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Sector Finance and Resource Flows for Water Supply in Kenya
John Ondari
Consultant
Water and Sanitation Program
2nd February 2004
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
2
Outline
Background Background
• Study ObjectivesStudy Objectives
• Approach- Insitutional and financial mappingApproach- Insitutional and financial mapping
• WSS Resource Flows - EstimatesWSS Resource Flows - Estimates
Key findingsKey findings• Role of User ChargesRole of User Charges• Donor financingDonor financing
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Objectives ofObjectives of
Resource flow assessment in Kenya Resource flow assessment in Kenya – To assess sector finance and resource flows in the water To assess sector finance and resource flows in the water
sectorsector• Institutional/ Financial mappingInstitutional/ Financial mapping• Analysis of public financeAnalysis of public finance
– To assess decision making processes- mobilization, To assess decision making processes- mobilization, allocation and disbursementsallocation and disbursements
– To explore next steps for improved financeTo explore next steps for improved finance
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Approach- Institutional mapping
Note: Existing in this figure refers to the situation prior the new Water Act.
MWRMD Water Supply Department
NWCPC
Local Authorities
LA Water Departments
Local Utilities
Private Small Providers
Community Based Organizations
Settlement/ Community/ Village
Local Government
National Governments
Water Service Providers
GGoovveerrnnmmeennttss Sector Institutions Water Service Providers
Sector Institutions
Monitoring & Oversight
Contracts/ Licensees/ Registration
Ownership
EExxiissttiinngg IInnssttiittuuttiioonnaall AArrrraannggeemmeennttss
Lack of separation
between policy, operation and
regulation
Slow emergence of local public
utilities
Lack of adequate legal basis for CBOs
Lack of recognition of role of PSSPs
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Approach- Financial Mapping
User Charges
MWRMD Water Supply Department
NWCPC
Local Authorities
LA Water Departments
Local Utilities
Small Private Providers
Community Based Organizations
Settlement/ Community/ Village
Local Government
National
Government budgets Direct Generation by WSPs
1. GOK Budget
4. Internal Generation
3. Off-Budget Donors
5. Community Contributions
2. LA Budget
User Charges
EExxiissttiinngg FFiinnaanncciiaall AArrrraannggeemmeennttss
Weak or non-existent links of
budgets to outputs, targets
and performance
Large uncoordinated off budget resources
Operational surplus not
accumulated or capitalized
Internal generation not
used for development exp.
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Estimates of Total Sector FinanceEstimates of Total Sector Finance
Channels of Finance Public Service Providers Other Providers Total MENR NWCPC Local
Auth. Local
Utilities CBOs/ SHGs
PSSPs
Govt. of Kenya Budget 2240 312 210 68 2830 Recurrent 1273 0 0 0 1273 Development 967 312 210 68 1557
Local authority budget 1317 1317 Recurrent 1236 1236 Development 81 81
Off-budget donors/NGOs 1422 1422 Recurrent 354 354 Development 1068 1068
Int. Generation by WSPs 883 266 119 197 1465 Recurrent 883 230 102 183 1398 Development 0 36 17 14 67
Communities/Households 545 545 Recurrent na na Development 545 545
Total Resources 2240 1195 1527 266 2154 197 7579 Recurrent 1273 883 1236 230 456 183 4261 Development 967 312 291 36 1698 14 3318
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- Importance of User financing Finding:• User financing is an important source of WSS expenditure(about 39%)• mainly through budget• NWCPC, Local public utilities and PSSPs depend on this source entirely for recurrent expenditure: BUT• Its potential is not fully realized;• It is not efficiently used in urban and is not understood in rural• Evidence
27%
39%
34%Aid from Donors
User Charges
O ther Sources of Funds
58%
42%Contribution toBudget
Internal Generationby WSPs
0
200
400
600
800
1000
1200
1400
1600
1800
In K
sh
Mil
lio
n
LAs P/Lus NWCPC PSSPs
User Charges
Other
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- Importance of User financing
Urban Means user charges- approved tariffs For MENR-WSSD and NWCPC (=appropriations in Aid):• protected but not efficiently allocated- cash flow problems• Expenditure approval and flow processes create disincentives For LAs• Unprotected- no operational surplus for development For Utilities- LUs and NWCPC• Tariff low and government slow in revision- low charges even with
higher potential- no autonomy For PSSPs- Unclear legal status- unpredictable revenue
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- Importance of User financing
Rural 1. Means user charges for public providers For MENR-WSSD and NWCPC (AIA):• protected but inefficiently allocated- cash flow problems• Expenditure approval and flow processes create disincentives For LAs- too little and unprotected and “illegal”
2. Means user charges + comm. Contributions by CBOs/SHGs/HHs Estimates based on “weak” information base- no proper records for communities in WSS,
BUT Sample cases indicate substantive user contributions Recent RWSS field visit to 6 communities revealed significant user contributions (up to
100%)
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- Importance of User financing
Free and some material “contributions” both to O&M and capital not captured
HH information unavailable- not well captured, Difficulties to arrive at National estimates
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- Importance of User financing
Implications Users willing to pay- particularly urban Likelihood of operational surplus- particularly LAs Budget allocation- not linked to performance- disincentive for public providers to increase user charges PSSPs require enabling regulation/ transparent contracts to increase internal generation NWCPC and Lus require enabling rules to revise tariffs Financing mechanism required which crowds in more community and market resources
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- User financing: Aspects for reforms/ Investment planning WSPs to be separated as independent business entities-better
revenue expenditure match Resource allocations to WSPs in proportion to user contribution
to create incentives for more finances from this source Higher investments- higher user charges- better O&M and
sustainability Long term operational surpluses for sector investment likely Tariffs for both rural and urban are same- this does not reflect
provisions in the water policy
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 1- User financing: Aspects for reforms/ Investment planning Suggested considerations for design of proposed WSTF• Ensure a demand responsive approach• Co-ordinate off-budget resources• Explore possible WSTF support to PSSPs• Capture community contribution as internal generation• Explore potential role of LAs
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 2- Role of Donor financing
Donor WSS financing is used for capital expenditure
30
1720
33
-
5
10
15
20
25
30
35
Total Capital allocation Donors
Share of allocations and donor support to the capital budget (%)
Budget
Off-budget
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 2- Role of Donor financing mainly through Off-budget routes (70%) On-budget donor support divided into two- AIA and revenue AIA= donor spends on behalf of beneficiary Revenue= spent directly by beneficiary- budget support Donor support is mainly through AIA (about 90%) Lack of confidence in government management
30%
70%
O n-budget donors
O ff-budget donors
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 2- Role of Donor financing AIA comes in two forms- Credit purchase and direct payment Credit purchase=goods/services acquired on behalf of beneficiary Direct Payment- donors make direct payment to suppliers AIA mainly through Credit purchase Lack of accountability on part of government
0
20
40
60
80
100
1998-99 1999-00 2000-01
PlannedActual
Share of Credit purchase in AIA
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 2- Role of Donor financing
Actual on budget realization has been low but now increasingActual donor expenditure as a share of planned (%)
0
5
10
15
20
25
30
35
1998/99 1999/2000 2000/2001
Sector Finance & Resource Flows for WSS in KenyaKampala, 2nd February 2004
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Key finding 2- Role of Donor financing: Implications Low donor funding low capital allocations Low MTEF Ceiling Low sector
investment Low FDI as donors leadership “lacking” Now easier to leverage even market resources with growing donor committments Off- budget resources:- • un-coordinated• May not be implemented within a DRA• Reflects lack of confidence in accountability and good management of the public sector• Problem- planning investment and projections