sector finance and resource flows for water supply in kenya john ondari consultant water and...

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


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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


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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


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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.


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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


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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


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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


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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%)


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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


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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


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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


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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


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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


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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


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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


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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


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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

sector finance and resource flows for water supply in kenya john ondari consultant water and...

Documents

sector finance resource

disincentives n

autonomy n

development n

illegal n

n difficulties

user charges n pssps

kenya kampala