Water Service Providers (WSPs) are having difficulties in getting new loans to finance major projects after they defaulted on loans amounting to Sh230.4 billion ($1.8 billion) they had borrowed from development partners.
A World Bank report has disclosed that counties refused to absorb the loans taken before devolution for investment funding.
“This financing model, developed pre-devolution, is no longer sustainable because counties have contested the loan repayments, and most WSPs are not in a financial position to honour their loan obligations,” said the World Bank.
“As a result, by 2020, the national government had accumulated a debt burden estimated at US$1.8 billion… which threatens its fiscal capacity to finance the sector at a time when substantial resources are needed to close access gaps,” added the World Bank.
This has compounded the funding headache for water companies that are counting on long-term financing to undertake major projects.
Without patient financing, it has been difficult for WSPs to expand their services to the millions of households without piped water, and take Kenya closer to its ambitious goal of achieving universal access to safe and affordable water supply and sanitation services by 2030.
The report notes that, collectively, county governments contribute roughly 30 percent of the total investment funding going to the water supply and sanitation subsector.
The rest of the financing comes from the national government, mostly concessional loans expected to be repaid through water tariffs.
According to the World Bank, improving the country’s credit score could unlock WSP loans of up to Sh81 billion to finance capital expenditure.
The government has identified a package of reforms that will help to mobilise part of the additional financing required to meet the target for water supply and sanitation, unlocking as much as Sh166 billion in additional resources for service expansion over the next seven years.
Part of the reforms will help WSPs raise commercial finance on the strength of improved operating cash flows, with an upward review of the tariffs also part of the reform package.
“Stakeholders noted that WSPs need access to long-term loans at affordable interest rates and that while the pooled bond fund was a good idea in principle, it has not progressed,” said the World Bank.
President William Ruto has noted that private firms will be allowed to invest in water and sell to the national government, in a move aimed at attracting 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 country moves 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 practice open defecation, said the World Bank.
Despite the non-payment of the loans, water and sanitation is one of the sectors that will benefit from the Sh320 billion ($2.5 billion) war chest for the completion of various private-public partnership projects in the period between 2023 and 2027.
In the next financial year, counties will receive Sh5.35 billion in loans from the World Bank.
The World Bank also notes that achieving universal access to safe water requires an estimated Sh1.8 trillion ($14 billion) in investment in water supply over the next 15 years.