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Wastewater Management in the Wider Caribbean Region

GEF/UNEP-IADB Caribbean Wastewater

By IW:LEARN

April 18^th, 2017

Barriers and Solutions to Sustainable Financing for Wastewater Management in the Wider Caribbean Region

Motivation for the Global Environment Facility-funded Caribbean Regional Fund for Wastewater Management (GEF CReW) Project, which began in 2011 and is due to end by mid-2017, came from the increasing number of countries in the wider Caribbean Region (WCR) attributing the poor state of wastewater management to the lack of funding.

GEF CReW has supported 13 participating countries (Antigua and Barbuda, Barbados, Belize, Costa Rica, Jamaica, Guatemala, Guyana, Honduras, Panama, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago) in addressing three main challenges:

Providing sustainable funding for the wastewater sector
Supporting policy and legislative reforms, and
Fostering regional dialogue and knowledge exchange amongst key stakeholders in the WCR.

Countries need to introduce innovative financial mechanisms, including greater private sector involvement to respond to the challenge of providing long-term financing for wastewater management. More flexible financial management mechanisms have to be considered, e.g. micro-financing, revolving funds, risk-sharing alternatives and municipal bonds. Public-private partnerships and public-public partnerships are important tools to assist local governments with financing for the initial investments and for ongoing operational costs.

Developing innovative financing mechanisms for wastewater was the specific focus of Component 1 of GEF CReW. It set out to establish national Pilot Financial Mechanisms (PFMs) to provide innovative, sustainable investment financing for environmentally-sound cost-effective wastewater management facilities.

An objective of these pilot projects was to determine an appropriate strategy for helping participating countries improve the management of wastewater treatment systems. The resulting strategy could be applied in other countries in the future. After testing modest pilots and determining their potential for replication, new PFMs would be created with co-financing from other lenders, investors and donors (UNEP 2014).

Belize, Guyana, Jamaica and Trinidad and Tobago were selected to participate in the development of Pilot Financing Mechanisms. Through the establishment of revolving funds in Belize, Guyana and Trinidad and Tobago and a credit enhancement facility in Jamaica, the intention was to test and evaluate different financing modalities for wastewater management projects. CReW resources were used for capitalization of these PFMs.

Belize Wastewater Revolving Fund (BWRF)

The US$5 BWRF was established to provide subsidized interest rate loans for eligible public and private sector wastewater treatment projects. The Belmopan Sewer System Upgrade and Expansion project was selected as the first generation project to benefit from the BWRF, following the decision to seek an alternative to the Placencia Peninsula, due to its simplicity of design and ease of construction. In 2014, the CReW retroactively financed US$739,333 for the construction of three facultative lagoons. In 2015, the CReW signed the financing agreement for the Belmopan Phase 1 with a cost US$813,333.33 and the construction was completed in April 2016. Currently, the CReW is financing the Belmopan Phase 2 at an estimated cost of US$3,807,260. The Phase 2 will be completed by September 2017. The project is currently generating sustained repayment back into the BWRF.

The Guyana Wastewater Revolving Fund (GWRF)

The US$3 million GWRF supports improvements in wastewater management through both public and private sector channels. The Ministry of Housing and Water established the GWRF Board, including representatives from Guyana Water Incorporated, the Environmental Protection Agency and the Private Sector Commission to manage the fund. In 2014, a shortlist of potential private sector companies was targeted by GWRF and discussed with IDB. From this shortlist, the firm Ashmin’s Fun Park and Resorts was selected and a loan agreement was approved in October 2015 for the use of US$300,000 on a wastewater treatment facility. This loan is still to be disbursed as Ashmins seeks a commercial bank guarantee to comply with the GWRF loan disbursement conditions. Currently the Fund through the Project Management Unit (PMU), is exploring the possibility of developing a proposal with Guyana Water Incorporated (GWI), even though it is not a private company, to install a constructed wetlands wastewater treatment facility.

The Jamaica Credit Enhancement Facility (JCEF)

The JCEF is a US$3 million guarantee fund which has been placed in a reserve account and pledged to local commercial banks as collateral for acquiring financing to carry out wastewater projects. In accordance with the terms of the CReW Grant Agreement, the CReW funds were placed in a reserve account to provide secondary assurance to a commercial lender. In 2015, the IDB and the National Water Commission (NWC) finalized the review of the conditions of the agreement and the loan was signed with the National Commercial Bank (NCB), the second largest commercial bank in Jamaica. This stipulates a US$12 million loan over a 12-year term. Tranche A repayment began in June 2015 whilst Tranche B began in March 2016. The Loan is to be repaid by the end of June, 2022. With this financing, the NWC has entered into 3 construction contracts already. The first contract will be completed by January 2017 and the other two by August 2017.

The Trinidad and Tobago Wastewater Revolving Fund (TTWRF)

The US$2 million TTWRF is meant to improve coverage and performance in the wastewater sector. The first generation project is rehabilitation of the 15-year old Scarborough Wastewater Treatment Plant in southwestern Tobago. The NWRFTT has been established but before entering into an agreement between the NWRFTT and the Water and Sewerage Authority (WASA) for the first generation project, the Government of the Republic Trinidad and Tobago (GORTT) agreed to change the executing agency of this operation from the Ministry of Finance (MOF) to the Ministry of Public Utilities (MPU). In addition, the MPU is currently working on the mechanism for the operation of the Revolving Fund.The IDB has agreed that the final agreement between WASA and the NWRFTT need not wait for the new executing agency to be in place. As a result, the design and build contract for the rehabilitation of the Scarborough Wastewater Treatment Plant began in September 2016 and will be completed by September 2017.

More than US$14 million in Co-Financing mobilized by Participating Countries

In addition to helping to put wastewater management higher on the agenda of participating country governments, the SFMs developed under GEF CReW have helped the respective governments leverage significant additional resources. Belize, Guyana and Jamaica each contributed US$308,600, US$373,150 and US$798,000 respectively for Project Management. In addition, Guyana and Jamaica contributed US$192,000 and US$384,000 respectively for Monitoring and Evaluation. Jamaica, in addition to the US$12 million dollars of loan support catalyzed for interventions, spent US$60,546.79 on Topographic Surveys. This amounted to more than US$14 million in co-financing by countries in the GEF CReW Project.

Challenges and Opportunities for Replication and Sustainability of the Financing Mechanisms

The Project has provided much experience and learning as Caribbean countries try to come to terms with the increasingly urgent problem of financing wastewater management. Operationalization and implementation of the SFMs revealed several challenges which need to be addressed in order to ensure their successful continuation and expansion, and which have wider implications for introducing similar mechanisms in other countries of the region. These include the need for:

Legislative, regulatory and policy frameworks (an enabling environment) that include standards for effluent and water quality, and facilitate greater investment in wastewater management by the public and private sectors.
Mechanisms to ensure cost recovery and replenishment of the fund.
Financial agreements that consider both interest rates and length of project loan repayments.
Eligible projects that will allow the funds to revolve.
Widening of the applicability and accessibility of the funds.
Capacity building in the private sector to improve their eligibility for funding and enable improved proposal submissions.
Flexibility in the application of financial instruments, particularly when considering loan security mechanisms.
Adaptive management to ensure project success as conditions change.
Keeping legal and financial requirements as simple as possible, yet sufficient to protect the integrity and sustainability of the funds.

These challenges as well as the success factors, benefits, and lessons learned in implementation of the CReW Pilot projects are presented and discussed in a series of Case Studies prepared by GEF CReW and available under Publications / Knowledge Documents on the GEF CReW website: www.gefcrew.org