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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…
                        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
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%).
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
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.

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OBA: Uganda Case Study

  • 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.