Project Homes in on Water Services for Ecuador's Poor

Project Homes in on Water Services for Ecuador's Poor

September 3, 2001—MIGA Insures First Performance Bond  Residents of Guayaquil, Ecuador, are no strangers to the problems that can affect access to water services. For some, taking a sip of water isn’t always as easy as turning on a spigot, and the sound of a rumbling truck could mean that water is being delivered. These citizens moved one step closer to safer, cheaper water with the March 2001 signing of a MIGA guarantee that offers protection for an investment to rehabilitate and expand Guayaquil’s municipal water services. The deal also marks the first time the agency has guaranteed a performance bond.

The Deal  The $18 million guarantee—against the risks of expropriation and war and civil disturbance—covers an investment by International Water Services (Guayaquil) BV of the Netherlands in an Ecuadorian subsidiary to privatize potable and sanitary water services in Guayaquil. It also covers a performance bond, guaranteeing the company’s successful management, expansion, and operation of the water services. The bond was posted by the company in accordance with the 30-year concession awarded by the government.

"We’re always looking for new products and services to be more responsive to our clients," says Angela Marcarino Paris, who led the project underwriting team. "In this case, we felt that since the bond money is tied up for 10 years, it’s very similar to any other corporate asset and we could therefore cover it." The guarantee protects against the wrongful call of the bond.

What makes the deal even more exciting, Paris says, is that it’s also the first time MIGA has guaranteed a water project.

The Place  Guayaquil is considered the country’s financial, commercial, and industrial hub.About two million inhabitants, roughly 18 percent of Ecuador’s population, call the city home. During a 20-year period, Guayaquil’s population doubled, putting a serious strain on existing infrastructure, as well as on basic service providers. Poor areas have been left with little access to potable water and deficient sanitary conditions.

The Project  At the time of privatization, the water utility collected about 50 percent of the amount billed and could not provide service with sufficient pressure to at least one-third of those connected. The company is now working to upgrade services and operating performance by reducing unaccounted-for water and increasing cash collection. The concession agreement calls for tariff increases to be linked to pre-determined improvements in the quality of water and service, as well as increases in the number of potable water and sewage connections (by about 30 percent and 40 percent respectively).

By expanding the provision of water and wastewater services, particularly to lowerincome parts of the city, "the new operator will not only help improve health and living conditions for the local population, but also reduce the cost of water to this particular constituency," says Philippe Valahu, manager of MIGA’s infrastructure unit. That’s because water is currently distributed to poor areas by truck, at a high cost.

"The bottom line here is that the project enterprise gets the coverage it needs,more people get better-quality, cheaper water, and the environment is protected," Valahu says.

For more information, contact Philippe Valahu at pvalahu@worldbank.org.