2012年-世界发展银行全球_Using_Credit_Ratings_to_Improve_Water_Utility_Access_to_Market_Finance_in_Sub-Saharan_Africa_4页_745kb

Summary: Sustainable Services for Domestic Private Sector Participation

Core Content

This document discusses the challenges and opportunities for water utilities in sub-Saharan Africa to access market finance, particularly through credit ratings. It highlights the importance of creditworthiness in enabling utilities to secure commercial debt, which is essential for expanding water services and improving financial sustainability.

Main Issues

• Low Access to Services: Despite public investment, water service access remains low in sub-Saharan Africa. For example, in Kenya, only 40% of the urban population has access to water services.
• Limited Public Funding: Public resources and utility surplus revenues are insufficient to meet the large investment needs of water utilities.
• Banks' Reluctance to Lend: Banks are hesitant to lend to water utilities due to:
  • Perception of water as a social good with low financial returns
  • Preference for short-term loans (up to 7–10 years), while water assets have longer useful lives
  • Limited collateral value of water assets
  • Utilities' lack of familiarity with commercial lending criteria

Key Findings

• Credit Ratings as a Tool: Credit ratings help utilities access domestic market finance by providing an objective assessment of their creditworthiness. They also assist in identifying areas for improvement and sharing best practices.
• Cost Recovery Tariffs: Effective cost recovery tariff policies are crucial for enabling utilities to access medium-term commercial debt.
• Public Finance Leverage: Public finance and grants can be used to attract private investment, reduce risk for lenders, and ensure efficient use of public funds.
• Project Viability: Utilities must lead in identifying and preparing viable projects for appraisal and financing, particularly those that generate sufficient revenue to repay debt.
• Debt Service Cover Ratio: Lenders typically require a debt service cover ratio of 1.5 to 2 to mitigate risks from economic shocks and cost fluctuations.
• Shadow Ratings: In Kenya, shadow credit ratings were used to assess 43 utilities, identifying 13 as creditworthy (A or BBB) and 16 as potentially creditworthy (BB). Utilities in the "No Rating" category require significant reforms to access finance.

Key Lessons

• Creditworthiness Factors: Utilities with lower non-revenue water, higher metering and operating cost coverage, and better financial management are more likely to receive investment-grade ratings.
• Monopoly Perception: Despite their essential role, utilities are not typically assigned high ratings due to challenges such as limited surplus cash, poor working capital management, and slow implementation of cost recovery policies.
• Loan Security Structure: A flexible loan security structure that allows lenders to secure residual cash flows after essential operating costs is important for attracting debt finance.
• Investment Sizing: Capital investment plans must align with the utility's debt capacity to ensure financial viability and sustainability.
• Blending Debt and Grants: Commercial debt should be combined with public finance and development partner support to enhance investment potential.
• Project Types: Ideal projects for commercial financing include network expansion, metering, non-revenue water reduction, and energy-efficient improvements.

Action Taken

• Since 2007, the Water and Sanitation Program (WSP), in collaboration with the Public Private Infrastructure Advisory Facility (PPIAF), has developed a creditworthiness assessment mechanism.
• In 2008, seven African water utilities were assessed and assigned credit ratings ranging from BBB to A+.
• In 2011, 43 Kenyan utilities were assessed using a similar methodology, with shadow ratings assigned to test how financiers might evaluate their creditworthiness.

Conclusion

Encouraging creditworthy utilities to use commercial debt for part of their investment programs can improve the allocation of public funds and enable private sector participation. This approach also enhances governance and financial management through lender oversight. The credit rating exercises are expected to increase opportunities for utilities to access domestic credit on commercial terms, leading to improved service access and more sustainable infrastructure development.

Related Reading

• WASREB/WSP. Financing Urban Water Services in Kenya - Utility Shadow Credit Ratings, Nairobi, November 2011.
• Global Credit Rating Company. African Water Utilities Regional Comparative Utility Creditworthiness Assessment Report, Nairobi, December 2008.

About WSP

WSP is a multi-donor partnership administered by the World Bank, focusing on improving access to water and sanitation services for the poor. It works on building sustainable business models, developing Public-Private Partnerships (PPPs), and supporting unbanked providers.

Acknowledgements

• Author: Rajesh Advani, a Finance Specialist with WSP based in Nairobi, Kenya.
• Peer Reviewers: Alexander Bakalian, Jeffrey Delmon, Laura Vecvagare, Jemima Sy (World Bank Group)

About the Project

The project aims to leverage domestic private sector resources to achieve the Millennium Development Goals (MDGs) in water and sanitation, targeting the improvement of services for 1.5 million poor people and attracting over US$80 million in investments.