Financing Infrastructures in the Water Industry

Abstract

The Italian Integrated Water Supply system suffers from major infrastructural deficiencies, and many of its water mains and wastewater treatment plants are inadequately maintained. It has been estimated that there is a need for €25.3 billion in investments over the next 5 years in order to realign the situation to EU standards. The uncertain and changing regulatory framework, the high number of small operators, and a wide range of risk factors associated with the water industry have been preventing investments for years. The establishment of an independent national regulator in 2011 represented a key turning point for the industry, since it positively contributed to restoring investors’ confidence. Despite the recovery phase being experienced, with about €1.5 billion in investments paid in tariffs in 2015, the water industry still needs additional forms of financing to quickly bridge the gap with other European countries. If, at the beginning of the 2000s, bank loans and project financing were the most common financial tools, in recent years, new instruments have come along, moving investors towards new forms of financing. A remarkable growth in bond issues has occurred, as the newly established regulatory framework has encouraged the spread of ad hoc tools such as mini bonds, hydro bonds and project bonds. Furthermore, private equity funds and public funding currently represent effective means to channel resources into the water industry. Despite the renewed interest in the water sector, concrete steps forward can be taken in order to provide a more attractive market for investors. Measures aimed at reducing the high fragmentation, establishing steady governance, cutting red tape, and reducing risks factors should hence be further developed and implemented.