Clear regulation will ease private sector entry into the water sector

In September 2013 a major discovery ensured Kenya’s water security for generations. A 248bn-cu-metre underground reservoir of water was discovered in Turkana in north-west Kenya. Given that the country uses 3bn cu metres annually, politicians are celebrating a discovery that will last more than 70 years at current rates of consumption. The government plans to use 70% of the 3.4bn cu metres of annual recharge, which means reserves could last indefinitely.

After the euphoria of the discovery, sector analysts have begun to raise questions about how to tap this resource. There is no national pipeline infrastructure where the reserves are located and while costs in the region will fall – from KSh30 ($0.34) to KSh2 ($0.23) for a 20-litre container – it is unclear how the entire country can benefit from a remotely located resource. Even before thinking about transportation, technical specialists are trying to understand how to access the reserves without contamination or overexploitation. Working out how to manage the new resource will likely prove challenging. According to John Olum, CEO of the Water Resources Management Authority, “At the end of the day there is still a water shortage. Managing and allocating such a finite resource is not an easy task, and even with the new aquifer in the north, there will still be disputes as to whom the water belongs and the best way to sustainably manage it,” he told OBG.

Missing Link 

The private sector has started to play a significant role in Kenya’s infrastructure and power scene. However, public-private partnerships (PPPs) in the water sector have been a missing part of the puzzle. The PPP Act of 2013 created the framework, but water sector partnerships are still in early days and are focused on small-scale rural development.

“There are no large PPPs in the management of water supplies in Kenya at the moment; however, with the support of our organisation six small PPPs have been signed for the management of rural water supplies,” said John Ondari, senior advisor for water and sanitation at SNV-Netherlands, a global agency working on water, renewable energy and agriculture. According to Ondari, there is a need to work on incentives and appropriate policy environment to attract large private sector investment. With these in place, he believes the private sector can get involved in areas like water supply management techniques, monitoring and reporting, and metering.

Perception Change Needed

Nahashon Muguna, technical director of Nairobi Water and Sewerage Company, which is owned by the Nairobi City Council, believes that a shift to private water service providers could be possible one day, or at least build-own-operate-transfer PPP models to start with. However, he thinks that progress will be slow since water is regarded as a social commodity. For Ondari, this is exactly the problem. “In most parts of the country, water is still viewed as a social issue rather than as both a social and economic good,” he told OBG. The 1990s attempt to commercialise water services was misunderstood to be tantamount to foreigners trying to take over Kenya’s resources, and moves to privatise the sector were set back. “There is now growing momentum and greater acceptance to go the route of PPPs in the management of water resources,” he said.

Regulatory Progress 

In the last dozen years, however, regulation has become more favourable for private investment. After the 2002 Water Act, the Ministry of Water and Irrigation ceased to be both the service provider and regulator as the Water Services Regulatory Board (WASREB) was formed. Among WASREB’s roles is to set guidelines for pricing. Unlike electricity tariffs, the price of water does vary by region and there is no cross-subsidisation. For example, water in Turkana may be priced higher due to expensive extraction, while water from easier-to-harvest mountain sources in western Kenya may be cheaper. While the regulatory environment is more favourable for investors, the trouble with a privatised system is that tariffs have to rise significantly to be viable. So far the government has borne the capital costs, and infrastructure is dilapidated. Tariffs barely cover operations and maintenance, and they need to cover capital and operating costs.