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Sector Finance and Resource Flows for Water Supply in Kenya

Sector Finance and Resource Flows for Water Supply in Kenya. John Ondari Consultant Water and Sanitation Program 2 nd February 2004. Outline. Background Study Objectives Approach- Insitutional and financial mapping WSS Resource Flows - Estimates Key findings Role of User Charges

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Sector Finance and Resource Flows for Water Supply in Kenya

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  1. Sector Finance and Resource Flows for Water Supply in Kenya John Ondari Consultant Water and Sanitation Program 2nd February 2004

  2. Outline • Background • Study Objectives • Approach- Insitutional and financial mapping • WSS Resource Flows - Estimates • Key findings • Role of User Charges • Donor financing

  3. Objectives ofResource flow assessment in Kenya • To assess sector finance and resource flows in the water sector • Institutional/ Financial mapping • Analysis of public finance • To assess decision making processes- mobilization, allocation and disbursements • To explore next steps for improved finance

  4. Approach- Institutional mapping

  5. Approach- Financial Mapping

  6. Estimates of Total Sector Finance

  7. 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

  8. 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

  9. Key finding 1- Importance of User financing • 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%)

  10. Key finding 1- Importance of User financing • 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

  11. Key finding 1- Importance of User financing • 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

  12. 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

  13. 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

  14. Key finding 2- Role of Donor financing • Donor WSS financing is used for capital expenditure

  15. 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

  16. 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 Share of Credit purchase in AIA

  17. Key finding 2- Role of Donor financing • Actual on budget realization has been low but now increasing

  18. 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

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