Water is a critical component in the life of any living being as well as a key component in the pursuit to positively drive any given economy. The water sector in Kenya is still on the journey to ensuring and improving coverage within its populations. The current water service coverage nationally is 53per cent, with urban coverage being 65per cent and rural 49per cent. The target for the ministry in charge was 85per cent as at June 2016. This has not actualized and the sector is still playing catch up.
Sources of Funding
The budget provision required for universal access to water and sanitation by 2030 is KES 1.7 trillion, which translates into the annual requirement KES 100 billion (corresponding to KES 2,500/capita/year), of which less than KES 40 billion is available. Annual investment in water supply and sanitation was KES 12 billion in 2013-14 (US$120 million), corresponding to less than KES 300 per capita per year. Funding for infrastructure development is therefore insufficient. Though investments through Water Service Boards and the Water Services Trust Fund (WSTF) increased almost four times in the period between 2007-2008 and 2013-2014, they did not cover more than 12per cent of the needs stated in the “Strategic Investment Plan for the Water and Sanitation Sector in Kenya 2014”. The overwhelming dependency on development partners with over 94 per cent of the total investment funds provided in 2013-2014 and the continuing existence of many unviable small-scale utilities do not augur well for the sector. The heavy reliance on donors also leaves the selection of projects to the discretion and interests of the donors rather than the interest of the Kenyan citizen.
The government mainly sponsors water storage services/projects. This is mainly due to the Water Act of 2002, which puts all the water resources under the care of the government. The exploitation of the water resources requires issuance of a water permit. This is done through WRMA (Water Resources Management Authority). Private investment in this sector is therefore difficult if not impossible. However, such storage/reservoir facilities are the backbone to other services in the chain such as water supply and sanitation. It is therefore critical for the government to increase investment in water storage facilities to support the other factions of the chain in water supply and sanitation.
Revenue from Water Sales
The regulatory levy put in place by WASREB (Water Services Regulatory Board) is 1 per cent value of total sales from all water service providers. From 2008 until 2013, the stream of income from regulatory levies shows an increase in volume of sales and/or further growth in access to water through water service providers. Statistics from the Ministry of Water encapsulate increase in water accessibility through Water Service Providers (WSP’s) at 38 per cent in 2006 compared to 53 per cent in 2014.
Approximately KES 140 Million was collected in 2012-2013 thus translating to total sales of KES 14 billion. An analysis of these sales reflects an increase in water connections, an increase in consumption, or an increase in formal water accessibility.
Globally the acceptable benchmark for NRW (Non-Revenue Water) is 20-25 per cent. Non- Revenue water is water that is supplied by water service providers but is not billed or cannot be accounted for.
In 2014, a great concern arose from the high level of NRW for some large Water Service Providers i.e. Kirinyaga 71 per cent, Mathira 67 per cent, Nakuru Rural 63 per cent and Tililbei 62 per cent. Bearing in mind that the bulk of the losses are estimated to be commercial, these figures are a clear indication of poor corporate governance in many WSPs. High levels of NRW also result from poor infrastructure maintenance and, above all, poor commercial practices (illegal connections and bill adjustments). They are detrimental to the commercial viability of WSPs as well as the safety of the water supplied (where related to leakages).
Considering the sector benchmark of NRW at 20 per cent, the current NRW level of 42 per cent translates to a financial loss of KES 5.9 billion to the sector. This not only threatens the financial sustainability of the sector but also wastes funds, which could have been used to increase access and improve service delivery. In short, underperformance in NRW is a direct expense to the customer.
Industry Stakeholders- Water Service Providers
WSPs are a major player in ensuring universal access to water and sanitation. Most of the WSPs are still publicly owned, save for their management and operations. Exclusively private companies are only two WSPs out of the total 91 registered WSPs in 2014.
Comparing the rural and urban WSPs, the reporting urban WSPs target a total population of 17 million within their service areas. This equals 100 per cent of the population in Kenya’s urban and urbanizing areas. In contrast, the reporting rural WSPs make up a total population of only 2.8 million within their service areas, which represents merely about 12per cent of Kenya’s total rural population. The targeted rural population described covers areas that are rural but show an urbanizing trend. Clearly, there is an investment opportunity in provision of water and sanitation services in these areas. From the analytics above, a good investment alternative would be medium to large scale WSPs. Alternatively, consolidation of these facilities would be a good option.
Assuming that utilities were operating within the sector (NRW) benchmark of 20 per cent as opposed to the current 42 per cent, at the current average cost of production of KES 37 per m3, the average unit cost of water billed would be expected to be KES 46 per m3 as opposed to the current KES 64 per m3. This means that the difference of KES 18 per m3 goes towards paying for inefficiencies of the utilities instead of the development of infrastructure. Some of the savings in developing infrastructure in this sector are stated in our Report No 2/2016 ‘Savings in Construction’ available on our research portal http://engineering.lorientoutlook.com/research
Looking at the market share of WSPs, it can be seen that Very Large and Large WSPs are not only more likely to be viable than smaller WSPs, but also dominate the market. While they represent 36 per cent (up from 31per cent last year) of all WSPs in the sector, they continue to account for the largest share of business (91 per cent of the total WSP turnover, 89 per cent of the total water produced and 74per cent of the people served). Provision of subsidies, by the County Governments where WSPs operate, is seen as an alternative for WSPs (especially rural) where a tariff study has been conducted and customers can’t afford to pay the cost reflective tariff.
Scale of Utility (WSP) No of Connections
Very Large >35,000