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Investing in Water Good Long-Term Bet, Goldman Head Says

Investing in Water a Good Long-Term Bet, Goldman Executive Says
Power lines carry electricity generated by Itaipu dam near Foz do Iguacu, Brazil, on Oct. 18, 2012. The dam supplies almost 17 percent of the energy consumed in Brazil and 73 percent of the Paraguayan demand, according to Itaipu Binacional, the dam's operator. Photographer: Dado Galdieri/Bloomberg

Investing in water utilities, infrastructure and water rights offers stable, long-term returns, Kyung-Ah Park, head of the environmental markets group at Goldman Sachs Group Inc., said in an interview.

“Water’s an indispensable necessity, and supply is very inelastic,” Park said in New York. Water infrastructure is a way to invest in the megatrend, said the executive of a world in which one in eight, or 884 million people, still lack access to safe water supplies.

With demand for water growing twice as fast as a global population expected to reach 8 billion by 2025, and much of the developed world’s water infrastructure aging faster than it can be replaced, municipalities constrained by the amount they can charge customers need to seek alternative financing, she said.

Public-private partnerships where municipalities join with private water operators in water and water-treatment operations, some with incentives, are one model being used more, particularly in the U.S.

Managing or buying aging municipal water systems presents some of the best opportunities for private investors in water infrastructure, said Matthew Diserio, president of Water Asset Management LLC, a New York-based investment fund. Private companies running municipal water supplies can wring efficiencies from aging systems and offer investors returns as high as 12 percent annually, Diserio said.

“The reason this business is so phenomenal is that water rates go only in one direction –- up,” he said at the Feb. 8 conference sponsored by Goldman, General Electric Co. and the World Resources Institute, a Washington-based group that works to involve business in solving global environmental issues.

Water Bill

“You don’t get rich off rates, you get a decent return,” Diserio said. Private operators are still regulated by government-appointed commissions and need to invest a large portion of their profit rebuilding aging systems, he said.

Representative Bill Pascrell, a New Jersey Democrat, said he plans to reintroduce a bill to spur investment in U.S. water infrastructure by removing the cap on Private Activity Bonds, tax-exempt debt that state and local governments can issue to fund private investment.

At least a fourth of U.S. water is lost to leaks from treatment plants to the tap, and repairs would cost at least $600 billion over the next 20 years even as state and federal spending declines leave a funding gap of $220 billion, Pascrell said.

“I think it’s a pretty good investment,” he said. Economic risk is placed on the private entity, not on the municipality. It’s a win-win.’’

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