Evidence Based Public Private Dialogue for Water Services Providers in Kenya

Africa's cities are growing at an unprecedented rate. In Kenya alone, the urban population is expected to more than triple from a current 12 million to 40 million by 2050. This rapid urbanisation has huge implications for water use and management in the country. In Kenya it is estimated that the 98 registered water utilities serve only about 55% of the population. Less than a third of the population has access to improved sanitation, and only 40 per cent of Nairobi is connected to a sewerage system.

Water utilities are a critical medium of accelerating access to clean and safe drinking water. The enactment of the Water Act 2002 created new institutions (WSPs) to manage water resources in Kenya and this saw the WSPs take over the provision of water and sewerage services from their respective municipal councils. To ensure delivery of their mandate, WSPs established an Water Services Providers Association (WASPA), whose current membership is 117 members comprising of WSPs, individual members, private sector companies and institutions.

The Water Service Providers’ (WSPs) are subject to multiple taxes, which has an adverse effect on their ability to deliver services to the public at a reasonable price. These taxes also negatively impact on the ability of the WSPs to achieve financial sustainability in order to be able to invest in service and efficiency improvements.  Pricing alone cannot lead to full cost recovery; other factors, principally building operational efficiencies, and improved governance are seen as critical enablers of attaining financial sustainability.

In this context, Africa RISE undertook an assignment to support WASPA. This work was to help WASPA position itself strategically in its current environment and maximise its potential and address its shortcomings. Presentation of the position papers were made to policy makers. The consultants worked with WASPA in convening meetings with key policy and decision makers in various government agencies.

The project team gathered information from WASPA members and other stakeholders and collected data to generate benchmarks for performance.  The evidence gathered through this study points to diverse and varied experiences in the water utilities sector with regard to the performance of individual water service providers, the constraints faced and how these are tackled.

The greatest constraint to the operations and sustainability of water service providers is nonrevenue water (NRW). The term NRW is used to relate to processed water that does not reach the end customers because of either leakages in the system, theft or metering inaccuracies. In Kenya, water lost through NWR at times ranges as high as 50 percent of all water abstracted and, at times, treated.

Energy costs, for which this study was commissioned, remain high for all water service providers. This is due to over-reliance on the national power grid and the design of water supply networks that prioritised pumping, rather than gravitational flow for the abstraction and supply of water. Moreover, the sector has been slow in embracing alternative forms of energy such as solar, own hydro-electric power generation where this is feasible, and wind power. A few WSPs (i.e. Eldoret, Homa Bay and Kisumu) are beginning to invest in solar as an alternative source of energy, and indications are that this is feasible, in spite of the huge initial capital outlays required.

Water service providers as registered companies have to pay a corporation tax at 30% on their surpluses.  WSPs incur high costs on inputs like chemicals, pipes, meters and other operations and maintenance materials. They incur VAT at the standard rate of 16% on these inputs but cannot reclaim the VAT since the supplies are tax exempt, not zero rated. Other surcharges that vary monthly are the Fuel Cost Charge (FCC), the Foreign Exchange Rate Fluctuation Adjustment (FERFA), the Inflation Adjustment (IA) and the Water Resources Authority (WRA) Levy. 

From the findings, taxes have a deterrent effect, comprising an average of 6.57% of the total costs.  It was not apparent what percentage of this cost is attributed to corporation tax vis-à-vis agency taxes such as PAYE and withholding tax (WHT). The study also points to the beneficial impacts of embracing innovations in technology and processes. There is room for peer learning, modelling success, and rewarding performance and innovations.

The study made a number of recommendations including:

·             Advocating for a framework of incentives for the water utilities sector that would make it possible for water service providers to get zero rating for the inputs and supplies they need for water abstraction, treatment and supplies, and for water networks systems maintenance.

·             Improving operational efficiency and governance of WSPs

·             Fostering a more collaborative engagement amongst the key actors in the sector: WASPA needs to convene forums where the water works development agencies, WASREB, WRA and the Energy and Petroleum Regulatory Authority (EPRA) can have regular consultations with the water service providers.

·             Advocating for increased investments in the sector.


What is the way forward?


The consultants worked with WASPA in convening meetings with key policy and decision makers in various government agencies. Proposals have been sent to the government advocating for change.