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Case Studies
Key Points
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Sector
Water & Waste - Water
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Size
- USD 107 million (KES 11 billion)
- More than 2,200 projects
- Has helped more than five million vulnerable people
- The average size of the output-based aid[*1] (OBA) financed projects is USD 1.7 million
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Stage
The WSTF has been operating since March 2015. Its work is ongoing.
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Background
The Government of Kenya has been striving to improve water access for people in low-income areas for decades. However, it faces several challenges, including the limited capacity of smallscale service providers, limited water resources, drought and sustained poverty.
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TARGETED STAKEHOLDERS
- Women and girls
- Youth
- Communities without access to improved water resources
Project Overview
Why of Interest
The WSTF provides conditional and unconditional grants to the counties to help finance the development and management of water services in marginalised and under-served areas, including:
- the development of water services in rural areas that are not commercially viable for licensees;
- the development of water services in under-served, low-income urban areas; and
- improving transparency through online tracking and reporting of water access, using the MajiData Platform[*2].
WSTF projects are included in the Access Government Procurement Opportunities (AGPO) initiative, the national program that helps businesses owned by women, young people and people with disabilities to access government tenders.
Project Objectives
WSTF’s strategic objectives have been defined for the period 2018 to 2022:
- to mobilise USD 310 million (KES 31.9 billion) for WSTF investments by June 2022;
- to diversify and sustain partnerships;
- to develop and implement business models for revenue generation (i.e. on-lending, reserve and guarantee funds mechanisms, consultancy); and
- to establish the Levy, Endowment and Revolving funds.
Project Lifecycle Assessment
Project preparation - eligibility criteria to apply for funding (see details under Affordability and Optimising Finance). Output-based financing mechanism to engage the private sector and boost financial viability.
Project procurement - procurement mechanisms are transparent with pre-qualifications and reduced competition for women, young entrepreneurs and people with disabilities (as part of the AGPO program).
Construction - no specific inclusive technical design specifications, except for public sanitation projects[*3].
Project monitoring and evaluation - use of MajiData to monitor the number of households and people who have improved water access.
Notes:
| [*1] |
Output-based aid is an innovative approach to increasing access to basic services. It refers to development aid strategies that link the delivery of public services in developing countries to targeted performance-related subsidies. |
| [*2] |
MajiData is a pro-poor online database that contains facts and figures on water and sanitation for Kenya’s low-income urban areas (www.majidata.go.ke). It has satellite-linked data on water supply, sanitation and solid waste disposal, population, land ownership, land use, area layout, habitation patterns and types of housing, socioeconomic infrastructure and quality of life. |
| [*3] |
All public sanitation projects should include one disabled toilet, a room with baby changing and breast-feeding facilities, and a dedicated waiting area. |
Summary
The Water Sector Trust Fund is a state corporation established under the Water Act 2016. It seeks to increase water access in low-income areas, reduce poverty and improve people’s lives.
The Water Sector Trust Fund (WSTF) is a state corporation of the Ministry of Water and Sanitation in Kenya. It was established to improve the development and management of water services in low-income, marginalised and under-served areas.
Its mandate is to help the under-served or any vulnerable group in society and it specifically focuses on key inclusivity parameters such as income, location, gender and accessibility. The WSTF applies inclusivity practices through transparency, a community engagement model, performance-based financing mechanisms, a water operational model and initiatives favouring women and small enterprises. Its procurement procedures comply with the Access to Government Procurement Opportunities (AGPO) initiative, which is a government-led affirmative action program set up to empower young people, women and people with disabilities by providing them with more opportunities to do business with the government.
The WSTF is not a major individual infrastructure project, but rather an overarching program that includes projects of various sizes. They typically involve the provision of metered water connections, network extensions, public sanitation facilities, yard taps or water kiosks. Nonetheless, the WSTF has been selected as a case study to demonstrate how low-income areas can be identified and targeted, and how output-based funding can be applied.
Project Description
Kenya has a population of 46 million people, of which a third still rely on surface water or unimproved water sources, such as ponds, shallow wells and rivers, while, as of 2015, 49% of Kenyans use open defecation or unimproved sanitation solutions[4]. Many of these people live in rural areas and urban slums. Only nine out of 55 public water service providers in Kenya provide continuous water supply, leaving people to find their own way of meeting their basic needs[5].
The WSTF has a mandate to improve water access and water access quality in low-income areas in Kenya. It acts as a driving force, using an innovative financing mechanism, community engagement, empowerment, and technical assistance to reach 1.6 million households and more than eight million people. The online database, MajiData, provides a definition of a low-income area by capturing population, layout and infrastructure, land ownership, type of housing, water supply and sanitation, socioeconomic situation and community characteristics[6]. The application of inclusive principles is essential to achieve the overall target of improving access for 2.95 million people in under-served areas.
This project is relevant to a number of Action Areas. Most relevant is the Action Area of Affordability and Optimising Finance, which will be the main focus of this case study. The WSTF provides subsidies to help make projects financially viable and increase water accessibility. Stakeholder Identification, Engagement and Empowerment is also covered in this case study, due to the establishment of an online database mapping low income areas and capturing information on their quality of life. The Action Area covering Policy, Regulation and Standards is also relevant, as the Water Act 2016 sets out the regulatory framework for the financing mechanism and the required mandates to all institutions involved, however this Action Area will not be covered in this case study. Other inclusivity measures such as capacity building, private sector participation, and project planning development and delivery are also present in the WSTF.
Key Practices Identified and Applied
Affordability and Optimising Finance
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:
- new individual water and sewer connections;
- water kiosks;
- public water supply points; and
- 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:
- The WSP provides an overview of the project and requests technical assistance funds to develop a financially feasible project.
- The application is submitted to the WSTF and commercial lender, together with a request for a subsidy.
- 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.
- The WSTF conducts an independent baseline assessment and agrees on outputs against which the subsidy will be paid.
- 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.
- The technical assistance funds are approved to help the WSP implement and oversee the project and deliver the service to customers.
- 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.
- 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.
Notes:
| [7] |
Improved water sources include protected springs, protected wells, boreholes, piped into dwelling, piped water, and rain water collection. Examples of unimproved water sources are ponds, dams, lakes, streams/rivers, unprotected springs, unprotected wells, and water vendors. (Kenya National Bureau of Statistics and the Society for International Development, 2013) |
| [8] |
Joint Monitoring Program (JMP) Kenya data, (WASH 2015). |
| [9] |
Water service providers are small or medium-sized privately-owned companies that submit a business case and funding proposal to the WSTF. After the project is implemented, they operate and maintain the water supply facility. |
| [10] |
As per national water tariff guidelines. |
| [11] |
The assessment forms are part of the toolkit available online. Depending on the project, some differences apply. |
| [12] |
Tariff guidelines provide guidance on tariff setting, willingness-to-pay studies and the calculation of the subsidy requirement as per Appendices 11 and 12 under WASREB – Tariff Guidelines, (WASREB, 2002). |
