1) The document discusses Uganda's Small Towns Water Project which uses an Output-Based Aid (OBA) approach to improve water access in small towns and rural growth centers. 2) Under the project, private operators were engaged via design-build-operate contracts to extend water services to an additional 45,000 people across 10 towns. 3) Initial results found an average 20% efficiency gain through competitive bidding. Construction is nearing completion across all sites, with some connections already verified and tariffs embedded in contracts to ensure long-term sustainability.

1. 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

2. Outline
 Context – small towns water reform
 OBA in Uganda’s water sector
 Small towns and RGC project - design,
implementation, achievements and
challenges
 Concluding remarks

3. 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.

4. After the reforms…
MW&E
New framework for
the small towns
Performance Contract water sector
Assets Delegation
Water Authority 5 Member WSS Board
•Town clerk
(Assets Management) •Chair Social Services Committee
•Rep of domestic consumers
Management Contract •Rep of institutional consumers
•Rep of Other Consumers
Private Operator
(Management of Technical, Financial and Commercial Operations)
Customer Contract
Users/Clients

5. 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%).

6. Institutional framework
Memorandum of Understanding (MoU)
MoWE Grant
Implementation Agreement
DWD Agreement GPOBA
Implementing Agency
Monitoring and
Verification
Function
Performance Contract Fiduciary Private
Agent Sector
Small Town
RGC Funds
Administration
Local Agreement
Water Authority Funds
Disbursement
Agent
DBO
Agreement
Contracts
Private Operator
Service Control
provision
Funds
Water users

7. Targeting
Geographic: concentrated rural areas in Uganda for those
currently without access. Self-selection: public kiosks

8. Innovation and efficiency
A competitive bidding process resulted in an average
efficiency gain of 20% in 10 towns.

9. 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

10. 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.

11. 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.

12. 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.