Danida Business Finance Project proposal
Presentation to Danida Programme Committee
Wakiso West Water Supply and Sanitation Project
Uganda
Date: 18 December 2018
Udenrigsministeriet/VBE:
Kontorchef: Ole Thonke
Sagsbehandler: Lone B. Jensen
File: 2018-43359
Investment Director: Annelise Boysen, DBF
TL Tina Kollerup Hansen; VP Morten Elkjær,
Finance Sector
PID: 9024 File no.: F-1746-1
Background
As of 1. September 2017 Danida Business Finance, DBF, has been managed by IFU. The aim is to seek synergies
with IFU investments and to scale and further develop DBF in line with the overall strategy for development
cooperation, benefitting from IFU’s commercial knowhow and network.
The approval of DBF projects still rests with the Minister for Development Cooperation and follows the normal approval
process in the Ministry of Foreign Affairs, MoFA. According to the administration agreement between MoFA and IFU,
DBF projects can be presented to the Danida Programme Committee prior to initiating DBF Feasibility Studies, that is,
at an early stage of the project development phase where only limited project information are available.
To align and integrate DBF to IFU documentation and processes, and on request from the Danida Programme
Committee to reflect early stage DBF involvement in project development, IFU has adjusted the template for DBF
concept notes. Therefore, DBF concept notes differ from the standard Word templates presented to the programme
committee.
PAGE 2
Abbreviations
AfDB – Africa Development Bank
CG – Corporate Governance
CIP – Clearance in Principle
CO2 – Carbon dioxide
CSR – Corporate social responsibility
CWD – Communal Water Dispenser
Danida – Danish International Development Assistance
DBF – Danida Business Finance
DKK – Danish Kroner
EIA – Environmental Impact Assessment
EIB – European Investment Bank
ESIA – Environmental and Social Impact Assessment
E&S – Environment and Social
EUR – Euro
FS – Feasibility Study
FSTP – Faecal Sludge Treatment Plant
GoU – Government of Uganda
GNI – Gross Domestic Income
IC – Investment Committee
IFC – International Finance Corporation
IFU –Investment Fund for Developing Countries
IRR – Internal rate of return
NDP – National Development Plan
NWSC – National Water and Sewage Corporation
OHS – Occupational health and safety
O&M – Operation and maintenance
PIU – Project implementation unit
PS – Performance Standard;– referring to IFC Performance Standards
RPF – Resettlement Policy Framework
SDG – Sustainable Development Goals
TA – Technical Assistance
TBD – to be determined
ToR – Terms of Reference
USD – United States Dollars
VAT – Value added tax
WTP – Water treatment Plant
PAGE 3
KEY DATA
PAGE 4
Project name
Wakiso West Water Supply and Sanitation Project
Country
Uganda
Gross National Income (GNI) per capita: USD 600 (World Bank, Atlas Method)
Product
Production of Clean Water and Sludge Treatment, incl. transmission and distribution
systems
Implementing partner
National Water and Sewage Corporation (NWSC)
Implementing period
36 months
Sustainable development goals to be targeted
SDG 3, SDG 6, SDG 8, SDG 11, SDG 13 & SDG 17
Investment budget
DKK 1.013 million (cf. detailed budget sheet)
ODA budget
DKK 619,9 million
Type of financing
Soft loan
Financial net IRR
Financially nonviable without subsidy Loan A
gre
em
ent
Bank fees
Loan:
Contractors
contract
Supervision (TA)
contract
Interest and margin
Additio
nal
technic
al
assis
tance
Tender support
Monitoring and
verification
Repaid by
NWSC
Covered by
Danida
Grant
DBF project finance:
design
1: PROJECT CONTEXT
Documentation
• Rambøll/Fichtner: Feasibility Study,
September 2018
• Rambøll/Fichtner: Resettlement Policy
Framework RPF, September 2018
• Rambøll/Fichtner: Scoping Report, September
2018
• Rambøll/Fichtner: Optioneering Report,
August 2018
• Danida: Uganda Country Policy Paper, 2018-
22, 2017
• Danida: Uganda Country Programme, 2018-
22, 2017
PAGE 5
Context
• Uganda is one of the poorest countries in the world and its economic
development presents a mixed picture. Between 2000 and 2010, the
country experienced impressive economic growth rates, averaging 7% per
year. This made Uganda one of the fastest growing economies in the
world, albeit starting from a very low level. However, between 2011 and
2016 annual average growth slowed to 4.5 % p.a. This is further diluted by
the high population growth and low income, with GNI per capita of USD
600 in 2017. According to the IMF, Uganda's external debt is manageable
and the country is eligible for DBF financing.
• The National Resistance Movement and President Museveni have been in
power since 1986. The regime has provided stability; however, democratic
space is challenged. Corruption is high and Uganda is ranked 151 on
Transparency International Corruption Index. Also, some human rights are
challenged.
• Uganda aims at reaching lower middle income status by 2021, i.e. a GNI
per capita of just above USD 1,000. Achieving this will require annual
growth rates of 10 % per year. The key priority areas in National
Development Plan II are related to infrastructure development,
commercialization of the agricultural sector and promotion of tourism.
• Water and sanitation is one of the priority areas for the Government, and
the target is 100% urban coverage of safe water by 2021. The current
coverage is 71%. With the rapid population growth rate and high
urbanization, significant investments and funds are required to meet the
target.
• Denmark has been a major donor in the water and sanitation sector since
1991, but the programme ends in 2018. It is expected that further Danish
support to water and sanitation will be provided by DBF.
• NWSC, established in 1972, is a Parastatal organization that operates and
maintains water supply and sanitation in urban areas. NWSC works under
3-year performance contracts. The past 5 contracts have been successfully
implemented.
• One project to improve water and sanitation in greater Kampala is financed
by EIB, France and Germany. The main development partners in the sector
are the World Bank, EIB, AfDB, Germany, Austria and France.
2. INVESTMENT CASE: Theory of Change
PAGE 6
Outputs
Output 1: Water supply system
consisting of a 62,500 m3/day Water
Treatment Plant, with 48,940 new
household connections and serving
18,300 existing connections. In addition,
intake and raw water main, 4 reservoirs,
8 booster stations, 76,5 km of primary
transmission mains, 51,4 km of
secondary mains, and a tertiary network
covering an estimated area of 4,300 ha.
Output 2: 400 m3/day Faecal Sludge
Treatment Plant (FSTP).
Output 3: Communal Water Dispensers
(CWD) in informal settlements
(approximately 1000).
Output 4: Installation of 1,05 MW
capacity solar energy plant at the
Water Treatment Plant.
Output 5. New Jobs created.
Output 6. NWSC capacity to operate
innovative systems in water supply.
Outcomes
67,240 households in Wakiso West
have access to clean and affordable
water (through household
connections).
Pollution of the environment from
dumping of faecal sludge has been
reduced
The population in informal settlements
have access to clean and affordable
water (through CWDs).
Demonstration of the potential savings
from using renewable energy for
pumping.
Both temporary (during construction)
and permanent (during operation) jobs
have been created.
The water company has introduced
energy-saving equipment
Impact
SDG3: Improved health
SDG6: Clean water
and sanitation
SDG8: Decent work
and economic growth
SDG11: Sustainable
cities and communities
SDG13: Climate action
SDG17: Partnerships
3. INVESTMENT CASE
PAGE 7
Appropriation
April 2019
Loan agreement
February 2020
Construction start
March 2020
Verification upon taking over
March 2023
Verification after Defect Notification
Period
March 2024
Investment case
• NWSC is a Government Parastatal under Ministry of Water and Environment. It develops, operates
and maintains water supply and sanitation in urban areas and has professional capacity for this.
This includes household connections and installation and management of communal water
dispensers to serve informal settlements. Water prices are set at national level with some cross-
subsidization from high consuming to low consuming costumers.
• NWSC has an operating profit and is not reliant on government funding for operations and
maintenance. In addition, it can finance limited investments but the low tariffs prevents NWSC form
operating on a full commercial basis.
• NWSC will, supported by a consultant, undertake a competitive tender following FIDIC Yellow Book
(final project design done by the contractor) limited to short-listed Danish based contractors. The
tender will follow a life cycle cost approach, where Danish solutions are considered to be
internationally competitive.
• The contractor selected will finalize the design, build the project and hand over to NWSC for
operations. With introduction of life cycle costing, new technologies will be introduced and there will
be a need for capacity development of NWSC (pumping and pressure management, sludge
treatment, renewable energy etc.) for the plant to be operated efficiently. The contractor will adhere
to the environmental and social action plan, including resettlement plan, that will be a part of the
contract to ensure adherence to IFU (IFC) standards and protect human rights of those who will be
affected temporarily or permanently by the project.
• During construction, a supervision engineer will support NWSC to undertake monitoring of the
implementation and general performance of the contractor, including adherence to IFC standards.
• DBF will appoint a consultant to monitor implementation and undertake verification at take-over/
end of defect liability. Final monitoring of outcome will take place 5 years after take-over.
• This would be the first DBF project in Uganda, but Denmark has a long standing relationship with
Uganda in the sector. The Danish Embassy, consultants and contractors have ample experience
working in the sector in Uganda.
Contribution to Sustainable Development Goals
The project will provide access to safe and clean water for people in the area and sanitation and
reduced environmental impact on Lake Victoria. The project will contribute to SDG 3, 6, 8, 11, 13 and
17. See page 7 for further detail.
Justification
• Uganda is a priority country for Danish
Development co-operation.
• The project is fully aligned to Uganda’s
second National Development plan aiming
at increasing access to safe water in urban
areas to 100%. Current coverage is 71%.
GoU is in urgent need for funds to meet the
target.
• Water demand in Greater Kampala is
growing fast, reflecting rapid expansion of
the city’s formal and informal settlements.
The project will help meet the increasing
demand with increased water supply.
• Lake Victoria is increasingly polluted by
untreated faecal sludge. The project will
reduce this pollution;
• Potential for introducing life cycle costing,
which would reduce non-revenue water and
energy consumption, which can help pave
the way for more energy efficient solutions,
including from Danish technology providers
to the Uganda market;
• A DBF grant would mobilise additional
financing from the private sector, which
would otherwise not be mobilised, thereby
catalysing the project impact.
4. SUSTAINABILITY
PAGE 8
Development impact
• SDG 3: Good Health and Wellbeing, through increased access to clean
water supply and sanitation for households in Wakiso West;
• SDG 6: Provision of Clean Water and Sanitation through affordable water
(at tariffs determined by the government, with a scheme of cross-
subsidisation for poorer customers). More than 67,000 households in
Wakiso West would be provided with access to clean and affordable
water;
• SDG 8: Decent jobs, created during both construction and operation of the
water supply and faecal sludge treatment plants (the expected number of
new jobs created will be determined during project formulation);
• SDG 11: Sustainable cities/communities through provision of essential
water and sanitation services to the rapidly growing population in Wakiso
West; and
• SDG 13: Climate action through reduction of actual and anticipated
pollution of Lake Victoria and surrounding areas through a faecal sludge
treatment plant and re-collection of waster water in the project area and
reduced energy consumption.
• SDG 17: The grant from DBF mobilises private funding from an
international bank.
Corporate Governance
• In Uganda, informal settlements cannot be connected to the water supply.
Instead, NWSC will install water dispensers and ensure that water tariffs
follow government regulations to avoid overpricing of water from local
vendors.
• Corruption is widespread. IFU DBF’s anti corruption measures will be put
in place, e.g. close monitoring of the tender processes, and
buyer/borrower’s and exporter’s declaration where DBF may require
support repaid in case of misuse.
Environmental and social risks
• An Environmental Impact Assessment (EIA) is underway, which
will guide further design and construction. National Environment
Management Authority (NEMA) will issue environmental approval
and EIA certificate.
• Some people will be affected temporarily (piping work) or
permanently due to resettlement from the site of construction. All
land to be acquired has formal title and it is expected that the
process will be frictionless. Land acquisition is the responsibility of
NWSC.
• Owners of the individual construction sites have indicated that
they are willing to sell.
Management of environmental and social risks
• IFC performance standards are applied during design and
construction of the works to ensure appropriate labor and working
conditions, resource efficiency, pollution prevention and land
acquisition.
• NWSC will hold public consultations during design and
preparation of Environmental and Social Impact Assessment
(ESIA). NWSC is being supported by DBF to carry out the ESIA.
Implementation will be monitored by the supervision consultant
during design and construction. An Environmental and Social
Monitoring and Management Plan is developed to mitigate
negative environmental and social impacts.
• NWSC will be responsible for Resettlement Action Plan based on
the Resettlement Policy Framework developed as part of the
feasibility study.
PAGE 9
5. BUDGET
DKK Million
Loan and
grant*
Own financing Total
Total Investment 1,013.4 258.9 1.272.3
Output 1 (water supply system) 725.4 725.4
Output 2 (faecal treatment plant) 74.5 74.5
Output 3 (communal water dispensers) 8.2 8.2
Output 4 (solar energy plant) 11.2 11.2
Catchment area protection (3%) 24.6 24.6
Installation of household connections
and water dispensers
222.0
Land acquisition 32.1 32.1
Supervision engineer 37.3 37.3
Contingencies 15% 132.2 4.8 137.0
Budget for DBF Grant
DKK Million
Cash grant element of loan 353.0
Interest subsidy 98.3
Margin to Danish lending
bank8.3
EKF premium
(Export loan guarantee fee)*69.6
Technical Assistance 22.4
Budget margin (25%)** 137.9
DBF Total Grant 689.4
DBF Grant excl. budget
margin551.5
DBF appropriation
(excl. EKF premium)619.9
* DBF covers the EKF premium on behalf of borrower
on the loan guarantee required by lending bank. DBF
only releases the payment in case of actual default.
The fee is therefore not paid out and not included in
the appropriation.
** The budget margin only becomes effective if the
project during tender turns out to be more expensive
PAGE 10
7. OVERALL ASSESSMENT
Investment attractiveness/concluding remarks
• At the end of the project, Wakiso West has a water treatment
plant with capacity of 62,500 m3/day and a faecal sludge
treatment plant with a capacity of 400 m3/day.
• Uganda’s second National Development plan aims at
increasing assess to safe water in urban areas to 100%.
Current coverage is 71%. Using DBF financing for
investments in the water sector, would meet part of these
requirements.
• The project contributes directly to SDG 3, 6, 8, 11, 13 and 17
through financing and construction of sustainable
infrastructure based on life cycle costing, which could
contribute to more sustainable infrastructure in Uganda.
• Key indicators of success are that people in Wakiso West
have access to affordable, safe and clean water, as well as
sanitation.
• The project will provide opportunities for Danish engineering
companies, contractors and Danish suppliers.
Major risks and development challenges
• Delays in land acquisition and compensation can delay
implementation – it is a precondition that the land acquisition
be solved adequately before the loan agreement becomes
effective.
• Other risk factors are included in the project design, e.g. a
possible deterioration of the raw water quality if Lake Victoria
becomes more polluted, or changes in the settlement
patterns in the area.
• There is a risk that not enough Danish based contractors will
bid for the project. A meeting of potential Danish contractors
will be called prior to development of tender with a view to
ensure that there are at least 2, preferably more, contractors
that state that they would bid. Furthermore there will be a
pre-qualification which will inform how many are interested in
bidding.
• For more detailed risk assessment, please refer to enclosure
C.
ENCLOSURES
PAGE 11
A: Overall Process Action Plan
Action By date Responsible Comments
PAGE 12
Action By date Responsible Comments
Feasibility study (FS), Final November, 2018 Rambøll & Fichtner In progress
Preparation of Draft Project
Document (PD)
December, 2018 DBF With assistance from external
consultant
Appraisal of PD February 2019 DBF With assistance from external
consultant
Preparation of Final Project
Document
February 2019 DBF
Presentation of the Project
Document to the IFU investment
Committee
April 2019 DBF
Presentation of the Project
Document to the Council for
Development Policy.
April 2019 Ministry of Foreign Affairs –
VBE
Appropriation by Minister May 2019 Ministry of Foreign Affairs –
VBE
Detailed design and tender May to August 2019 NWSC With assistance from
international TA
Contract awarded February 2020 NWSC DBF to give no-objection
Construction starts March 2020 Contractor Supervision engineer in place
Taking over of works March 2023 NWSC
PAGE 13
B. ASSESSMENT OF PARTNER, NWSC
Partner name Core business Importance Influence Contribution Capacity Exit strategy
What is the
name of the partner?
What is the
main business,
interest and
goal of the partner?
How important is
the project for
the partner’s
activity-level
(Low, medium high)?
How much influence
does the partner have
over the project (low, medium, high)?
What will be the
partner’s main contribution?
What are the main
issues emerging
from the
assessment of the partner’s capacity?
What is the strategy for exiting the partnership?
National
Water and
Sewage
Corporation (NWSC)
NWSC is a
public utility,
which supplies
portable water.
It also provides
sewerage and
faecal sludge treatment.
Medium. Even if
it is a big project,
NWSC is
involved in larger
projects,
particularly in Kampala.
High, full control. NWSC will finance
household
connections, land
acquisition and
compensations.
NWSC will be
responsible for the
tender and
construction
supervision. While
Ministry of Finance,
Planning and
Economic
Development will
take out the DBF-
loan, this will be on-
lent to NWSC.
NWSC will pay the VAT.
NWSC has good
professional and
technical capacity.
However,
considering that
NWSC is involved
in many other
projects and is
rapidly expanding
by taking over
water supply
facilities in small
towns, there is a
risk of overloading.
The project
includes support
for the tendering
process, and it
also includes a
Construction
Supervision
Consultant.
Training for NWSC
in the operation of
the new facilities
will be included in
the contract with
the Design and Build Contractor.
The project is limited to
the period of
construction and commissioning.
C. PROJECT RISKS & RISK RESPONSE 1
PAGE 14
Risk Factor Likelihood Impact Risk response Residual risk Background to assessment
Significant domestic
political and social
instability. Conflicts in the
region escalates with
negative spill-over effects
to Uganda.
Unlikely Minor None Minor NWSC is a solid institution with presence in most
of the country, and is not likely to be affected by
political conflicts. As it is financially running with a
small surplus, it is not in need of transfers from the
treasury to keep operating.
Risk Factor Likelihood Impact Risk response Residual risk Background to assessment
Land acquisitions are not
ready in time thus delaying
the project.
Likely Major It is made a precondition that the land
acquisitions for the Intake, the WTP
and the FSTP be in place before the
loan is made effective.
Minor The precondition will put a pressure on NWSC to
finish the land acquisition soon. Some issues will
depend on the final design (e.g. for access roads),
which implies that there is a residual risk.
Intake water quality at
WTP deteriorates during
the lifetime of the project,
particularly with respect to
cyanotoxins (algae
growth).
Likely High 1. On demand measures such as
Power activated carbon, PAC, dosing is
included in the project.
2. Medium term improvements such as
replacement of anthracite with Granual
activated carbon, GAC in filter could be
required later.
3. Medium to long term improvements
such as separate GAC filter, polishing
effluent with advance oxidation (e.g.
UV, Ozone, H2O2) could be required
later.
Minor The design of the Water treatment plant, WTP
includes measures for later additional treatment to
take into account possible deterioration of the water
quality, including the setting aside space for extra
equipment should it be required in the medium to
long term.
Water demand growth
different from that
predicted (slower in some
areas and faster in other
areas).
Likely Minor Phase I design includes water transfers
outside of the project area to areas
already in a water deficit so that these
transfers can be increased. Phase II of
the network can be adjusted.
Minor The exact distribution of the population is difficult to
predict as the settlements are largely spontaneous.
It is, however, highly likely that it will follow the
established transport corridors (as assumed in the
project design).
Contextual risks
Programmatic risks
C. PROJECT RISKS & RISK RESPONSE 2
PAGE 15
Risk Factor Likelihood Impact Risk response Residual risk Background to assessment
NWSC is stretched for senior
technical resources and may be
reluctant to commit the necessary
full-time staff to the Project
implementation unit, PIU, implying
a weak PIU.
Unlikely Major It will be made a precondition for the
loan that a well staffed PIU is
established. Furthermore, a
Construction Supervision Consultant
will be part of the contract
Minor Experience shows that a well-
functioning and capable PIU is
essential for satisfactory project
implementation.
Inadequate operation and
management of the installed water
supply system
Unlikely Major The contractor will in the contract
have an obligation to secure training
in O&M of the innovative elements to
be introduced (specialised equipment,
energy recovery etc.).
Minor NWSC has ample experience in
managing large WTPs and FSTPs, as
well as running the distribution
networks.
Inadequate operation and
management of the communal
water dispensers in the informal
settlements.
Likely Major The tender documents will make sure
that the specifications for the CWDs
are adequate.
Minor It has been agreed that NWSC is
responsible for installing the CWDs.
Risk Factor Likelihood Impact Risk response Residual risk Background to assessment
Possible corruption during
tendering could affect NWSC and
DBF reputation.
Unlikely Significant Support to and close monitoring of the
tender process
Insignificant as
the safeguards
will make it
very difficult for
corruption to
take place
Transparency and anti-corruption are
on the top of the agenda for Danida
and DBF. DBF will give no-objection to
tender documents and the tender
evaluation report, and the tender
consultant will closely advise and
monitor the process
Inadequate consultation and
compensation to the project
affected people
Unlikely Significant Support to NWSC in the process by
the construction supervision
consultant. Close monitoring by the
consultant and the Danish Embassy.
NWSC is advised to seek cooperation
with an NGO specialised in
community mobilisation.
The risk will
still be there,
but it will be
minor.
DBF has a commitment to comply with
the IFC guidelines. DBF has stressed
the issue during project preparation,
and it will be reviewed during appraisal.
Also, it will be included in the ToR for
the tender consultant and the
construction supervision.
Institutional risks
Programmatic risks, continued
