Minding the gap: viability gap funding for private rural water operators in Cambodia

Kate Fogelberg

doi:10.3362/1756-3488.18-00031

Minding the gap: viability gap funding for private rural water operators in Cambodia

The adoption of the Sustainable Development Goals has led to an increased interest in blended finance, recognition of pluralistic service delivery models, and ambition for safer, more convenient, and more equitable services. This paper describes the experience of adapting a public subsidy tactic, viability gap funding (VGF), to private water operators in Cambodia, critical partners of the Royal Government of Cambodia’s efforts to reach 95 per cent of its population with piped water by 2025. VGF allows public agencies to incentivize private investment in infrastructure projects that are economically and socially justifiable but financially unviable in the short term. Emerging evidence from Cambodia suggests that by applying the tactic to the rural water sector, small water companies will invest and expand into previously unserved areas. The Investing in Infrastructure programme, a five-year, A$35 m investment in basic infrastructure services by the Australian Government’s Department of Foreign Affairs and Trade implemented by Palladium, has incentivized 61 private water companies to expand to unserved areas, leveraging over US$24.6 m in private capital, and offering connection possibilities to nearly 180,000 rural households. Although the political economy of Cambodia’s water sector has contributed to the success of the VGF, many countries share similar characteristics to Cambodia: low coverage levels, a weak domestic resource allocation, some existence of private operators, a post-conflict history, or an ambition for high levels of access to piped water services. Public agencies and donors operating in countries with such characteristics may benefit from considering VGF in their water financing options.

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