Output-Based Aid for Water in Africa:

Uganda Small Towns Water Project

Eng Chris Azuba

Ministry of Water & Environment, Uganda

African International Water Congress

Kampala, March 15 -18, 2010

Outline

Context – small towns water reform

OBA in Uganda’s water sector

Small towns and RGC project - design,

implementation, achievements and

challenges

Concluding remarks

Small towns water sector reform

Prior to 1997,Central Government ran all formal water supply systems with most resources anchored at the centre, but with regional/ town offices working on the ground.

This was not sustainable: decision making was far from the users.

Example: Revenue from water sales had to be remitted to the Centre as “government revenue”, and requests for operational funds would follow a long laborious process which could take as long as 3 months.

After the reforms…

Performance ContractAssets Delegation

Customer Contract

Management Contract

Water Authority(Assets Management)

Users/Clients

MW&E

Private Operator(Management of Technical, Financial and Commercial Operations)

5 Member WSS Board•Town clerk•Chair Social Services Committee•Rep of domestic consumers•Rep of institutional consumers•Rep of Other Consumers

New framework for

the small towns

water sector

OBA interventions in Uganda

Objective: Pilot OBA sub-projects in 6 small towns (extensions) and 4 RGCs (greenfield). Project expected to benefit almost 45,000 people

Outputs: 1) Household yard-taps or public kiosks and 2) continued service for 1 year (small towns) or 6 months (RGCs). Total number of connections: 2000

Private operators have been engaged in Design-Build-Operate (“DBO”) contracts of 5 years in brownfield, 7-10 years in greenfield.

Private Sector leveraging: 10-30% of capital costs depending on small town/RGC.

Available subsidy is $2,6m for first 10 towns; subsidy per town ranges between 80 to 90% (whereas normally with donor funding, 100%).

.

MoWE

Small TownRGC

Performance Contract

Local Water Authority

Water users

DWDImplementing Agency

Private Operator

Service

provision

PrivateSector

Funds Disbursement

Agent

GPOBA

Contracts

Funds

Control

Grant

Agreement

FiduciaryAgent

Implementation

Agreement

Funds

Administration

Agreement

DBO

Agreement

Memorandum of Understanding (MoU)

Monitoring and Verification

Function

Institutional framework

Targeting

Geographic: concentrated rural areas in Uganda for those

currently without access. Self-selection: public kiosks

Innovation and efficiency

A competitive bidding process resulted in an average

efficiency gain of 20% in 10 towns.

Sustainability

Subsidies are one-off investments and tariffs cover O&M costs

plus a margin for investment. Tariffs levels are embedded in

the contracts. These contracts are of longer duration that what

has been seen so far in the Ugandan water sector

Progress to date…

In the 6 towns, progress is as follows:

Town Target Completed Remarks

Kachumbala 156 150 Verified

Kalisizo 150 150 To be verified

Luweero 250 180 To be verified

Rukungiri 200 113 Awaiting additional

applicants

Wakiso 300 300 Verified

Wobulenzi 200 68 To be verified

Construction in the 4 RGCs is at an advanced stage and

is expected to be completed by the end of March 2010.

Achievements and challenges

Tariffs embedded in contract = big step in Uganda.

Acceptance of “tariff localization”.

Bidding process demonstrated enthusiasm from POs.

Real challenge in getting bidders to understand the new format of bidding documents. Some lots were re-bid.

Some towns = no subsidy required for making connections.

Outputs being delivered – some more slowly than others –construction and verification process approaching completion.

Access to finance, in particular to “pre-finance” investments until OBA subsidy disbursed is a challenge.

JVs with construction companies helped.

Phasing in of outputs in the greenfield cases were required (but still 40% paid on working connections and water delivered).

POs relied more on own cash, working capital (e.g. supplier credit) than bank loans.

Conclusions and way forward

Uganda-tailored approaches. Working largely with existing contractual framework.

Challenges related to technical assistance capacity and access to finance remain.

Now scaling-up: increased collaboration with all stakeholders, donor harmonization and adopting (and adapting) government approaches as far as practicable.

MoWE has agreed in principle to adopt OBA approaches within the new WSDFs, being negotiated for next fiscal year, regardless of source of funding.