AIMM Sector Framework Brief
Sector Economics and Development Impact Department
International Finance Corporation

WATER AND WASTEWATER
February 2019

Development Impact Thesis – Enhancing access to water and wastewater services is a key priority for the World Bank Group given its
critical role in development. The lack of access to clean water and sanitation services potentially leads to adverse health effects
through water-related diseases, loss of productivity, and deteriorating environmental conditions. IFC’s engagement in the water andwastewater sector is designed to create conditions for increasing economically and environmentally sustainable investments. IFC
provides financing and advisory services to firms in the water and wastewater sector which:→ Increases access to clean water and sanitation→ Improves the reliability and quality of water andwaste water services→ Results in water savings, emission reduction,
reduction in contamination, as well as mitigationof negative effects

→ Improves market structure and functioning→ Introduces innovative technologies with potential
demonstration effects→ Improves sector resilience, including climate
resilience and quality of service→ Leads to adoption of sustainability practices andstandards, including climate related
technologies/processes for mitigationProject
Outcomes

Contributions toMarket Creation

Development Gaps Addressed• Low water and wastewater
services access rates• Unreliable service• Productivity rates• Environmental conditions (water
stress, contamination, pollution)

Rating Construct – All AIMM sector frameworks include detailed guidance notes that help define project outcomes and contributions
to market creation, aggregating to an overall assessment of development impact.
•

For project outcomes, stakeholders and environmental effects are the key components for which industry-specificbenchmarks define the context in which an IFC operation seeks to drive changes. This gap analysis is combined with aseparate set of impact intensity estimates that specify the expected results using predefined indicators.

•

For contributions to market creation, industry-specific market typologies define stages of development for five market
attributes (or objectives): competitiveness, resilience, integration, inclusiveness, and sustainability. These market typologies,
when combined with estimates of how much an intervention affects the development of a market attribute, provide thefoundation for IFC’s assessment of an intervention’s market-level potential for delivering systemic changes.
PROJECT OUTCOME INDICATORS
Access• Water volume treated in service area, m3• Number of new connections to water service in service area
• Wastewater treated, m3• Number of new connections to wastewater service in service area

Stakeholders

Environmental /SocialQuality• Average period of water supply, hours/day• Non-revenue water, % reduction• Drinking water quality• Reduction in contamination (groundwater, surface water) (kg/day)• Water efficiency-offset (reuse) and savings (NRW reduction %)• Climate resilience

CONTRIBUTION TO MARKET CREATION INDICATORS

CompetitivenessMarket structure and functioning• Changes in market structure: composition, new entrants• Price responses: pricing regulation, price adjustments• Changes in product offering / innovation: quality, standards, adoption of new technology• Regulation changes: market regulatory framework, tariff regulation

Resilience

Capacity to face shocks and stresses• Improvement in resilience to domestic supply volatility• Adoption of technologies, planning, approaches that build resilience to shocks/stresses
Capacity of institutional bodies to regulate sector

Integration

Connectivity• Trade links: bulk water trading• Financial integration: expansion of financial products (e.g. green bonds) and investors(e.g. institutional investors) in the sector

InclusivenessMarket-wide focus and access for underserved groups• Adoption of inclusive business models targeting underserved groups• Better regulation of market to enhance access/affordability for underserved groups

Sustainability

Environmental and social sustainability• Adoption of sustainability practices, including climate mitigation technologies or products• Conducive ESG legal/regulatory framework• Broad institutional capacity for supporting ESG practices

IFC’s Environmental and Social Performance Standards define IFC clients’ responsibilities for managing their environmental and social
risks. While for most IFC investments, meeting Performance Standards reflects improved environmental and social performance,
effects from implementation of the standards are only claimed in the AIMM framework where a clear counterfactual can beestablished and where the investment intent is to improve environmental or social outcomes.
Sector Specific Principles or Issues – The following principles will be applied for projects rated under this framework:
Principle or
Issue

Treatment Under Framework

Scope of assessment

Both project level and market creation effects are measured annually over the monitoring period of the investment. These effects
typically outlive the project’s monitoring period. Effects that can be measured and monitored during the project’s monitoring
period are emphasized.

Sectoral structure

Due to the high cost of the required infrastructure, particularly water mains and sewerage pipe networks, water supply andsanitation services in most countries have been organized as monopolies (primarily with state ownership). The efficient structuralconfiguration of the water and sewerage industry within a country will ultimately be driven by the industry’s underlying scope
economies.

Private sector
participation

Private participation in water and wastewater is usually through contract: the government retains ownership of the water assets
and contracts with a private firm to manage the infrastructure to deliver water services to customers. There are many types ofcontracts, but in all cases, the responsibilities, rights, and remuneration of the private operator are defined by the contract, andthe operator is obliged by the government to deliver the services specified in the contract.

Affordability andtariff regulation

Affordability of water and wastewater services is an important public consideration as the costs of these services can impede therealization of the population’s equal access to water and sanitation. Tariff design is optimal when it reflects the costs of service(providing an incentive to limit consumption to efficient levels) while ensuring that charges are reasonable and that all customers(especially those with low incomes) receive at least basic service.

Normalization andbenchmarking

Impact assessments are based primarily on the size of the deficit being addressed. This methodology gives greater reward toprojects addressing large deficits and those creating missing markets. A secondary consideration is normalization to avoid
disadvantaging small projects, e.g. impact per million dollars invested or percentage improvement.

Treatment ofnegative effects

Negative externalities are taken into consideration in the assessment and highlighted when significant enough to mitigate overallrating. Potential negative effects at the project level include: (i) contingent liabilities, (ii) an increase in the subsidy bill, (iii) negativeenvironmental effects, and (iv) tariff affordability. Potential negative effects at the market level include: a possible negative effecton resilience from projects that invest in a water resource that is already dominant in the water supply mix and is susceptible tosupply or price shocks.

Qualitative
benchmarking

The analysis of the current context in which a project is taking place can be either quantitative (through benchmarking ofquantitative indicators to the performance of other emerging markets) or qualitative. Qualitative benchmarks typically comprise ofa check list of market features that define market stages. In other cases where comparison across markets on a purely quantitativebasis is not meaningful, a qualitative assessment is used instead.

Project Outcomes – The AIMM system considers the extent of the development gap and uses a gap analysis to classify project contexts
according to the size of the deficit/gap being addressed. For each indicator, the size of the gap is measured in relation to development
goals associated with the sector. Contexts are classified into very large, large, medium or low gap, for each performance dimension.
Development gaps are defined using a combination of qualitative and quantitative benchmarks, which leaves room to consider
context-specific attributes that drive investments in the sector.
COUNTRYCONTEXT

AccessLow Gap

Medium Gap

Large Gap

Very Large Gap- No water supply shortage inshort term; infrastructure
equipped to meet current
demand and growth− Country is in “low-tomedium” or “low” water
stressed category− Share of population withaccess to water orwastewater service is above
middle-income averages− Supply and access gaps in
the market; infrastructure isequipped to meet current
demand but not growth− Country is in “medium-tohigh” water stressedcategory− Share of population withaccess to water orwastewater service is on parwith middle-income
averages− Significant supply shortage
gap causing major
disruptions to economic
activity; infrastructure notequipped to meet current
demand− Country is in “high” water
stressed category− Share of population withaccess to water orwastewater service is below
middle-income averages− Very significant shortage gap
completely disrupting
economic activity;
infrastructure meets fractionof demand; close to nowater treatment plants− Country is in “extremelyhigh” water stressedcategory− Share of population withaccess to water orwastewater service issignificantly below middleincome averages

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COUNTRYCONTEXT

Quality

Low Gap

Medium Gap− Water service disruptions
infrequent and reflectmodest routine
maintenance rather thanrandom technical fault− Non-revenue water atindustry best standards− Water always safe from
pathogens and elevatedlevels of harmful substances− Localized or seasonal watersupply interruptions;
national averageinterruptions in a typicalyear is low (below middleincome average)− Non-revenue water aroundmiddle-income average− Many treatment plants withregular audits and rare
instances of water/
sanitation related diseases

Large Gap

Very Large Gap− Frequent water supply− Constant water supply
service interruptions;service interruptions
unreliable water supply acompletely disrupting thesignificant constraint toeconomydoing business− Non-revenue water level is− Non-revenue water level issignificantly high and locatedhigh and a significant burdenin extremely high wateron the utility especially in a
stressed region
water stressed region− Significant prevalence of− Few water treatment plants
microbiological organisms,
and prevalence of water/
chemical substances or
sanitation related diseases
radionuclides“Core outcomes” for water and wastewater investments include effects on customers (households and firms), who are the key
stakeholders and primary consumers of water and sanitation services. Improvements in access to clean water and wastewater
services is expected to boost productivity with potential environmental effects in an energy intensive and potentially polluting sector.
The AIMM system also takes into consideration other positive effects such as suppliers and employees of the client firm. These are
given less weight than the core outcomes, as they are typically secondary benefits associated with a water and wastewater project,rather than a project’s main development objective.
PROJECTINTENSITY

Below Average

Average

Significantly Above
AverageAbove Average- Yields positive access effects - Yields positive access effects - Yields positive access effects - Yields positive access effects
Accessthat are small relative tothat are average relative tothat are above averagethat are significantly above• Water volume treated,
IFC’s portfolio of projects,
IFC’s portfolio of projects,
relative IFC’s portfolio of
average relative to IFC’s
m3 in service areaindustry benchmarks forindustry benchmarks for
projects, industry
portfolio of projects,• Wastewater treated inaccess, and size ofaccess, and size ofbenchmarks for access, andindustry benchmarks forinvestment
investment
size of investment
access, and size ofservice area, m3
investment• Number of newconnections to water
service in service area
• Number of newconnections towastewater service inservice area

Quality• Average period ofwater supply,
hours/day• Non-revenue water• Drinking water quality- Yields positive quality
effects that are small
relative to industry
benchmarks for quality andsize of investment- Yields positive quality
effects that are averagerelative to industry
benchmarks for quality andsize of investment- Yields positive quality
effects that are above
average relative to industry
benchmarks for quality andsize of investment- Yields positive quality
effects that are significantly
above average relative toindustry benchmarks for
quality and size ofinvestment

The AIMM methodology considers the uncertainty around the realization of the potential development impact being claimed, making
a distinction between the potential outcomes that a project could deliver and what could be realistically achievable in the project’s
development context. The table below presents the key types of risk factors for water and wastewater services operations.
PROJECT
LIKELIHOOD

Assessment
Considerations

Operational Factors• Client track record of delivering impact in the focus area
• Client’s market position and product offering• Sponsor’s technical strength and support to project• Covenants assuring implementation of project components (e.g.
commitments to extend of access to BOP populations)• Project likelihood of reaching financial close at targeted level ofcapitalization (mostly relevant to Funds)

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Sector Factors• Extent of political support and social buy-in• Financial viability in the absence of subsidies• Affordability in the absence of subsidies• Resilience to exogenous shocks, including climate
risks

PROJECT
LIKELIHOOD

Operational Factors

Sector Factors• Presence of funded plan for the development of complementary
infrastructure• Public partner track record in meeting contractual obligations• Government track record in committing counterpart resources (e.g.
financing for resettlement plan)• Realism of magnitude of anticipated impact (measured against industry
standards, client/EPC contractor’s experience, public partner’s capacity)• Alignment of monetary policy risk (currency of
trade, FX convertibility, FX transferability,
taxation) with objectives• Exposure of project development effects toexogenous shocks e.g. FX risk (e.g. price or supply
risk if project relies on imported fuel, contingent
liability risk if tariff is USD-indexed)

Contribution to Market Creation – The water and wastewater sector is comprised of two main parts: (i) the upstream which consists ofabstraction, treatment, and the distribution process that makes and delivers the product (drinking water) to the customer, and (ii) thedownstream which includes the collection and treatment of wastewater, so it can be safely discharged to the environment, or reused, as needed. For the AIMM market assessment, a market is defined as the domestic industry or sub-sector in which the project istaking place (excluding markets affected by the project through economic linkages). In measuring a project’s effect on financial
integration, firms’ capacity to mobilize capital from both local and global capital markets is assessed. AIMM assessments placeemphasis on development impact that is clearly attributable to the project, measurable, and monitorable. For market creation effects,
attribution is established by identifying a clear channel linking the project to the anticipated impact and identifying measurable
indicators of market creation effects that can be monitored.
Water and wastewater market typologies provide the building blocks in the AIMM system to construct a narrative for how much an
IFC intervention is advancing a market objective. These typologies provide a description of the market gap based on various stages ofdevelopment for a given sector from least developed to most advanced and enable the location of the market before and after IFC’s
intervention. The table below summarizes the characterizations of the water and wastewater market for the market attributes.
MARKET
TYPOLOGY

CompetitivenessResilience

HighlyDeveloped

Moderately
Developed

Underdeveloped− PPP/concession agreements
have performance reporting− Companies have wellfunctioning customer service− Infrastructure welldeveloped, in terms oftechnology, high-efficiency− Tariffs cover OPEX andCAPEX; no commercial losses− Regulator uses incentivebased tariff regulation− Social measures available toassure affordability forvulnerable groups− All water users metered,mostly read remotely− Corporatization ofcompanies advancing− PPP/concession agreements
have clear targets− Private sector participation
starting through mix of JV,
PPP, concessions, BOT, BOO
and some privatization/IPOs− Companies starting to adopt
BAT technologies− Companies are regulatedwith regular price reviews− Tariff compensates networks
for OPEX and movement
towards recovering CAPEX− Metering becoming
widespread but irregular− State/municipal-owned
utilities dominate; nofinancial autonomy, lowefficiency and cost control− Utility companies notsensitive to customer needs− Poor network management− No systematic planning ofinvestments for future needs− Water distribution network
aging, limited maintenance− No transparent tariff
regulation, tariffs not fully
cover OPEX and CAPEX− Companies receive
payments late; poor
metering, billing, collection− Sector 100% owned bystate/municipal companies
with no financial autonomy,
cost control, consideration
for customer needs− No network management
practices and improvements− Infrastructure highly
undeveloped, limited water
distribution network− No transparent tariff
regulation, payments
constantly late, large arrears− Extremely poor meteringand collection system− Supply disruptions rare
− Non-revenue water atindustry best standard− Diversified base of water
sources, adv. conservation− Resilient infrastructure andmitigation measures− Significant availability andpenetration of products toaddress climate vuln., mostfirms incorporate resilience− Water companies close to100% collection rate
− Full cost recovery in place− Stable reg. framework− Ind. reg. sets tariffs andmonitors; funded by levy
− Watch groups monitor− Occasional disruptions due
to water shortages− Non-revenue water
decreasing to levels aroundregional best levels− Quality improving, wider
use of tap for drinking− Improving usage ofdomestic water source− Developing plans and somemeasures to mitigate risks− Water companies in goodfinancial standing− Transparent legislation
regulating sector in place− Tariffs subject to pricereviews by regulator− Partially independent reg.

− Severe maintenance andoperational issues, highwater leakages, supply
disruptions, water scarcity,
poor water quality (water
boiled prior to use)
− No disaster mitigation− Companies’ finances indisarray (low collection)− No independent regulator− No water sector law or
regulation− Little transparency,
consumers not haveunderstanding of water
charges and cost by water
service providers− Infrastructure highly
undeveloped with extreme
disruption, leakages levels− Water company inextremely poor condition
and fully dependent onstate budget transfers− Unavailability of products
and services andinadequate coverage tosolve climate vulnerabilities− No voluntary or compulsory
standards exist

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HighlyUnderdeveloped

MARKETTYPOLOGY

HighlyDeveloped

Integration− Sector has sufficient
infrastructure fulfillingdemand on bulk water trade− Trading of water
domestically between
regions− Water projects financed
through mix of financing
instruments and investors− Institutional investors active− Financing instruments forwater projects easily utilized− Liquid stock market

Inclusiveness− Access rates high and no− Some parts of country with− Significant market-wide
evidence of market-wide
underserved populations notdisparities in access anddisparities within country
connected to network
affordability between
underserved groups and− Affordability services− Cost of service consideredothersmonitored by regulator
high and restrictive for someunderserved groups− Few leading and mid-tier− Effective social safety nets infirms incorporate businessplace for lower income− Most leading and mid-tiermodel considerations onfirms incorporate business− Affordable decentralized
inclusiveness in theirmodel considerations on
systems are available
operations
inclusiveness in operations
targeting low-income groups− Almost all firms incorporate
considerations ofinclusivenessSustainability− Country is in a low water
stress region or is in a water
stressed region but has
implemented successful
measures to improve water
usage practices− Water utility companies
highly innovative in
implementing climate
mitigation and adaptation
measures− The water bills of customers
highly informative withactual usage compared topeers or targets

Moderately
Developed

Underdeveloped− Some infrastructure for− Sector has no or very limited
trading of bulk water
infrastructure to enable bulk
water trading domestically− Some trading of wateror internationally when it isdomestically b/w regions
an economically viable− Project financing available byoption for the sector
commercial banks− Most projects rely on state− Projects primarily rely on
financing, state support, orbank lendingloans from state banks− Limited to no entry into
− Minimal loans to corporates
project finance byby private banks or otherinstitutional investors
intermediary investors− Nascent bond market; some
limited bond financing− Country is implementing
practices to improve its
water usage practices− Water utility companies
institute some climate
mitigation or adaptation
measures for themselvesand customers− Significant investments andregulation occurring in the
sector to improve energy
efficiency

HighlyUnderdeveloped− Sector has no exports orimport infrastructure and noplans to put in place suchinfrastructure where trading
water would be
economically viable− No developed capital
markets− Underserved groups have noor very limited access towater & wastewater services− Firms do not incorporate
inclusiveness considerationsin their operations− Country is in a high water− Water sector has significant
stressed region with
CO2 emissions due to highsignificant potential toenergy intensity andimprove water usage
dominance of thermal
practices to alleviate
generation in electricity mix
pressure on water resources
with limited or no RE
generation− Sector’s energy consumption
has significant CO2− Country’s water assets haveemissions where there is ahigh water usage
role for introduction of
inefficiencies especially iftechnology or processes tocountry is water stressed
lower energy intensity with
− Water sector has significant
ensuing reduction in GHG
scope to improve energy− Severe issues with water
efficiency, but nopollution impacting healthinvestments are being madeto improve efficiency of− Companies have limited
utility companies
capacity/skill toaccommodate uptake ofclimate mitigation or
adaptation measures

In general, most individual projects are not expected to make a significant and immediate systemic market change, unless the projectis a pioneer in a non-existent or nascent market. Instead, most projects are expected to have incremental effects on the market. In
other words, it takes more than one intervention to move a market to the next stage. This means that integrated and concerted
efforts are often needed to generate substantial market effects. For example, cumulative World Bank Group efforts over time will
have a stronger effect on markets than non-integrated and non-concerted interventions. Where a project is explicitly part of aprogrammatic approach, the expected movement induced by the program should be the basis for the assessment where timeboundmovements, market effects, and indicators are available. The most important market creating effects from IFC’s water andwastewater operations are:5

MARKETMOVEMENT

Marginal

Meaningful

Significant

Highly Significant

Competitiveness

Competitiveness relates to incentives for efficiency and innovation while providing the most cost-effective prices based on actual
water usage. IFC projects can contribute to competitiveness by expanding and developing the role for the private sector andsupporting new entrants which lead to greater efficiency and better managed services. While water and wastewater systems
historically have been predominantly owned and operated by municipal and/or state entities, growing constraints on publicfinances are expanding the role for the private sector. Projects can promote competitiveness by supporting private participation
likely to result in better management of operations and helping introduce innovative technologies with potential for demonstration
effects. In addition, IFC projects can support competitiveness by supporting the implementation of innovative tariff structures thatenable cost recovery and affordability.

Resilience

Resilience is the ability to cope with, and recover from, disruption and anticipate trends and variability to maintain services tocustomers and protect the natural environment. While resilience has always been an important issue for customers and the sector,
the level of awareness for it is changing as threats such as effects of climate change and deteriorating conditions of rivercatchments become more evident. Future threats to the sector are likely to increase in frequency, interconnectivity andunpredictably with the potential to leave communities without safe and reliable drinking water and the appropriate disposal ofwastewater. IFC projects can contribute to the sector’s resilience by supporting the maintenance and development of water andwastewater infrastructure to improve the resiliency of existing water supply systems.

Integration

Projects can contribute to integration by introducing new or expanded physical infrastructure that addresses
shortcomings/bottlenecks and materially improve trading of water. Projects can also promote integration to global capital markets,by supporting the introduction of new financing instruments that enable capital mobilization from a broader range of financiers.

InclusivenessProjects can contribute to inclusiveness by extending services to underserved populations through introduction of innovative
inclusive business practices. Projects can support inclusiveness through customized business models for service provision tounderserved groups as well as better regulation of the market to improve affordability.

Sustainability

Projects can contribute to sustainability by reducing the sector’s adverse impacts on the environment and implementing climate
mitigation and adaptation measures. Projects can improve water efficiency through innovative technologies or processes which canbe replicated by other utilities that improve sustainability of the sector. In addition, projects can improve emission savings,
reduction in water pollution and improve environmental standards in the sector.

The market likelihood adjustment follows the principles for the likelihood adjustment for project outcome potential. In general, thelikelihood assessment includes sector-specific, as well as broad country risks that may prevent potential catalytic effects fromoccurring, plus political economy or policy/regulatory risks that may constrain market systemic change. Due to the diversity of market
creation attributes and channels, most of the likelihood factors are expected to be sector, or intervention specific.
MARKET
LIKELIHOOD

Sector Factors

Political / Regulatory / Policy Factors

Assessment
Considerations• Public partner track record in meeting contractual obligations• Presence of funded plan for the development ofcomplementary infrastructure• Extent of political support and social buy-in• Financial viability in the absence of subsidies• Coherence of specific policies and standards across borders• Presence of established regulatory and legal framework• Existence of a capable and independent regulator• Government track record in upholding new policies(measuring risk of policy reversals)• Regulatory scope and capacity• Collaboration track record of participating countries/entities6