ESAWAS in collaboration with the African Development Bank recently held a webinar focused on strengthening the regulatory role in the sector finance framework as a key necessity to attracting investments in water supply and sanitation.
In his opening remarks, Mr. Mtchera Chirwa, the Acting Director of Water and Sanitation at the African Development Bank, highlighted the importance of discussing how to scale up financing for WSS in Africa. Statistics show that progress toward achieving SDG targets and country visions are behind schedule. To meet the SDG6 targets alone, we need to invest at least 4% of GDP into the sector, yet current investments average around 0.5% of GDP in Sub-Saharan Africa. The investment gap is over 40-50 billion with the majority of investments provided by the government/public sector.
Mr Chirwa stated that regulation plays a key role in the coordination and operation of the sector. Good quality regulation enables improvement in the performance of utilities and service providers, as well as tariff setting. A good and well-grounded legal and regulatory framework, coupled with institutions that are well structured and capable of delivering on their mandates, enables investment to flow – which is critical for private sector involvement. The AfDB 2021 Water Policy and 2021-25 Water Strategy recognizes and clearly identifies support to countries to enhance regulatory frameworks, governance and institutions as key investment priorities.
Based on a joint study conducted by AfDB and ESAWAS, the webinar aimed at highlighting the need to strengthen the regulator’s role within the sector finance conceptual framework—a comprehensive approach that integrates policy, planning, funding, monitoring and coordination. The study was based on country assessments conducted in Zambia, Kenya, and Uganda to inform the recommendations for the regulatory role.
Ms. Yvonne Magawa, the ESAWAS Executive Secretary highlighted the recommendations for the role of the regulators in:
- Sector investment planning focused on the identification and quantification of the sector investment needs
- Sector Funding Plan which addresses the financial strategies to support the investments covering both capital and operational costs, and incorporating diverse funding sources, including public-private partnerships (PPP).
- Sector Policy and Strategy Review focuses on the inevitable gaps between funding needs and availability, requiring policy and strategic decisions.
- Sector Finance Monitoring Mechanism (SFMM) aims to track, evaluate and is essential for providing baseline information to support the investment plan and funding strategy
- Sector-Wide Approach (SWAP) encourages collaboration, coordination, and alignment among stakeholders to ensure the effectiveness of the SFP
Mr. Lazarus Phiri-AfDB, Ms. Angela Kimani-WASREB, Kenya, Ms. Chola Mbilima-NWASCO, Zambia and M.r Reuben Sipuma-WSUP provided further insights into how and why the role of the regulator should be strengthened in sector financing in a panel discussion moderated by Eskendir Demissie of the AFDB
According to the panelists, a good legal and regulatory framework reduces uncertainty and brings stability and clarity to the sector which increases its attractiveness to investors. Clear regulations, quality standards, and predictable enforcement mechanisms make it easier for investors to assess risk (arbitrary changes) and returns. This is tied to effective regulation of the tariff that can ensure a cost reflective tariff that allows financial sustainability of services. The regulator aims to balance the interests of consumers and service providers in terms of the right to water and sustainability. To maintain the quality of service, the first priority is to cover O&M costs through the tariff for justified costs and thereafter CAPEX. However, tariffs that are set too low impact sustainability, and discourage investment. The level of revenue collection and profitability are key determinants in investment decisions. The use of PPPs also hinges on a good robust regulatory framework. Regulators also influence the efficiency of financial mechanisms e.g. loans/grants through a supportive framework for access to financing
Governance and transparency promote openness and accountability thus raising investor confidence e.g. addressing integrity issues. Institutional capacity should be properly addressed for well-resourced and capable institutions for project execution. The coordination among sector players should be led by the regulator. Within the fundamentals for SWAP, government has leadership from planning to implementation that should be enshrined within the framework of the country, coupled with institutional capacity. The regulator in some cases is spearheading efforts to support planning and further has the potential to create understanding with politicians to support implementation.
In most cases, sector plans are not backed by sufficient or verified data. There is a need to institute robust information systems led by the regulator. The sector funding strategy needs analysis of revenues and the regulator plays a role in funding sources in the sector. Based on sector oversight, the regulator can guide on prioritization of particularly scarce resources to make the most impact. Tracking sector resources is fundamental to progress by linking financing to the sector outcomes and verifying if objectives were met.
The webinar on strengthening the role of the regulator in sector finance comes on the back of calls by service providers for regulators to support the viability of institutions and the bankability of projects. This was at the first Service Provider-Regulator Engagement Platform, which brought together 11 regulators and 22 service providers from across Africa. The urgent need to attract investments to the sector was tied to the need to support better considerations in tariff modeling and setting and building capacity in business acumen. Water supply and sanitation tariffs are considered low by many countries, with the ability to attract funding from other sources further hampered by a lack of standardized credit rating for WSS providers. The Service providers unanimously requested the development of a water supply and sanitation tariff index for Africa, as well as a Creditworthiness Rating Index for WSS utilities across the continent.
In closing, Mr Mecuria Assefaw emphasised that the regulatory role must span the full sector financing framework as key to the enabling environment for increased investment with innovative financing mechanisms to bridge the substantial funding gap.
