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Financing Water Supply and Sanitation in Uganda

VIEWS: 18 PAGES: 21

									Financing Water Supply and Sanitation
                  in Uganda


   Opportunities for Private Sector Participation




                   August 2008
                                          Table of Contents
Executive Summary.......................................................................................................... 2
1.0       Background.......................................................................................................... 4
1.0       Background.......................................................................................................... 4
2.0       Context................................................................................................................ 6
3.0       Key Financing Issues ............................................................................................ 8
   3.1       Financing Trends............................................................................................ 10
   3.2       Urban Water Supply........................................................................................ 14
   3.3       Sewerage Services ........................................................................................... 14
   3.4       Rural Sub-Sector Financing ............................................................................. 16
   3.5       Operation and maintenance costs .................................................................... 18
   3.6       Rural Sanitation Investment ............................................................................ 18
4.0       Policy Gaps and Options .................................................................................... 19
   4.1       Policy Gaps .................................................................................................... 19
   4.2       Policy Options to address Gaps....................................................................... 19




           Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation                      1
                                            Executive Summary

In April 1999 Government directed the Ministry of Water Lands and Environment, to
design a Water and Sanitation Sector Reform Strategy. The primary goal of the water sector
reform was geared towards the provision of water and sanitation services in a cost-effective,
efficient, equitable and sustainable manner.

The Ministry, through the Directorate of Water Development as the lead Government
Agency for Water Sector and in consultation with Line Ministries, local governments and
Development Partners undertook water sector reform studies under four components
comprising of (i) Rural Water Supply and Sanitation, (ii) Urban Water Supply and Sanitation,
(iii) Water for Production, and (iv) Water Resources Management.

This paper presents an analysis of financing water supply and sanitation in Uganda,
specifically for rural and urban water supply and sanitation, and shows that the sector is
heavily dependant on public sector financing through government, bi-lateral and multilateral
development partners (grants and loans), community contributions to investment costs, an
internally generated funds (i.e. revenue from water sales and provision of sewerage facilities)
and NGOs.

Investments in the water sector are financed through a number of mechanisms and
modalities. The main stream financing is through the Joint Partnership Fund (JPF) under the
Joint Water Supply and Sanitation Programme Support (JWSSPS). This is a pool fund
mechanism where major donors and government have established a common programme
and pool resources for the purpose. This type of financing is what is commonly referred to
as “On-Budget” funding and is tracked closely by the Ministry of Finance Planning and
Economic Development to ensure compliance with sector ceilings (funding levels set by the
MFP&ED which the sector should not exceed - for purposes of macro-economic stability).
The most significant concern is that sector ceilings do not directly take into account MDGs
and sector targets as clearly the purpose is to control inflation. This means that inevitably
different sources and forms of financing will be required if set targets are to be met.

A summary of the water and sanitation sector budget allocation trend from financial year
2004/05 to 2008/09 shows that allocations to the sector are on a downward trend, especially
for the urban sub-sector.

It is established from the analysis in this paper that budget allocations to the water sector are
on a downward trend and given the increasing population pressure, it may not be possible to
meet the MDGs and GoU targets. The table below shows the trend derived from the
analysis and indicates a drop from Ug. Shs. 157.75 Bn. (US $ 98.6 million) to Ug. Shs. 106.31
Bn. (US $ 66 million)


FY                      2004/05             2005/6                2006/7                2007/8              2008/9
UGX (Billion)            157.75               156.4                142.86                112.1              106.31
US $ (Million)            98.6                 97.7                   89                   70                 66


         Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation            2
Ideally this shows a business potential for private sector of equal opportunities at the
planned minimum investment projections however the projections were based on universal
access which implies even wider opportunities.

                                       180,000

                                       160,000

                                       140,000

                                       120,000
             UShs (Millions)


                                       100,000

                                        80,000

                                        60,000

                                        40,000

                                        20,000

                                           -
                                                  2004/05   2005/06   2006/07    2007/08     2008/09
                               Inst. Devt (SPS)    9,396     7,212     2,972      7,188       5,160
                               WfP                 4,762     3,400     6,547      13,350      9,310
                               WRM                 6,786     3,275     6,472      10,045      4,526
                               Urban              88,640    110,055   84,642      30,875      33,870
                               Rural              53,102    34,785    49,944      62,443      53,440
                               Gen (Recurrent)     1,347     1,793     2,350      3,100




       Water and Sanitation Sector Allocation Budget Trend 2004/5 to 2008/9


Budgeted amounts have tended to vary from actual expenditure and in many instances
delayed disbursement have constrained performance (WSP Report; Getting Africa to Meet
the MDGs on Water and Sanitation, 2006). In addition to this, distribution of disbursed
resources is not equitable (MW&E; Water Sector Performance Report, 2006). From the
figure presented by the chart, it is the urban areas that have experienced the largest budget
shortfall, and yet these are the areas where the government plans to see a sustainable water
supply sector financed by users.

The paper recommends policy review to provide for a predictable investment environment
for private capital injection into the sector and effective regulation for sustainable and
affordable access to clean, safe water and sanitation. The basic policy principles for this
review are already contained in the current water policy framework.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   3
1.0    Background

This paper is part of the outcomes of the Uganda Water and Sanitation Dialogues, which
undertook to examine the controversy surrounding private sector participation in water
supply and sanitation. A desk study was carried out as part of the Water Dialogues process
and the report recommended further examination of specific areas on financing. What
follows is a synopsis of the background to reforms in the water sector that led to the
financing situation being assessed in this paper.

In April 1999 Government directed the Ministry of Water Lands and Environment, to
design a Water and Sanitation Sector Reform Strategy. The primary goal of the water sector
reform was geared towards the provision of water and sanitation services in a cost-effective,
efficient, equitable and sustainable manner, with Government limiting its role to that of
policy maker, facilitator and regulator and the private sector to undertake service delivery.
Government and development partners, through the Sector-Wide Approach (SWAP), would
agree on a strategy to achieve improvement in sector performance, increased resource flows,
more effective use of resources through agreed programmes

The Ministry, through the Directorate of Water Development as the lead Government
Agency for Water Sector and in consultation with Line Ministries, local governments and
Development Partners undertook water sector reform studies under four components
comprising of (i) Rural Water Supply and Sanitation, (ii) Urban Water Supply and Sanitation,
(iii) Water for Production, and (iv) Water Resources Management. The Rural and Urban
Water Supply and Sanitation Sub-sector studies have been completed.

The Urban Water Supply and Sanitation reform Component study was undertaken from
September 1999 to December 2000. Urban Water and Sanitation Sub-sector in Uganda has
been defined under the Reform to include all towns with population above 5,000 people and
gazetted town Councils.

At present, 151 centres have been identified to comprise the urban sub-sector. Of these, 44
towns have populations exceeding 15,000 people and comprise of a population of
approximately 2.81 million people based on provisional 2002 census figures. The remaining
107 small towns comprise an urban core with dispersed surrounding settlements with a total
population of approximately 860,000 people. Therefore the total population is about 3.67
million based on provisional 2002 census figures

In Rural Water Supply and Sanitation, many agencies and organisations have been
involved in sector development efforts, including the Line Ministries and Local
Governments, donors, Non-Governmental Organizations (NGOs), community-based
organizations, and communities. With support from development partners, including
Sida, the GoU has been able to increase access to safe rural water supply from18%
(1990), 47% (1999) to 63% by 2006/7 and access to Sanitary excreta disposal (using pit
latrines as index) has also increased to 59% by the year 2006/7 (MW&E; Sector
Performance Report, 2007). The programmes have contributed to institutional
development and capacity building processes at community, local and central
government levels in areas of ownership and maintenance of facilities, decentralized


        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   4
planning and implementation, use of private sector for implementation, advocacy for
political commitment, resource mobilization and sanitation promotion, and improved
accountability.

Water and Sanitation are given high planning priority under the Poverty Eradication Action
Plan, 2004, however, both government and donor financing fall below the requirements
necessary to deliver on MDGs and PEAP targets.
Further, budgeted amounts have tended to vary from actual expenditure and in many
instances delayed disbursement have constrained performance (WSP Report; Getting Africa
to Meet the MDGs on Water and Sanitation, 2006). In addition to this, distribution of
disbursed resources is not equitable (MW&E; Water Sector Performance Report, 2006).
Financing is largely a shared responsibility of government and its development partners
while investment is implemented by public institutions; Directorate of Water Development
of the Ministry of Water & Environment for Small Towns and Rural areas, and National
Water & Sewerage Corporation in large towns.

The water and sanitation sector has three main sources of funding, Government funding
(from the Treasury), Donor funding (loans and grants), and internally generated funds
(specifically referring to revenue generated by the provision of water and sewerage facilities).
Donor funding is disbursed through the following mechanisms;
   •   General budget support, which provides government with the maximum flexibility in
       allocating resources according to GoU strategic objectives and priorities
   •   Budget support earmarked to the Poverty Action Fund – mutually agreed upon
       between Government and donors, taking into account aggregate expenditure ceilings
   •   Sector budget support (also called basket funding) – donor funds pooled together as
       “Joint Partnership fund” to implement agreed activities in an attempt to reduce
       transaction costs and simplify reporting procedures
   •   Project aid – addresses particular cases, e.g. large urban water project.
NGOs and CBOs make a substantial contribution to financing and investment in the water
and sanitation sector, totaling approximately 30% of the total sector investment (MW&E,
Sector Performance Report, 2007). Although this is a major contribution, the structure and
conditions for access and/or disbursement are not elaborated. (UWASNET, Experiences of
Water and Sanitation sector NGOs and CBOs in Uganda, 2005).

From this background, it is only the private sector whose contribution is not clearly
isolated and quantified. It is the responsibility of the private sector providers to highlight
their contribution and role in the sector. In the subsequent chapters analysis is provided
for the different areas where this can be undertaken.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   5
2.0    Context

Poverty eradication is a fundamental objective of Uganda’s development strategy for the
next two decades, wherein government has resolved to reduce the proportion of the
population living in absolute poverty to 10% [from 56%(1992) to 44%(1997)] and in relative
poverty to 30% by the year 2017.Government prepared a Poverty Eradication Action Plan
(PEAP) in1997 (revised 2000 and 2004) as a guiding framework for the achievement of
poverty eradication. It adopts a multi-sectoral approach, recognising the multi-dimensional
nature of poverty and the inter-linkages between the influencing factors. Within the context
of continuing macro-economic stability and broad-based economic growth, it aims to
promote the following;

          Creating a framework for economic growth and structural transformation,
          Ensuring good governance and security,
          Directly increasing the ability of the poor to raise their incomes,
          Directly increasing the quality of life of the poor.

Provision of water supply and adequate sanitation has been included under the PEAP as
these contribute to the improvement of the quality of life to the poor.

The Uganda population is currently estimated at 22 million, of which only 13% live in the
urban areas and the rest (87%) live in rural areas sub-divided into Rural Growth Centers
(1500-5000 people) and scattered homesteads (< 1500 people).

Water is a key strategic resource, vital for sustaining life, promoting development and
maintaining the environment. Access to clean and safe water and improved sanitation
facilities and practices lead to improved health and are essential investments in human
capital. The GoU with support from development partners has been able to increase access
to safe rural water supply from18% (1990), 47% (1999) to 63% by 2006/7 and access to
sanitary excreta disposal has also increased to about 59% by 2006/7, which still remains low.

Delivery of social services including water is provided in consistence with the decentralised
system of government. The Ministry of Water and Environment is therefore not directly
involved in management and operations, although to a large extent, investments are still
carried out by the ministry. The Ministry’s structure provides for two directorates, one for
water resources management and the other water development, under which are two
departments viz Rural Water and Sanitation, and Urban Water Department.

In urban areas, service provision is delegated to urban councils and operation and
maintenance contracted to private operators, while in rural areas water users committees are
provided for this purpose. The flow of funds for the water sector largely follows these
structures with water services conditional grants being channelled directly to districts, while
major investments are undertaken through the Directorate for Water Development.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   6
This paper examines financing needs for the two broad categories of rural and urban water
and sanitation supply, with urban areas broken down into large and small towns, where large
towns are managed by the National Water and Sewerage Corporation and small towns by an
array of private operators under management contracts. National Water & Sewerage
Corporation is currently in charge of 22 towns and while operating on private sector
principles remains a public utility corporation.

In small towns, infrastructure is owned by the public sector through the government and
managed by private operators. Investments are undertaken by public funds, appropriated
through the national budget and Development Partners’ support. In this regard, it can be
concluded that financing investments for urban water supply is a monopoly of the public
sector irrespective of whether it is in small towns or large ones. In both cases however, users
meet operation, management and maintenance costs through user fees.

This paper establishes that financing from the public sector is progressively reducing with an
increasing gap between projected and actual investments. This makes a case for policy
review to attract other forms and sources of financing more specifically from the private
sector.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   7
3.0 Key Financing Issues
Major reforms in the sector were guided by the Water Sector Reform Strategies and
Investment plans for the four components namely; Water Resources Management, Rural
Water and Sanitation, Urban Water and Sanitation and Water for Production. These
investment plans have not yet been reviewed and therefore remain the framework for
investment and financing in the sector.
Other considerations for requirements in the water services in Uganda are guided by the key
sector goals, which are:
   a) “To promote coordinated, integrated and sustainable water resources
      management to ensure conservation of water resources and provision of
      water for all social and economic activities.”

   b) “Sustainable, adequate and safe water supply and sanitation facilities
      within easy reach of 80% of the urban population by 2005 and 100% by
      2015.

 The key government policies impacting on financing in the sub-sectors are:

   (a)    Water is to be regarded as both a social and economic good. This implies that
          attempts are made to balance between the social imperatives of facilitating
          affordable access to safe water supplies necessary to maintain health and the
          economic imperatives of ensuring the resources are used efficiently (not wastefully)
          and that investments are sustainable.

   (b)    The government stated objective of ensuring universal access to safe water supplies
          (100% coverage) by the year 2015. This statement of intent has been used as the
          basis for assessing investment needs.

   (c)    The government wishes to achieve a financially self-sustaining urban water sub-
          sector, which is not reliant on subsidies from government.

   (d)    It is government’s policy to seek PSP in service provision with the view to
          increasing service efficiencies and revenues, thus decreasing the burden on limited
          government resources for O&M but instead concentrate on developing new
          facilities for the un-served urban and rural population especially the poor.

   (e)    Ensuring that access to water is affordable, through a mix of operation and
          maintenance approaches for both urban and rural areas.

   (f)    Subsidies, where inevitable should be targeted and transparent

Evaluation of the policy elements above implies a strategic relationship between the public
and private sector. A financially self sustaining urban water sub-sector can only remain
robust where consumers and users pay for services.



         Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   8
Ideally it ceases to matter whether provider is public or private if the principle is effectively
pursued to ensure efficient and affordable services.

However, while these principles do not exclude the private sector from investment, by
specifying that the public sector retains the role of establishing new facilities for un-served
areas, it is an indication that the public sector does not consider this a role where the private
sector can effectively participate. It is these policy principles that require review especially
given the strain on public resources.

In order to realise socio-economic imperatives of water, achieve universal access and create a
sustainable water and sanitation sector, there must be a clear definition of roles and
responsibilities for the public and private sectors. This definition should not be limited to
‘down-stream-up-stream” categorization of investment for the public and O&M for the
private sector. The re-definition sought should categorize these roles form investment to
O&M, thus creating a predictable environment from which the private sector would identify
and take advantage of available opportunities.

The next section discusses financing trends and shows the level of shortfalls in both
investment and O&M that warrant a review of policy & legal instruments to expressly and
clearly provide sufficient ground for investment by the private sector.




         Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   9
3.1 Financing Trends
Investments in the water sector are financed through a number of mechanisms and
modalities. The main stream financing is through the Joint Partnership Fund (JPF) under the
Joint Water Supply and Sanitation Programme Support (JWSSPS). This is a pool fund
mechanism where major donors and government have established a common programme
and pool resources for the purpose. This type of financing is what is commonly referred to
as “On-Budget” funding and is tracked closely by the Ministry of Finance Planning and
Economic Development to ensure compliance with sector ceilings (funding levels set by the
MFP&ED which the sector should not exceed - for purposes of macro-economic stability).
The most significant concern is that sector ceilings do not directly take into account MDGs
and sector targets as clearly the purpose is to control inflation. This means that inevitably
different sources and forms of financing will be required if set targets are to be met.


In addition to on-budget financing other forms of financing include specific project support,
investments by NGOs and international aid agencies. This kind of financing is referred to as
“Off-Budget” and is not in favour with the MFP&ED because in effect it inadvertently
introduces resources in the sector over and above the “golden” ceiling. The level of
financing volumes and trends under off-budget mechanisms cannot accurately be
ascertained as the agencies responsible do not necessarily report to the sector through the
annual performance review forum and no other common reporting framework is available
for the purpose.


Through management contracts for small towns’ water supply, private operators are
expected to pre-finance operations and maintenance, which is ideally supposed to be paid
with a margin as monthly management fees, and recoverable through user fees or tariffs.
The national sum total of user fees thus represents the users contribution to water supply
and sanitation, however this amount has not been established by the existing authoritative
reports reviewed. This seems to be the weakest areas in terms of information capture and
processing for reference. In order for the private sector contribution to be recognized and
strategically planned, it will be necessary to reflect more on information generation and
advocacy. The information available for meaningful analysis in the sector therefore largely
reflects public sector financing and NGOs that report through Uganda Water and Sanitation
NGO Network (UWASNET).


In consideration of the above scenarios and data available on public sector spending,
development partners’ support and NGO investments the sector still has shortfalls with
respect to meeting set targets. The following bar chart below shows sector allocation of
funds to the Ministry of Water and Environment for the past five financial years (FY
2004/2005, FY 2005/06, FY2006/07, FY 2007/08 FY, 2008/09). It is important to note
that this allocation covers all Ministry expenditure including institutional development and
the general recurrent budget. Some donor funding however comes in the form of off-budget
or project support and in not reflected in the figures presented by this diagram.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   10
                           Budget Allocation Trends to the Ministry of Water & Environment

                         200,000

                                                                                        GoU        Donor

                         150,000
     Budget (UGX '000)




                                                            97,692             80,574
                         100,000         109,909                                                  20,520
                                                                                                                     21,630



                          50,000                                                                  91,580             84,676
                                                            58,680             62,284
                                          46,844

                                 0
                                         2004/05            2005/06           2006/07            2007/08            2008/09



As earlier noted, population growth trends show an increase of about 3% per annum
(UBOS, Population Census Report, 2002. Given the down ward trend in budget allocation
to the water sector and the increasing population pressure, it may not be possible to meet
the MDGs and GoU targets. From the above bar chart it is evident that total budget
allocation to the Ministry of Water and Environment has consistently dropped. The table
below shows the trend derived from the graph above and indicates a drop from Ug. Shs.
157.75 Bn. (US $ 98.6 million) to Ug. Shs. 106.31 Bn. (US $ 66 million)


FY                                       2004/05             2005/6                2006/7                2007/8              2008/9
UGX (Billion)                             157.75               156.4                142.86                112.1              106.31
US $ (Million)                             98.6                 97.7                   89                   70                 66


There is no indication that this trend will be reversed in the medium to long term given that
government commitments to Universal Primary Education introduced in 2001 and
Secondary Education 2006 are placing an increasing burden on social sector spending.




                          Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation            11
                                               Distribution Sector Budget by Components
                                    180,000

                                    160,000

                                    140,000

                                    120,000
   UShs (Millions)



                                    100,000

                                      80,000

                                      60,000

                                      40,000

                                      20,000

                                           -
                                                      2004/05         2005/06        2006/07         2007/08            2008/09
                           Inst. Devt (SPS)             9,396           7,212          2,972           7,188             5,160
                           WfP                          4,762           3,400          6,547          13,350             9,310
                           WRM                          6,786           3,275          6,472          10,045             4,526
                           Urban                       88,640         110,055          84,642         30,875            33,870
                           Rural                       53,102          34,785          49,944         62,443            53,440
                           Gen (Recurrent)              1,347           1,793          2,350           3,100




The break down of funds provided for the different components is shown in the bar chart
above. Evidence from the data presented in the chart shows that while budget allocation to
the sector has progressively reduced over time by over Shs. 60 billion (US $ 3.75 million)
from FY 2004/5 to 2008/9, the proportion provided to the urban sub-sector is the most
affected with a reduction of over Shs. 77 billion (US $ 4.8 million) over the same period.
This is against the background that urban population trends in Uganda are even higher than
national growth rates. The paper on informal service providers (Uganda Water & Sanitation
Water Dialogues, 2008; Ganesh etal) establishes that a substantial market of un-served
pockets in peri-urban areas of large towns and small towns are in need of quality affordable
service as they pay more in the current circumstances.

It is in these emerging and growing urban areas that private operators have been engaged for
operation and maintenance since 2001. This makes it logical re-think private sector roles in
these areas especially since they have consumers who are already accustomed to user fees
and management through private operations. The gap created by public sector short falls can
potentially be plugged by private sector financing given an appropriate policy and regulatory
framework. In this respect it becomes necessary to carry out a resource tracking in order to
establish investment and cost elements that have been affected and conduct feasibility
analyses for injection of private sector capital in urban water supply and sanitation.


                     Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation             12
Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   13
3.2 Urban Water Supply
The total capital expenditure to meet MDG targets over a twelve year period to 2015 was
estimated by the Urban Reform Strategy and Investment Plan 2003 to be US $ 380 million,
including cost for expansion and rehabilitation. The investment needed up to the year 2015
is dependent on population, level of service and investment efficiencies with average annual
capital expenditure for the base scenario estimated at about $30 million.

In urban sub-sector reform strategy and investment plan, computation of investment
requirements for water supply was based on the following considerations:

        A basic service to provide piped water to 80% of the urban population with the
         remaining 20% being served by point sources. (40% private connection and 40%
         public stand posts).

        Demand consumption based on the following service levels:
          People per connection                                   15
          Monthly consumption per private connection              2m3/month
          Daily per Capita Consumption (private connection)       27 l/c/d
          People per public standpipe                             200
          Daily consumption per capita (public standpipe)         10 l/c/d

   •   A population growth rate of 5-6% was assumed suggesting an increase from 3.67
       million people in 2002 to 6.92 million in 2015.

These considerations and criteria were a fair projection as they remain largely valid in the
current circumstances however, as seen from the general financing analysis in 3.1, it is not
possible for the public sector to disburse funds at the levels anticipated at the time of
designing the strategy and investment plan. The necessary changes for private sector
investment will not, however, come entirely from the government and it is important that all
stakeholders recognise this and engage with government for a review of the policy
framework and investment plans.


3.3 Sewerage Services
Sewerage services in large urban areas are provided by National Water and Sewerage
Corporation while general sanitation is the mandate of local urban councils. Investment
needs in sanitation are therefore limited to sewerage services in the towns and do not cover
general sanitation.

The basis for sewerage investment needs assessment in the sector is based on the following
assumptions;
            A basic service is assumed to cover 18% of private water connections and for
               non- domestic water connections it will cover 25%.

                Effluent discharge is assumed to be based on following service levels:
                 People per private connection                 -              6


        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   14
                 Monthly discharge per private connections -                                        20m3/month
                 Monthly discharge per non-domestic connection
                 Large towns                                                                        60m3/month
                 Medium and Small towns                                                             30m3/month

                Piped sewerage is not envisaged in Small Towns up to the year 2010 and
                 currently small towns do not have piped water systems.

In the absence of clear and accurate documentation of general sanitation needs, it is difficult
to project levels of investment and shortfalls. Currently the national framework for
sanitation improvement is contained in the Improved Sanitation and Hygiene Financing
Strategy, 2006. The strategy recognizes private sector roles for sanitation service delivery.
Accordingly all the funding projected for strategy implementation is ear marked for activities
that promote market based interventions such as sanitation marketing tools, training of
masons and promotional activities for these interventions

The demand for sewerage/sanitation services in urban areas is on the increase and is
largely being met by the private sector through household septic tanks, garbage collection
and disposal e.t.c. The public sector is positioned to play the role of promoter and the
private sector as provider. Sanitation service provision provides a viable opportunity
especially if the private sector strategically invests reasonable resources in research and
development for new affordable technology solutions and products.




        Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation     15
3.4       Rural Sub-Sector Financing

Coverage in 1991 was 18.4%, increased to 49.6% in 2000 and is currently estimated at
63% assuming 100% functionality, however considering that not all water points are
functional, the coverage based on functionality is calculated at 53.1% (MW&E, Uganda
Water and Sanitation Sector Performance Report, 2007). Districts rural water supply
investment plans were projected on the principal of SOME FOR ALL and NOT MORE
FOR SOME and each district is allowed to progressively increase her present coverage to the
95% coverage by 2015. Support from the Development partners/Donors is expected to
enable Uganda meet her target of providing water and sanitation services to 65% of the rural
population by year 2005 and eventually to 95-100% coverage by year 2015.

Donor and Government Funds invested in the sector currently amount to approximately
$33m annually. Investments through these programmes are largely targeted for the five
Priority Programme Areas, which include rural water and sanitation sub-sector and are
estimated at approximately $ 5.1 million per year. Thus the total capital investment in the
rural water and sanitation sector is currently about $38 million annually. Using the data
provided in the table below, average investment required to meet the MDGs for rural water
supply is calculate at $63.7million giving a financing gap of $25.7 million. Table 2 below
provides the physical and investment milestones proposed to be met under each phase over
the years.

                Summary of RWSS Investment Plan- 95-100% coverage by 2015
                                  Investment cost, $ million             Total
                                  2000– 2005 2006 –2010 2011 –2015
      Rehabilitation Investment           14.5             1.0      1.1        16.5
      Point Source Investment            112.8           146.6    208.5      467.9
      Valley Dams Investment               5.3             6.4      8.6        20.2
      Other Systems(rainwater)             6.3             7.9     10.8        25.0
      Gravity Flow Schemes                13.6             2.5        -        16.2
      Piped Water (RGCs)                  69.2            67.8     78.6      215.7
      Sanitation Investment               10.5             2.8      3.9        16.2
      District Sanitation support          7.3             2.0      2.0        11.3
      District Monitoring                  6.7             7.0      9.2        22.8
      Total District WSS Prog.           244.2           246.6    325.6      820.4
      National Prog. Support                63            40.1     32.1      135.2
      Total                              307.2          286.7     357.7      955.6




          Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   16
Interventions in rural areas may differ but the needs for access to clean and safe water are
the same as those in urban areas. Innovative approaches to providing for investment in
hardware can spur private sector provision through the open market, as opposed to public
customers (Government, NGOs and aid Agencies), to supplement current efforts by the
public sector. This however can only work where public resources do not directly undermine
private capital investments and operations.

Further analysis of the sub-sector investment shows that while funds allocated to the
districts under the District Water & Sanitation Conditional Grants (DWSCG) have been
increasing, the per capita cost per new person served has also gone up. This interpretation
means that the number of new people served does not increase proportionately with the
increase in investment, and as noted earlier indicates that the level of resources needed to
meet the MDG targets has to be increased in excess of the population growth rates and
percentage increment in per capita costs.
Generally, however

The table below shows expenditure and proportion of resources spent on facilities for water
in rural areas.

    Expenditure & Proportion of resources spent on facilities for water in rural areas

Item                                         2002/3            2003/4          2004/5           2005/6         2006/7
Total Budget                                24,481,861        25,420,325      27,986,786       27,736,116     40,502,835
Released                                    24,127,033        25,300,352      27,856,204       27,601,535     40,520,000
% Released                                     98.55%            99.53%          99.53%           99.51%         99.96%
Total Expenditure                           22,070,381        24,159,847      26,955,596       25,063,792     36,620,551
% of Grant spent                                  91%               95%             97%              91%            90%
Water Facilities Expenditure                17,863,082        19,285,938      21,085,955       19,065,920     25,760,751
% spent on Water Facilities                       81%               80%             78%              76%            70%
Expenditure on springs, boreholes,
shallow wells RWH, GFS                      16,117,149        17,557,125      17,861,996       14,840,715     20,802,846
% of Grant spent on springs,
boreholes, shallow wells RWH, GFS                  73%              73%              66%              59%          57%
No of people served                             895,498          742,942          743,817          607,738      643,826
Cost per new person served (Based
on total expenditure)                             24,646           32,519          36,240            41,241      56,880
Cost per new person served (Based
on springs, boreholes, SW, RWH)                   16,205           21,197          21,858            22,321      27,101

From the data in the table above, it can be observed that the net periodic grant directly spent
on water provision facilities in the rural sub sector is proportionately on decline form 73% in
2002/3 through to 57% in 2006/7. Similarly the total and net cost per new person served
has consistently risen from UGX 24, 646= & 16,205 in 2002/3 through to 56,880= &
27,101 in 2006/7 respectively. This means the utility value of investment is decreasing with
time, providing evidence that at the current rate of investment, it may not be possible to met
sector targets as anticipated in the Sector Investment Plans and MDGs.




         Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation         17
The need for improving effectiveness of investment and financing on the part of the public
sector cannot be overlooked. This may require a review of the core functions of the public
sector against roles that could be played by other stakeholders. In addition, almost all
financing in rural areas is for hardware provision, which leaves operation and maintenance in
the hands of the communities. To enable sustainable management of these water sources, it
is important to generate some revenue for the purpose and this introduces the role of user
fees.

It is important to recognize that water harvesting facilities at household level are largely self
provided bringing to light the role of the private sector in servicing the demand available for
such products and services. This role has not been substantially examined despite the reality
that government, development partners and NGO funding is not going to be sufficient to
achieve the set targets and sector goals

3.5 Operation and maintenance costs
The principles of the Community Based Maintenance System (CBMS) are generally clear and
have been adopted. Thus For rural water supplies:
         • Users are in principle responsible for operation and maintenance of facilities,
         • The private sector in principle provides all technical services for operation and
              maintenance – including the provision and distribution of spare parts,
         • The role of Government and local Authorities is mainly to monitor, regulate
              and facilitate the performance of the private sector and user communities in
              operation and maintenance.
         • Government/Local Authorities, NGO’s/CBO’s provide Backup support to
              O&M.
While this is functional in principle, the funds for procurement of spares and maintenance
are provided from the public sector budget. Availability of sufficient budget allocations from
the public sector for water supply has been demonstrated from the investment analysis
above to be unsustainable.

3.6   Rural Sanitation Investment

Rural Water Sector component investment estimates are limited to support of communal
sanitation facilities in Rural Growth Centers. Largely however, rural sanitation is presented in
the sector as a household responsibility, except that for schools which is placed on
institutions, through funding form the Ministry of Education and Sports.

The Ministry of Health, through its Environmental Health Department takes care of the
policy aspects of hygiene at the national level, though without budget lines for investment in
sanitation facilities. The department’s core role is public awareness through IEC.




         Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   18
4.0 Policy Gaps and Options
This section provides policy gaps identified and proposes options with a view to leverage
new sources and mechanisms especially from the private sector that is not constrained by
budget ceilings. These proposals recognize the central factor underpinned by existing policy
positions.


4.1    Policy Gaps
      • Investment in infrastructure for water supply is still largely a preserve of the
        government, where private sector players are only contracted to provide consulting
        and construction services, management and operations for small towns. This
        presumes that the public sector has the capacity to provide all the necessary capital
        for investment in water supply and sanitation, which is not the case as data available
        in the sector clearly demonstrates. However the policy framework for attracting
        investment from the private sector is not clear, hence the inadequacy or lack of it.

      •   The pilot of purely private investment in Kalangala by DEVCO demonstrates that
          the private sector can invest in infrastructure as opposed to the commonly presented
          scenario of large capital outlays unavailable in the private sector realm. This points
          more to the need for a coherent policy to not only introduce a framework that will
          encourage private sector capital into water supply but also a regulatory framework
          that will ensure both public and private sector investments effectively serve as Sector
          Investment Plans projected.

      •   Small scale informal private providers are not captured through any comprehensive
          intervention hence their contribution is not systematically estimated and
          documented. This means that information available on coverage is not entirely
          comprehensive as these vendors provide services that are only known by their
          clients. The lack of formal recognition therefore means sector plans remain
          incomplete.


4.2     Policy Options to address Gaps
      • Enhanced Public-Public
      A clear policy direction and instrument for enhancing Public-Private and Public-Public
      partnerships is necessary as this will open new avenues for financing. Institutions such as
      schools, health units and others that are provided with water supply facilities should be
      encouraged to exploit their potential to serve surrounding areas for both their
      sustainability and increased access.

      • Public-Private Partnerships
      Private sector investment can be harnessed if the core principles are reviewed to provide
      a predictable investment environment for private capital. Such changes may include
      introducing investment contracts in addition to the existing management contracts.
      Investment contracts would introduce new terms for the government and private sector
      within an effectively regulated arena for sustainable private sector finance.


          Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   19
• Improve effectiveness of existing funds
The proportion of public resources directly funding core water supply facilities should be
closely tracked and variances explained and or corrected in order to improve utility value
of investments

• Scale up public investment
Entrench within the existing policy and statements a requirement for increasing national
budget allocation for water with a thresh hold percentage equivalent to population
growth trends as a minimum provision, and leverage this with private investments in a
well regulated manner. This way, public resources will match population growth trends
and private investment will cover up for accelerated provision.

• Restructure current investment
The proportion of investments in water supply and sanitation facilities that is spent on
none core budget lines (overheads) should be revisited to limit the amount to the very
basic and minimum desired to have functioning facilities. This could be achieved
through restructuring and streamlining areas that are homogeneous.




    Financing Water Supply and Sanitation in Uganda – Opportunities for Private Sector Participation   20

								
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