KMT Water Case Study

The Journey of Changing Water Services Delivery in Kenya

Water is an essential resource, and the strength of the sector has significant impacts on economic growth, health and quality of life. Key industries, including agriculture and energy, rely on water as an input, with 78% of jobs globally being dependent on water.

However, constraints that impair development are pressing, as climate change and population growth put ever more pressure on existing systems. Access to safe water and improved sanitation services are key pillars for Kenya’s development.

The Journey of Changing Water Services Delivery in Kenya | Market Systems Development

Inside this Case Study...

CHAPTER 1:
The importance of water for growth and poverty
  1. An effective water sector has the potential to increase growth and reduce poverty
  2. There is urgent action needed before quality water services can be provided in Kenya
CHAPTER 2:
Water service delivery in Kenya
  1. An overview of the water service delivery sub-sector in Kenya
  2. Governance structures are not adequately adopted at multiple levels
  3. Opportunities for change
  4. Summary of constraints and opportunities facing the water services delivery sub-sector
CHAPTER 3:
KMT’s approach to stimulating systemic change
  1. KMT’s vision for systemic change
  2. KMT’s approach to achieving this vision
  3. KMT’s activity in the sector
CHAPTER 4:
KMT’s approach to stimulating systemic change
  1. How improved inter-actor governance can encourage the private sector’s formal participation and improve service delivery
  2. Steps towards change
  3. Lessons learnt
  4. Future focus
CHAPTER 5:
WSPs improve the strength of their corporate governance and the efficiency of service delivery
  1. How processes and systems can improve management capacity, corporate governance and commercial incentives for better services
  2. Steps towards change
  3. Lessons learnt
  4. Future Focus
CHAPTER 6:
WSPs are targeting the poor as consumers and adopting new products to effectively reach them
  1. Why specific targeting of the poor is needed within urban areas
  2. Steps towards systemic change
  3. Lessons learnt
  4. Future focus
CHAPTER 7:
Financial institutions are creating products for the water sector, increasing access to finance
  1. The water sector is capital intensive, but access to finance is limited
  2. Steps towards change
  3. Lessons learnt
  4. Future focus
CHAPTER 8:
KMT’s impact
  1. KMT’s impact
CHAPTER 9:
Systemic pathways for a transformed water sector
  1. Systemic pathways for a transformed water sector

1: The Importance of Water For Growth and Poverty

An effective water sector has the potential to increase growth and reduce poverty

The case for working to strengthen the water sector is clear.

Across Sub-Saharan Africa, universal access to improved water and basic sanitation could lead to economic gains of USD 34.7 billion per year. The United Nations calculates a global benefit-cost ratio of 5.5x for improved sanitation and 2.0x for improved drinking water.

There is urgent action needed before quality water services can be provided in Kenya

Current access to water is low. Only 26% of the population are served by regulated providers, and the remaining 74% rely on small private operators, community-managed systems, or self-supply. These may be unfit for consumption, unsustainably sourced, and/or highly priced.

Water services are also pressured by population growth. Kenya’s population is set to rise by 27% to 60,470,000 people between 2019 and 2030. Providing access to all by 2030 will significantly increase water demand.

With Kenya already water scarce, this will require utilisation of 81% of the available water resources, from a current level of 14%. Significant investments are required. The government estimates KES 100 billion (USD981 million) is needed annually to meet this target. Current investments are way below this optimum level, at approximately KES 40 billion (USD 392 million) per year.

If the business-as-usual approach is maintained in the way water resources are managed, Kenyans will face a 30% gap between available freshwater supply and demand by the year 2030

2. Water Services Delivery in Kenya

An overview of the water service delivery sub-sector in Kenya

The water services delivery sub-sector has a number of players each taking on important roles in the sector. Current key actors include:

County governments, responsible for ensuring water access to all, alongside other functions.
Water Service Providers (WSPs), operate publicly owned infrastructure to provide water delivery services, generating fees from tariffs, new connections, and re-connections.

Key actors within the water sector

The current structure is based on numerous changes in the water sector, particularly since the enactment of the Water Act 2002. These have impacted governance and the potential for systemic change, and are summarised:

Governance structures are not adequately adopted at multiple levels

The evolution of the water service delivery sub-sector has created a clear framework for governance at multiple levels. However, the adoption of these structures is inadequate. Within weaker WSPs, corporate governance is informal with policies and structures that are non-existent or ineffectively implemented. Eventually this leads to a lack of incentives for WSPs and the delivery of low-quality services.

Governance structures are not adequately adopted at multiple levels

Constraints

Related opportunities

Poor governance

Governance to be strengthened within and between key stakeholders by supporting models that encourage the uptake of best practice at each level.

Operational inefficiencies

Introducing the right incentives through the introduction of data management systems can lead to better management decisions and strategic planning by WSPs.

Unregulated and underdeveloped rural water services

Through new regulations and guidelines in the rural sector, public actors can better engage with rural operators, providing greater oversight as well as supporting the strengthening of operators’ capacities.

Lack of diversified financing options and smarter use of existing sources

With better governance in place, new systems will enable actors to demonstrate credit worthiness. On the supply side, working with the financial sector will increase their ability to assess risk and effectively design and market products in the sector.

3: KMT’s Approach To Stimulating Systemic Change

KMT’s vision for systemic change

The water sector in Kenya has significant potential for systemic change. KMT selected the water services delivery sub-sector as a focus for intervention, with a vision for: “Provision of water to rural and urban consumers by professionally managed water service providers operating within a regulatory and governance framework that stimulates competition, better performance and innovation whilst ensuring affordable pricing and access to reliable, potable water for unserved and underserved consumers.”

KMT’s approach to achieving this vision

To achieve this vision, KMT has sought to take a market systems approach to the water services delivery sub-sector, focusing on context-driven solutions that can directly improve, or be complementary to, the existing system. This approach focuses on developing new models for working in the market, which when adopted stimulate behavioural changes within organisations. Successful models are taken to scale by increasing the uptake of models, with the aim of creating systemic change to the benefit of the poor.

KMT’s previous strategy, which was refreshed at the beginning of 2019, comprised of four interventions:

    1. Emergence and adoption of service delivery model for water utilities
    2. Addressing NRW management in water utilities
    3. Market-led approaches for expansion of services to low income consumer
    4. Business to business linkages for climate smart, ICT, green financing and technological innovation

KMT’s most recent strategy has two strategic intervention areas, divided between rural and urban contexts

These reflect the targeting of governance as a major constraint and impacts are already being seen. These strategic intervention areas are supported by specific interventions, outlined below:

RURAL: Stimulate The Adoption Of Service Delivery Models In Rural Water Management

  1. Support the operationalisation of regulation and management tools for rural water services.
  2. Partner with WSTF to develop financing and capacity-building for rural operators.
  3. Identify and support willing Counties and rural operators to professionalize service delivery.

URBAN: Accelerate Improved Performance Of Urban Water Service Providers

  1. Encourage adoption of performance enhancing measures and consumer-centric operations
  2. Influence improved governance
  3. Facilitate diversified sector financial options

KMT’s activity in the sector

KMT have been active in the water sector since 2012. During this time, they have piloted and scaled a number of interventions, each with the end goal of alleviating poverty. These focus on addressing both technical constraints as well as the underlying governance constraints, both of which have been vital to KMT’s work.

1. 2012

KMT completed market assessment of the water sector

2. 2013 - 2014

KMT begun working with former Water Service Boards and selected Counties.

County governments pilot KMT’s service delivery models in rural areas.

3. 2015

Equipment leasing financing model run with Kenya Commercial Bank Foundation

4. 2016

KMT introduced NRW techniques to WSPs and WASPA

WSPs pilot marketing strategies in low income areas

5. 2017

WSTF adopted rural water management toolkit

6. 2018

WASREB created national NRW guidance

WASREB’s pro-poor indicator is implemented nationally

7. 2019

WASREB, WASPA and WSPs all attend governance training

WASREB publish national rural guidelines based on KMT’s models

The broad systemic changes achieved by KMT

Within each section, the intermediate steps to achieving systemic change are explored, outlining the approaches taken by KMT and the significance of activities at each stage. These systemic changes are summarised below:

Public sector actors use Public-Private-Community-Partnerships to improve water services in underserved areas
  1. Introducing new models for the public sector to use to increase access to water in underserved areas
  2. Integrating new approaches into national actors’ operations to bring more formality to rural operations and additional support for underserved areas
WSPs improve the strength of their corporate governance and the efficiency of service delivery
  1. Implementation of technical improvements that reduce NRW, and capacity building that allows tracking of performance data
  2. Embedding private sector principles to strengthen corporate governance and increasing the performance of WSPs
  3. Engaging with national institutions to support the scale-up of performance improving techniques
WSPs are targeting the poor as consumers, and adopting new products to effectively reach them
  1. Stimulating the creation and implementation of marketing strategies and social connection policies that target the poor
  2. Engaging with WASREB to bring regulatory pressure to encourage the inclusion of the poorest
Financial institutions are creating products for the water sector, increasing access to finance
  1. Increasing small-scale finance for rural operations
  2. Strengthening the WSTF’s role in the sector

4: Public Sector 
Actors Use Public-Private-Community-Partnerships To Improve Water Services In Underserved Areas

How improved inter-actor governance can encourage the private sector’s formal participation and improve service delivery

At the start of KMT’s engagement in the water sector, interactions between public bodies and private operators were limited and ineffective, with no clear guidance on how relationships could be formed. Particularly in rural areas, this led to a confusing number of providers and a lack of incentives to improve performance. WUAs – voluntary community- led groups – encourage participation but lack the capacity to adequately manage assets or collect revenues. Small-scale private operators focus on maintaining supply, but often run outside the purview of the regulator and charge consumers high prices for water of unknown quality. Regulated WSPs do not see the business case for entering sparsely populated areas with revenues too low to justify investment. With expensive and low-quality services, the poor use alternative sources of water, leading to wasted time, poor health and economic losses.

Steps towards change
  1. Introducing new models for the public sector to use to increase access to water in underserved areas
  2. Integrating new approaches into national actors’ operations to bring more formality to rural operations and additional support for underserved areas
Lessons learnt
  1. The flexibility of the SDMs has led to context driven adoption and increased sustainability
  2. Increasing formality of operators within the sector will continue to improve governance and performance
  3. Improving the strength of contracts within the sector is the next step in forming relationships with private operators

5: WSPs Improve The Strength Of Their Corporate Governance and The Efficiency of Service Delivery

How processes and systems can improve management capacity, corporate governance and commercial incentives for better services

When WSPs rely on basic systems and processes, it is difficult to establish strong corporate governance or incentivise performance improvements. For example, in Tachasis sub-location, the local WSP started with zero water meters, and so could not know the amount of water produced, used or wasted. This meant they used only flat rates to bill customers and were unable to report reliable data to WASREB. This lack of information reduced accountability at the WSP and sector level, and services were of low quality.

KMT has worked to solve these issues by stimulating multiple changes in the market, which have ultimately strengthened performance and governance.

Steps towards change
  1. Implementation of technical improvements that reduce NRW, and capacity building that allows tracking of performance data
  2. Embedding private sector principles to strengthen corporate governance and increasing the performance of WSPs
  3. Engaging with national institutions to support the scale-up of performance-improving techniques
Lessons learnt
  1. To target governance, KMT first needed to tackle technical improvements
  2. Start-up capital is necessary to bring changes to WSPs
Future focus
  1. Continued strengthening of governance for sector wide performance improvements will require

6: WSPs Are Targeting The Poor As Consumers, And Adopting New Products To Effectively Reach

Why specific targeting of the poor is needed within urban areas

The urbanisation rate in Kenya is growing rapidly and 40% of this population live in registered low-income areas. The real number, however, is expected to be much higher given the challenges faced in mapping these. This population have much to gain from improved access to water, with services currently far below the standard seen in higher incomes areas.

KMT, through WSUP, worked with WSPs to create incentives for the provision of services to LIAs.

Steps towards change
  1. Stimulating the creation and implementation of marketing strategies and social connection policies that target the poor
  2. Engaging with WASREB to bring regulatory pressure to encourage the inclusion of the poorest
Lessons learnt
  1. The poor can be viable market for WSPs implementing pro-poor approaches
Future focus
  1. More infrastructure is needed before more WSPs report against WASREB’s pro-poor indicator
  2. Financing options for social connection policies need to be made available

7. Financial Institutions Are Creating Products For The Water Sector, Increasing Access To Finance

The water sector is capital intensive, but access to finance is limited

The water sector requires significant physical infrastructure to function efficiently. The high capital costs of infrastructure are a frequent constraint, with providers in both rural and urban areas lacking resources. Without being able to finance these investments, service providers are unable to bring infrastructure up to a level that allows for commercial viability, and so remain reliant upon external financing even for daily operations.

KMT’s work to formalise the way WSPs and rural operators work has strengthened both corporate governance and the capacity for data collection and reporting.

Steps towards change
  1. Increasing small-scale finance for rural operations
  2. Strengthening the WSTF’s role in the sector
Lessons learnt
  1. There is still a significant way to go before commercial finance is utilised by WSPs.
Future focus
  1. Attracting bond finance for the water sector

8. KMT’s Impact

Since 2011 there have been significant changes as a result of, and complementary to, the work completed by KMT and other implementing partners.

Between 2010 and 2018, the market has seen WSP turnover grow by 62%, and active connections by 55%. Recorded water loss has dropped from 47% to 41%, and the number of staff employed by WSPs has risen from 7,818 to 10,988.

Political support has translated to continued developments in sectoral governance and significant reforms, whilst government spending has risen from KES 38.6 billion between 2010/11 to KES 52.9 billion in 2018/2019.

From interventions in the water sector, KMT has contributed to these changes, and recently reported the following developmental impact:

Households

103,981 households accessing clean and safe drinking water.

Savings

USD 3.68 million in savings for the poor.

Investments

USD 8.21 million of investments mobilised, of which 81% is public and 19% private.

Performance

78 market actors engaged, with 64 recording improving performance.

9. Systemic Pathways For A Transformed Water Sector

Increasing the adoption of performance improving measures to achieve operational efficiency within WSPs

By implementing technical improvements, WSPs have demonstrated the ability to significantly improve operational efficiency. Whilst the sector is still relatively informal, continued work is required to support adoption of technologies and models, giving the tools to managers to be able to drive performance improvements. Players with the ability to effectively reach numerous WSPs will need to take a leading role, with WASPA, WASREB and financial institutions all with roles. WASPA will need to build its capacity as a key player for convening WSPs, sharing best practice and for acting as an advocate for WSP interests to WASREB. WASREB should continue to improve the guidance they give to WSPs.

Professionalisation of service provision and regulation in rural areas to increase quality and sustainability

KMT have designed and tested models that have increased the professionalism of services in rural areas. These have strengthened corporate governance within rural operators, integrated governance between the public and private sector, and sectoral governance by increasing the information available to institutional players.

Improving governance at each level

Proper governance is critical for sustainability. Good governance at all levels – from regional utilities to national water institutions – is the heartbeat of sustainable water services provision. To create this, stakeholders must target a variety of aspects, including: good supervision and oversight; stakeholder engagement; prudent financial management; integrity and accountability; robust performance management; information and control systems; good service standards and arms-length operating for WSPs. A continued focus on strengthening governance across the sector will be the foundation for future growth.

Increasing the variety of financial products available within the water sector

The variety of financial products available to actors in the water sector is very low, despite improving financial performance. The sector in Kenya remains dependent on tariffs and transfers for funding.

Using other countries as models, increasing the use of repayable finance through a variety of financial products available to the sector can bring development of the sector, resilience to shocks, and contribute to meeting the government’s targets for investment.

Ensuring future water resources are enough to satisfy increasing demand

Whilst access to water is increasing, there is growing pressure on resource management. In some cases, this is already critical.

For example, in Isiolo County, river flows have been consistent for the last seven years. After a major drought in 2010, two additional river intakes were proposed to provide an additional 6,000m3 per day and Wwrk was completed in 2016. However one source has now dried up, and the second can only be used for 2,250m3 a day. With demand at approximately 10,000m3, the WSP has a significant deficit to overcome, and it remains unknown if even the current extraction rate is sustainable.

The Journey of Changing Water Services Delivery in Kenya

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