Financing improvements to North America’s water network is a gargantuan task—one that has ascended the public sector’s ability to handle alone. While the recent public health crisis in Flint, Michigan, cast a spotlight on water quality issues in the region, financing the upgrading and maintenance of aging systems remains a burden.
Writing for Water Canada, S&P Global Ratings’ senior director, Trevor D’Olier-Lees, acknowledges that municipalities have embraced alternative financing methods to plug the gap. In particular, public-private partnership (P3) bundling models may encourage capital flows to the water industry.
Amid the growing interest in alternative financing, D’Olier-Lees offers a word of caution: “Alternative financing methods should not be considered the silver bullet,” he writes. “For local municipalities, complications around governance remain a key area of contention. Among the challenges for bundling, for instance, is overcoming objections from counterparties who, by entering a consortium of contractors and municipalities, may be uncomfortable with absorbing new risks from other participating entities.”
“That said, we’ve observed that alternative financing has gained considerable momentum in other infrastructure sectors. With this in mind, a financing shakeup could likely welcome new capital flows to the much-in-need water sector.”
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