China: How FEASIBLE is water investment?

OECD Environment Directorate

Putting together a water financing and management strategy requires looking at a range of questions. The most important one is, can we afford it?

This is particularly tricky to answer realistically for large environmental projects that require heavy capital investments in public infrastructure and have a long lifespan. To keep to spending targets, decision-makers have to work out how much they have to spend on everything from buying capital and land to maintenance and operation expenditure. Their calculations have to be realistic and multi-annual.

There is an appropriately named software that helps policymakers do all this called FEASIBLE. The application is used to support a standardised methodological framework known as the Environmental Financing Strategy. It diagnoses scenarios, showing where the bottlenecks lie and what kind of funding and intervention may be needed. FEASIBLE has been used to prepare financing strategies for the urban water and wastewater sector in Armenia, Georgia, Moldova, Ukraine, and Kazakhstan, and for five oblasts in the Russian Federation towns of Novgorod, Pskov, Rostov, Yaroslavl and Kaliningrad, and for municipal solid waste management in Novgorod.

Now China is interested and, with assistance from the OECD, is applying the FEASIBLE model to wastewater collection and treatment in 14 cities and urban zones in Sichuan province, with a total population of 3 million people. A baseline scenario is drawn up; in the Sichuan case this assumes that ongoing construction of seven wastewater treatment plants will be completed as scheduled and all already committed financing will be provided. Otherwise the water situation in 2000 will continue until 2020. FEASIBLE’s take on this was revealing.

For a start, it showed that investment needs are several times higher for wastewater collection systems than for wastewater treatment plants; and as sewer system development will lag behind wastewater treatment plant construction, by 2004, new treatment plants will not have enough wastewater unless new investments in sewers are launched. But the baseline public financing has earmarked spending to wastewater treatment plants rather than sewers. Another observation was that the structure of financing in Sichuan relies much more heavily on public budgets than in OECD countries, with wastewater fees paid by households, industry, and other consumers covering only about 30% of infrastructure operating costs and less than 20% of operation and maintenance costs combined. Still, domestic financing was feasible and on average, the current water and wastewater tariffs were affordable, though in most cities the poorest 10-20% of the population will need additional social support. The affordability problems may become more acute when large scale sewerage investments begin.

A second phase of work between the OECD and the Chinese government will show how this baseline scenario might respond by tweaking various policy instruments, say, to mobilise additional finance or by rescheduling the investment programme.

For more on FEASIBLE, contact

©OECD Observer No 236, March 2003

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