IFC sees big market for H2O

The International Finance Corp. wants to clean up water and sanitation around the world and today put out the call for municipalities to team up with industry to tackle the problem.

Part of the World Bank Group, the IFC said opportunties in the $450 billion global water sector can be big for business and can help improve people's lives in developing countries.

The IFC has already established a $100 million fund, called IFC Infraventures, to provide risk capital for early stage development of infrastructure projects in the poorest countries, but the group hopes to encourage more public-private partnerships.

"I believe we are at a tipping point," said Lars Thunell, CEO of the IFC, at the World Water Week conference in Stockholm, Sweden. "The growing awareness of the effects of high fuel and food prices on economic growth, combined with water scarcity, raises a specter."

"The specter is a food, fuel, and water crisis in an increasingly populated world facing climate change. Businesses see the risk, and this new mindset is a significant opportunity."

The IFC said companies are now looking at the cost of water, community and regulatory pressures, supply chain interruptions, and competitive demand for water from other firms and municipalities.

But disclosure of those challenges may be hard to come by for investors. Earlier this year, JPMorgan Chase (NYSE: JPM) released a report saying that while major industries could be affected by a growing water scarcity problem, the release of information on water supply risks is "seriously inadequate." (see H2O could be an issue for many firms)

The power generation, mining, semiconductor manufacturing, and food and beverage sectors are particularly exposed to water-related risks, according to the JPMorgan study.

IFC's Thunell said that these large industrial companies are increasingly becoming water services providers and that these firms can be harnessed as part of the solution.

"We believe that providing clean water and sanitation services is a real business opportunity. It is also an opportunity to improve people's health and liberate them from the drudgery of fetching water."

According to Thunell, spending on infrastructure in emerging markets is expected to reach approximately $180 billion over the next 20 to 25 years.

"This level of investment will need to come from both private and public sources," he said.

The water sector received a boost recently with the successful initial public offering of San Leandro, Calif.-based Energy Recovery (Nasdaq: ERII), which makes energy recovery products and technology for desalination plants. The company has already scored three supply contracts since it started trading on the Nasdaq less than two months ago, including one for a seawater desalination plant in China, where the company sees the potential for a booming water market (see China’s water prices ticking up).

Energy Recovery was trading at $9.30 per share this afternoon, up 2.09 percent. Its IPO of 14 million shares hit the market in July at a price of $8.50 per share.

IFC said its goal is to develop a pipeline of "bankable" projects in poor countries and regions that are well structured and attractive to private capital, with its IFC Infraventures fund focused mainly on Sub-Saharan Africa. Separate from the Infraventures fund, last year the group helped out on a number of infrastructure projects, including a public-private partnership for water and sanitation in Egypt.

"We are also working with public and private partners to introduce performance based innovative grants that address market failures and bring services to people who otherwise would have no access," said Thunell.

He said IFC is also investing in companies that are developing technologies in water conservation, efficiency and quality.

"In China, we are an equity investor in a company that provides turnkey waste water treatment solutions to municipalities and industry. In India, we are financing Jain Irrigation, the country's largest provider of micro-irrigation systems."

Thunell said Jain's customers have increased their water efficiency by as much as 95 percent.

"The debate is shifting. Instead of 'should the private sector be involved in water?' the question is 'how can we work together for sensible and fair solutions?'"

And he said the opportunities are not just in emerging markets. According to Thunell, the average American uses about 380 liters of water a day and the average European about half that amount.

"This compares to an average 15 liters per capita in developing economies. Imagine what we could accomplish if water efficiency became second nature to citizens of Los Angeles and Stockholm."

Cleantech developments making news in the past 24 hours

• Qteros claims 15-fold improvements in cellulosic ethanol yield
• Solairedirect raises €20M to move into commercial solar
• Intel, Numonyx open $20M water treatment plant in Israel
• Booming data-center business creates troubles for India

View the last week of cleantech developments here | Subscribe to full feed