By Max Lohmann
There is a wealth of options to consider when financing urban infrastructure. Some of these include but are not limited to: public-private partnership models; user fees or other domestically mobilized resources; loans from commercial or multilateral development banks; grants from facilities like the Green Climate Fund; or contributions from local businesses. Raising large investment volumes often requires a blend of these options. To build a financing model, cities need the capacity to identify and evaluate different sources of finance as well as present a convincing business case to financing partners. Especially for private investors, incentives do the trick––ranging from clear revenue streams to corporate social responsibility or insurance against the effects of extreme weather events.
One of the key challenges faced by cities is to develop a business case for projects that lack a clear revenue stream. This is usually the case with infrastructure projects addressing climate resilience, where the ideal financing blend may be hidden within the interests of complex stakeholder landscapes. The C40 Cities Finance Facility (CFF) has partnered with eThekwini Municipality (Durban) in South Africa to assist the city to overcome this challenge.
The CFF currently works with 17 cities in Asia, Africa, and Latin America, to prepare and finance infrastructure projects that build climate resilience, reduce emissions in public transport, or strengthen renewable energy generation. With a contribution by USAID, the CFF was able to strengthen its focus on climate resilience. In addition to projects in Dar es Salaam and Dakar, the CFF is working with the eThekwini Municipality in Durban, South Africa, on a water and waste management project.
Over the past decade, floods in eThekwini Municipality have increased in frequency and intensity, resulting in the loss of lives and damage to infrastructure. The flood risk in some of the city’s most vulnerable and disadvantaged communities is exacerbated by an increase in solid waste creation and the limited capacity for its collection and disposal. In response to this situation, the city piloted the ‘Sihlanzimvelo’ stream cleaning program in 2017. The initiative has reduced flooding—as well as crime and diseases—and removed waste and alien vegetation from 300 km of the city’s rivers and streams. Despite its success, the programme could not be scaled up due to a shortage of financial resources.
With CFF support, the city was able to engage local communities, businesses and NGOs to expand the pilot into a city-wide Transformative River Management Programme (TRMP). By aligning interests of local stakeholders, the program will create hundreds of community co-operatives to clean and maintain riverbeds. As per the current project scope, these cooperatives will employ up to 4,000 people. To finance the annual operational expenditure, the city has developed a cost recovery approach. By forecasting disaster relief and repair costs avoided through the TRMP, this system captures savings generated by investments in flood management programs. As such, the business case allows the city to establish an annual budget line to cover a large share of recurring operating costs. Contributions from residents and local business—in the form of river management fees—will complement these funds. Hard infrastructure elements, such as drainage systems, elevated bridges, and riverbank reinforcements, will be financed through debt and grants with the help of development banks and grant facilities. With this model, the 300 km pilot can be upscaled to 3,000 km of city rivers, with a potential for further extension up to 7,400 km in the medium term.
Aside from the technical preparation and financial modelling, the CFF has also worked with Durban to strengthen the municipality’s knowledge of topics such as transformative adaptation and financing resilience projects. Additionally, an intensive knowledge exchange has helped leading municipalities in the Central Kwa-Zulu-Natal Climate Change Compact, an effective exchange platform of municipalities across the South African province of Kwa-Zulu-Natal, to produce their own TRMPs. This will enable cities across the region to make the case for investments in ecological infrastructure to strengthen urban resilience.
In tandem with USAID, the CFF is also supported by the German Ministry for Economic Cooperation and Development (BMZ), the UK Government and the Children’s Investment Fund Foundation. Over the last year, mobility projects in Mexico City and Bogotá have been successfully linked to finance, leveraging an investment volume of $210 million and reducing 640,000 tons of CO2 emissions by 2050. In 2021, the CFF will enter its next phase of operations, aiming to further upscale its support to cities interested in resilient climate action projects.