The recently published Water (Amendment) Bill, 2023 (the Bill) seeks to promote private investment in the water sector through the public-private partnerships (PPPs) model. The amendments seek to achieve this by expanding the remit of national government entities such as the Water Works Development Agencies (WWDAs) and National Water Storage Authority (the NWSA) to allow them to provide water services by allowing them to enter into bulk water purchase agreements under the PPP Act, 2021 (the PPP Act) which was previously the preserve of county water service providers (WSPs).
Access to water and sanitation services in Kenya is relatively low. According to the last annual report published by the Water Services Regulatory Board[1], average water coverage was at 57% and sanitation coverage was at 16%. With the high capital costs that come with investment in water and sanitation infrastructure, the government is looking to the private sector to meet this funding gap.
Proposals under the Bill
The Bill proposes to amend the Water Act, 2016 (the Act) to allow WWDAs (which are national Government entities) (i) to operate national public water works, and (ii) to provide water services by entering into bulk water purchasing agreements structured as PPPs. The Bill also allows the NWSA to enter into bulk water purchasing agreements.
The context for these amendments is that water and sanitation services are a devolved function with the national government responsible for ownership and management of water resources, and counties, communities, and the private sector responsible for service provision. County-owned WSPs enjoy exclusivity in their area of supply and are therefore the purse-holders of the sector.
A key hurdle for private investment in the water sector has been the reluctance of private investors to enter into long-term agreements with county governments and county WSPs, as county governments primarily rely on funding from the national government to finance their budgets. The national government has also not been willing to guarantee the obligations of county governments.
Previously, WWDAs could not be licensed as WSPs and were required to hand over the operation and management of the completed water works to a County WSP.
The amendments proposed by the Bill will therefore allow a private party to structure long-term PPP projects with a WWDA or the NWSA and benefit from Government Support Measures from the national government.
Downstream challenges will still need to be addressed
While the amendments proposed by the Bill will make it possible for private investors to develop upstream bulk-water PPP projects in collaboration with national government agencies, the ultimate off-takers will mostly be WSPs. WSPs have over many years suffered from under-investment and governance challenges.
One of the greatest challenges WSPs face in Kenya is non-revenue water (NRW). NRW refers to water that has been produced/pumped and then lost or unaccounted for. NRW of up to 75% has been reported in some WSPs in Kenya.
When private investors sell bulk water, the revenues to pay the private investors will ultimately be generated from collections by WSPs. NRW reduces the amount of money that WSPs may obtain from the end users. This means that the WSPs and eventually the WWDAs may not generate enough revenue to pay for water under the bulk water purchase agreements. The Government will therefore either have to buck-stop the payment responsibilities of WWDAs or structure the PPPs to include oversight at the WSP level to limit revenue leakage.
--
Read the original publication at Bowmans.