Private Funding Is Finding Its Way to Water

• By L. K. Williams
• Aug 01, 2007

While some finance and investment companies are trying to let municipalities know they have options outside of the government to fund water and wastewater projects, at least one governing body is hoping to get information on private financing.

Siemens and GE both have finance divisions that have established programs of  funding to various sectors, such as healthcare and energy. They are doing some business in the water and wastewater field and see potential for more – but their progress has been hampered by how fragmented the industry is and how unwilling municipalities are to try new financial instruments, which may have more risk and probably more cost than a state revolving fund loan.

“The trick that needs to happen to help your readers is one of awareness,” said Andrew Carman, senior vice president and general manager of Siemens Industrial Finance Unit. “We spend most of our time building that awareness.”

Carman, who has more than 17 years of commercial and international financing experience, recently joined Siemens after having spent 10 years with GE Capital.

Kevin McCarthy, managing director of GE Energy Financial Services, Water Finance, said “The market is very fragmented in regard to governance. There’s not a cornucopia of business.”

Investment is happening
That is not to say that these companies are not investing in water and wastewater projects.

According to Carman, the financial unit’s relationship with Siemens Water Technologies developed about one year ago. He explained that last year, the company financed about half a dozen projects and already this year, it has been involved in 75 projects. Similarly, GE began its water platform in 2006, seeking to provide structured equity to GE Water Process Technology projects and to grow the business outside of GE interests. Most of GE’s projects have been in supporting desalination globally and domestically in Carlsbad, Calif.
A portion of that investment is outside the municipal sector, too. Siemens Water Technologies, for example, won a water treatment contract with a large paper mill facility. The mill did not want to raise its debt level or post equipment cost as a liability or asset, Carman explained. His division provided 8-year term financing through the mill’s services contract, with the option for the equipment to be transferred to the user.

Another issue for the finance companies may be how big the market is. McCarthy said GE has a very small team that is deployed globally. Carman would not comment on the size of his team, but noted that “success here is all about not just having folks that understand water technology, but how you finance them.” The Siemens finance team is “100 percent dedicated and integrated with Siemens Water Technologies,” he added.

The finance companies are watching the news, too. If a reasonable funding plan does not develop from lawmakers, municipalities will become more interested in private options. “If there’s a cap on floating more bonds, people will be starting to entertain more financing instruments, especially in the Southwest,” McCarthy said.
“GE has some appetite for some tax-exempt debt,” McCarthy explained, adding that the company has “more interest in providing equity.”

Pima County has big plans
Whether it is equity or some other kind of private project financing, Pima County (Ariz.) Metropolitan Wastewater Treatment System is looking for answers to fund its estimated $536-million wastewater upgrade.

For that significant amount, it is hard to beat tax-exempt financing in the United States, said Harold Smith, a vice president at Raftelis Financial Consultants who is working with Pima County.

In April, the county issued a request for expressions of interest for alternative project delivery and alternative financing. These measures have been taken in case voters don’t support the project and bonds cannot be issued.

Smith said he contacted some firms to let them know about the project. Among those were ACA Capital, AIG Highstar, Alinda Capital Partners LLC, Ambac Assurance Corp., Carlyle Group, GE, Lehman, Poseidon, RREEF, Scully Capital, and Silwood Developments.

“In the instructions, we asked the finance people to explain why their offer would be good for the county. You have to get very creative to get a deal like tax-exempt financing,” he added.

The answer to whether they could explain their offer or even chose to participate will have to wait. Comments were due at press time, but we will be following this story closely.

This article originally appeared in the 08/01/2007 issue of Environmental Protection.