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Clean Water Fund

October 4, 2004 (DRAFT)

Clean Water Fund

The Need

The world faces a well-known crisis concerning the availability of clean water. With the exception of North American and portions of Europe, a significant and growing portion of the world’s population lacks an adequate supply of clean water. Especially in the developing world, population growth is increasing daily the unmet need for clean water as increased population enhances demands for clean water and diminishes its supply due to the lack of responsible water resource management.

The Challenge

The growing need to address worldwide shortages of clean water has been widely recognized, though ineffectively addressed. International conferences are held to state the alarming dimension of the challenge and the need for hundreds of billions of dollars of capital investment. The World Bank, for example, funds projects to clean up water. Despite problem recognition and action, however, the number of people worldwide lacking clean water continues to grow at a brisk pace.

Why? There is a standard explanation and the real one. The standard explanation is that there is the lack of sufficient financial resources committed to providing clean water. From this perspective, therefore, the answer lies in increased capital commitments by governments. The real explanation is that there is a lack of the institutional capability needed for capital investment to be used wisely and effectively. Especially in the developing countries, the ineffectiveness of capital investment programs is legendary. The twin pillars for failure are poorly suited projects for local conditions and dysfunctional, if not outright corrupt project management.

The Vision

The Clean Water Fund (“CWF”) believes that the key to solving the world’s need for clean water involves the building of transparent local water institutions funded by private capital. CWF believes that the capability of local water institutions is the critical factor for the use of responsible water resource management to address the clean water problem. Capable institutions are built on transparency and accountability. Capable institutions are successful in providing clean water by matching effective, least-cost technological solutions to local conditions. Capable institutions are economically viable by providing affordable water to meet local needs.

The CWF focus on institutional capability is consistent with the new understanding of the true engine of economic growth. Historically, the standard paradigm held that capital investment held the key to economic growth, a paradigm that governed decades of capital investment in the developed world. More recently, the World Bank for example has discovered that economic growth requires the right institutional setting, including the rule of law and the market institutions. As such, the CWF vision is consistent with this fundamental reformulation of the understanding of the key ingredients to economic growth.

The Fund

The CWF combines the power of the internet with the economic, strategic, technological, and organizational expertise necessary to fund the provision of clean water by local institutions (see chart). CWF will create its website, the Clean Water Fund Community (“CWF Community”) to facilitate information sharing and discussion among local groups throughout the world interested in meeting their communities’ clean water challenges. The CWF Community will also provide public information on all CWF funded projects so that CWF’s activities are conducted with transparency.

The CWF Community will serve as a tool to identify local groups that will become candidates for CWF funding. Funding candidates will be screened in accordance with CWF criteria related to the potential integrity of local institution, legal feasibility of entering into and enforcing funding agreements, ability of an identified technology to meet needs for clean water, and the economic viability of the local institution’s program for developing and distributing clean water. Unlike standard financing institutions, the CWF will provide technical assistance, as necessary, to help attractive funding candidates develop their own capabilities to use CWF funding successfully.

CWF will be operated to provide investors a reasonable return for the risks of capital investments in local institutions providing clean water worldwide. Financial security will be achieved by matching the proper type of capital investments in clean water technology with economic ability to pay. While it may seem paradoxical to some, CWF believes that communities with severe water quality problems offer promising investment opportunities even in the developing world for the following reasons:

1. Water quality problems are often susceptible to lower cost solutions, such as the use of basic treatment technologies and management of water systems to assure that diversions for drinking water are upstream of discharge of raw sewage.

2. While residents are low-income, they currently met their hydration needs with bottled water or even soft drinks. In comparison to a properly designed water supply system, the current means to meet hydration needs are relatively expensive.

3. Provision of clean water is often a key element of economic development. Therefore, development of an effective source of clean water can strengthen the economic base of water institutions.

CWF will secure its investment return by structuring financial arrangements to address the needs of local institutions. Worldwide, institutions providing water services are organized as private firms, mutuals, or local government. CWF will devise the financial structures to conform to the institutions best suited for local conditions. Therefore, some CWF may receive its return in the form of secured debt and possibly warrants in private water companies, or secured debt in mutual water companies or local government providers.

CWF’s management group includes the diverse set of experience and expertise necessary for the successful implementation of CWF’s vision:

· Rodney T. Smith: economic strategy and development of local institutions

· Devin Standard: water technology

· Gary Gevisser: risk assessment and use of internet for worldwide marketing of CWF including the identification of local groups for investment opportunities

· DB: private banking relations

The Consequences

CWF can be at the forefront of the creation of decentralized institutions using private capital to solve the pressing social problem of meeting the world’s need for clean water. CWF can employ the tool of entrepreneurial institution building to overcome the problems with the current approach to addressing clean water needs. In addition to economic rewards, CWF would be a positive source to improving the public health, especially in the developing world. Not only will the world’s population enjoy the direct public health benefits of a clean water supply, it will also avoid the long term public health consequences of today’s broad practice of turning to soft drinks to meet hydration needs.

From Concept to Reality

Turning the CWF concept into reality requires the following steps:

1. Creation of Fund by Management Group

2. Raising of initial capital from Angel Investors

3. Creation of CWF Community

4. Development of decision making criteria and assessment of investment opportunities

5. Identification of candidates for initial investment

CLEAN WATER FUND

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