Water and sewerage costs are set to rise under new World Bank-backed reforms aimed at helping debt-ridden service providers raise Sh166 billion for expansion and upgrade of the ageing networks.
The World Bank, in a new report, has disclosed that the government has identified a package of reforms that will help to mobilise part of the additional financing required to meet the country’s target for water and sanitation.
This includes increasing tariffs to cover 150 percent of the operating costs of the State-backed water firms from the current 105 percent.
It is likely to unlock an additional Sh45 billion over the next years to help maintain and improve water and sewer infrastructure.
But the planned tariff adjustment will force water consumers to dig deeper into their pockets at a time the cost of living has risen to unprecedented levels.
The combined impact of high water tariffs and costly petrol, cooking oil and staple maize flour will pile inflationary pressure in an economy where households have knocked off some goods and services from their budgets to navigate the turbulent times.
Inflation rose to 9.2 percent in February, remaining above the government’s preferred target range of 2.5-7.5 percent since July.
In 2021, the World Bank signalled the higher bills after it pushed for new conservation levies and increased regulatory charges for water companies as part of the global financier’s lending programme.
Most of the water service providers (WSPs) are operating at a loss, with the average water supply tariffs being 25 percent lower than the average cost of their service, the multilateral lender said.
The operating loss emerges before full recovery of capital investment, the World Bank added.
Water providers such as Nairobi City Water and Sewerage Company (NCWSC) provide piped water and sewer services primarily to urban residents.
The Water Services Regulatory Board has backed the upward review in tariffs to achieve operations and maintenance cost recovery.
“Stakeholders agreed that increasing tariffs is necessary. They noted the political constraints and stated that technical staff should provide recommendations and options to assist representatives in making the best choices for their community,” said the World Bank.
The service providers have been lobbying for the review of tariffs that were last revised more than five years ago to cover the ballooning costs of operation and maintenance.
Under the new tariff guidelines, each service provider is expected to recover its full cost of services in the medium to long term and leave a surplus to allow it to improve its infrastructure.
Currently, Kenyans pay an average of Sh93 per cubic metre or 1,000 litres for water piped to homes.
In addition to increasing tariffs, the World Bank is also pushing for a reduction in free water, increased collection rates and raising commercial finance on the strength of improved operating cash flows.
The multilateral lenders, including the International Monetary Fund (IMF), are expected to play a bigger role in shaping policy that would require the government to implement tough conditions across many sectors.
The IMF and World Bank advisories come on the back of their multi-billion shilling loan facilities to Kenya where money flows straight into the budget to top up the public purse.
Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the funding from institutions like the IMF and the World Bank coming in the form of project support.
Improving access to safe drinking water and sanitation is one of the priorities of the administration of President William Ruto.
Last year, Dr Ruto said that private firms would be allowed to invest in water and sell to the national government, in a move meant to attract new capital to bridge the Sh500 billion funding deficit to ensure universal access to clean water.
Under the proposed arrangements, private firms will build dams and drill water on a large scale then sell the commodity to State-owned water agencies who will supply it to homes and other public entities at lower charges.
Water purchase deals with the private sector will help the government pursue capital-intensive water projects without relying on loans as the government seeks to ease the debt burden that has squeezed funds available for development projects.
“We will adopt a public-private partnership framework by entering into water purchase agreements with investors,” Dr Ruto said in September last year when he addressed Senators and MPs at Parliament buildings.
According to the Kenya Population and Housing Census (KPHC) 2019, around a quarter of the country’s population lacked access to an improved water source while 16 percent lacked access to an improved sanitation facility.
Reports show that around 35 million Kenyans do not have access to piped water—of whom 30 million live in rural areas—and that close to four million people still practise open defecation.