Client Context

Tana Water Works Development Agency is one of Kenya's gazetted national water infrastructure institutions, responsible for developing, managing, and maintaining bulk water supply infrastructure across its service area. TWWDA operates alongside the Northern Water Works Development Agency, which covers Kenya's northern counties including Isiolo, Marsabit, and Mandera.

The six water works covered by this engagement are gazetted national public water works. Their status as national infrastructure is legally established. What has not been established, with the rigour that the African Development Bank and Kenya's water regulatory framework require, is the financial sustainability of their bulk water supply operations. Each of the six works serves a different urban population, operates under different hydrological and infrastructure conditions, and faces a different set of tariff and cost recovery challenges.

WASREB, the Water Services Regulatory Board, sets the framework within which bulk water tariffs must be established and licensed. Bulk water tariff setting is not an administrative exercise. It requires a financially grounded analysis of the actual cost of producing and supplying bulk water at each works, a sensitivity model that tests what happens to tariff affordability when cost or demand assumptions change, and a completed tariff licence application that meets WASREB's requirements for each of the six national public water works.

The African Development Bank's financing of this study reflects the scale of the institutional gap it is designed to close. Without a credible bulk water tariff framework, the financial sustainability of these national water works remains unresolved. The investment decisions required to maintain and expand them cannot be made on defensible grounds.

The Challenge

The core challenge of this mandate is that financial sustainability in bulk water supply is determined by a set of variables that interact with each other in ways that aggregate financial data cannot reveal.

The cost side is not straightforward. Operations and maintenance costs for a water works in Mandera, in a remote semi-arid environment, are structurally different from those in Chogoria, which operates in a water-rich highland environment. Staffing requirements differ. Energy costs differ. Chemical treatment requirements differ. Infrastructure maintenance cycles differ. Establishing a credible O&M cost estimate for each of the six works requires site-level analysis, not a blanket application of national sector averages.

The demand side is equally complex. Bulk water production trends over the tariff period depend on population growth projections, economic activity in the service towns, industrial off-take where applicable, and the distribution losses that reduce the volume of billable water supplied. Projecting bulk water demand for Marsabit is a fundamentally different exercise from projecting it for the rapidly urbanising Kerugoya-Kutus corridor.

The tariff setting challenge integrates both sides. A bulk water tariff that fully covers the real cost of production at Isiolo or Mandera may be unaffordable for the Water Service Providers purchasing bulk water there, making it effectively uncollectable regardless of its technical correctness. The sensitivity analysis WASREB requires is not an academic exercise. It is the stress test that determines whether the tariff proposed will actually be paid, or whether it will be set at a level that looks correct on paper while driving off-takers to informal sources or arrears.

Mandera, the sixth of the six water works, sits in Kenya's most remote and institutionally challenged county, where the gap between what the infrastructure requires financially and what the local economy can support is widest. Getting the Mandera bulk water tariff wrong has consequences for both the water works' financial position and for the residents depending on its supply.

Our Approach

ACAL structured the engagement around the seven analytical requirements specified in the WASREB-aligned Terms of Reference, applied across all six water works simultaneously. Bulk water production trends were estimated for each works over the tariff period, incorporating population growth, demand projections, and distribution loss trajectories. Investment costs were established and valued for each national public water work within the proposed tariff period. Stakeholder mapping covered off-taker dynamics and the commercial and institutional factors affecting tariff acceptance at each location.