Water projects are disproportionally financed by public money. The capital that is needed to achieve Sustainable Development Goal (SDG) 6, that focuses on water security and climate adaptation, will never be met by the public sector alone – private investments are urgently needed to fill the gap and reduce the pressure on public funds. The Netherlands Water Partnership (NWP) is addressing this challenge through the theme ‘Finance for Water’, a cross-cutting theme for all the regions we work in.
In 2019, the Netherlands Water Partnership (NWP) and the Dutch Entrepreneurial Development Bank (FMO) released a market analysis on the financing challenges of the Dutch water sector. The report referred to the need for USD 7,500 billion dollars between now and 2030 to build the required infrastructure to protect the world’s population from water-related challenges. The only way to achieve the required level of investment is, alongside public financing, to significantly leverage private sector resources. However, it is clear that the pipeline of solid, privately financeable water projects remains under-developed.
Knowledge session on financing export transactions
NWP’s Finance for Water (FfW) team is strengthening the pipeline by bringing together financial institutions and water companies to help promising ideas get the financial backing they need to move from development to implementation. One of the activities that contributes to this goal is the organisation of knowledge sessions to share information on the financial landscape and enable a dialogue between financial institutions and the Dutch water sector (DWS). The most recent session was organised as part of the Partners for Water Programme and co-hosted by Atradius Dutch State Business (DSB). It took place on 17 November 2020 and focused on ‘Financing Export Transactions in the Water Sector’. The session shed light on Atradius DSB’s financing options that are available to Dutch small and medium sized enterprises (SMEs) in the water sector with plans to enter the export market. Participants engaged in a lively session during which they learned more about Atradius DSB’s financing instruments, shared experiences and asked questions. It was the second of a series of knowledge sessions tailor-made to the individual needs of different segments of the DWS and addressed challenges at different stages of the value chain.
A partner in water finance
For Atradius DSB, partnering with NWP to organise the knowledge session was a unique opportunity to interact with Dutch water actors. According to Irene Visser, Senior Advisor Business Development & International Relations at Atradius DSB, “The knowledge session gave us insights into the problems faced by NWP members such as the financing of innovative scale-ups and payment issues when delivering to municipalities.” Following the session, Atradius DSB planned follow-up meetings with three participating organisations to discuss possible projects. Visser adds, “The collaboration with NWP was a great experience. The preparations and execution of the session were pertinent and professional. It is clear that NWP has good contact with its members. The turnout was high and all the companies that registered attended.”
The session in November was kept small, with 12 participants from the NWP network. This allowed ample time for interaction with Atradius DSB and provided a forum for participants to exchange stories, start discussions and learn from each other’s experiences with export credit finance. Read more about this collaboration on Atradius DSB's digital publication (in Dutch).
Towards financial closure
A lack of knowledge of financing instruments is only one obstacle that the FfW team says prevents Dutch water companies from scaling up their operations or progressing their innovations to the implementation stage. Insufficient attention is often paid to the financial feasibility of new projects. The water sector has many ideas for potential projects, but its focus is very much on technology, studies or plans. This is reflected in the market analysis contained in the FMO/NWP report which states that there is often a lack of financial expertise in the early stages of project development and, in many cases, projects with solid technology or solutions often lack adequate answers to how they will actually be delivered at a business level and the financial risks involved. As a result, ideas for water related projects frequently fail to meet the financing criteria and either end up on the shelf or are unable to meet scale-up demands.
This perspective is shared by Arthur Gleijm of Rebel, one of the authors of the FMO/NWP report. In a previous blog, Gleijm notes that when business cases are not clearly formulated or embedded in a project, there is a mismatch between its risk profile (which is especially high in emerging markets) and the return on investment. He adds that many project developers struggle to translate the societal benefits of water into clear business propositions and do not ask crucial questions. These questions include identifying the needs and the necessity of the project; who is willing to pay for it; and, given the risks, is the price reasonable?
Mapping the financial landscape
FfW’s project lead Josephine Damstra points to another obstacle. “Organisations in the DWS, especially SMEs, are often not fully aware of the various financing opportunities that are available to them. For example, in addition to the more traditional routes, there are financing instruments related to climate adaptation, climate resilience and other sustainability issues that could also be relevant for the water sector. In addition, there are other types of financiers, such as impact investors and foundations who might be willing to partner Dutch water companies as well. The financial landscape is complex, and our goal is to make our members aware of the different options available and their related practicalities, such as relevant criteria and application processes.”
As part of the Partners for Water Programme, the FfW team is currently researching the financial landscape for water projects. The idea is to identify a variety of financial players, instruments and pathways, and share that information with the DWS in the coming months. One way to share this information is the knowledge sessions. By keeping the sessions small and co-organising them with relevant financiers, the focus is not only on knowledge sharing but also on creating a dialogue between participants and fostering discussion on why some projects fail to secure financial backing while others succeed. This type of activity also offers participants more opportunities to network and even form new partnerships.
Request your tailored Finance for Water session
Finance for Water’s mission is to bring together financial institutions and water companies to make sure that promising ideas can access the money required for development and eventual implementation. NWP’s series of knowledge sessions is making this happen.
We invite financiers, as well as members of the DWS to contact our FfW team so, together, we can address challenges and find solutions. If you would like to see a specific theme or topic addressed, please do not hesitate to contact us.