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Financial Innovation for Water Cooperation

actual investments due to a lack of real political commitment or are emerging to fund these projects. The Islamic Development
sufficient de-risking incentives in the future. This risk will decline Bank is one such new source, although it has been around a
over time, once Joint Investment Plans become a standard long time. It was the main financier of the Senegal River Basin
practice in the financial community and the ESG framework is Development Organization (OMVS - Organisation pour la mise en
expanded to include the Blue Peace framework. valeur du fleuve Sénégal), one of the biggest success stories in
transboundary water cooperation. In fact, all the infrastructure
The existing instruments, linked to pre-feasibility studies, need projects in the early stages of OMVS were funded by the Islamic
political support to be increasingly used in the preparation of Development Bank. The bank, along with various funds in the
or as a result of political agreements. These might focus on Gulf States, could be persuaded to support future transboundary
multi-sectoral water needs partnering with academia and other projects that respect ESG principles in the 57 member countries
technical knowledge sources which would set the stage for of the Organization of Islamic Conference that the bank serves.
preliminary investment choices.
China and institutions based in China have emerged as new
The actual financial investment plans would follow, which is sources of finance for the water sector. The Asian Infrastructure
where the sustainable finance concepts and instruments should Investment Bank, with capitalization of $100 billion, counts water,
be adapted and applied to transboundary investment choices of sanitation, hydropower, agriculture and the environment among
different natures and scopes. The blended finance component, its 10 priority areas. If the bank follows ESG principles, adds a
linking national and international public investors, focusing on shade of blue to its financial decisions and gives preference to
political, financial and security related de-risking, and private collaborative projects, it will be a game changer in the water
ones assuring the actual investment, is most probably the only sector and make a difference to more than 1.5 billion people
way to overcome the financial sector’s risk aversion in assuring living in the shared river basins of Asia. There are encouraging
the necessary financing of global public goods. signs that the bank may be open to these new ideas. China,
its main patron, launched the Lancang-Mekong mechanism to
Using Conventional Finance promote cooperation of its shared river basins with Southeast
Asian countries.
Funding is currently available through the International Waters
Program of the Global Environmental Facility, other climate India is slowly emerging as another new source of development
finance mechanisms, as well as bilateral and multilateral funding at extremely low interest rates. It has already provided
donors, for capacity building and institution building of river funds to the water and irrigation sectors in Africa and Asia where
basin organizations. This normally covers the cost of legal work, Indian expertise may be provided along with the financing. There
training, and administrative costs of the organizations, but does are several indications that India will find it in its country’s own
not cover infrastructure or developmental projects, which have interest to provide this low-cost funding to transboundary
a direct impact on the lives of millions in a shared river basin. collaborative projects rather than projects confined to a single
country. India also provides buyers credit to transboundary
Conventional funding is also available for infrastructure projects projects through the Exim Bank of India at moderate interest costs.
of small and medium scales, mostly created for demonstration
purposes. These could include a boat, a monitoring station, Spain and the Inter-American Development Bank have a joint
or a micro-size desalination plant. Financing for small-scale facility for water financing in the Western hemisphere, which
infrastructures may be an easier option to begin with than includes funding for preparing project feasibility studies. This
complex large-scale infrastructure projects. Nations that are funding source could be used to examine the feasibility of
not cooperating at all may be willing to work together on small- collaborative water projects.
scale projects, which are less complex and tend to be more
environmentally friendly. These projects also attract investments There has been a proliferation of sovereign wealth funds floated
from both public and private sources since they involve less risk by several countries in East Asia, the Gulf States, and some
and time. European countries. These funds are in essence state owned,
but they finance major infrastructure projects in different parts
Some private sector corporations support water-related projects of the developing world. However, the finances from these funds
but they are invariably in the water conservation and water are available to riparian countries without any consideration for
education spheres. The private sector is not known to have other riparian countries, which could potentially raise tensions
invested in water cooperation or transboundary water relations between these countries. Thus, it would be well worth the effort
thus far. to persuade such funds to consider shades of blue in their
financial considerations.
Engaging New Actors
A Step Forward: Blue Fund
Projects that can make a real difference require millions, if
not billions of dollars; these are high-stakes games that affect A variety of financial instruments that are in use today are
the living conditions of large segments of the population. If important for water sector investments. Conventional donor
projects move from a nationalist sphere to a collaborative funds are available for institution building exercises, confidence
one, an enormous peace dividend is possible. New sources building measures and small demonstration projects from

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