A study in a recent report by global consultancy firm Deloitte on the challenges facing the global water industry has suggested that $16 trillion should be dedicated to water infrastructure over the next two decades.

The Deloitte report says that a large amount of capital will need to be invested in the sector over the next twenty years to carry out necessary upgrades, but poses the interesting question of where the funding will come from.

The private sector is expected to take a greater role in financing investment in the water industry in the future - Governments are currently struggling to find extra funding due to the difficult economic climate, while increasing the price of water would be a very unpopular political decision.

There are already many private-public partnerships in the water sector across the globe, where private companies use publicly owned infrastructure. However, ongoing economic turmoil means Governments can no longer afford the significant capital and operating expenditures needed for both new and ageing infrastructure. Increasingly, the private sector will be expected to take a more active role in the global water industry, not only in terms of managing assets on behalf of the state, but also in owning and financing the assets.

A classic example of a government struggling to meet the costs of maintaining infrastructure is in Greece, where the government is under pressure to divest $50 billion of state-owned assets as part of a $173 billion EU rescue package which is subject to conditions such as selling off public holdings.

Officials at the Athens and Thessaloniki water and sewage companies have been in discussion with Mekorot Israel National Water Company but nothing has materialised as yet.

The UK is one of the only countries in the world to have a fully privatised water industry: private companies serve the population with privately-held water infrastructure assets.

The sector has become a benchmark for any other potential privatisation operations. In the Deloitte report, the UK water industry is seen as a successful privatisation programme, with vastly improved customer service, a reduction in leakages and enhanced environmental standards since 1989.

Furthermore, the UK appears attractive to institutional investors such as pension funds, infrastructure funds and sovereign wealth funds because the water companies operate in a low risk environment with predictable cash flows. Returns are also higher than in other countries because of cost-reflective water prices, according to the report.

Eight UK water companies are currently under foreign ownership, with an ever-increasing Asian presence. The news that Japanese trading company ITOCHU Corporation has bought a stake in Bristol Water is unsurprising, given the increasing Chinese interest in Thames Water in recent months and the takeover of Northumbrian Water by Hong Kong business magnate Li Ka Shing last summer.

But will we begin to see global contractors follow the work and send construction teams to the UK? The Thames Tunnel has an estimated cost of £4.1bn and the project has attracted interest from Chinese investors. The head of the project will be encouraging construction bids from around the world when the works go out to tender.

With government spending globally now constantly being reined in, will we see further water privatisations in order to meet future challenges? Over the next few decades the effects of climate change and a rapidly growing population will bring pressure on the world’s water supply to breaking point unless money is spent on water infrastructure and improvements are made in managing demand.

Wherever the funding ultimately comes from, the already significant market for water related equipment and services looks set to grow. In 2010 it amounted to $480 billion, according to estimates from consulting firm Sustainable Asset Management. Companies operating in the sector could see very lucrative returns in the coming years.