The decrepit state of Pakistan’s water sector infrastructure is no news. One conservative estimate by World Bank places the replacement of Indus Basin Water Works alone at $60-70 billion, more than the aggregate PSDP budget for past several decades, and fast increasing as years of neglect and deterioration due to extreme weather events continues to take its toll.
The only way to avoid paying that bill is make sure that the buffet never comes to an end. Yet, if the plans by Ministry of Water & Power – especially WAPDA – are to be believed, the government should be taking on fresh infrastructure projects – asking for drinks and desserts while the dinner is still not paid for.
Does Pakistan not need more reservoirs that also generate hydropower? Of course, after all its storage capacity per capita is one of the lowest in the world. But it first needs to rehabilitate existing reservoirs, distribution networks, and recycle freshwater currently wasted, which account for most of the existing water losses. Yet this simple explanation often appears to be lost in politicized shouting matches over dams on talk shows.
The problems are also well-understood. While the standard model for public service delivery is for consumers to pick up the tab for replacement, the government barely collects abiyana for O&M – with some estimates putting collections at less than half of the O&M cost. The government – which through taxpayer money – is supposed to pay for the fixed costs such as interest expenses, is itself bleeding scarce resources on inefficiencies such as excess staff (and possibly cost of corruption). This means that the cost of replacement in fact goes unfunded, bringing everyone full circle.
Continuing to expect government to miraculously fix the problem with a masterstroke of mega dam would be foolish. That was the argument made by Ali Ansari – corporate guru and investment banker – credited for the successful public-private partnership in the form of Sindh Engro Coal.
Speaking to the water infrastructure financing session at 4th Karachi International Water Conference organized by Hisaar Foundation, Ansari argued that the private sector can fill in the gaps where the government lacks the financing and capacity to go-alone, provided that the projects are first de-risked for the private sector.
But before private sector flows in, it must be preceded by a clear policy and project prioritization. This is where lessons from the IPP experience could come in very handy. For example, instead of jumping headfirst in the deep end of the pool by seeking private sector investment in fresh hydropower, the government could choose to prioritize replacement projects on the distribution side – both in urban and rural settings.
While the poor cost recovery in water sector is often decried, the investment should not be next to impossible to incentivize. For one, governments will have to offer concessions and capacity guarantees the same way as were for seeking IPP investments, ensuring project de-risking – which will ensure that the project becomes bankable.
And if the much derided ‘tanker mafia’ in Karachi is any guide, recovery from private sector may not be tough as it sounds – after all, charging for distribution upgradation is akin to recovering cost of delivery. As CEO Multinet Adnan Asder pointed out, the arbitrage is attractive enough for private sector to come running in. Just ask any member of the enterprising tanker owning businesses!
For so long as the government can provide regulatory protection in the form of land procurement and right of ways, a public-private partnership offers a useful solution for financing rehabilitation of Pakistan’s water sector. A first step in this regard could be by taking on pilots at district levels. Private sector investment mobilization may ensure that project costs remain capped, as unlike public sector development, cost overruns are penalized.
Pakistan’s water sector development has two courses in its front: continue to jockey fresh mega-infrastructure projects as the only solution for the country’s ills knowing full well that given the gaping fiscal hole, they will forever remain unbankable even with some multilateral support. Or find innovative ways to rehabilitate the existing infrastructure by incentivizing private sector investment. The PPP model may be one way to go.
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