Development Credit Authority (DCA)

Enhancing Access to Clean Water and Sanitation Through Innovative Financing

USAID is currently examining the world market for private debt financing and is working closely with overseas missions in an effort to identify bankable projects and risk-sharing partners in the water sector. This effort is designed to identify both partners and opportunities for risk sharing arrangements in private sector-led finance, ranging from largescale water initiatives in the formal sector to small-scale projects such as farmer cooperative well programs in the informal sector. Results of this fact finding effort will be made available to the other agencies of the U.S. Government who are engaged in working together with the private sector to implement the objectives set out in the Johannesburg Plan of Implementation.

Applications of DCA to the Water Sector

South Africa
USAID/South Africa proposes to fulfill the objectives of the Johannesburg Plan of Implementation of the World Summit on Sustainable Development by investing in a water and sanitation initiative targeted at urban areas, in recognition of current economic and demographic trends. The objective of the initiative is to increase the quality and quantity of these services, particularly for the poor, by increasing the investment in and improving the management of water and sanitation services in urban areas. This initiative will:

• make use of technical expertise established already in South Africa, in the Municipal Infrastructure Investment Unit (MIIU);
• employ clear and independently monitored performance standards; and
• take advantage of credit enhancement where needed through the USAID DCA program.

Development Credit Authority

Through this three-pronged approach, management improvements will be matched with capital investment, resulting in expanded quality and quantity of water and sanitation services. This proposal will build on successful financing of water projects in the past, such as loans in Johannesburg DCA helped place with ABSA Bank.

Egypt: Private Sector Participation Takes a Giant Leap in South Sinai

The Ministry of Housing and the South Sinai governorate agreed to outsource the operations and maintenance for the entire water system for South Sinai -- plants, pumping stations, and networks in the nine cities of Ras Sidr, Abu, Redeis, St. Catherine, Abu Zinaima, Tur Sinai, Sharm El Sheikh, Dahab, Nuweiba, and Taba. The contractor supplies labor, equipment, and tools for all parts of the system that are not under an existing service contract.

Currently, private sector participation in the infrastructure sector is limited in Egypt. Under this arrangement, the governorate focuses on contract management and collections, and holds the contractor accountable for performance. In a radical departure from prior service contracts, this arrangement established a performance based contract, with the contractor’s compensation based on meeting certain standards.

DCA’s support will facilitate greater private sector participation in the water and wastewater sector by introducing the utilities and local financial markets to the concept of private finance and operation in infrastructure. It will also encourage the extension of local currency loans of suitable maturities for infrastructure projects. Finally, it will demonstrate the viability of the private sector to provide higher quality, lower cost services to the water and wastewater sector.

As services improve, this arrangement will hopefully provide a good example of benefits realized from outsourcing public services, increasing confidence in the viability of private sector participation to provide effective utility services on an affordable basis.