Likewise, the extent of PDB involvement in the water sector depends on project execution capacity of the borrowers.
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Competition and coordination among flows and sources of finance. The water sector is funded often through a complex set of flows of public finance, tariffs, and repayable finance going via both local governments and utilities. This may create competition amongst PDBs, or between PDBs (as providers of loans) and providers of non-repayable finance, including sovereign loans. This constraint is offset by the fact that finance needs are often so high that there is ample space for several PDBs and other financiers to co-finance certain investments, combining both repayable and non-repayable finance.
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Shifting demands. The various PDBs indicate that demands for loans within the broad water sector are continually shifting, but that there are always segments of the sector in need of finance. For example, current demand may be more for larger investments in sewerage and treatment, but PDBs anticipate demands for investment to address ageing water supply infrastructure in the years to come. This drives further investments.
Not all the PDBs fulfil all these roles. Whereas providing repayable finance – with the corresponding technical support - for infrastructural investments is the core business of all, they differ in the extent to which they can also provide non-repayable finance for project preparation, performance improvement, or even grant funding for infrastructure development. Most of the PDBs indicate that their main clients for loans are the mid-sized utilities and local governments. The smaller utilities and local governments are often not credit-worthy, because of their size and generally lower levels of performance and corporate governance. Large utilities are able to obtain loans at more favourable conditions from commercial banks and IFIs. The mid-sized utilities and local governments are therefore the segment that best fits the PDBs. Drivers and constraints The main drivers and constraints for PDB involvement in the sector in Latin America, are demands-side factors, including: -
Performance of utilities in their service provision roles, and subsequent financial sustainability. The extent to which PDBs can
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