Mobilizing Market Based Repayable Finance Financing Water Companies

WATER COMPANIES OVEVIEW  In Kenya, there are 62 water service providers (WSPs) contracted with the provision of water to the residents. In this regard, with a population approaching 40 million, a lot of water is required to meet this need  In order to sufficiently meet this requirement, the WSPs have to improve on their provision and collection of revenue to the residents.

BACKGROUND INFORMATION  The nature of WSPs in the eyes of commercial financiers is unique due to the following:  The WSPs lack the traditional forms of security usually taken  WSPs being a service industry will need a lot of professionalism in the management of this key resource. As the saying goes, ‘Water is Life’  The management of the Water Companies is usually 3 fold, with the Board and the Regulators playing an important role

CHALLENGES  Lack of traditional security structure  Poor collection of water payments  Lost water due to poor piping and leakages  Inadequate provision of water to the consumers  Political interference, since most water companies are still under the control of the local authorities

Key Areas of Focus  The water sector as is well known is managed by the Boards and the WSPs. The borrower is usually the WSPs. The Board is championed with the larger projects for the water companies such as the dams and other large infrastructure, whereas the WSPs are charged with the responsibility of connectivity.  The more connectivity, the more the revenues collected. From this revenues, then the Financiers can look at ways of providing the finance required.

OFFERING FINANCE  The nature of the water companies is that of collection.  Due to this, they need to have mechanisms in place to make sure that all their revenues are collected in a timely manner.  As mentioned above, the lack of the traditional security gives the financial sector a challenge in offering the normal loans to the water companies.  As a result, other methodologies will need to be relied upon.

MOBILIZING FINANCE FROM THE BANKS  Financing for WSPs is best based on the collections of the water companies, the financial institutions can structure a repayment plan according to the collection.  The Government seeks to have the WSPs become autonomous in order for them and the Water services boards to have sufficient revenue to meet their costs and at the same time make them sufficiently viable to attract external financing for infrastructure development.

HOW TO MOBILIZE FINANCING  The facilities advanced will be mostly for infrastructure expansion, such as increasing the connectivity through piping, improving the sanitation, providing vehciles for empowering those collecting etc.  Based on their monthly collection therefore, the WSPs can be advanced facilities which will then require the opening and operating of 3 main accounts  This will be:

HOW TO MOBILIZE FINANCING cont…  Main operating account – this will be used for operational purposes such as making payments for salaries, bills, and other contractual payments  The receiving account whereby all collections are banked  The lien account, whereby on a daily/weekly basis, some amount is banked that will be built up for purposes of servicing the loan instalment.

HOW TO MOBILIZE FINANCING cont…  With this structure in place, then the WSPs can comfortably set aside the money required to service the principal and interest instalment for the loan advanced and at the same time have some money for their operations.  The key thing would be for the company to ensure that its collections are always done promptly in order to avoid the debt going bad.

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