USAID and JBIC Collaboration in the Water Sector

1. USAID and JBICCollaboration in the Water Sector Megumi MUTO Planning Division Development Assistance Strategy Department October 1, 2004

2. Outline of the Presentation • What is JBIC? • What are JBIC ODA Loans? • JBIC ODA for the Water Sector • USAID-JBIC Water Collaboration in the Philippines

3. What is JBIC? (1)Result of Merger between JEXIM & OECF • JBIC: Japan Bank for International Cooperation-Established on October 1, 1999, as a result of merger between JEXIM and OECF • Two Kinds of Operations: • International Financial Operations (former JEXIM Operations) • Overseas Economic Cooperation Operations (former OECF Operations)

4. What is JBIC?(2)Two Types of Operations • International Financial Operations • Export Loans • Import Loans • Overseas Investment Loans • Untied Loans, Etc • Overseas Economic Cooperation Operations • Official Development Assistance (ODA) Loans to/through Sovereign Governments • Private Sector Investment Finance

5. What are JBIC ODA Loans?(1)Priority Areas for ODA Loans 1. Poverty Reduction 2. Infrastructure for Economic Growth 3. Anti-Pollution Measures 4. Global Issues 5. Human Resource Development 6. IT 7. Regional Development

6. What are JBIC ODA Loans?(2)Characteristics of ODA Loans • To support projects with low returns but high development significance • To finance large investments with less burden on the Japanese tax payers by leveraging • To transfer technology and knowledge with financial assistance ⇒ Revolving Fund for Development

7. Budget Support Loans Project Loans Structural Adjustment Loans (SAL) Engineering Services (E/S) Loans Non-project-type Loans Project-type Loans ODA Loans Sector Program Loans Sector Loans Financial-Intermediary Loans (Two-Step Loans) What are JBIC ODA Loans?(3)Types of ODA Loans (Yen) * * Tapped for initial collaboration with USAID

8. What are JBIC ODA Loans?(4)Volumeof Commitments From FY 97 to 99, JBIC increased the commitments to assist restoration from Asian currency crisis. In FY2003, 89.9% of commitments were for Asia.

9. What is JBIC’s ODA Loan?(5)Terms and Conditions (i) <General Terms> • Interest rate: • 0.75% - 2.00% per annum based on Per Capita GNP of the borrowing country • Repayment period: • 30 - 15 years (including 10 - 5 years grace period)

10. What are ODA Loans? (6)Terms & Conditions (ii) <Preferential Terms> (For Forest Conservation, PollutionPrevention, Human Resource Development, SMEs, among others) • Interest rate: • 0.50% - 1.20% per annum based on Per Capita GNP of the borrowing country • Repayment period: • 40 - 15 years (including 10 - 5 years grace period)

11. What are ODA Loans? (7)Terms & Conditions (iii) • Interest rate: • 0.30% - 0.40% per annum based upon Per Capita GNP of the borrowing country • Repayment period: • 40 - 30 years (including 10 years grace period) <Special Terms for Economic Partnership>

12. JBIC ODA Loans in the Water Sector (1) Cumulative Commitments & Policy • Cumulativecommitments in the world Water Supply : 80 billion Yen 130 projects 50 billion yen 50 projects Sewerage ： • Long time experience of assistance in Asian Countries (China, Thailand, Indonesia, Philippines, etc.) • Water supply and sewerage have beenconsidered as the priority sector in both poverty reduction and infrastructure development. JBIC will steadily increase its assistance in the water sector.

13. JBIC ODA Loans in the Water Sector (2) Assistance In the Philippines • JBIC assistance to water sector in PH started in 1978. To date, total commitment amount is 58.7 billion yen (29.4 billion • pesos). The total number of projects is fifteen (15). Ten(10) • projects are completed and five(5) are on-going. • JBIC-funded water supply facilities constructed and repaired • nationwide benefit 13 million people or 21% of Philippines • population. • The purposes and types of JBIC assistance in water sector in PH • >water supply and sanitation in rural areas • >water supply in provincial cities • >Water Supply in Metro Manila • >Water supply in other areas (Boracay Tourism area, Subic Bay • Free Port, Special Economic Zones, Cebu Reclamation Area) • Future strategy: (1) Enhancement of water supply in poor areas and provincial LGUs (2) Promotion of private financing

14. USAID-JBIC Water Collaboration (1) • Background History • Sep. 2002 Powell-Kawaguchi announcement of US-JAPAN Water Initiative at WSSD • Nov. 2002 First Discussion between USAID & JBIC in Washington & Tokyo • Jan. 2003 JBIC joined USAID’s Workshop in Bangkok • Mar. 2003 Pilot Countries Approach Agreed for Philippines, Indonesia & Jamaica • June 2003 Meeting between USAID’s Deputy Administrator & JBIC’s Deputy Governor • July 2003 Evian Summit/G8 Water Action Plan • Oct. 2003 1st Outreach Monitoring Meeting in Washington • Mar. 2004 Consultation on Cofinancing Operation in PH • Apr. 2004 2nd Outreach Monitoring Meeting in Tokyo

15. USAID-JBIC Water Collaboration (2) • Basic Agreements between USAID & JBIC • To continue to discuss promotion of cofinancing in 3 pilot countries • USAID initiates the ideas/concepts of the Project • JBIC assists the Project formation • What to do in PH (start with existing mechanisms) • To promote project collaboration in the water sector through frequent consultation and exchange of information on aid policies and operations • To study the feasibility of Pilot Municipal Water Loans and a Water Revolving Fund (WRF) in collaboration with PH side • To strengthen institutions/regulatory & policy frameworks

16. USAID-JBIC Water Collaboration (3)JBIC Projects - a typical case ODA Loan finances 60-70% of the total project costs JBIC ODA Loan National Budget Implementing Agency (Local Government) Private Financial Institution Local Cost Issuing Bond. etc. ・Borrower needs to be a government ・G-G basis sovereign loan Usually 30-40% of the total cost

17. USAID-JBIC Water Collaboration (4)Co-Financing model I: Local Government /Public Corporation JBIC USAID DCA ODA Loan Private Bank Implementing Agency (Local Government), Public Corporation Local Cost Issuing Bond. etc. 70%：JBIC ODA Loan 30%：Private Bank with DCA guarantee

18. USAID-JBIC Water Collaboration (5)Co-Financing model II: Two Step Loans /Microfinance JBIC USAID ODA Loan Guarantee DCA Government (Ministry of Finance) Sub-Projects Farmers/ Ventures Loan Loan Farmers /Ventures Private / Public Bank Farmers/Ventures DCA Guarantee could be limited for the poorest beneficiaries.

19. USAID-JBIC Water Collaboration (6)Co-Financing model III: Up streaming- Down streaming co-financing JBIC JBIC USAID Guarantee ODA Loan Implementing Agency Private sector Loan Infrastructure Project e.g. Water Resource Development (Dams, Pipelines etc.) Private Projects e.g. treatment facilities, distribution systems

20. USAID-JBIC Water Collaboration (7) Simple Prototype of WRF Private Sector JBIC GOP WRF DCA LGU LGU LGU

21. USAID-JBIC Water Collaboration (8) Why are we aiming at cofinancing with USAID For WRF? • The significance: frontier of sustainable water financing, • mobilizing private funds for water infrastructure • in developing countries. • ODA funds cannot meet the vast needs for water infrastructure. Private funds less able to shape regulatory/policy environment. Need both. • Complement strengths of each institution – USAID: extensive knowledge of WRF based upon US State Funds. JBIC: long time experience and knowledge of water sector • in PH. • Key: how to strike balance between private-led financing VS sovereign hook.

22. Thank you for your attention! Megumi MUTO Deputy Director Planning Division, Development Strategy Department, JBIC Head Office m-muto@jbic.go.jp Any comments and any questions are welcomed anytime!