ADB takes first step to spur private investments through equities
THE Asian Development Bank (ADB) on November 17 announced its decision to invest US $20 million in a private equity fund for water related infrastructure. While the bank is not new to such deals, it is the first time it has invested in an equity fund like this.
The Asian Water Fund, owned by a subsidiary of AmInvestment banking group, targets investments in municipal, industrial and rural water an wastewater projects in China and Southeast Asia. “ADB’s participation will spur other private sector investment in these areas,” said Robert van Zwieten, director of ADB’s private sector operations department. The bank estimates US $8 billion a year to meet the target for safe drinking water in Asia over the next decade. Unlike other such funds, it will invest in constructing assets and operate to recover money using build-operatetransfer (BOT) model and its variants.
The fund will seek a majority ownership stake of the assets for greater control and supervision of each investment, said Zweiten. However, those against privatising said such investments make water services unaffordable. “We cannot convert water from being one of the commons to an economic good,” said Souparna Lahiri, convener, People’s forum against ADB. But Zweiten added that needs of Asia in terms of water and sanitation are huge and private sector participation with public sector support is vital if those needs are to be met, and met quickly. “What matters is how the operations will be regulated and how water charges will be fixed, including provisions for the poor,” said Michael Rouse, former president of the International Water Association.
In the past two years, private enterprises have begun to invest in Indian companies that deal in water treatment technology. But unlike the Asian Water Fund, Indian fund managers are yet to take on BOT projects. “Investing private equity in India is viable if there is a substantial grant component, around 70-90 per cent of the project cost,” said Abhay Kantak, team leader urban practice, CRISIL, an infrastructure advisory firm.
In November, a private consortium won a contract to improve Nagpur’s water supply. They will invest 30 per cent equity and recover their investment over 25 years. “The risk is high while investment returns are not attractive for private equity fund managers. Yet we are willing to take risks,” said a senior official of Veolia Water, leader of the consortium.