Part 1 Project Formulation Final Final v15

PROJECT FORMULATION REPORT PART 1 - MAIN REPORT

FINAL TA2009019 R0 PPF

Project Formulation for scaling up the Lake Victoria Water and Sanitation Initiative

The technical assistance operation is financed under the EU ACP Water Project Preparation Facility

August 2012

WS Atkins International Ltd in association with Matrix Development Consultants

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European Investment Bank Project Formulation for scaling up the Lake Victoria Water and Sanitation Initiative Project Formulation Report Main Report

5099279/70/003/Main Report - Final Page i

Notice This document and its contents have been prepared and are intended solely for the European Investment Bank solely for the purpose of presenting our Initial Findings Report to the Project Formulation Study for Scaling up the Lake Victoria Water and Sanitation Initiative. It may not be used by any person for any other purpose other than that specified without the express written permission of WS Atkins International Limited (Atkins) and Matrix Development Consultants Ltd. Any liability arising out of use by a third party of this document for purposes not wholly connected with the above shall be the responsibility of that party who shall indemnify WS Atkins International Limited (Atkins) and Matrix Development Consultants Ltd against all claims costs damages and losses arising out of such use.

The authors take full responsibility for the contents of this report. The opinions expressed do not necessarily reflect the view of the European Union or the European Investment Bank.

Document History

JOB NUMBER: 5099279 DOCUMENT REF: 5099279/70

Revision Purpose Description Originated Checked Reviewed Authorised Date

0 Draft / Unreviewed for information only RS

1 Draft for client review CH DH MW PS 27.05.112 Draft for joint mission RS CH MW PS 22.09.113 Final Draft RS CH MW PS 26.02.124 Final RS CH MW PS 17.08.12


5099279/70/003/Main Report - Final Page ii

Table of Contents

Section Page

Contents Acronyms and Abbreviations iv 1.0. Executive Summary 1 1.0.1. Introduction 1 1.0.2. Proposed Medium Term Investment Programme 1 1.0.3. Formulation of Priority Short Term Investment Programme 2 1.0.4. Financial and Economic Analysis 5 1.0.5. Implementation 5 1.1. Introduction 7 1.1.1. Background 7 1.1.2. LVWATSAN Objectives 11 1.1.3. Threats to Lake Victoria Ecosystems 12 1.1.4. Project Formulation Study Objectives 13 1.1.5. Stages of Project Formulation Study 14 1.1.6. Structure of the Report 14 1.2. Policy Background 16 1.2.1. National Policies and Sectoral Strategies 16 1.2.2. Water Sector Reforms 16 1.2.3. Water and Sanitation in National Sectoral Budgeting 18 1.2.4. Utility Performance Monitoring 21 1.2.5. Tariff Levels and Structures 23 1.2.6. Environmental Management of the Water & Sanitation Sector 24 1.3. Medium Term Investment Options by Location 31 1.3.1. Kisumu 31 1.3.2. Mwanza 41 1.3.3. Musoma 50 1.3.4. Bukoba 55 1.3.5. Mwanza Satellite Towns 60 1.3.6. Summary of Medium Term Investment Costs 62 1.4. Environmental and Social Screening 63 1.4.1. Introduction 63 1.4.2. Principal Impacts of Proposed Interventions 65 1.4.3. Other issues 70 1.4.4. Mitigation 70 1.4.5. Environmental Monitoring 71 1.4.6. Climate Vulnerability 71 1.5. Economic and Financial Assessment 72 1.5.1. Current Financial Position of the Water and Sewerage Service

Providers 72 1.5.2. Current Financial Position of the Local Authorities 73 1.5.3. Benefits of Potential Interventions 74 1.5.4. Incremental Financial Impact of Potential Interventions 75 1.5.5. Ability and Willingness to Pay 81 1.5.6. Economic Analysis of Potential Interventions 82


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1.5.7. Conclusions of financial and economic analysis 91 1.6. Prioritisation of Options for Immediate and Short Term 92 1.6.1. Introduction 92 1.6.2. Refinement of Investments Options 93 1.6.3. Overall Short Term Programme Costs 94 1.7. Implementation of Short-Term Investment Programmes 97 1.7.1. Tanzania 97 1.7.2. Kenya 100 1.7.3. Implementation Schedule 102 1.7.4. Main Programme Risks 104 1.8. Provision of Improved Sanitation 108 1.8.1. Introduction 108 1.8.2. Component 1 - Household Sanitation Options 110 1.8.3. Component 2 - Communal and Public Latrines 114 1.8.4. Component 3 Sanitation Promotion and Improved Hygiene

Behaviour 115 1.8.5. Component 4 - Servicing of On-site Sanitation 117 1.8.6. Component 5 Sewerage and Wastewater Disposal 122 1.8.7. Institutional Aspects 122 1.8.8. Approach to Implementation of the Sanitation Strategy 124 1.8.9. Infrastructure Led Upgrading 126 1.9. Capacity Building 131 1.9.1. Main Objective 131 1.9.2. Specific Objectives 131 1.9.3. Organising Framework 131 1.9.4. Approach 132 1.9.5. Operational Support 134 1.9.6. NRW Reduction Strategy 138 1.9.7. Revenue Generation 139 1.9.8. Authority Work Processes 141 1.9.9. Areas for Support 143 1.9.10. Urban Planning 143 1.9.11. Implementation Approach 144 Appendices A1 ILU Case Studies A2 Capacity Building Methodology A3 Training Components A4 ILU Logframe A5 Technical Capacity Gaps A6 Utility Partnering Proposal DUNEA / MWAUWASA A7 Master List of Proposed Intervention by Location and Sector A8 Project Status Report


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Acronyms and Abbreviations ADF African Development Fund

AFD Agence Franaise de Dveloppement AfDB African Development Bank

AGR Annual Growth Rate

AWF Africa Water Facility

BoQ Bill of Quantities

BUWASA Bukoba Water and Sewerage Authority CBD Central Business District

CBO Community Based Organisation

CDM Clean Development Mechanism

COWSO Community Owned Water Supply Organisation CP Collection Period

CR Current Ratio

CSP Country Strategy Paper

CTI Percentage Contribution to Investment

DEWAT Decentralised Waste Water Treatment Tank DER Debt Equity Ratio

DMM Delegated Management Model

DP Development Partners

DSC Debt Service Coverage Ratio

DWF Dry Weather Flow

EAC East African Community

EACAC East African Community Audit Commission

EACCCP East African Community Climate Change Policy EIRR Economic Internal Rate of Return

EIB European Investment Bank

ESMP Environmental and Social Management Plan ETA Extraordinary Tariff Adjustment EWURA / EUWRA

Energy and Water Utilities Regulatory Authority

FOs Field Offices

ha Hectare

IA Implementing Agency

GoB Government of Burundi

GEF Global Environment Facility

GoK Government of Kenya

GoT Government of Tanzania

GIZ (GTZ) German Technical Cooperation

GWA Gender and Womens Alliance

ILO International Labour Organisation

JICA Japan International Cooperation Agency

KfW German Government Development Bank

KISWAMP Kisumu Integrated Sustainable Waste Management Programme

KIWASCO Kisumu Water and Sewerage Company KMC Kisumu Municipal Council

KPIs Key Performance Indicators

KWFT Kenya Women Finance Trust

KWSDP Kenya Water Sector Development Programme Lcd Litres per capita per day

LGA Local Government Authority

LIA Low Income Area

LTAP Long Term Action Plan

LVB Lake Victoria Basin

LVBC Lake Victoria Basin Commission

LVEMP Lake Victoria Environmental Management Programme

LVSWSB Lake Victoria South Water Services Board

LVWATSAN Lake Victoria Water and Sanitation Initiative MCC Mwanza City Council

M&E Monitoring and Evaluation

MDGs Millennium Development Goals

MIG Medium Income Group

MTP Medium Term Programme

MoU Memorandum of Understanding

MSF Multi Stakeholder Forum

NBS National Bureau of Statistics

NSGRP National Strategy for Growth and Poverty Reduction mASL Metres above sea level

MoPH&S Min. of Public Health and Sanitation

MUWASA Musoma Water and Sewerage Authority

MWAUWASA Mwanza Urban Water and Sewerage Authority MWI / MoWI Ministry of Water and Irrigation

NA Not Applicable

NGO Non-Governmental Organisation

Partner States The 5 member states of the East African Community, namely


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Burundi, Kenya, Rwanda, Tanzania & Uganda

PEDP Primary Education Development Programme O&M Operation & Maintenance

OR Operating Ratio

PAP Project Affected Person

RoT The United Republic of Tanzania

RE Return On Equity

RPG Regional Public Good

RPSC Regional Policy Steering Committee

RR Return On Net Fixed Assets

RRTA Regular Tariff Adjustment

RSF Rapid Sand Filter

SME Small and Medium Enterprise

SIDA Swedish International Development Cooperation Agency SANA Sustainable Aid in Africa

SPI Staff Productivity Index

STAP Short Term Action Plan

STI Short Term Interventions

SWAP Sector Wide Approach to Planning

ToR Terms of Reference

UFW Unaccounted for Water

UA Unit of Account

UNEP United Nations Environment Program

UNFCCC UN Framework Convention on Climate Change

UNHABITAT United Nations Human Settlements Programme UOC Unit Operational Cost

USAID The United States Agency for International Development USD United States Dollar

UWSA Urban Water and Sewerage Authority (Tz) WASREB Water Services Regulatory Board

WASSIP Water Supply and Sanitation Service Improvement Project WATSAN Water and Sanitation

WB World Bank

WHO World Health Organisation

WR Working Ratio

WSB Water Service Boards

WSDP Water Sector Development Programme WSP Water and Sanitation Programme

WSTF Water Services Trust Fund

WWTP Wastewater Treatment Plant

WTW Water Treatment Works


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References 1. The United Republic of Tanzania (2010) - Water Sector Status Report 2010, Ministry of

Water and Irrigation

2. The United Republic Of Tanzania (2006) - Ministry of Water Mkukuta Based MDG Costing For The Water And Sanitation Sector - Final Report - Dar Es Salaam April 2006

3. The United Republic Of Tanzania (2006) - National Water Sector Development Strategy 2006 to 2015

4. WASREB (2010) - IMPACT: A performance Report of Kenyas Water Services Sub-Sector, Issue No. 3, October 2010.

5. GoK (2007) - Kenya Vision 2030, the Popular Version, July 2007

6. GoK (2010) - Medium Term Expenditure Framework 2011/12 - 2013/14

7. Environment, Water And Irrigation Sector Report 2010, January 2011

8. MWAUASA (2010) - Business Plan, July 2010 - June 2013, July, 2010

9. KIWASCO (2010) - KIWASCO, Water Demand Management Policy and Strategy, 26 April 2010

10. WASREB (undated) - Tariff Guidelines

11. World Bank (2010) - Tanzania: Public Expenditure Review (PER) of the Water Sector, June 2010

12. Report Mwanza Urban Water Supply & Sewerage Authority, Improvement of Water Supply in Mwanza City, Final Detailed Design Report Don Consult ,believed to be issued in January 2012

13. Report Mwanza Water and Sanitation Project Impact Study dated June 2004, Volume 1 Report and Volume 2 Annexes; C Lotti and GKW

14. Final Design Report, Mwanza Water Supply Project Phase II Sewerage, Undated soft copy believed to be 2009; Poyry, C Lotti and Interconsult

15. AAAS (1998) Water and Population Dynamics: Case Studies and Policy Implications. Overview: A Drop to Drink? Population and Water Resources: Illustrations from Northern Tanzania (Zaba, B and Mdulu, N)

16. JICA website: http://www.jica.go.jp/tanzania/english/activities/water_06.html Accessed 10 Feb 2011

17. Madulu N (2000) Changing Water Needs and Uses in Rural Communities of Mwanza Region, Tanzania 1st WARFSA/WaterNet Symposium: Sustainable Use of Water Resources; Maputo, 1-2 November 2000

18. http://haroldmtyana.blogspot.com/2011/08/propoesed-solution-of-water-problem-in.html Accessed 10 Feb 2011

19. United Republic of Tanzania Mwanza Region Socio-Economic Profile (1997). Joint Publication by The Planning Commission Dar Es Salaam and Regional Commissioners Office Mwanza

20. Kisumu Water and Sanitation Project - Short Term Action Plan (STAP) - Final Design Report - June 2005, Seureca / CAS

21. Kisumu Water and Sanitation Project Long Term Action Plan Water Supply Proposal Design Report October 2008 Otieno Odongo & Partners

22. Kisumu Water and Sanitation Project Long Term Action Plan Sewerage Design Report October 2008 Otieno Odongo & Partners

23. Kisumu Water and Sewerage Company Water Demand Management Policy and Strategy (for UNHABITAT) COBENG - April 2010


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24. Kisumu Water and Sewerage Company Water Demand Management Business Plan (for UNHABITAT) COBENG - April 2010 June 2010

25. Pre-Appraisal Of Operation Lake Victoria WATSAN - Mwanza Urban Water And Sewerage Authority (for EIB) COBENG - May 2010

26. Non-Revenue Water (NRW) Reduction Guidelines and Managing Manual NRW a Key-Issue of MWAUWASAs Performance Indicators MWAUWASA April 2011

27. Draft Feasibility Study Report - Bukoba - Pyry Environment GMBH (Germany) and Don Consult Ltd (Tanzania) JV - 7 Towns Urban Upgrading Programme March 2011.

28. Design Report - Bukoba - Pyry Environment and Don Consult JV - Detailed Engineering Design and Preparation of Tender Documents, Supervision and Performance Management Support for Water Supply and Sewerage/Sanitation in Bukoba and Musoma.

29. Draft Feasibility Study Report - Musoma - Pyry Environment GMBH (Germany) and Don Consult Ltd (Tanzania) JV - 7 Towns Urban Upgrading Programme March 2011.

30. Draft Detailed Design Report for sewerage - Musoma - Pyry Environment GMBH, Germany and Don Consult Ltd (Tanzania) JV - Water Sector Development Programme (Tanzania) - December 2010

31. Final Engineering Design Report Sewerage for Musoma - Pyry Environment and Don Consult JV - Consultancy Services for Detailed Engineering Design and Preparation of Tender Documents for Sewerage in Musoma Municipality and Detailed Engineering Design and Preparation of Tender Documents for Water Supply for Mugumu, Bunda and Tarime Townships and Mugango / Kiabakari National Project August 2011

32. Final Detailed Design Report - Misungwi Township - Detailed Engineering Design, Preparations of Tender Documents for Improvement of Water Supply and Sewerage in Mwanza City and Water Supply in Magu, Nansio, Misungwi, Ngudu, Sengerema and Geita Townships and also Supervision of Construction Works for Water Supply and Sewerage for Mwanza City and Water Supply in Magu, Nansio, Misungwi, Ngudu, Sengerema and Geita Townships - Volume I Main Report - November 2011

33. Final Detailed Design Report - Magu Township Detailed Engineering Design, Preparations of Tender Documents for Improvement of Water Supply and Sewerage in Mwanza City and Water Supply in Magu, Nansio, Misungwi, Ngudu, Sengerema and Geita Townships and also Supervision of Construction Works for Water Supply and Sewerage for Mwanza City and Water Supply in Magu, Nansio, Misungwi, Ngudu, Sengerema and Geita Townships - November, 2011

34. Design Report for Emergency Lamadi Urban Water Supply Project - Lamadi Emergency Project - MWAUWASA - August, 2010

35. Lake Victoria WATSAN Initiative Phase II Final Report Volume 1 Lake Victoria Basin Commission - Mott MacDonald April 2010


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5099279/70/003/Main Report - Final Page 1

1.0. Executive Summary

1.0.1. Introduction This Project Formulation Report develops plans to scale up the UNHABITAT promoted Phase 2 Lake Victoria WATSAN Initiative for the major settlements of Kisumu in Kenya, and Mwanza, Musoma and Bukoba in Tanzania together with three small satellite towns around Mwanza; Misungwi, Magu and Lamadi. This Report has been prepared by Atkins and their project partners Matrix Consultants, with contributions from Howard Humphreys EA Ltd and the United Nations Human Settlements Programme (UNHABITAT).

The objective of this Report is to identify current donor interventions, assess future requirements, evaluate the need for improved WATSAN provision, drainage and solid waste facilities and to recommend an appropriate set of measures in each location to address the sectors needs for a 10 year, medium-term period.

This Report recommends measures that:

Seek to meet WATSAN objectives in each location in terms of helping to address the UNs Millennium Development Goals (MDGs);

Have a pro-poor focus through improving conditions in informal areas (access to clean water, sanitation infrastructure, improved solid waste management and urban drainage); and

Combine fast track low regret measures and medium to long term works with the capacity building measures necessary to sustain these and improve the financial standing of water supply authorities.

The Project Formulation Approach differs from a standard feasibility study in that it explicitly recognises that the project locations are not new to investments/donor interest and therefore uses a critical assessment of the existing body of work as its starting point. It also critically reviews the scope and performance of recent interventions. The Project Formulation Approach was particularly warranted as the mandate given in the LVWATSAN context was to scale up interventions in the larger urban centres and to accelerate effective action in relation to utility needs, environmental pressures and the MDGs.

Consequently, this study does not present master plans for each location, nor does it specify works to full feasibility level; it highlights measures recommended as necessary to effect a significant improvement in the living conditions and general environment in the locations included within the Project Formulation Study (PFS) in the areas of water supply, wastewater and sanitation, urban drainage and solid waste management.

The study is dependent upon previous studies and designs prepared, by others, under various WATSAN improvement programmes, notably the LTAP projects in Kisumu, Musoma and Bukoba and Tanzanias Water Sector Development Programme.

1.0.2. Proposed Medium Term Investment Programme Available previous studies have been critically reviewed and reported on within the appropriate sections of this report. Observations are provided on the suitability of the proposals and recommendations of such studies. The review identified a significant number of inconsistencies within the proposed development plans which will need to be resolved before the investments can be confirmed with certainty. Additional studies and designs are therefore required prior to the finalisation of the investment programme. However, there was generally sufficient detail available to allow an investment programme to be scoped and costed with reasonable accuracy.

Medium term investments have therefore been identified for an approximate 10 year perspective (Section 1.3, with detailed background and analyses presented in the specific town reports). These are based on the existing studies and designs, review of population and demand projections, designs and the siting of major infrastructure. Where there are



significant needs which have not been covered by existing work, the Project Formulation Study has filled in with pre-feasibility assessment of the needs and possible solutions. For funding purposes, a further iteration has been made with a view to addressing the interventions most critical for the next 5 year horizon, which constitutes a concrete proposal for the funding agencies the Project Formulation Plan - which includes key proposals for an implementation structure.

The outcome of this review was an investment programme in excess of 300 million, which includes major investments in water supply, sewerage and waste management. The principal recommendations include:

Expansion of the sewerage network in Kisumu including a new wastewater treatment plant in the west of the city;

Extension of water supplies to satellite towns around Kisumu; Expansion of the water distribution network in Mwanza; Development of a new water source for Mwanza; Significant expansion of Mwanzas sewerage network including expansion of the

current WWTP at Ilemela and a new plant at Igoma;

Town centre sewerage and WWTPs for Musoma and Bukoba; New water supply facilities for Mwanzas satellite towns of Misungwi, Magu and

Lamadi;

Improvements in the level of on-site sanitation provision in all locations; New sanitary landfills in most locations; and Institutional and operational support to all utility companies.

Table ES 1 Medium Term Investment Programme

Discipline Amount (MEUR) Kenya Tanzania Kisumu Mwanza Musoma Bukoba Satellites Total Water Supply 24.1 66.5 1.0 1.0 26.1 118.7 Sewerage/Wastewater 17.1 32.9 15.0 11.7 1.3 78.0 On-Site Sanitation 3.6 13.1 included in the above item 16.7 Urban Drainage 9.0 6.3 3.1 2.8 n/a 21.2 Solid Waste 22.51 43.4 3.1 2.1 n/a 71.1 Capacity Building 0.5 0.5 0.5 0.5 0.6 2.62 Total 76.8 162.7 22.7 18.1 28.0 308.2 76.8 231.4 308.2 Note: Prices are indicative; they include engineering, supervision and contingencies ex. VAT.

This investment programme is unlikely to be affordable at this time so the options have been optimised and prioritised into a more manageable programme of works and is linked to capacity building and technical support programmes to improve sustainability.

1.0.3. Formulation of Priority Short Term Investment Programme Following discussions between the EIB, other possible funding partners, representatives from the recipient countries governments and the utility companies involved, the preferred short term investment strategy was to be compiled on the following broad guidelines:

1 Should be covered under AFD infrastructure upgrading project 2 Some additional CB costs included within individual interventions



i. The investment focus of the programme will be on WATSAN Provision rather than Urban Drainage and Solid Waste although small strategically important investments in these other sectors can be considered.

ii. Investments in Kisumu are to be limited at the current time because of the ongoing investments under LTAP and the uncertainty over the extent of the eventual outcomes. However, selected priority studies should proceed to prepare for future investments.

iii. Improved sanitation in the informal/low income areas and communal facilities of Mwanza will also be a priority.

iv. Sewerage and sanitation are the priority for Musoma and Bukoba (since water supply is being addressed by the AFD projects).

v. Improved water supplies to the satellite towns of Mwanza should be considered a priority due to the current poor level of provision (but only if more cost effective solutions can be identified).

vi. Investments in the expansion of WATSAN facilities in Mwanza will be prioritised into two programmes; a short term programme covering years 1 5 and a medium term programme covering years 6 10, and the identified works were placed in one or other programme depending upon MWAUWASAs requirements and the likely benefits and impacts of the proposed works.

Mwanza will therefore move ahead with concrete funding proposals for a sub-set of the investments identified based on detailed discussions of funding availability and suggested prioritisation criteria discussed in the report. The final scoping and funding discussions will draw in the towns of Bukoba and Musoma.

Similarly, important investments have been identified in Kisumu, but the final scoping for funding will wait to establish outcomes of ongoing LTAP works. In order not to lose momentum, however, it is recommended that preparatory work continue in key areas, notably wastewater planning and water resources. It is also recommended that some of the findings be taken on board by the newly launched urban programme.

All project locations are in need of significant institutional interventions. In particular, access to funding and successful project rollout is likely to be contingent on improving revenues, a sound strategy to ensure greater uptake of connections to the water and wastewater systems, better planning and improved enforcement of health and environmental issues in the towns. By consequence, the investments will be complemented by necessary interventions in these areas.

In some areas it is not possible, at this stage of the project, to be specific about the precise intervention requirements; areas include institutional and operational support to the utilities and sanitation provisions, particularly in informal areas. To this end, this Project Formulation Approach identifies the key issues and presents strategies which will be applied in finalising solutions. These will only be achieved once project personnel are present on the ground and detailed implementation plans can be drawn up for each location.

Operational support is needed to help address the high levels of non-revenue water through improved metering, leak reduction, revenue collections and the technologies available to utilities to help them manage their networks including GIS and computer models. Tanzanian Authorities also need help preparing their new Business Plans to the EUWRA model.

Sanitation strategies will focus in four areas; improving household sanitation, improving facilities in public places particularly schools, increasing hygiene awareness, and improving facilities for managing and disposal of latrine wastes in informal and less accessible areas.

As a result the following programme of works is proposed to be taken forward for detailed discussions on funding.



Table ES 2 - Recommended Programme of Investments by Location and Component

Location Item Cost MEUR

Kisumu 5.1 Operational Improvements to Water System 1.9 Water Resource Master Plan 0.5 Sanitation Provision 1.0 Sewerage Master Plan and Tender Documents D&B WWTP 1.2 Capacity Building 0.5 Total Kenya 5.1 Mwanza 60.8 Operational Improvements to Water System 1.6 Water Master Plan and Institutional Support 3.5 Expansion of the distribution network 27.4 Sanitation Provision 13.1 Sewerage Master Plan 1.0 Igoma WWTP and trunk sewers 13.7 Capacity Building 0.5 Bukoba 13.2 Operational and Institutional Support 1.0 Sewerage Master Plan and City Centre sewerage and treatment

plant 9.0

Sanitation Provision 2.7 Capacity Building 0.5 Musoma 16.5 Operational and Institutional Support 1.0 Sewerage Master Plan and City Centre sewerage and treatment

plant 11.9

Sanitation Provision 3.1 Capacity Building 0.5 Total Tanzania 90.5 Total Region 95.6 Note: Prices are indicative; they include engineering, supervision and contingencies ex. VAT.

The overall estimated cost of the investment programme is summarised below. Table ES 3 - Costs of Selected Programme Investments

Location Kenya Investment

MEUR

Tanzania Investment

MEUR

Region Investment

MEUR

Kisumu 5.1 5.1

Mwanza 60.8 60.8

Musoma 16.5 16.5

Bukoba 13.2 13.2

Total 5.1 90.5 95.6 Note: Prices are indicative; they include engineering, supervision and contingencies ex. VAT.

The cost of a Lenders Supervisor who will oversee the delivery of the main programme on behalf of the EIB (and other funders) needs to be added together with an overall project



contingency - needed because of the significant uncertainties surrounding the capital works programme due to the need, in most cases, to revisit the study and design work.

Note: for the time being the costs of improved WATSAN facilities within Mwanzas satellite towns are not included. Should a planned reassessment of the proposed schemes identify more cost effective and affordable solutions to the improved provision of services be identified, then these works could be reintroduced to the programme. Table ES 4 - Implementation Cost Programme

Item Kenya Investment

MEUR

Tanzania Investment

MEUR

Region Investment

MEUR

Phase 1 Investment Programme 5.1 90.5 95.6

Programme Supervision 3% 0.2 3.0 3.2

Programme Contingency 10% 0.5 9.1 9.6

Total Programme 5.8 102.6 108.4 Note: Prices are indicative; they include engineering, supervision and contingencies ex. VAT.

1.0.4. Financial and Economic Analysis The analysis undertaken suggests that the proposed interventions would deliver significant net economic benefits. Taken in aggregate, it is expected that they would also improve water and sanitation providers operating income (i.e. revenue minus operating costs), except perhaps in Bukoba and Musoma, where the outcome is highly dependent on the tariffs and costs associated with the proposed new sewerage systems. These issues warrant further investigation as the interventions progress to more detailed design and assessment.

In terms of cost recovery, the water and sanitation providers appear to be collecting sufficient revenue to cover their current operational expenditure but not enough to cover significant capital investment. This suggests that they will not be capable of bearing the initial capital cost of the proposed interventions and that appropriate subsidiary financing arrangements (i.e. between national government and the service providers), such as granting of the new assets to the service providers, will be required.

It should also be noted that current levels of operational expenditure are generally considered to be insufficient for optimal operation, suggesting that some degree of tariff increase and/or operational efficiency measures would be beneficial to ensure that the maximum value can be obtained from the interventions. There is policy support for increasing tariffs towards full cost recovery in both Tanzania and Kenya; however, the timescales remain unclear.

1.0.5. Implementation The scope of the programme is diverse and potentially complex so it is proposed to appoint a Lenders Supervisor (LS) to take responsibility for managing the programme on EIBs behalf. Tasks for the Lenders Supervisor will include:

Overall management for the programme for cost, quality and time; Coordination between Recipient and other Government bodies; Establishing procedures for the procurement of consultants and contractors

(within the requirements of local legislation);

Establishing technical requirements and standards (consistent with local requirements);

Preparing standard procurement document templates; and Audit of procurement and technical solutions.



The programme will be delivered in a series of work packages as described below:

1. Support and Development

Pro-poor Interventions notably sanitation provision in informal / low income areas

Capacity Building Programmes 2. Capital Works

Mwanza City Project expansion of water and sewerage systems and improved communal sanitation facilities

Musoma and Bukoba Town Sewerage and Sanitation Project Implementation of the Sanitation Strategy will require a separate management structure managed by an appropriate organisation, a consultant, NGO or UNHABITAT and will involve the cooperation of councils, health bodies, community groups and NGOs.

Delivery of the programme is anticipated to take more than five years, principally because of the need to undertake or enhance studies and designs for many of the main components of the programme.



1.1. Introduction

1.1.1. Background The European Investment Bank (EIB) commissioned WS Atkins International Ltd (Atkins) and Matrix Development Consultants to complete a Project Formulation Study for scaling up the Lake Victoria Water and Sanitation Initiative (LVWATSAN) in the cities of Kisumu in Kenya and Mwanza in Tanzania.

Following the submission of the Stage 2 report outlining the findings for the two cities included in the original scope, the EIB extended the project to include a rapid assessment of the Tanzanian towns of Musoma and Bukoba. The Agence Franaise de Dveloppement (AFD) are actively involved in funding water supply improvement works in both towns but there is little investment currently earmarked for the sanitation sector. Subsequently, at the request of Ministry of Water and Irrigation (MoWI) in Tanzania three small satellite towns around Mwanza were added for consideration for inclusion in the financing package; Misungwi, Magu and Lamadi.

An overview location plan is provided as Figure 1.1 below.

PROJECT TITLE

FIGURE NUMBER & TITLE CLIENT

DATE FIGURE CREATED

Woodcote GroveAshley RoadEpsomSurreyKT185BWENGLANDFax + 44 (0) 01372 740055Tel. + 44 (01372) 726140

EuropeanInvestmentBank

Project formulation for scalingup the Lake Victoria Waterand Sanitation InitiativeFigure 1.1Location Overview

LEGENDFeb2012

Lamadai

Missungwi

Magu Kahangara

BUKOBAMUSOMA

Lake Victoria

Kampala

MWANZA

KISUMU

WEBUYE

MUSIARA

ELDORET

KAKAMEGA

MARA SERENA

ENTEBBE INTERNATIONAL

Major water bodiesMajor watercourses

River Nile BasinNational Borders

KENYA

UGANDA

TANZANIA



1.1.2. LVWATSAN Objectives The Project Terms of Reference provide a comprehensive overview of the LVWATSAN Initiative. It was launched in 2004 by the Ministers responsible for water from Kenya, Tanzania and Uganda with the aim of achieving the Millennium Development Goals (MDGs) for water and sanitation in the secondary centres within the Lake Victoria Basin. These secondary centres included Kisii, Homa Bay and Bondo in Kenya; Bukoba, Muleda, Bunde and Mutukula in Tanzania, and Kyotera, Nyendo/Masaka, Mutukula and Bugembe in Uganda. Mutukula is on both sides of the border between Tanzania and Uganda.

Kisumu Mwanza

Musoma Bukoba

LVWATSAN was designed by UNHABITAT at the request of the East African Ministers of Water to address the current threats to the lakes ecosystems from inadequate water and sanitation provision in the larger settlements around the lake. The initiative proposed an integrated package of interventions, including water supply and sanitation improvements, solid waste management, and drainage improvements in key areas, as well as capacity building and training. Financing has initially taken the form of grants and may evolve into a combination of grants and loans where tariff levels and outreach of the interventions allow.

The overall goal of the Initiative is to meet the MDG targets in water and sanitation in the project towns and cities and to ensure the long term sustainability of the physical investment. The Initiative seeks to demonstrate that the MDGs can be achieved in a relatively short timeframe (three years) and that investments can be sustained over the long term by effectively integrating physical infrastructure works, training and capacity building into a balanced and cohesive programme of interventions. It uses a phased implementation approach, focussing first on interventions designed to deliver immediate results, followed by short to medium term interventions requiring larger investments that are supported by appropriate institutional strengthening and capacity building.

LVWATSAN initially targeted secondary urban centres. UNHABITAT, through its Lake Victoria Region City Development Strategies Programme, has also assisted some of the larger urban centres in preparing City Development Strategies (CDS) aimed at improving the urban environment and reducing poverty. The CDS that were prepared for Kampala,



Kisumu and Mwanza identified sanitation, waste management and access to safe drinking water as issues for priority attention.

At the Ministerial meetings of September 2008 in Nairobi and April 2009 in Entebbe, the three Governments concerned endorsed the scaling up of the LVWATSAN to include the cities of Kisumu in Kenya, Mwanza in Tanzania and Kampala in Uganda, each with a particular focus on the low income areas of the cities where the most urgent need exists for improved water and sanitation services.

1.1.3. Threats to Lake Victoria Ecosystems The Lake Victoria ecosystems currently face a number of threats, many arising from inadequate water and sanitation provision in the settlements around the lake. The expanding population in the lake basin, and particularly in the major towns along the lake shore in Kenya, Uganda and Tanzania, has created a demand for land, leading to deforestation and clearing of wetlands causing loss of ecological habitats. Deforestation is also occurring due to growing requirements for fuelwood. These activities have resulted in increased levels of erosion and hence suspended solids in water courses which ultimately end up in the lake.

Domestic and industrial sewage (both in the immediate vicinity of the lake, and in the catchment areas), the use of agricultural additives and mining activities have contributed to deteriorating water quality in the lake. These inputs occur as point sources and diffuse sources of pollution. While effluent from mines and industries cause heavy metal pollution, domestic sewage and agricultural effluent and waste spur algal growth in the lake, leading to eutrophication of certain locations on the lake, particularly where water flow is inhibited (for example in bays or constricted channels).

Parts of the lake are infested by water hyacinth (Eichhornia crassipes), an invasive and persistent aquatic weed which forms mats that prevent sunlight and oxygen from reaching the water columns and submerged plants. Consequently it shades and crowds the indigenous aquatic plants, thereby reducing biological diversity in the lakes aquatic ecosystem. The mats of weed float from one side of the lake to another, depending on the wind direction. Over the past couple of decades, a number of strategies have been proposed by various organisations working on the lake, such as the Lake Victoria Environmental Management Programme (LVEMP), Nile Basin Initiative, etc. Means to remove the weed include manual harvesting and introducing a weevil which eats the weed. The success of these interventions is yet to be assessed on a lake-wide basis.

Water hyacinth in Kisumu Bay

Fishing is one of the main livelihoods for those living around the lake. Fishing as an industry (for export) has also become important, providing employment to the lakeside populations. However, fish stocks, in terms of species diversity and yield, are reported to be declining.



This is attributed in part to overfishing and fishing malpractices (harvesting immature fish and using illegal nets), but also to the deteriorating quality of the lake water.

This Project Formulation Study focuses on the WATSAN provision in the major settlements around the lake, but it is essential that it also takes due consideration of the impact that the proposed interventions will have upon the water quality of the lake, albeit by achieving results through sustainable and balanced development of the public utilities. It must also be recognised that a high proportion of industrial discharges are outside the areas earmarked for sewerage and action must be taken under the available legislation to control pollution from this source.

There is an increasing issue over the presence of blue-green algae in Lake Victoria particularly within the bays and inlets where water turnover is limited. Blue green algae are more properly known as cyanobacteria and are bacteria which are capable of photosynthesis. Some blue-green algae produce toxins which can be fatal to animals and livestock and are considered a threat to humans. The problems are often associated with algal scum around the edges of water bodies where the algae are present. Although present in Lake Victoria, the concentrations present in water drawn from the open waters using submerged intakes are unlikely to be a major concern at present. It is not considered realistic or appropriate at this time to take elaborate measures to address the potential presence of blue green algae for the small town water supplieswhere sufficient depth can be reached. The trends nevertheless need to be followed closely..

1.1.4. Project Formulation Study Objectives The Project Formulation Study will contribute towards the accelerated development of an infrastructure investment programme in major towns and cities within the vicinity of Lake Victoria, the regions shared water resource, with the main focus upon WATSAN provisions. Specifically, this study will deal with Kisumu, Mwanza, Musoma and Bukoba and the satellite communities around Mwanza of Misungwi, Magu and Lamadi (the latter five towns were added to the programme following discussion between EIB and AFD). Kampala is being addressed in a separate project.

The investment programme will focus on the short to medium term (next 10 years) and is aimed at increasing access to clean water, particularly in low income areas, improving sanitation infrastructure including the collection and treatment of wastewater and reducing the pollution of Lake Victoria resulting from urbanisation. By focusing on the most populated areas, this investment programme will significantly enhance the efforts of the national Governments in Tanzania and Kenya towards meeting the water and sanitation targets of the United Nations Millennium Development Goals.

The investment programme will be of a regional nature given that Lake Victoria is a resource shared by many countries. In summary it will consist of:

Fast track low regret interventions for rehabilitation and upgrading of infrastructure to remove bottlenecks in existing water supply and sewerage networks, and immediate actions to improve the capacity of implementing entities to deliver improvements;

Short and Medium term projects for network extension including low-cost solutions to increase the access to water and sanitation services in poorly served and peri-urban communities;

Expansion of sewerage and wastewater treatment; and Capacity building of the utilities and regulatory authorities possibly including the

municipalities for solid waste management and the Water Management Authorities for integrated water resources management.

The approach of this Project Formulation Study (PFS) was to identify, as far as practical, all necessary investments to meet the realistic needs of the communities within the next 10 years in the areas of water supply, sanitation and sewerage, urban drainage and solid waste management. This total investment list was prioritised and optimised in the light of;



perceived need, city or utility priorities, the likely funding available, other ongoing or planned investments and the benefit to poorer communities. From this, a list of selected investments is proposed for consideration at the project appraisal stage.

1.1.5. Stages of Project Formulation Study The Project Formulation Study involved the following main stages:

Stage 1 Inception

Data collection and initial assessment of the situation; Stage 2 Planning Policies, Population, and Development

Urban planning and water demand assessment, and fast track measures for existing infrastructure;

Stage 3 Technical Evaluation of Development Needs and Option Development

Assess water resource options, distribution network adequacy and coverage, sewerage collection system and treatment, urban drainage, non-network water supply measures, sanitation measures, solid waste management, and recommend options for a 10 year period;

Initial financial and economic assessment of companies and initial development options;

Initial environmental impact and social assessments; Assess capacity building and institutional strengthening needs;

Stage 4 Assessment of Preferred Set of Measures

Consult with EIB and stakeholders and other parties to agree which options to analyse;

Financial and economic modelling to recommend financing options; Environmental impact and social assessment of options; Recommend first phase priority options; Prepare project plans and monitoring and evaluation framework;

Stage 5 Final Bankability Assessment

Final proposals agreed with EIB.

1.1.6. Structure of the Report This Report is presented in six parts. Part 1, this volume, is the main Project Formulation Study, with assessments, recommendations, financing, strategies and implementation plans. Parts 2 to 6 are location specific and contain more detailed assessments on the situation in each of the four centres, as follows:

Part 1 Main Report

Part 2 Kisumu

Part 3 Mwanza

Part 4 Musoma

Part 5 Bukoba

Part 6 Mwanza Satellite Towns



This Main Report (Part 1) also presents a summary of the findings of the technical studies by location and establishes the context for project formulation and funding, and comprises the following sections.

Section 1.1 introduces the project, its origins, objectives and the approach adopted to deliver these. Section 1.2 of this Main Report establishes the context by describing the institutional and legal framework under which the utility companies operate, and the national strategies that apply. Section 1.3 summarises the technical findings from the separate location reports and lists the measures recommended by this study. Section 1.4 describes the main environmental and social impacts anticipated from the scheme. This is followed by the approach and outcomes of the economic and financial evaluations of identified measures in Section 1.5.

Section 1.6 categorises potential interventions into investment levels and identifies opportunities and risks and describes the approach to the prioritisation of options for the project, and Section 1.7 the financing, implementation arrangements and proposed timeframe for the project. Section 1.8 establishes a strategic approach to sanitation which will apply across the locations covered by this PFS and Section 1.9 outlines the proposed approach to Institutional Support particularly in addressing operational improvements such as Non Revenue Water.

During the technical studies for the seven locations, it became apparent that the experience of UNHABITAT in two specific areas would be invaluable if the project was to achieve its desired outcomes. Firstly, UNHABITATs experience in providing utilities to the informal, low income areas of Nairobi using an Infrastructure Led Approach offers lessons that can be developed for the informal areas in each project location, particularly in Kisumu. Secondly, their recent hands-on experience in capacity building from the previous phase of the LVWATSAN initiative with the utilities in the smaller towns could give crucial insight when addressing similar issues within the project towns and cities. UNHABITAT has therefore contributed to sections on Infrastructure Led Upgrading (Section 1.8.9) and Capacity Building (Section 1.9).



1.2. Policy Background

1.2.1. National Policies and Sectoral Strategies Kenya

A critical thrust of the current national policy document, Vision 2030, and its first Medium Term Programme (MTP) is to accelerate growth through increased investment in infrastructure. Expanding access to safe water through rehabilitation and expansion of urban water supply and sanitation activities is seen as an important outcome (GoK, 2007:18). As early as 1999, Sessional Paper No.1 on National Policy on Water Resources Management and Development tackled water resources management issues, water and sewerage development, institutional framework and financing of the sector. Following from this, the then Water Act underwent various amendments, resulting in the Water Act 2002 coming into force.

The Kenyan Governments annual Medium Term Expenditure Framework generally includes rolling three-year costed operational programmes for broad sectors. Water supply and sanitation are included in the Environment, Water and Irrigation Sector. However, it is only now3, that the Government is near to finalising a specific Water Sector Strategic Plan (WSSP). It is anticipated that the Kenya Water Sector Development Programme (KWSDP) will provide further support to the sector to be in place by 2012. The KWSDP will aim to bring together key organisations through a coordinated Sector Wide Approach to Planning (SWAP) Action Plan for water under the leadership of the Kenyan Government.

Tanzania

The national policy document, Tanzanias National Development Vision 2025, states that universal access to safe water is one of the key targets. This policy was developed as early as 2002. In the development programme, the National Strategy for Growth and Reduction of Poverty (NSGRP) II, Goal 4 articulates the importance of increasing access to affordable, clean and safe water, sanitation and hygiene. In terms of linking plans to budgets, Tanzania has exactly the same system as Kenya and, in its annual Medium Term Expenditure Framework, broad sectors have the same system of rolling three-year costed operational programmes, of which water and sanitation is included in the Environment, Water and Irrigation Sector.

Whilst policies are clearly articulated in both countries, Tanzania has been more consistent in terms of establishing a coherent water sector programme. A major 5 year programme was established in 2007 with almost US$ 1 billion of funding initiated for the Water Sector Development Programme (WSDP). This is a jointly agreed SWAP where both government and development partners (DPs) have agreed to provide funding either into a central basket where funds are allocated on a priority basis by the Ministry or as ear-marked where donors support a specific project or initiative.

Although both countries have similar broad sector level budgetary prioritisation systems, actual development budgetary allocations and spending differ. This is discussed in Section 1.2.5.

1.2.2. Water Sector Reforms Kenya

A key outcome of the Water Act was to separate service delivery functions into asset holding and investment (water services board function), and water and sanitation services provision (water service providers function). For Kisumu, Lake Victoria South Water Services Board

3 As early as 1987 there was an Urban Water and Sanitation Management Project (UWASAM), in selected Kenyan towns supported by the German Development Organisation GTZ. This was not a very successful project. It was not based on a coherent strategy.



(LVSWSB) was formed as part of the sector reforms. In Kenya the local authorities formed autonomous water and sewerage companies with independent Boards of Directors that provide water services and re-invest water revenues in service delivery improvement. In Kisumu, the Municipal Council of Kisumu established Kisumu Water and Sewerage Company (KIWASCO) in 2001, which started operating in 2003.

In terms of deepening reforms, many challenges still need to be overcome. The progress towards Sector Wide Approach to Planning requires strengthening. The Sector Coordination Mechanism and Unit needs strengthening through resource allocation and capacity building. There is still overlap in the mandates of water sector institutions under the Ministry of Water and Irrigation (MWI); the Ministry still involves itself in procurement decisions made by the various Water Service Boards. Governance of the Boards of Directors and management of the various water service institutions needs to be improved. Currently there is a lack of experience and transparency.

Sanitation development currently has several weaknesses. The major issue is the unclear mandate between the two ministries involved; the Ministry of Public Health and Sanitation (MoPH&S) and MWI. In Kenya the National Environmental Sanitation and Hygiene Policy is coordinated by MoPH&S and this poses a challenge to developing a common approach with MWI.

Tanzania

A review of the water sector in 1993 called for a number of reforms. These were initially implemented through the Urban Water Supply Project(s) in Moshi, Tanga and Arusha, eventually culminating in reshaping the urban water sub-sector by establishing autonomous Urban Water Supply and Sewerage Authorities in 1997. In 2006, the design of the Water Sector Development Programme was finalised, consolidating various sub-sector components together with institutional strengthening and capacity development elements.

Harbour at Bukoba

Currently, under Tanzanias Water and Sanitation Act No.12: (2009) two types of statutory bodies provide water supply services to customers, namely: Water Supply and Sanitation Authorities (WSSAs) and Community Owned Water Supply Organisations (COWSOs). It should be noted that although the Minister for Water and Irrigation retains the residual power to provide water supply services through National Schemes, this power is exercised through the WSSAs. A key feature of recent reforms is that the new legislation makes no specific differentiation between urban and rural water supply services and in practice both are characterised by a mix of different types of water supply networks.

Since the reforms, large settlements like those being considered in this study have their own UWSA to manage the provision of water and sewerage services, which are fully owned by the Government of the United Republic of Tanzania (GoT), through an executive agency



operating within MoWI. The UWSAs are managed by an Executive Board of Directors appointed by the Minister for Water and Irrigation. Given the stronger role of the Central Government in board management of the water and sanitation providers, it is noteworthy that policy directives are continuously under review. Hence, currently a result-based strategic planning approach, rather than an output-based project planning approach is being mooted for the providers with a 9-point programme to be rolled out soon (GoT, 2010:76).

1.2.3. Water and Sanitation in National Sectoral Budgeting Kenya Table 1.1 - Kenya - Main Sources of Funds for Water Sector Development Budget in 2009/10 (KSh million)

Source Approved Estimates (A) Actual Receipts (B) Ratio B/A (%)

GoK 14,785 13,062 88

Development Partners 8,468 4,674 55

Through MoF 276 270 98

Direct payments to projects 8,192 4,404 54

TOTAL 23,253 17,736 76

Source: GoK (2010)

Table 1.1 shows the total actual receipts of water sector development funds in 2009/10 was KSh 18 billion. This is 76% of the total Approved Estimates for development allocation of KSh 23.3 billion. The Kenyan government contributed 79% of the total actual receipts (KSh 13 billion), while the Development Partners (DPs) contributed 22% (KSh 5 billion). GoK disbursed 88% of the Approved Estimates for development budget whereas the Development Partners disbursed 55% due to delays in project implementation caused by late disbursement of pledged funds and slow procurement processes.

The lack of a Sector Wide Approach to Planning (SWAP) is clear from the fact that of the KSh c5 billion total actual receipts from the donor funds, 94% was disbursed through direct payments to the projects, while the rest was channelled through the Ministry of Finance as Revenue.

In Kenya, funding comes through the Water Service Boards. In 2009/10, 55% of the total actual receipts by the sector were channelled directly to the Water Sector Institutions (WSIs). The funds channelled to the various WSIs comprised 61% from GoK, 23% from DPs and 16% from internally generated funds. GoKs contribution to the sector institutions was 33% of its water sector budget of KSh 17.1 billion while the DP contribution was 60% of the total donor budget for the sector of KSh 4.7 billion.



Table 1.2 - Kenya - Funds Budgeted for Selected WSIs (KSh million)

WSI 2008/09 2009/10 % increase (2008/09 to 2009/10) WRMA 444.8 709.5 59.5 Water Services Trust Fund 166.2 892.1 436.8 Athi WSB 3,533.3 4,211.1 19.2 Tana WSB 274.1 529.1 93.0 Tanathi WSB 290.7 501.5 72.5 Rift Valley WSB 1,156.2 723.7 (37.4) Lake Victoria North WSB 3,060.9 2,574.2 (15.9) Lake Victoria South WSB 353.5 749.8 112.1 Northern WSB 351.9 668.7 90.0 Coast WSB 1,886.7 922.8 (51.1) NWCPC 4,369.2 3,668.2 (16.0) Kenya Water Institute 148.4 220.4 48.5 National Irrigation Board 651.1 1,567.8 140.8

TOTAL 16,784.1 18,094.8 7.8

Source: GoK (2010) Note: These allocations do not include the payment of staff seconded by the MWI to the WSIs.

In terms of budgetary allocations to LVSWSB, Table 1.2 shows contributions from GoK, which are far from enough to develop and maintain assets for the water companies under its jurisdiction even when this was increased to Ksh 750 million in 2009/10.

Tanzania

The Water Sector Development Programme was established in 2007 to provide a workable sector-planning framework to increase both government and DP funds for the sector and to improve the co-ordination and technologies of the sector. It was clearly recognised early that ...even the doubling of the current water sector local development budget would, in practice, contribute only a small part of the capital required when compared to the latent demand in the sector. (GoT:78). It was considered that by co-ordinating the programme at a national level more cost effective solutions could be developed and rolled out throughout the country making the most effective use of the limited resources available in the sector.

WSDP is a SWAP, co-financed by the Government of Tanzania (GoT), the ADB, World Bank, KfW, GTZ, Dutch Government, AFD and other financiers, valued at about US$ 950 million. Some of the DPs funds are earmarked to specific projects but the majority are pooled in a centrally managed basket to be allocated to priorities set by the Ministry.

Table 1.3 below provides selected illustrative spending for the water sector in Tanzania. Funds for urban water and sanitation programmes have been typically low though it appears this is changing. For example, of the development expenditure from external sources a respectable 67% was allocated to urban water supply and sewerage activities in 2009/10.

For the current 2010/11 FY, even though there has been only a small increase in the water development expenditure budget to Tsh 246.9 billion, the DP contribution is still a high 88% though the allocation for urban water and sanitation activities has fallen to 50%.



Table 1.3 - Tanzania - Urban Water Funding in 2009/2010 (Tsh million) Allocated Spent %

Total Recurrent Expenditures (Other Charges) 9,566 7,940 83

of which Urban Water Supply and Sewerage 908 750 83

Recurrent Expenditures (Personnel Emoluments) 9,712 9,974 102

of which Urban Water Supply and Sewerage 1,018 1,018 100

Development (Water Basket) Expenditure (Local) 37,299 24,286 65

of which Urban Water Supply and Sewerage 18,914 14,633 77

Development (Water Basket) Expenditure (External) 190,538 64,448 34

of which Urban Water Supply and Sewerage 108,431 30,513 28 Source: GoT, 2010

In Tanzania, WSSP development has resulted in significant resources, especially foreign funds, flowing into the sector. In 2009/10, water sector budget allocations increased to 3.6% of the total budget compared to 3.2% in previous year. The majority of the budget goes to transfers to LGAs and Urban Water Authorities, which are intended to be used mostly for maintenance purposes. It is also noted that infrastructure spending takes the largest share of capital spending compared to other categories.

The increased allocation for infrastructure construction and rehabilitation follows immediately after the completion of most of the feasibility studies in 2008/09. The allocations to studies in the 2009/10 budget then declined in favour of infrastructure. In Tanzania, the Development by Devolution (D by D) strategy has been notable. The water sector was the one sector earmarked for the first phase of implementation of the D by D strategy. The water sector continues to be among the key sectors earmarked for D by D implementation. About 25% of the water sector budget in 2009/10 was allocated directly to the LGAs.

From the table it is clear that DP funding is critical for the water and sanitation sector especially with regard to development budget. However, there are great deficits in actual spending with only 28% of allocated urban water and sanitation funds actually spent in 2009/10, for example. These inefficiencies in donor funding are reflected in (i) a significant amount of the donor funding being off-budget; and (ii) the long delays in releasing donor funds. Part of this delay is the result of lack of capacity in the sector agencies resulting in poor performance in procurement, disbursement and reporting project arrangements. Other reasons are donors own performance which could be improved by, for instance, harmonising procurement, disbursement and reporting requirements.



The Water Sector Development Programme is the main financing mechanism for the water sector in Tanzania. The programme consolidated existing investment projects into three sub-sector components; and added an institutional strengthening and capacity development component. The components are as follows:

Component 1: Water Resources Management Component 2: Rural Water Supply and Sanitation Component 3: Urban Water Supply and Sewerage Component 4: Institutional Strengthening and Capacity Building The programme development objective is to strengthen sector institutions for integrated water resources management and improve access to water supply and sanitation services. The ultimate objective is to help deliver the Millennium Development Goals and to achieve the MKUKUTA targets under the National Strategy for Growth and Poverty Reduction.

The programme is implemented by Ministry of Water and Irrigation (MoWI), the Prime Ministers Office for Regional Administration and Local Government (PMO-RALG) and their Implementing Entities (IEs); including nine Basin Water Offices (BWOs), 19 Urban Water Supply and Sanitation Authorities (UWSAs), Dar es Salaam Water Supply and Sanitation Authority (DAWASA), 109 district and small town utilities, and 132 Local Government Authorities (LGAs).

The WSDP is financed through two distinct funding mechanisms; a basket fund using common implementation arrangements for external and internal funds and earmarked projects by specific Development Partners. The original budget for the Programme was:

Component Cost US$ million Component 1 Strengthening of WRM Framework 75 Component 2 Scaling up of Rural WSS Services 290 Component 3 Scaling up of Urban WSS Services 510 Component 4 Institutional Strengthening and Capacity Building 58 Unallocated 18

Total 951

The WSDP was conceived under a Sector Wide Approach to Planning (SWAP) initiative and has developed a prioritised list of investments in the water and sanitation sector. In line with the Government of Tanzania (GoT)s policy of decentralisation, the management of WSDP is delegated to more than 200 Implementing Entities (IEs) under the coordination of MOWI (and in the case of rural water supply and sanitation, in close coordination with PMO-RALG). Implementation of WSDP is undertaken within the framework established in a Programme MoU signed by GoT and leading Development Partners and a Programme Implementation Manual.

The Programme started in 2007 but WSDP instigated projects are only now moving to construction. Prior to this implementation under the WSDP has comprised:

Quick Wins Projects predominantly simple works where the rapid releases of development funds were assessed to make noticeable improvements in the provision of water services.

Earmarked Projects schemes identified for funding by individual Development Partners (DPs) and procured and managed under DPs own procurement processes and procedures.

On-Going Projects schemes started before the WSDP was finalized and supported by GoT local funds and/or earmarked funds.

1.2.4. Utility Performance Monitoring In both Kenya and Tanzania, WSP performance assessment is based on well-defined and generally agreed-upon indicators.

Kenya

In Kenya, the regulator, the Water Services Regulatory Board (WASREB) monitors and reports on the performance of the water services providers. WASREB introduced WARIS reporting and monitoring software in 2006. WSBs and WSPs use the software to submit data annually to WASREB. National comparative WSP performance data is published in an Impact Report. The latest available report dated October 2010 reports on WSBs and WSPs for the year 2007/8 and 2008/9. Lake Victoria South dropped from position 4 in 2007/8 to position 7 in 2008/9. KIWASCO does not fare any better being ranked at No. 7 out of 19 in its category of large WSPs. In terms of overall ranking it fell from 12 to 21 in 2008/9.



Master Operators Office - Kisumu

Tanzania

In Tanzania, though newer, the regulators Monitoring and Evaluation (M&E) system is much more robust compared to Kenyas and performance data can be obtained almost on a monthly basis.

In Tanzania, the Energy and Water Utilities Regulatory Authority (EWURA) is an autonomous multi-sector regulatory authority responsible for technical and economic regulation of the electricity, petroleum, natural gas and water sectors in Tanzania (reviewing and setting rates and charges). EWURA is responsible for issuing licenses to WSPs (based on the submission of their business plan) and for monitoring and regulating the performance of each WSSA against their business plans. Regarding performance monitoring, each utility monitors and self-reports on a monthly basis against a results framework agreed with EWURA. The Water Utilities Information System (Majis), managed by EWURA, is a tool used to monitor the monthly and annual performance of the licensed Water and Sanitation Authorities.

In April 2009, the Division of Commercial Water Supply and Sanitation in MoWI presented the first performance evaluation of the service providers. In the overall Scores and Performance Rank for Class A Water and Sanitation Authorities, Mwanza was ranked 8 out of 13 with a total of 65 points and was right at the bottom in terms of achieving regulatory directives and tariff conditions (GoT 2010, Table 6.3: 92).

The Ministry categorises Water Authorities based on their ability to meet their own costs into three categories:

Category A Defined as Authorities that can meet their own operating costs (O&M) and can contribute to investment costs

Category B Defined as Authorities that can meet their own operating costs (O&M) with a contribution from government towards electricity costs

Category C Defined as Authorities that can meet their own operating costs (O&M) with a contribution from government towards electricity costs and the salary costs of permanent staff

Mwanza and Musoma UWASAs have Category A status, Bukoba has Category B. Mwanzas small satellite towns are all Category C.



1.2.5. Tariff Levels and Structures Kenya

M&E tools are used by regulators in both countries to collect and analyse data on costs for WSPs and in Kenya, for the WSBs as well. The information is used to assess the financial viability of WSPs, the financial performance of WSBs and to determine whether tariff adjustments, when applied for, are justified. Tariff adjustments can be linked to performance improvement of the WSPs and can thus be used as an incentive, and through progressive block tariffs, WASREB ensures that the fixing of average tariffs takes into account the ability to pay of different consumer groups.

Tanzania

In Tanzania, the policy goal for controlling and regulating tariff levels and structures to provide cost-efficient provision of WATSAN services is to set tariffs that are transparent, achieve cost coverage targets, encourage cost-effective provision of services and protect the poor and disadvantaged groups (GoT, 2010:45). The strategy to achieve this goal is to:

Ensure tariffs are structured and set at levels necessary to achieve cost recovery targets and are based on levels of water consumption;

Include water supply and sewerage services; Promote cost-effective delivery of water and sewerage services; Protect poor and disadvantaged groups; and Regulate tariff setting to ensure consumers receive value for money services.

Hence, in both Kenya and Tanzania, the adjustment of the average tariff aims at cost recovery for the financial sustainability of WSPs. While in Kenya WASREB sets the tariff, in Tanzania the Boards of WSSAs are responsible for setting the water tariffs applied within their service area. In the case where a water tariff increase is requested, EWURA is expected to approve these following a public inquiry, but, inevitably, there are many issues to resolve before this final step is reached.

In both Kenya and Tanzania, WSPs are required to work towards meeting full cost recovery. There is space for tariff increases in urban areas, where higher levels of piped water services are disproportionally used by more affluent consumers. In Tanzania, the 60% highest income households use 80% of piped water connections (either house or yard connections or connections shared with neighbours), implying that individual piped connections tend to be mostly a service used by higher income consumers (World Bank, 2010:54). The report suggests that recent household budget survey data show that when households pay for water, the wealthiest 40% have room to pay for tariff increases as they currently spend less than 5% of their household expenditure on water. Increasing the rates to the levels of the three utilities with the highest rates would generate additional funds equal to 43% of current operating revenues.

However, even before making changes to the tariffs, WSPs in both countries need to first address their low billing and collection efficiencies. In both countries, household budget surveys show that many households with piped water pay very little for water. Fixing gaps in the utilities billing and collection systems will generate additional revenue, while at the same time reducing the pressure to increase tariffs to ensure the sustainability of the water supply service.

KIWASCOs current tariff structure was gazetted on 31 December 2008 in a WASREB tariff review for Nyeri, Nairobi and Kisumu based on the WASREB Tariff Guideline. Kisumus tariff structure has four consumption categories of which the domestic consumption category is divided into seven progressive blocks. The current tariff structure does not follow what was recommended before the tariff review. It would appear that the general tariff is very low which would not assist in any water demand management intervention or in long term marginal cost. It is not possible to fund the expenses of the company with the tariff especially when non payment and quantity of NRW is taken into account (KIWASCO, 2010:35). In addition it appears that there is unnecessary differentiation between industrial,



institutional, commercial and government users. Given that the regular tariff period is typically set at three to five years, it is unlikely that WASREB will entertain another review for KIWASCO this year.

MWAUWASA currently has six consumption categories in its tariff structure of which the domestic consumption category is divided into three bands. MWAUWASA considers its current tariffs to be affordable and indeed attributes its relatively high revenue collection efficiency as evidence that the tariffs are affordable to many. The tariff review in June 2011 is crucial for MWAUASAs future operations. In its Business Plan, July 2010 June 2013, MWAUWASA intends to gradually increase tariffs to attain full cost recovery tariffs that will enable the Authority to ...recover her operating expenses including Interest on Loans and earn sufficient surplus as Return on Investments (Recommended: 10% of Net Assets Employed), but avoid monopoly returns (MWAUASA,2010:15).

1.2.6. Environmental Management of the Water & Sanitation Sector Kenya

Environmental management activities are implemented through a variety of instruments such as policy statements and sectoral laws, and also through permits and licences. However, the Environmental Management and Coordination Act of 1999 (EMCA) establishes the regulatory and institutional framework for the management of the environment, and supersedes all other environmental legislation.

The Act requires environmental assessments to be undertaken for any project falling under its Second Schedule, including dams, rivers and water sources, and sewage and solid waste disposal sites. EMCA provides standards for the management of lakeshores, and makes it an offence to pollute any aquatic environment. The Act prohibits the disposal/discharge of solid waste which could cause pollution or pose a risk to human health.

Several regulations under EMCA also have implications for this project. The Environmental (Impact Assessment and Audit) Regulations, 2003, provide the basis for procedures for carrying out Strategic Environmental Assessments (SEA), Environmental Impact Assessments (EIA) and Environmental Audits (EA).

The Environmental Management & Coordination (Water Quality) Regulations, 2006, prohibit activities that cause direct or indirect pollution of water sources and of water for fisheries, wildlife, recreational purposes. It requires protection of lakes, rivers, streams, springs wells and other water sources. Discharges into aquatic and non-aquatic environments must comply with prescribed standards, as must discharges into public sewers, and discharge licences must be obtained. Persons discharging effluent under a licence must carry out daily effluent discharge quality and quantity monitoring. The Environmental Management and Coordination (Waste Management) Regulations, 2006, states that any person transporting waste, or operating a waste disposal or treatment site (including sites reusing and recycling wastes) requires a licence.



Kibos River above Kajulu Water Treatment Works

The Water Act 2002 makes provision for the conservation, control, apportionment, use of water resources of Kenya. The Act regulates the management of water supply and sewerage services, and requires permits to be obtained to use water from a water resource. Further, it makes it an offence to pollute any water resource, and requires a permit to be obtained for the discharge of a pollutant into any water resource. The Water Rules 2008, stipulate the need for a permit for the abstraction, diversion, in-stream works and storage of surface water, and require a reserve flow to be maintained in all rivers.

The Energy Act 2006, among other things, promotes the development and use of renewable energy technologies, including hydropower, biogas and municipal waste. The Wayleaves Act, Cap 292, gives the Government the power to carry sewers, drains, or pipelines into, through, over or under any lands, but not interfere with any existing building.

Public Health Act (rev 1986) stipulates that the local authority is required to maintain cleanliness and prevent nuisances. It is responsible for the prevention of any pollution to any water supplies used for human and domestic consumption. The local authority is also required to approve the construction of any septic tank, storage tank, sewage filter installation or other treatment works. The Act provides guidance for drainage and sewerage.

The National Environmental Sanitation and Hygiene Policy of July 2007 aims to reduce the burden of environmental sanitation and hygiene-related disease through promoting access to and use of hygienic, affordable, functional, and sustainable improved latrines and hand washing facilities, safe and sound waste management practices. The current Health Sector Strategic Plan (2005-2010) identifies environmental sanitation and hygiene as an important component in delivery of health care.

Other legislation having a bearing on the construction and operation infrastructure proposed under this project includes:

The Physical Planning Act, 1996 The Registered Land Act, Cap 300 Trade Licensing Act, Cap 497 Building Code, 1997 Local Government Act, rev. 1998 Forests Act, 2005 Lakes and Rivers Act, rev. 1983 Fisheries Act Occupational Health and Safety Act, 2007



Factories and Other Places of Work (Health and Safety Committee) Rules, 2004 The Factories (First Aid) Rules, 1977 The Factories and Other Places of Work (Fire Risk Reduction) Rules, 2007 Factories and Other Places of Work (Noise Prevention) Rules, 2005 Factories (Building Operations and Works of Engineering Construction) Rules, 1984 Workmens Injury Benefits Act, 2007 Local by-laws.

Compensation and Resettlement Kenya does not have a national resettlement policy framework (RPF). However, under the World Bank funded Water Supply and Sanitation Service Improvement Project (WASSIP), a resettlement policy framework was developed in 2007. In 2008, a RPF was prepared by the Ministry of Environment and Mineral Resources for the Lake Victoria Environment Management Project Phase II. Both are guided by the World Banks OP 4.12 on Involuntary Resettlement (April 2004), which is based on the following principles:

i. Involuntary resettlement should be avoided where feasible, or minimised, exploring all viable alternative project designs.

ii. Where it is not feasible to avoid resettlement, resettlement activities should be conceived and executed as sustainable development programs, providing sufficient investment resources to enable the persons displaced by the project to share in project benefits. Displaced persons should be meaningfully consulted and should have opportunities to participate in planning and implementing resettlement programs.

iii. Displaced persons should be assisted in their efforts to improve their livelihoods and standards of living or at least to restore them, in real terms, to pre-displacement levels or to levels prevailing prior to the beginning of project implementation, whichever is higher.

The main piece of legislation regarding expropriation of land is generally provided for in the Constitution of Kenya under section 75 for private land and sections 117 and 118 for unregistered Trust Land. The Land Acquisition Act, Chapter 295 provides for land to be acquired or granted access to for the purpose of a project. Acquisitions or access must be shown to be for the public benefit and compensation must be provided to the landowners whose land is acquired or damaged. The Registered Land Act Chapter 300 provides for absolute proprietorship over land (exclusive rights). Such land can be acquired by the State under the Land Acquisition Act. The Land Adjudication Act Chapter 95 provides for ascertainment of interests prior to land registrations under the Registered Land Act.

Institutional Set Up for Environmental Management in the Water & Sanitation Sector As a result of the different laws and legal instruments which apply to water sector-related environmental and social issues in Kenya, a number of players are involved at various stages of environmental and social impact assessment.

The Environmental Management and Coordination Act of 1999 established the National Environment Management Authority (NEMA), which became operational in July 2002.

NEMA is mandated to be the principal agency in Kenya for the management of the environment. At district level, the responsibility for the management of environmental issues lies with the District Environment Officer, who is the secretary of the District Environment Committee.

With regard to public health, the Department of Environmental Health and Sanitation (DEHS) is responsible for coordinating partners implementing environmental sanitation and hygiene activities. It is also responsible for monitoring urban and rural sanitation; sanitation of dwellings, markets, public places and informal settlements; and for preventing and controlling unsanitary nuisances.



NEMA and DEHS are responsible overall for the coordination of sectoral environmental and sanitation issues. NEMA is typically short staffed, and has neither the capacity nor resources to do this effectively. However, NEMA does have the mandate to instruct the relevant local authorities to implement environmental protection and management measures. LVSWSB are increasing their environmental capacity and will be responsible for: monitoring and ensuring that EIAs are conducted, and that all mitigation measures and environmental management/action plans are implemented according to NEMA regulations; periodically reporting on environmental issues and program ac