1. FINANCIAL SUSTAINABILITY OF WSPs: Overcoming the Barriers Eng. PETER NJAGGAH WASREB, Kenya Innovative Water Sector financing.7 th – 12 th November 2011, Mombasa Kenya.

2. CONTENT  Definition of Financial sustainability  Barriers to Financial sustainability  Response to the Barriers  Conclusion

3. Financial Sustainability  Ability of a Utility to sustainably cover its O&M, Depreciation, and investments costs using  Internally generated resources ( Tariffs)  Externally generated resources( Taxes and Transfers)  Financial sustainability allows for the possibility of accessing different subsidies such as donor grants and below market rate loans as long as they are transparent and targeted and do not undermine the financial discipline of the company( Thelma Triche -2005).

4. 63% of WSPs within Very Large & Large Category achieve over 100% O&M cost recovery. Only 25% of Small WSPs fulfill the criteria for O&M cost recovery  This firmly establishes the case for clustering for commercial viability Viability of WSPs 0 20 40 60 80 63 55 25 Percentage of Viable WSPs(>100%) O&M cost recovery Very Large and Large Over 10,000 connections Medium 5000-9999 Small <5000

5. Bigest Barriers to Financial Sustainability  Operational inefficiency Barriers:  Large inefficient work force with conflicting roles,High NRW, Poor Customer Care, Low Collection Efficiency etc  Management barriers:  lack of business like culture, Poor Governance, poor leadership, poor organizational culture.  Tariff Structure Barriers; i.e. connection fees, erosion etc.  Lack of full cost Recovery Tariffs  Low economies of Scale.  Huge Unsustained debt burden.

6. RESPONSE TO BARRIERS FOR FINANCIAL SUSTAINABILITY  Policy level  Change board and management  Operational level  Long term plan; corporate plan and performance contracting  Short term strategies: shortterm turn around programme eg 100 RRI

7. OVERCOMING THE BARRIERS: Mitigating Operational Inefficiency.  Cost Containment –  Staff rightsizing:  Optimization of Administrative and Vehicle Maintenance costs.etc  Strict Appraisal of Capital projects.  Revenue Maximization.  Improved customer care and interface with customers: customer call centers, e-water payment system, prepaid water systems.  Amnesty for illegal users  Market size increase.  Operational Improvements  Reduction in NRW  Improve collection efficiency etc...

8. RESPONSE TO MANAGEMENT BARRIERS – Building An Efficient Organization 8  Customer focus & stakeholder engagement  Organisational culture change.  Adopting private sector like management principles of commercialization and use of Incentives & competition to drive performance  Developed MIS - improved communication, operations and feedback systems  Increased accountability and effective monitoring systems  Capacity building of staff.  Networking and benchmarking with peers for best practices.

9. RESPONSE TO TARIFF STRUCTURE BARRIERS 9 Tariff reforms –  Protected Tariff through an Annual Indexation: Tariff adjustment to ensure real value of Tariff maintained (indexation etc). This improved financial sustainability.  Easing access through review of one off connection and reconnection costs.  Rebalancing to ensure Different customer categories pay an economic price.  Eliminated Minimum charges

10. RESPONSE TO NON- FULL COST RECOVERY TARRIFS FUNDING OPTIONS:  Internally Generated Resources - For Minor Works and Flagship Investments  Direct Grants : For Social Mission and New Large works e.g. Sanitation, New Treatment facilities  Government Budget provisions: For Social Mission and New Facilities  Market Finance: Novel mechanism for Viable and emergency works  Output Based Aid: To serve the poor

11. RESPONSE TO LOW ECONOMIES OF SCALE  Growth in Customer Base  Review of connection charges.  Network expansion.  Economies of Scope  Provision of Consultancy Services?.  Production of Mineral Water?

12. RESPONSE TO HUGE DEBT BURDEN  Negotiated with Government to restructuring total debt and converted to equity.  OBJECTIVES:  Enable the WSPs access market Finance for critical and commercially viable projects.  Enable the WSPs build a history of profitability and credit worthiness with a healthy balance sheet.  Enable the WSPs finance from its internal resources key investments all aimed at expanding production and service coverage.  WSPs to undertake a Credit Rating to enhance their credit worthiness

13. conclusion  Financial Sustainability a prerequisite to improved and efficient service delivery.  improvement in utility efficiency and adoption of good commercial practices is a prerequisite to ensuring sustainable financing from both public and market finance.  Financial sustainability hinges upon the need for Cocktail funding corresponding to the nature of investment.  Social Mission Investments should be financed by Grants.  Viable investments may opt for market finance.  WSPs are challenged to move a step further to achieving bankability premised on the 3 C’s namely;  Cash flow,  Character (Debt history)  Collateral (Ungeared balance sheet).

14. THANK YOU FOR YOUR ATTENTION 14