Kenya and the Netherlands are eyeing joint deals that would allow water utilities to raise funds from the capital markets for expansion projects.
Water utilities in Kenya face a serious funding gap, with data from the Water Services Regulatory Board (WASREB) showing that up to 45 percent of the country’s water supply is non-revenue generating.
This means that while all utilities in the country collect an estimated Sh23.1 billion in tariff revenue annually, a further Sh18.9 billion in revenue remains uncollected, creating a gaping shortfall in the sector.
Stakeholders from Dutch-backed water sector players operating in Kenya say there is ample room to unlock alternative financing for the water sector.
“Firm government guarantees including a long-term lease of land, financial guarantees, and bulk offtake agreements. Green bonds, revenue ring-fencing, and a significant reduction in non-revenue water can help unlock financing” Erik Labee, the CEO of the Kenya Innovative Finance Facility for Water (KIFFWA), which is a Nairobi-based investment fund focused on the water sector and supported by the Dutch government.
KIFFWA is an investment fund based in the Netherlands with a fund management company based in Kenya that provides early stage capital, finance and technical expertise to support the creation of viable water investment opportunities and attract private finance.
For its part, the Government of Kenya has assured Dutch investors of an enabling environment for investment in the water and sanitation sector, including the adoption of tax exemptions where appropriate.
“Non-revenue water in Kenya averages 45per cent which makes sustainability of water works a big challenge. This challenge can be turned into a business opportunity for private investors to partner with the government to address the challenge,” said Boniface Mulama, Head of the Public-Private Partnerships unit at the State Department for Water and Sanitation.
“The government of Kenya anticipates giving support to investors including tax exemptions, downstream works such as rehabilitation of the existing network, and catchment protection.”
In an effort to build investor confidence, the Kenyan government is pursuing a financing policy for water service providers that includes addressing their legacy debt issues and creating tools for utilities to borrow on a non-sovereign recourse basis without government guarantees.
Non-recourse financing is a type of commercial loan that requires repayment only from the revenues generated by the project financed by the loan.
The government also plans to establish a dedicated secretariat within the Ministry of Water for capital market financing in the water and sanitation sector, initiate transaction advisory support, develop bankable transactions including sourcing blended finance options, and identify sources for blending and credit enhancement instruments.
The state also plans to develop a financial structure for water and sanitation projects, implement risk enhancement instruments and blended finance components, and establish an organisational or operational structure, with CMA providing support with roadshows and approvals.
