Water regulator requests more money from government

Water sector has a financing gap of Sh2.2 trillion. The sector is unable to generate enough money internally to extend coverage and improve service quality. Kenya’s National Water Master Plan 2030 estimates investment of Sh1.2 trillion to finance water and Sh477 billion for sanitation. But the government is able to raise Sh562 billion for water and Sh31 billion for sanitation.

Water Services Regulatory Board has complained about low investment into water and sanitation. “It is always a cycle, low investment, low revenue,” said Mr Robert Gakubia, chief executive officer, Wasreb.

He said there was a strong case for the government to finance water firms. Mr Gakubia urged water firms to increase their internal financing and equally the government to increase its funding.

He was speaking on 3 September during a video meeting to look for ways to help water services firms live through Covid-19. Kenya Markets Trust had called for the meeting in line with its aim to change Kenya’s water service delivery.

Mr Gakubia told the meeting that sustainable services given by licensed firms are very valuable in any public health emergency. But this would change after Covid-19, he said. After Covid-19, national and county governments must lead in increasing internal and external financing of water firms.

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How is financing in the water sector?

The sector has been unable to generate sufficient resources internally for capital expenditure. So, large investments to extend coverage and improve service quality are financed by development partners.

Wasreb’s Impact Report for 2019 says that although the government’s money to the sector has increased over time it remains low.

Kenya’s National Water Master Plan (2014) estimates investment of Sh1.2 trillion to finance water and Sh477 billion for sanitation. But the government is able to raise Sh562 billion for water and Sh31 billion for sanitation. This leaves a gap of Sh2.2 trillion.

What financing choices do water firms have?

Wasreb advises the firms to seek alternative financing methods. These financing methods could be commercial borrowing or a mix of government and private lending. Moreover, water firms must increase their internal efficiencies so as to close the funding gap.

But the regulator warns firms that alternative financing would only succeed if they are well governed and are creditworthy. The firms must obey good governance and good financial management practices as well as the sector’s rules.

Mr Polycarp Igathe, group chief commercial officer, Equity Group Holdings, said very few water services firms were commercially viable to get commercial loans.

He said that water firms face difficulties borrowing from banks because commercial loans borrowers often must give security. “Property ownership in public water utilities is quite complicated,” Mr Igathe told the meeting. “This makes it difficult for the banks to structure financing in the absence of a fall back (guarantee).”

He said that commercial banks could give water firms money to build new supply lines and expanding water sources. Firms must also use technology to reduce revenue loss, he said. In addition, the money would help water firms buy smart meters and renovate water systems to reduce revenues losses from non-revenue water.

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Ms Anna Tufvesson of Swedish embassy in Nairobi, stressed the importance of accountable and transparent management. “Water service providers must embrace good governance and fight corruption,” she told the meeting.

Ms Elizabeth Matioli from Danish Embassy in Nairobi said because Kenya is now classed as a lower middle income country it is unable to receive grants. “Kenya stepped out of countries requiring assistance,” she told the meeting. “Kenya must look at internal revenue or external loans.”

What is Denmark and Sweden doing?

Denmark and Sweden help Kenya’s government firms to do their work. In addition, the two countries help consumer and civil societies to help consumers know their rights to water and sanitation.

Sweden has given the United Nations Children’s Fund (Unicef) $1.7 million (Sh183.6 million) for water and sanitation. The money is to help prevent Covid-19 in Nairobi and Nakuru.

Denmark has given Sh150 million to help low income areas in Nairobi.

Both countries have new plans to help Kenya’s water and sanitation. Sweden has a new cooperation strategy for Kenya 2021-2025. Denmark has a new bilateral programme 2021-2025 focusing on water and sanitation.

The two Nordic countries work with Water Sector Trust Fund, county governments and water services firms to increase productivity and support good management.

What is Water Sector Trust Fund?

Water Sector Trust Fund (WaterFund) is Kenya’s government firm formed to help finance water, sanitation and water resources management in rural and urban areas lacking the services.

WaterFund is helping water and sanitation in three areas. It has given emergency money to 11 counties to help them deal with Covid-19. This is a partnership with the government, Denmark, European Union, Sweden and Finland.

In addition, WaterFund is working with the government to buy water treatment chemicals for water services firms. The water treatment chemicals is a subsidy by the government. The chemicals will be given to water firms for free to relieve them financial strain due to falling revenues.

Also, WaterFund is working with the World Bank to help all counties recover from Covid-19.