Usha Rao-Monari spent 23 years at the International Finance Corporation before becoming CEO of Blackstone’s Global Water Development Partners – a portfolio company established two years ago to source water infrastructure opportunities for the private equity giant.
“I’m doing this because I think the next global problem is going to be water; and therefore the next global opportunity is going to be water,” she tells RI. “The global problem so far has been energy, and getting enough power. As a result, oil and fossil-fuel investing became the big opportunity – and more recently, renewable energy. Today, we are either on the cusp of disaster or the pathway to success when it comes to water. And so it is a major investment opportunity.”
There are two sweet spots for investors looking at this space, she says. The first, for venture capitalists, is the technology. “A lot of money should be going into water technology, but it isn’t.” The reason, she concludes, is partly a disconnect between those developing water technologies and those looking for them. “There has to be more effective matchmaking going on and that in itself is a huge investment opportunity for someone.”
For big investors like Blackstone, the opportunities lie in financing infrastructure. “Existing [water] infra has often badly declined over the years because it hasn’t been maintained properly. And in other parts of the world, there isn’t enough infrastructure in the first place. Both areas are major investment opportunities for those with big bucks.”
The reality is that only 6-8% of infrastructure investment currently goes into water. But the topic is garnering increasing attention from investors – having hit global headlines in recent years via the Flint Water Crisis, ongoing droughts and scandals such as Coca-Cola’s water management at bottling plants.
But there is still debate around the ‘responsibility’ of private-sector involvement in public water infrastructure, which continue to present dilemmas and reputational risks to investors.
Socially-focused arguments often focus on water as a basic human right – and therefore not something that should be privatised; while many environmental arguments stress the need to put a price on consumption to incentivise efficiency.
“People don’t want to pay for water, but they should,” says Rao-Monari. “They’ll happily pay for their cell phone, but not for water. They’ll even pay for bottled water, but not for their public water supply. It doesn’t make sense.”And the argument for water investment being an ESG issue is clear- cut, she insists.
“Water is sustainability. Without water nothing can sustain. So water as a topic is innately sustainable. I’ve rarely seen a water infrastructure project that isn’t.”
There are some exceptions, she concedes: desalination projects that pump too much brine back into oceans, or misuse of chemicals in water treatment plants, for example.
“But that’s about whether the project is engineered properly. You need to screen for those issues upfront.”
The other key risk for investors is a purely financial one, Rao-Monari says. It’s counterparty risk. Or, as she describes it: “Who exactly is paying me for this?”
“The next global opportunity is going to be water”
“The biggest trouble with water investing is that you can’t fund an infrastructure project with a clear link to revenues. I can’t just sign a power purchase agreement and get on, or finance a road that is paid for through road taxes, for example. Water has never been considered at the same level as other infrastructure – there are usually national ministers for energy, housing, roads etc, but responsibility for water is typically divided between multiple ministries or is left at the local level. This makes water investment risky, because it’s fragmented and it doesn’t have stable, widespread regulation or policy underpinning it.”
When Rao-Monari worked at the IFC – as Global Head of Water and Waste in the Infrastructure and Natural Resources Department and then as Director of the Sustainable Business Advisory Department – she says contracts for water projects would have to include terms to adjust for inadequate regulation, to minimise risk, but that this isn’t viable for the private sector.
At Blackstone, she is focusing on sourcing bankable water projects – mainly ‘greenfield’ – for Blackstone to invest in, and bring in debt investors. And after two years of groundwork, Global Water Development Partners expects to be allocated its first assets from Blackstone this year. The firm’s mandate is global, but is has so far focused on Latin America.
“There just isn’t an adequate pipeline of water projects currently in the market, because it’s very difficult to get viable business models going,” says Rao-Monari. “But the minute you do, there is plenty of money ready to flow in to them on both the debt and the equity sides.”
Usha Rao-Monari was speaking at the Economist’s 2017 Sustainability Summit
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