Guaranteeing Investments in Water Projects
Private financing for water supply and sanitation in developing countries has lagged far behind that for other infrastructure sectors, reflecting in part the limits of private capital contributions and the lack of appetite to bear the political risks associated with these projects. Investor losses in various regions—caused by contract breaches related to tariff adjustments, protests, exchange rate fluctuations, and currency devaluations—illustrate the reality of these risks.
As with other infrastructure investments, water and sanitation projects are affected by political and macroeconomic instability, inadequate legal and regulatory environments, and insufficient government commitment to contractual obligations. These projects are also exposed to risks related to the decentralization of service oversight from the national level to provincial and municipal authorities. Sub-sovereign regulatory and contractual risks can pose a different set of challenges than sovereign risks. Local authorities may have less experience dealing with the private sector and may lack a solid understanding of investors’ needs.
Our guarantees are well-suited to mitigate the particular risks associated with investing in water and sanitation projects in developing countries. These guarantees, covering both new investments and project expansions, help to ensure that investors are able to operate in a stable and predictable environment.