Water Financing for Water Operators and Water Entrepreneurs

water operators funding through blockchain

Getting Water Operators Funded through Blockchain

“If we don’t get it right on Water, then we will not succeed in achieving the other Sustainable Development Goals.”

World Bank Water

Water operators bring clean drinking water to the urban poor and rural areas. While more than 1 billion people globally don’t have access to safe running water at home, these water operators tackle last mile connectivity issue, and help the poor save time, money & avoid water borne disease.

Water and climate change are also intertwined, with some regions at risk of losing up to 6 percent of GDP by 2050 if the growing challenge of water scarcity is not properly addressed.

water infrastructure financing on blockchain

“Water supply infrastructure and distribution is not cheap to maintain”

Traditionally, the Water sector has focused on 3 Ts – taxes, tariffs, transfers for financing Water operators. But even with current initiatives, it will only ever provide a small percentage of the overall financial needs of the sector. Effective financing for water, is essential for the sustainable delivery of services. There are substantial gaps in the understanding and tracking of financing to the water sector.

There are other classes of financing products that can help water operators. For instance, Sustainable bonds focusing on green and social impact projects, Social and Development Impact Bonds (Results-Based Financing). The challenge is to commercialise the water services in order to improve efficiency in service provision and limit dependence on government financing.

If everything was left unchanged in the next 15-20 years, there would be a serious water crisis. The need of the hour is to accelerate the pace of financing & investments, and new types of finance would have to be considered.

“We are not on track and we will not reach universal coverage for water.”

Latest data from WASHwatch.org

"Financial data is often insufficient to enable sound, evidence-based financing."

The Big Questions!

  • How are we going to fund universal access?
  • How are we going to speed the trend of investments leading to higher coverage rates, faster?
  • How can we create Water Financing Facilities in all this?
  • Do Water Operators have enough money available against operating expenses – consumables, supplies, spare parts?
  • How to track performance of Water Operators against benchmarks and strengthen them?
  • Which Water Operators can be categorized as high risk, medium risk, and low risk?
  • How to reduce cost of funding by reducing investment risk?
  • Can we make Water Operators funding feasible to private investors or institutional investors such as pension funds or endowments?

Why Blockchain?

“Digital applications can ride on top of “distributed ledgers”, a shared database for both investors and water operators, who agree on a “shared truth” in a peer-to-peer fashion, without relying on intermediaries.”

  • No double spend. Same unit of drinking water cannot be funded twice.
  • With only a partial trust between operators and financiers, funds can be accessed via configured smart-contracts amongst parties.
  • Tamper-evident audit trail. It’s easy to detect forged data.
  • Each member in the ecosystem has private access to the same version of truth, immutable and stored on shared ledgers, as per their privileges.
  • Privacy and anonymity of the beneficiaries can be maintained, while maintaining trust in the ecosystem through smart contracts.
  • Decentralised system means, resilient data, everytime availability and uninterrupted flow of benefits.
  • Scalable blockchain architecture that can support hundreds and thousands of IoT transactions every second with Water Operator Systems.

"Decentralized Ledger Technology can be a huge enabler in accelerating financing but Blockchain is not the panacea for water funding woes."

Water Operator Challenges

“A full understanding of the financial health of water operators can ensure that rates are set optimally, giving small systems the ability to finance projects while continuing to provide safe drinking water to their customers.”

Interviews with water operators show that stability in funding is most important to run uninterrupted water distribution. What are the challenges of Water Operators?

  • Financing is needed on both – the upfront build costs / supply end AND on the demand end.
  • Water operators need budget allocations from funders, as well as rate paying consumers in order to sustain themselves.
  • Private sector funding is clearly a major challenge for water operators in developing countries. The role of the private sector can also be more important in providing managerial know-how.
  • A proper allocation of financial risks and returns from water-related investments and to earn returns commensurate to the risks.
  • Raising investments from domestic financial markets should be the ultimate sources of funding to close the financing gap.
  • Money is available in the local financial markets but water sector financing is considered too risky.
  • Creditworthiness of private water operators, lack of track record in availing finance.

"Private sector funding is clearly a major challenge."

"Scarce funds and donor grants need to be strategically prioritised and used more efficiently."

  • Water is an under-valued and under-priced resource, therefore it is difficult to recover the costs of water investments.
  • Water operators can be small and too specific. This raises transaction costs and makes innovative financing models difficult to scale up.
  • Small water systems typically cost more to operate on a per capita basis than larger systems due to a lack of economy of scale.
  • Lack of funding for renewals, replacements, under-investment in maintenance.
  • Water rates set below sustainable levels (do not support full lifestyle cost recovery)
  • No adequate full cost recovery system to enhance internal revenue generation on a sustained basis to offset all categories of cost.
  • Split in operation and maintenance costs is not optimal and does not reflect economic reality.
  • The result is the near incapacitation, corruption and absence of clear institutional objectives.

The Blockchain Solution

“Not all countries may fulfill the water financing conditions, especially some of the poorest countries, where the financial sector is simply too underdeveloped”

In such countries, a decentralized platform without intermediaries, could help mobilize capital for water operators.

  • Clearly defined Results-based investment needs for water operators.
  • An institutional grade network of water operators and funders that aligns governance, operations and legal requirements.
  • Aggregated visibility to regulators, government and water service providers.
  • Benchmarking and credit rating of water operators.
  • Delineating bankable proposals from the less credit-worthy proposals.
  • Collateral management and performance guarantees on the platform.
  • Loan component services related data available in real-time to funders.

Can users pay for services?

clean safe drinking water through blockchain

“To sustain high quality services, rate increases are required, but their impact on low-income customers are a major cause of concern.”

About Netsity

Netsity has been providing software development services for more than 20 years (since 1997), helping our clients transform innovative ideas into disruptive reality. We are focused on projects that can make huge Social Impact at-scale and help Philanthropists, Donors, Multilateral Organisations, Aid Agencies, Governments, CSR Programs, Non-Profits, Social Entrepreneurs, Corporates, solve complex problems that affect the BoP segment most.

Netsity works in close cooperation with water operators, institutional donors, investors, and philanthropists. We empower the funders to get access to water operators’ performance data on shared ledgers running in a private blockchain network. Our aim is to help funders maximise impact and manage funds disbursements through automated smart-contracts.

Water operators can get timely access to funds without any intermediaries, based on the data shared with potential funders.

3 thoughts on “Water Financing for Water Operators and Water Entrepreneurs”

  1. Arvind Tripathi

    Very well summarises the challenges faced in the field of drinking water access. Blockchain can definitely solve some of those challenges. Well written!

  2. Worth reading n thought provoking in term of possibilities arises on blockchain tech.
    Being a water entrepreneur, i would definately consider the option.
    Pl go thru rean.co.in and revert if this could be a possible fit for nxt fund raise.

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