USAID and JBIC Collaboration in the Water Sector

Megumi MUTO

Planning Division

Development Assistance Strategy Department

October 1, 2004

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Outline of the Presentation

1. What is JBIC?2. What are JBIC ODA Loans?3. JBIC ODA for the Water Sector4. USAID-JBIC Water Collaboration

in the Philippines

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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)

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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

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What are JBIC ODA Loans?(1)

Priority Areas for ODA Loans

1. Poverty Reduction2. Infrastructure for Economic Growth3. Anti-Pollution Measures4. Global Issues5. Human Resource Development6. IT7. Regional Development

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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

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What are JBIC ODA Loans?(3)

Types of ODA Loans

Project Loans

Engineering Services (E/S)

Loans

Financial-Intermediary Loans (Two-Step Loans)

BudgetSupport Loans

Project-type Loans Non-project-type LoansODA Loans

Structural Adjustment Loans (SAL)

Sector Program

LoansSector Loans

(Yen)

*

* Tapped for initial collaboration with USAID

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What are JBIC ODA Loans?(4)

Volume of 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.

1028.61111.6

1053.7

667.4 687.8553.6 587.7

0

200

400

600

800

1000

1200

FY 1997 1998 1999 2000 2001 2002 2003

Billion Yen

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What is JBIC’s ODA Loan?(5)

Terms and Conditions (i)

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)

< General Terms>

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What are ODA Loans? (6)

Terms & Conditions (ii)

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)

<Preferential Terms>(For Forest Conservation, Pollution 　 Prevention, Human Resource Development, SMEs, among others)

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What are ODA Loans? (7)

Terms & Conditions (iii)

< Special Terms for Economic Partnership>

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)

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JBIC ODA Loans in the Water Sector (1)Cumulative Commitments & Policy

Cumulative commitments 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 been considered as the priority sector in both poverty reduction and infrastructure development. JBIC will steadily increase its assistance in the water sector.

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JBIC ODA Loans in the Water Sector (2)

Assistance In the PhilippinesJBIC 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

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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

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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

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USAID-JBIC Water Collaboration (3)

JBIC Projects - a typical case

Implementing Agency(Local Government)

ODA Loan

Local Cost

JBICODA Loan finances 60-70% of the total project costs

Usually 30-40% of the total cost

・ Borrower needs to be a 　 government・G-G basis sovereign loan

National Budget

Private Financial Institution

Issuing Bond. etc.

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USAID-JBIC Water Collaboration (4)

Co-Financing model I: Local Government /Public Corporation

Implementing Agency(Local Government), Public Corporation

ODA Loan

Local Cost

JBIC

Private Bank

Issuing Bond. etc.

USAID

DCA

70%： JBIC ODA Loan30%： Private Bank with DCA guarantee

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USAID-JBIC Water Collaboration (5) Co-Financing model II: Two Step Loans /Microfinance

Government (Ministry of Finance)

Private / Public Bank

Sub-Projects

Guarantee

ODA Loan

Farmers/ Ventures

Farmers /Ventures

Farmers/Ventures

USAID

DCA

LoanLoan

JBIC

DCA Guarantee could be limited for the poorest beneficiaries.

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USAID-JBIC Water Collaboration (6) Co-Financing model III: Up streaming- Down streaming co-financing

JBIC

Implementing Agency

Infrastructure Project

e.g. Water Resource Development (Dams, Pipelines etc.)

Private sector

Guarantee

Private Projects e.g. treatment facilities, distribution systems

JBIC USAID

ODA Loan

Loan

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Simple Prototype of WRF

Private Sector WRF GOP JBIC

LGU LGU LGU

USAID-JBIC Water Collaboration (7)

DCA

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Why are we aiming at cofinancing with USAIDFor 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.

USAID-JBIC Water Collaboration (8)

Megumi MUTODeputy DirectorPlanning Division, Development Strategy De

partment, JBIC Head Office m-muto@jbic.go.jp

Thank you for your attention!

Any comments and any questions are welcomed anytime!