GWI Magazine: Kenya asks for help with performance-linked NRW contracts at group of utilities

Source: Global Water Intelligence Magazine, Vol. 21, Issue 2, 20 February 2020 (membership only)

Consultants are being sought to work with six utilities all trying to tackle the perennial issue of non-revenue water.

Kenya’s regulator, the Water Services Board (Wasreb), has issued a request for expressions of interest from consultants to assess the suitability and design of performance-based contracts (PBCs) to reduce non-revenue water (NRW) at six utilities.

NRW is an ongoing issue in Kenya where it has averaged 42-45% in the last decade, despite significant efforts to address it. A 2018 audit of select WSPs commissioned by Wasreb indicated that 64% of NRW in Kenya was physical losses and 36% commercial losses. The report also found that despite the development of NRW management guidelines, their implementation among utilities was very low.

The studies are being financed by the World Bank and supported by the bank’s 2030 Water Resources Group (2030WRG). Joy Busolo, Kenya country coordinator for 2030WRG, told GWI that the idea of looking at PBCs was to incentivise a sector shift towards output-oriented programming rather than activities/input-based EPC contracts. “The PBC model’s value proposition to [utilities] in Kenya is that performance risk is transferred to the external contractor and remuneration is based on the achievement of performance targets,” she said. “In addition, it enables for the leveraging of private capital to complement scarce public resources.”

The utilities taking part in the pilot – Nyewasco (Nyeri), Nawasco (Nanyuki), Naivawass (Naivasha), Kacwaso (Kaka- mega), Eldowas (Eldoret) and Nawassco (Nakuru) – which are mostly average NRW performers, save for Nyewasco, were selected through a screening process by Wasreb. Busolo said that they are broadly representative of the challenges utilities face nationally.

The consultant is expected to assess the suitability of PBC to address NRW at each utility and to come up with a PBC project scope. Broadly speaking, the contracts will include two components: a fixed fee covering capital expenditure such as the creation of district meter areas, improvement of pressure control, repairs of leaks/connections, replacement of pipes etc., and a performance-based O&M fee to implement NRW reduction targets. Contracts are likely to be 4-5 years.

In a bid to ensure there is enough interest from the private sector, 2030WRG will organise a market sounding roundtable in 2021. “[This is] to gauge investor interest in the proposed projects and inform risk allocation approaches to NRW-reduction PBCs to ensure the transaction is consistent with private sector appetite and lender requirements,” says Busolo.

PBCs are new to the water sector so 2030WRG will provide support to the utilities involved in the pilot; it will also help Wasreb develop a national strategy for PBCs.

Interested consultants have until 23 March to submit their expressions of interest. Following this, Wasreb then expects to issue the final RFP to shortlisted companies in April, with a submission deadline of late June and a contract award in late 2020.