INTRODUCTION TO

CREDITWORTHINESS, SELF
ASSESSMENT AND ACTION
PLANNING TOOL
Day 1 Session 3
Johan Kruger Afcapconsulting
World Bank
Jakarta 2018

www.wsp.org | www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater

Learning Objective
To assist utilities to understand the importance
of creditworthiness and to motivate them to
become creditworthy. For utilities to:
 Explore the road to become creditworthy and
 The need to raise private sector funding;
To introduce:
 The World Bank self assessment and action
planning tool
To Train:
 Utilities to use the tool to prepare action plans
1
Key Messages

 The public sector does not have enough

resources to address the immediate demand
for water through taxes, transfers and tariffs;
 The private sector have substantial resources
to provide to creditworthy utilities;
 The WB has developed a self assessment tool
to assist in developing action plans for utilities
to become creditworthy

2
Outline

Why is private sector funding important?

What is creditworthiness ?
Why is creditworthiness important?
How does if affect Utilities?
The utility creditworthiness initiative
The self assessment tool and action plan

3
Discussion Point

Do You your Utility Should Seek Private Sector

Involvement
1 No Never
2 Depends
3 Yes
4 Don’t Know
And if not why not ?
 Why is Private Sector Funding
Important ?
 The Need

1 in 10 people
lack acess to
clean water

1 In 3 people do
lack acess to a
toilet
USD 535 Billion
Required for
Universal acess By
2030
The 3 T’s cannot meet
the need
6
 Conclusion

The three T’s :

 Tariffs
 Taxes from general taxpayers and
 Transfers from donors and other entities

Must be supplemented by private sector

funding to get close to the SDG 6 goals

7
8

Achieving Targets Requires Access to the Huge Pool of

Commercial Financing

The funding available to water

utilities without access to
commercial financing is well
below what is required

Concessional WASH Commercial

Financing investment Financing
Requirements
But Utilities And Governments Think In Terms Of The 3T’s
And Not Private Sector

 It is not part of their mind set ---- Treasury will borrow if

necessary
 Easier to ask national government for transfers
 Scared of creditworthiness and efficiency scrutiny by
private sector
 Scared if they borrow they lose their grants
 Distrust and lack of knowledge of how the private
sector works
 Do not understand that the PS has a lot of
opportunities to choose from and the primary
responsibility of private sector is to make profit for their
shareholders
 The water sector is not special for the private sector
 Mobilising The Private Sector

 Through Debt and PPP’s

 The private sectors primary concern is to make a
reasonable profit in relation to the risks undertaken
 This implies that the risk reward for the private
sector must be in balance

Reward Risk

10
 Risk Reward & Creditworthiness

 Increased Reward through increased tariffs has

limited scope for big increases
 Risk can be better addressed by being creditworthy
and the correct allocation of selected risks

Creditworthiness is the ability and

willingness to repay and honour
financial obligations fully and timeously

11
The Importance Of Creditworthiness
 Risk Reward & Creditworthiness

YES NO

Pricing

Risk

13
 Relationship Between Rating, Default And Price

Default probability
7
160
6

5
120
Default
Default %

4
probability
3 80
2
Spread in BPS
1 40
0
AAA AA- A- BBB-
Rating

14
 Some Advantages of Being Creditworthy

 Creditworthiness requires more management

discipline leading to overall performance
improvement
 Can access the financial markets to accelerate
provision of infrastructure
 The higher the creditworthiness the lower the price
of debt and the more interest from private sector
 Leads to less dependency and more autonomy

15
 The Dificult Road To Utility
Creditworthiness
• Optional Subtitle
• THE CHALLENGES FACED BY Indonesian
Pdams

 The utilities faces many challenges on many fronts

 Coverage
• One out of 2 Indonesians lack access to safe water
 Regulatory:
• Cancelled law 7/2004 which was supposed to give guidance cause uncertainty
 Financial
Chronically underfunded by LG
 GOI has targeted universal coverage by 2019
 Institutional
• Some have limited human resource capacity /project identification
 Operational
 NRW ,growing demands for services
 Technical
• New technologies, aging equipment
 Political
• Water as a social good ,reluctance to implement cost recovery
 Climate change
• New challenges to be climate resilient
 Economic
• Increased vulnerability to global events

17
• THE ROAD TO CREDITWORTHINESS IS
FULL OF CHALLENGES
Creditworthy

Market
resistance

No Borrowing
powers
NRW too high

Transfers
Pressure to from central
expand too low
Coverage
Right sizing
Tariff
increases
Expenditure
too High Revenue too
low

18
What Drives Creditworthiness

Creditworthiness

Strengths of
Economic Fiscal Financial and Institutions and Sovereign
Conditions Performance Debt Position Management Factors

Extent to which the fiscal position is affected by local economy: a) Growth

prospects; b) structure of economy; c) demographic variable.

Capacity to manage fiscal position sustainably: a) revenue flexibility; b)

expenditure flexibility; c) capacity and flexibility in managing budget deficits.
Management of existing balance sheet and improvements on debt servicing and
repayment capacity: a) liquidity and debt management; b) managing debt
burden; c) managing off-balance sheet liabilities; d) credibility in debt
management.
Credible reporting and monitoring system; governance standards; and quality
of the broader financial system.

Analysis of subnational credit within the sovereign framework: sovereign

ceiling, legislative mandates, the intergovernmental finance system.
20
Overall: What Does a Utility Need to Do to Become
Creditworthy?

To become increasingly • Commercial discipline through improved governance and

commercial in its professional management
• Improved sector performance to close the revenue gap
operations

To operate in an • Transparent, consistent and predicable enabling environment

enabling environment • Reduced political interference

To rely on user tariffs as • Independent regulation

• Targeted subsidies to bridge the social-commercial (or viability)
the main source of gap
revenue • Subsidies used sparingly and for transition

• Subsidizing connections or basic need consumption for low-

To use public finance for income households
targeted assistance • Subsidizing reduction on negative externalities (e.g. Sanitation)
• Enabling transition from loss-making to creditworthy
 In particular attention will be paid by
Potential Lenders to

 Operational and financial efficiency

Q&M coverage
OCCR
DSCR (debt service cover ratio )
Asset registers and quality of assets
 Management quality and track record
Credible capital investment plans
Future tariff and pro-poor policy
Government support

21
 Why and How to Measure Creditworthiness ?

Why Creditworthiness of
water utilities and
projects is opaque to
How Assessing the
current and future
borrowers and
lenders. Objective capacity to generate
measures can help cash flows to cover
creditworthy utilities debt commitments
access finance

Measures of
creditworthiness can Credit Ratings are
allow utilities to identify
areas for improvement a way to measure
and to exchange good creditworthiness
practices.

22
 THE UTILITY CREDITWORTHINESS
INITIATIVE
UTILITY CATEGORIES

Operational surplus always Creditworthy

sufficient to service loans

Operational income capable of

meeting O&M Requirements Marginally Creditworthy
and some capital expenditure
Operational revenue not able to
meet operation and Not creditworthy
maintenance expenditure

Where are you and how to you progress ?

24
DECISION POINT 0

Do you think Your Utility should make the effort

To become creditworthy?

1 - Yes it will be worthwhile

2 – Not sure it is worth the trouble

3 – Not possible

4 – Irrelevant no borrowing powers

5 Don’t know
• THE UTILITY CREDITWORTHINESS
PROGRAMME

Modelled on city Support

creditworthiness from
Initiative
World Bank Better
services
delivery
• Utility • Utility implement • Achieve
creditworthiness Action plans Creditworthiness Efficient
Academy
Management
Access to
Input to policy financing
reform(external
to Utility)

26
 How does the self assessment work?

Decision points
Knowledge
in presentation Self Identification
Input
In preparation assessment of challenges
dissemination
for Self
and discussion
assessment

External Utilty internal Suggested

Priority choices
action plan action plan action plans

Comparison of
responses from
different utilities 27
The process of preparing the action plan
 The Challenges
Too little revenue
Own source revenue to low
IGT’s too low
Unable to increase tariff
NRW too high
Income from connection fees too low
Income from sale of treated wastewater
too low
Too much expenditure
Personnel expenditure too high
Energy and fuel expenditure too high
Expenditure on goods and services too
high
Expenditure on raw water too high
29
Poor management of resources
Budgeting problems
Operating margin problems
Liquidity problems
Debt problems
Asset problems
Water resource problems
Information technology problems
Information problems
Oversight weak
Personnel problems
Poor access to long term funding
Creditworthiness unknown
Sources of capital Limited
Enabling environment Limited
Finace experience lacking
Too Little
Revenue Level 2 Challenges for Action Planning
1. OWN SOURCE REVENUE too low 4. UNABLE TO INCREASE TARIFF
A. Collections low A. Unaffordable to poor customers
B. Rates low B. Politically unacceptable
C. Types/ Sources few C. Willingness/ Ability of users to pay unknown
D. Billing low
E. Autonomy to determine tariffs low 5. NRW IS TOO HIGH
A. Water is lost in theft and leakages
2. INTERGOVERNMENTAL TRANSFERS too low B. Too much water provided free
A. Unstable C. Too much water not billed accurately
B. Unpredictable
C. Delayed 6. INCOME FROM CONNECTION FEES IS TOO LOW
A. Connection fee is too low
3. NON-RECURRENT REVENUES too high B. Connection fee is not collected adequately
A. Other revenues insufficient
7. INCOME FROM SALE OF TREATED
WASTEWATER TOO LOW
A. Wastewater volume treated is low
B. Sales of treated wastewater low

30
1. OWN SOURCE REVENUE too low
A. Collections low
B. Rates low
C. Types/Sources few Potential
D. Billing too low Actions
E. Autonomy to determine tariffs low
Action 1.1 Implement a revenue enhancement action plan. [GEN]
Action 1.2 Promote and market the revenue enhancement action plan
to obtain needed approvals and long-term political support. Mobilize
the human and financial resources to implement the revenue
enhancement action plan, and perform continuous monitoring and
reporting to pinpoint any problems. [GEN]
Action 1.3 Develop a plan of revenue collection improvement actions before
seeking an increase in tax, tariff and/or fee rates. [A, D]
Action 1.4 Introduce GIS-linked systems for identifying, calculating,
billing and collecting taxes, fees and service bill payments. [A, D]
Action 1.5 Introduce a mechanism for early identification and resolution of
arrears in tax, fee or service bill payments. [A, D]
Action 1.6 Consolidate the water and sanitation tax, fee and service bill
accounts of residents. [A, D]
Action 1.7 Establish specialized collection teams for major arrears, government
arrears, and seizure/sale of property for arrears. [A, D]
Action 1.8 Contract with external lawyers for complex billing and
collection efforts involving litigation. [A, D]
31
Action 1.9 Initiate discussions with the appropriate central government
authorities regarding the water utility’s interest in raising rates on
existing taxes and tariffs & fees. [B]
Action 1.10 Develop a strong case for greater rate tariff setting
discretion by analyzing fiscal, legislative and regulatory issues and work
with supportive decision makers to gain approval of new rates by using
fiscal, legislative and regulatory information/analysis. [B]
Action 1.11 Raise tax rates, and/or tariff/fee rates for mandated services
currently not generating sufficient revenue to cover cost of service. [B]
Install meters, recruit meter-readers, and teams to monitor
metering [D]
Action 1.12 Initiate discussions with the appropriate central government
authorities regarding the water utility’s interest in establishing new
taxes or user charges and fees tariffs. [C]
Action 1.13 Obtain and document the required approvals for new taxes,
tariffs and fees from higher levels of government and keep all
appropriate local stakeholders apprised of these developments. [C]
Action 1.14 Make certain that the local government is both internally
and externally prepared to implement new taxes, tariffs or fees, which
will include equipment, software and staff. [C]
Action 1.15 Introduce a new or increased tax for general own source
revenue, or new/increased user charges/fees/ tariffs for mandated
services currently not generating revenue. [C]
Action 1.16 Introduce improved cash management practices to maximize
interest earnings. [GEN] SEE NOTES BELOW SLIDE
 How utilities can to use the report to engage
 Local stakeholders
 Can be used to create
awareness in staff
 Can be used by
management to orientate
the Board
 Can be used for interacting
with civil society
 Central Government
 Help to create
understanding of
challenges
 Help to improve the
enabling environment
32
 Development partners
 Can be used to mobilise
support for specific needs and
projects Including Ta
 Can be used for policy work
to create an enabling
environment
 Investors
 Can be used to engage
investors for services
,investment and PPP’s
 Use Of Self Assessment Tool And
Action Planning
• The Final Lap

• Johan Kruger
• World bank Learning Week
• March 2017

www.wsp.org | www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater

 Objective

The objective of this session is familiarize Utilities

with the use of self assessment tool and the
preparation of Action plans
This should assist utilities to help develop action plans
to embark on the road of becoming creditworthy and,
Design steps to engage with external stakeholders, to
create an environment conducive to developing
creditworthy WSPs with access to domestic
commercial financing.

34
 Key Messages

1. Utilities have to put in the hard work to become

creditworthy, and to utilise the opportunity and
supplement Their service delivery capacity by
mobilising domestic commercial financing.

2. This can only be done with a systematic and

structured action plan conscientiously
implemented.

35
 Outline

 The process
 Step by step
 Example of Challenges
 Simulation

36
The process
 Create a profile

38
 Self assessment

39
 The steps unpacked (1)
Create a profile

1 SELF-ASSESSMENT
Water / Sanitation Utilities are asked to answer
questions on their service mandates, financial management,
financial performance, planning process and enabling environment

2 IDENTIFY CREDITWORTHINESS CHALLENGES

The Toolkit suggests key Creditworthiness Challenges based
on the Water / Sanitation Utility's responses to the questions.
Each Challenge is assigned an "Intensity" score based on the
specific responses given in the Self-Assessment. Intensities are
scored 0-100%, with higher
percentages indicating greater severity.

40
 The steps unpacked (2)

3 PRIORITIZE CHALLENGES
The Water / Sanitation Utility then ranks
the Challenges to create a customized
set of priorityChallenges based on
local preferences. These priority
Challenges will form
the basis of the Water / Sanitation Utility's Preliminary
Creditworthiness Action Plan. Water /
Sanitation Utilities have the option to add customized
Challenges and actions

41
 The steps Unpacked(3)

4 CREATE PRELIMINARY ACTION PLAN

The Toolkit then guides the Water / Sanitation
Utility through optional Creditworthiness "Actions."
The Water / Sanitation Utility
selects from the list the
specific Action Items that they
feel are most relevant.

42
 The steps unpacked(3)

5 DOWNLOAD PRELIMINARY ACTION PLAN REPORT

The Water / Sanitation Utilitycan
then download this customized Report.
6 REFINE AND IMPLEMENT ACTION PLAN
The Water / Sanitation Utility should refine its
preliminary Action Plan in consultation
with experts.
The refined Action Plan can then be implemented to
strengthen financial performance & creditworthiness

43
 The Process Of Developing An Action Plan
For ‘internal’ action items: to be done by the WSPs

The Challenges to achieving creditworthiness can be categorised in the

following areas :

Revenue too Too much Poor planning

low expenditure for the future

Poor
Too little long
management of
term financing
resources

Each of these areas can be further refined into more specific Challenges
with further details.
The list of Challenges facing your WSP are based on the information you
provided in your Self-Assesment.
44
 Response intensity

45
 Discussion Point

Is this useful in terms of the local credt

ladder ?
And SAT ?

46
Too Little
Revenue Level 2 Challenges for Action Planning
1. OWN SOURCE REVENUE too low 4. UNABLE TO INCREASE TARIFF
A. Collections low A. Unaffordable to poor customers
B. Rates low B. Politically unacceptable
C. Types/ Sources few C. Willingness/ Ability of users to pay unknown
D. Billing low
E. Autonomy to determine tariffs low 5. NRW IS TOO HIGH
A. Water is lost in theft and leakages
2. INTERGOVERNMENTAL TRANSFERS too low B. Too much water provided free
A. Unstable C. Too much water not billed accurately
B. Unpredictable
C. Delayed 6. INCOME FROM CONNECTION FEES IS TOO LOW
A. Connection fee is too low
3. NON-RECURRENT REVENUES too high B. Connection fee is not collected adequately
A. Other revenues insufficient
7. INCOME FROM SALE OF TREATED
WASTEWATER TOO LOW
A. Wastewater volume treated is low
B. Sales of treated wastewater low

47
1. OWN SOURCE REVENUE too low
A. Collections low
B. Rates low
C. Types/Sources few Potential
D. Billing too low Actions
E. Autonomy to determine tariffs low
Action 1.1 Implement a revenue enhancement action plan. [GEN]
Action 1.2 Promote and market the revenue enhancement action plan
to obtain needed approvals and long-term political support. Mobilize
the human and financial resources to implement the revenue
enhancement action plan, and perform continuous monitoring and
reporting to pinpoint any problems. [GEN]
Action 1.3 Develop a plan of revenue collection improvement actions before
seeking an increase in tax, tariff and/or fee rates. [A, D]
Action 1.4 Introduce GIS-linked systems for identifying, calculating,
billing and collecting taxes, fees and service bill payments. [A, D]
Action 1.5 Introduce a mechanism for early identification and resolution of
arrears in tax, fee or service bill payments. [A, D]
Action 1.6 Consolidate the water and sanitation tax, fee and service bill
accounts of residents. [A, D]
Action 1.7 Establish specialized collection teams for major arrears, government
arrears, and seizure/sale of property for arrears. [A, D]
Action 1.8 Contract with external lawyers for complex billing and
collection efforts involving litigation. [A, D]
48
Action 1.9 Initiate discussions with the appropriate central government
authorities regarding the water utility’s interest in raising rates on
existing taxes and tariffs & fees. [B]
Action 1.10 Develop a strong case for greater rate tariff setting
discretion by analyzing fiscal, legislative and regulatory issues and work
with supportive decision makers to gain approval of new rates by using
fiscal, legislative and regulatory information/analysis. [B]
Action 1.11 Raise tax rates, and/or tariff/fee rates for mandated services
currently not generating sufficient revenue to cover cost of service. [B]
Install meters, recruit meter-readers, and teams to monitor
metering [D]
Action 1.12 Initiate discussions with the appropriate central government
authorities regarding the water utility’s interest in establishing new
taxes or user charges and fees tariffs. [C]
Action 1.13 Obtain and document the required approvals for new taxes,
tariffs and fees from higher levels of government and keep all
appropriate local stakeholders apprised of these developments. [C]
Action 1.14 Make certain that the local government is both internally
and externally prepared to implement new taxes, tariffs or fees, which
will include equipment, software and staff. [C]
Action 1.15 Introduce a new or increased tax for general own source
revenue, or new/increased user charges/fees/ tariffs for mandated
services currently not generating revenue. [C]
Action 1.16 Introduce improved cash management practices to maximize
interest earnings. [GEN] SEE NOTES BELOW SLIDE
 Preparing the WSP Creditworthiness Action Plan

1. The Utility is asked to review the entire list of Challenges and

pick the five to seven priority Challenges that most adequately
describe your own situation. The self assessment gives some
guidance
2. For each one of the chosen Challenges tick the Actions that you
believe will help to address the problem
3. Work through the Actions suggested under each Challenge with
your colleagues and obtain their views and agreement
4. If you want to develop and add your own Actions, list them
separately
5. You can pick as many or as few Actions as you prefer.
6. On completion: compile the Action Plan by using the software
utility or compiling the action items in a separate document.

49
 LET’S GET TO WORK !

www.wsp.org | www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater

 THANK YOU

www.wsp.org | www.worldbank.org/water | www.blogs.worldbank.org/water | @WorldBankWater

Following only to be used if voting system
available
DECISION POINT
0

What do you want for Lunch ?

1 - Fish

2 - Chicken

3 - Vegetarian

4 - Nothing
Do You your Utility Should Seek Private Sector
Involvement?

1 No Never
2 Depends
3 Yes
4 Don’t Know