1. USAID and JBIC Collaboration in the Water Sector Megumi MUTO Planning Division Development Assistance Strategy Department October 1, 2004

2. 1 Outline of the Presentation 1. What is JBIC? 2. What are JBIC ODA Loans? 3. JBIC ODA for the Water Sector 4. USAID-JBIC Water Collaboration in the Philippines

3. 2 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)

4. 3 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

5. 4 What are JBIC ODA Loans?(1) Priority Areas for ODA Loans 1. Poverty Reduction 2. Infrastructure for Economic Growth 3. Anti-Pollution Measures 4. Global Issues 5. Human Resource Development 6. IT 7. Regional Development

6. 5 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

7. 6 What are JBIC ODA Loans?(3) Types of ODA Loans Project Loans Engineering Services (E/S) Loans Financial- Intermediary Loans (Two-Step Loans) Budget Support Loans Project-type Loans Non-project-type Loans ODA Loans Structural Adjustment Loans (SAL) Sector Program Loans Sector Loans (Yen) * * Tapped for initial collaboration with USAID

8. 7 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.

9. 8 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)

10. 9 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) (For Forest Conservation, Pollution Prevention, Human Resource Development, SMEs, among others)

11. 10 What are ODA Loans? (7) Terms & Conditions (iii) 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)

12. 11 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 infrastructuredevelopment. JBIC will steadily increase its assistance in the water sector.

13. 12 JBIC ODA Loans in the Water Sector (2) Assistance In the Philippines JBIC 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

14. 13 USAID-JBIC Water Collaboration (1) Background History Sep. 2002Powell-Kawaguchi announcement of US-JAPAN Water Initiative at WSSD Nov. 2002First Discussion between USAID & JBIC in Washington & Tokyo Jan. 2003JBIC joined USAID ’ s Workshop in Bangkok Mar. 2003Pilot Countries Approach Agreed for Philippines, Indonesia & Jamaica June 2003Meeting between USAID ’ s Deputy Administrator & JBIC ’ s Deputy Governor July 2003Evian Summit/G8 Water Action Plan Oct. 20031st Outreach Monitoring Meeting in Washington Mar. 2004Consultation on Cofinancing Operation in PH Apr. 20042nd Outreach Monitoring Meeting in Tokyo

15. 14 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

16. 15 USAID-JBIC Water Collaboration (3) JBIC Projects - a typical case Implementing Agency (Local Government) ODA Loan Local Cost JBIC ODA 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.

17. 16 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 Loan 30% ： Private Bank with DCA guarantee

18. 17 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 USAID DCA Loan JBIC DCA Guarantee could be limited for the poorest beneficiaries.

19. 18 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 JBICUSAID ODA Loan Loan

20. 19 Simple Prototype of WRF Private Sector WRF GOP JBIC LGU USAID-JBIC Water Collaboration (7) DCA

21. 20 Why are we aiming at cofinancing with USAID For 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)

22. Megumi MUTO Deputy Director Planning Division, Development Strategy Department, JBIC Head Office m-muto@jbic.go.jp Thank you for your attention! Any comments and any questions are welcomed anytime!