Project Overview

Statement of the issue in relation to inclusion and brief introduction

Lack of access to water in Kenya disproportionally impacts the lowest income groups. In the poorest quintile of income groups, an average of 31% of people have access to improved water sources^[7], compared with a national average of 58%^[8].

In addition, improved or unimproved water sources may be located far from households. Fetching water becomes a time-consuming task and is mostly assumed by women and children. This prevents them from pursuing economic, educational or social activities. It also creates a gender divide and fosters inequality. Women are unable to engage in more empowering, financially rewarding or otherwise beneficial activities. 

If a water supply initiative is to address these challenges, licensees must be able to raise enough finance to build the system and be able to fund its operation and maintenance. Despite the significant socioeconomic benefits, water projects in low-income areas may not be financially viable. That is, they can’t generate sufficient revenue from users to pay for their construction, operation and maintenance.

How inclusivity has been addressed

The identified practice is a financing mechanism that enables projects to become financially feasible with the help of a performance-based subsidy.

One of the approaches used to tackle financial constraints is the provision of a subsidy to improve the financial viability of a project.

Projects covered by the financing mechanism are typically:

1. new individual water and sewer connections;
2. water kiosks;
3. public water supply points; and
4. public toilets.

Implementation

A tailored financing model has been developed to support the overall objective of the WSTF.

Figure 1. Source: Water Sector Trust Fund Results Based Financing Brochure 2018

Financing eligibility criteria

The WSTF can allocate funds from the World Bank, the Government of Kenya and other contributors. Water service providers (WSP)^[9] need to file an application to the WSTF to be eligible for finance. Help is provided during the application process in the form of process outlines, forms and spreadsheets.

The eligibility criteria are as follows:

• compliance with the Water Regulatory Service Board and support from the county government;
• statement of clear ownership;
• the WSP must be able to prove the project is technically feasible and commercially viable;
• the WSP has secured commercial loans from a commercial bank;
• the project is located in a low-income area;
• it contains an agreed water tariff^[10] and operation and maintenance costs, which are not subsidised; and
• a willingness-to-pay analysis and definition of subsidy requirements have been conducted (up to 60% of consumer connection fees may be subsidised).

Subsidy application and allocation process

The financing mechanism is enabled by the Water Act 2016, which sets the regulatory framework for the financing process. The subsidy is paid only after outputs are verified, based on successful completion and evaluation using a standard evaluation form. The form summarises the conditions, operations, maintenance and usage from the perspective of the water facility operator, the verification agent itself, customers/end users and the Public Health Officer. The evaluation process also captures gender, disability and affordability information in relation to access and participation in operations^[11].

The application and subsidy allocation processes are defined in detail by the WSTF following the regulatory requirements. In summary, the process includes the following steps:

1. The WSP provides an overview of the project and requests technical assistance funds to develop a financially feasible project.
2. The application is submitted to the WSTF and commercial lender, together with a request for a subsidy.
3. The application is assessed based on financial, commercial, and technical feasibility. The WSTF considers the application for the subsidy. If it is satisfactory, a conditional loan offer from a commercial bank and certificate of eligibility are issued.
4. The WSTF conducts an independent baseline assessment and agrees on outputs against which the subsidy will be paid.
5. A subsidy agreement is signed by the WSTF, and upon acceptance of the conditional loan offer by the WSP, the WSTF releases 10% of the subsidy to the WSP.
6. The technical assistance funds are approved to help the WSP implement and oversee the project and deliver the service to customers.
7. When the project has been implemented, it is independently verified. The outputs are assessed against the project’s objectives. If successful, this is followed by a recommendation to the WSTF that the subsidy is released.
8. The subsidy is paid, and the project continues. Customers will start paying connection fees and their monthly water bills and proceeds are used to cover operating and maintenance costs and repay the outstanding balance on the WSP’s loan to the commercial bank.

To determine the affordability of the water tariff and the size of the subsidy required, the WSP needs to conduct and submit a willingness-to-pay analysis, as set out in Appendices 11 and 12 of the Tariff Guidelines^[12]. There are some limitations on the size of the subsidy. A cap on the subsidy is calculated on a per beneficiary basis (USD 115 per beneficiary) and the maximum subsidy is 60% of the amount borrowed for the investment.

Technical Assistance

The need for technical assistance has been recognised by the WSTF. A WSP may apply for help from the WSTF to develop a “bankable” proposal and seek funding to support the implementation and supervision of the project (i.e.construction supervision).

Supervision and Monitoring

During early project assessment and after project delivery, the independent verification agent from the WSTF undertakes the following:

• a baseline assessment and output verification;
• an assessment of sub-project costs and eligibility for a subsidy; and
• a confirmation of investments made in the targeted lowincome areas.

This information is submitted to the WSTF and also shared with MajiData.

During operations and maintenance, the Water Service Regulatory Board undertakes monitoring and reporting on WSP compliance. Monitoring is also undertaken by the WSTF through MajiData. The project evaluation results are captured and linked to the database. MajiData is being updated to also include operational monitoring data on a project basis.

How inclusivity has been addressed

The identified practice is an online database which identifies communities to be targeted for improved water access and stores information on their quality-of-life.

Implementation

Database capturing information on quality-of-life indicators

Communities are identified and targeted for projects using the WSTF’s online database, MajiData. This database has mapped over 1,880 urban settlements considered to be low-income areas. Information is based on 22 quality-oflife indicators including water supply, sanitation and area characteristics^[13].

When the WSP applies for the subsidies, the communities to receive improved water access^[14] are identified and captured as part of the project proposal.

Community engagement

Formal engagement with communities is an important part of the project. A communal structure has been established so individuals from local water communities can liaise with the respective regional water service board, which oversees asset management and contracting with water service providers. In addition to the communal structure, the project evaluation and monitoring data details the extent to which people benefit from water access and how satisfied they are with the service. This information is used by the WSTF to make improvements and inform the development of projects being considered for other locations.