**2.3 Privatization and public private partnerships in water sector**

Privatization means the transfer of public sector assets, control and financing of enterprises to the private sector. Private sector participation and/or privatization of water supply often imply commercialization Bakker (2003b). Rakodi (2000) views commercialization as the creation of quasi market conditions in public service delivery through increased cost recovery and introduction of performance measurement systems. According to Alila et al (2007), the interaction between the government and business is generally an ongoing process and forms the basis for their interaction in nature and scope. He further stated that the key parameters shaping the interactions between government and business include market liberalization, privatization, good governance, public goods and services, development capital and policy implementation. The services can be provided of the government's own accord, and /or business owners and others in need can place demands for their provision.

Adapting the classification of Stottman (2000), Onjala (2002) and UN-Habitat (2003, O.A. K'Akumu (2006) identifies ten (10) types of PPP applicable to water enterprises. The range, is a continuum from Public Enterprises in which the asset ownership, management, tariffs regulation are all under statutory control, followed by Public limited company(PLC), Service contract, Management Contract, *Affermage* contract, Lease contract, Concession contract, Built-Operate-Transfer(BOT), Joint Venture, to Divestiture in the extreme end. In Divestiture, other than quality monitoring which is in the hands of the public, all other controls including asset ownership, capital, management, and tariff regulation are under private control.

Although some forms of PPP like contract and lease management, might resemble privatization, they are actually not the same thing. PPP falls in between public enterprises at one end of the continuum and divestiture to the very extreme end. It is divestiture, which for all practical purposes, involve privatization. Traditionally, water services have been provided by the public sector. A water institution is termed public if the ownership is in the public sector and the control is in the public sector. Control is in terms of responsibility for day-to-day management of the utility. Privatization will occur with any introduction of private sector participation in the ownership and/or control of a water service institution. Privatization of water therefore refers to the process and outcome of the introduction of the private sector in the ownership and/or control of water utilities.

### **2.4 Experience of ppp and privatization globally**

In a study of privatization of water services in Kenyan Local Authorities, Asingo( 2005), identifies five governance issues that have affected the privatization of water sectors globally:


3. The impact of the water privatization on the poor people,

216 Current Issues of Water Management

them. NAWASSCO has constructed 7 water kiosks in Nakuru to serve the low-income estates of the municipality. Four of these kiosks are located in Rhonda and Kaptembwa but only 3 are operational. These water kiosks are managed by a CBO known as NAROKA

Privatization means the transfer of public sector assets, control and financing of enterprises to the private sector. Private sector participation and/or privatization of water supply often imply commercialization Bakker (2003b). Rakodi (2000) views commercialization as the creation of quasi market conditions in public service delivery through increased cost recovery and introduction of performance measurement systems. According to Alila et al (2007), the interaction between the government and business is generally an ongoing process and forms the basis for their interaction in nature and scope. He further stated that the key parameters shaping the interactions between government and business include market liberalization, privatization, good governance, public goods and services, development capital and policy implementation. The services can be provided of the government's own accord, and /or business owners and others in need can place demands for their provision. Adapting the classification of Stottman (2000), Onjala (2002) and UN-Habitat (2003, O.A. K'Akumu (2006) identifies ten (10) types of PPP applicable to water enterprises. The range, is a continuum from Public Enterprises in which the asset ownership, management, tariffs regulation are all under statutory control, followed by Public limited company(PLC), Service contract, Management Contract, *Affermage* contract, Lease contract, Concession contract, Built-Operate-Transfer(BOT), Joint Venture, to Divestiture in the extreme end. In Divestiture, other than quality monitoring which is in the hands of the public, all other controls including asset ownership, capital, management, and tariff regulation are under

Although some forms of PPP like contract and lease management, might resemble privatization, they are actually not the same thing. PPP falls in between public enterprises at one end of the continuum and divestiture to the very extreme end. It is divestiture, which for all practical purposes, involve privatization. Traditionally, water services have been provided by the public sector. A water institution is termed public if the ownership is in the public sector and the control is in the public sector. Control is in terms of responsibility for day-to-day management of the utility. Privatization will occur with any introduction of private sector participation in the ownership and/or control of a water service institution. Privatization of water therefore refers to the process and outcome of the introduction of the

In a study of privatization of water services in Kenyan Local Authorities, Asingo( 2005), identifies five governance issues that have affected the privatization of water sectors

2. The identification of the service provider, and how the service provision is transferred

private sector in the ownership and/or control of water utilities.

**2.4 Experience of ppp and privatization globally** 

1. Reasons for the privatization of water services;

from public to private providers,

**2.3 Privatization and public private partnerships in water sector** 

(Owuor et al, 2009).

private control.

globally:


The justifications for the privatizations wherever they take place have been pegged on the inability or failure of the central and local governments to provide services to the people. This is in most cases though not always attributed to financial factors. For example Nelspruit Local Authority (NLA) in South Africa, entered into public-private partnership to relieve it of the financial burden of upgrading water and sanitation services and ensuring efficient service provision (Asingo, 2005). However, some cities have addressed poor service delivery without necessarily altering ownership and management. For example the city of Bulawayo, Zimbabwe enhanced water service delivery by putting up mechanisms to minimize the use of unaccounted water through conservation (Asingo, 2005).

Different countries have used different methods to transfer service provision from public to private providers and registered different experiences. Nelspruit city, South Africa used open tendering method to identify a private company to manage water services on a concession basis for an initial period of 30 years. The Local Authority was to retain the role to regulate tariffs and set water and sanitation service quality standards according to the national government policy (Cardone and Fonseca, 2003).

In Guinea, water privatization proceeded through a franchise arrangement where the government transferred the ownership of urban water supplies to major cities including Conakry to a state owned national water authority, the *Societe Nationale des Eaux Giunea* (SONEG) in 1989.SONEG in turn invited private companies to bid for a franchise to operate and manage water services in the seventeen urban centres. The bid was won by *Societe de Exploitation des Eaux de Guinea (SEEG).* SONEG continued to own water assets, undertake new investments, plan the sector, service debts, set tariffs and monitor the activities of SEEG.*SEEG* in turn was to operate and manage existing supply facilities, bill and collect payments in the 17 urban centres, undertake small scale investments and pay rental fee to SONEG (Bayliss, 2000). It is important to note that Guinea was not faced with water accessibility problems but poor quality water and low coverage of connected water. It had several alternative sources of water such as well water, connection through neighbours meter, and collected rain water. The main challenges included unaccounted for water, low collection rate from the public sector and high price of water (Menard, C and Clarke, G., 2000). In essence, Menard et al 2000, have concluded that despite the challenges and with the availability of water for 24 hours daily, the provision of water services improved under private than it could have been under public ownership.

In Mauritania, the government delegated Water Management in small towns to private providers called *Concessionaires* in 1993. Each *concessionaire* was expected to supply water to a community on a yearly basis for those with diesel powered systems and on a monthly basis for those with solar-powered systems under cost recovery principles where users pay for water consumed. In each case, the concessionaire only recovers maintenance and operation costs as the government meets the capital cost (Cardone and Fonseca, 2003).

Some Governments have also used devolution method to a lower level. For example, in Colombia, water service provision was devolved to local governments in 1994 and the

Public Private Partnerships in the Privatization of Water Service Delivery in Kenya 219

The second round of privatization is yet to come following the publication of The

a. "The transfer of public entity's interests in a state corporation or other corporation" and b. "The transfer of the operational control of a state corporation or substantial part of its

1. Improvement of infrastructure and delivery of public services by the involvement of

3. Generation of additional government revenue by receiving compensation for

4. Improvement in regulations of the economy by reducing conflicts between the public

5. Improvement in efficiency of the Kenyan economy by making it more responsive to

6. Broadening of the base of ownership in Kenyan economy and the enhancement of

The privatisation of water services in Kenya was ushered in by the sectoral reforms through Water Act of 2002 even before the Privatization Bill of 2004 was published. The Government of Kenya established Seven Water Service Boards (WSBs) under one Water Regulatory Board (WSRB).In each of the WSBs, the Water Service Providers registered as Public Limited Companies(PLCs). Each was expected to embrace the commercialization of services

The local authorities in Kenya introduced commercialization as a strategy for ensuring sustainable and efficient delivery of water and sanitation services (UNCHS, 1998b).Towards this end, most local authorities have formed or are in the process of forming Public Limited Companies (PLCs) to run on strict commercial lines under 'agency contracts' from the parent local authority. The emphasis by local authorities is towards ensuring that under the framework of commercialization, companies formed to provide water plough back the bulk of their earnings into improving service delivery while allowing local authorities to retain part of the earnings to cover costs such as personnel expense (O. A. K'Akumu and P. O.

The section presents the framework as provided by the water Act 2002, and describes it in relation to the envisaged roles as it examines the efficacy of the institutions in performing the perceived roles. It also examines the role of popular participation in the governance of

Water Resources Management issues are captured under Part III of the Water Act 2002. The governance institutions and instruments established for the water resources management

principle in the provision of water as a public good to customers at a profit.

**3. Institutional framework for water management and monitoring** 

Privatization Bill, 2004. The bill defines privatization as

It envisages the following benefits to the Kenyan economy:

2. Reduction of demand for government resources,#

sector's regulatory and commercial functions,

private capital and enterprise,

capital market development.

water resources and distribution management.

**3.1 Institutions for water management in Kenya** 

**3.1.1 Institutional framework resulting from water act 2002** 

privatization initiatives,

market forces and

Appida, 2006).

**mechanisms** 

activities", to a non-public entity (Republic of Kenya, 2004: 55).

federal government adopted an overall and regulatory role. A regional agency, *Acquontioqua*  was set up to own and operate water services in the city council of Marinilla and other municipalities. In 1997, *Acquontioqua* awarded a management contract for the urban centres to a domestic private firm through a transparent process which involved citizen participation. Within 3 years, an additional 3,500 people were connected to the system, unaccounted for water decreased, service level and water quality have been increased, existing infrastructure was upgraded and 99% of the city population was provided with water 24 hours a day (Cardone and Fonseca, 2003). Dagdeviren, H. (2008) in a study of ten commercialization of water services in Zambia, observed that the World Bank sponsored management contract of water services in the copper belt mining towns of Zambia had to be reverted to public utility, Nkana Water Service Company because its performance was no better than those of public companies. The unaffordability rate of water tariff in Lusaka, as measured by the ratio of household monthly expenditure to household income, increased from 40% in 2002 to 60% in 2006 using 3% benchmark (Dagdeviren, H. 2008).

The accessibility to safe water rate also decreased from 73% in 1990 to53% in 2005 (World Bank, 2006). Most households in peri-urban areas due to the informal nature of most of the settlements, depend on boreholes, communal or public taps built by commercial utilities, NGOs, and donors. The management of the schemes for the water service provision in the informal settlements have taken various forms. Some are managed solely by the community, several are managed by communities in co-operation with public utilities, while others are managed by vendors (Dagdeviren, 2008). Barraque' (2003) argument that the economic and political areas are a product of a country's social governance and that for any policy to be successful, social, economic and political dimensions need to be taken into account. Therefore, if the intended policy is not contextualized within the appropriate pattern of social governance, it is doomed to be rejected. This could explain the rejection of privatization of water supply policies in Cochabamba, Bolivia, and Nespruit, South Africa and successful scheme in City Council of Marinilla Colombia where the citizens directly participated in developing privatization terms and contract between the council and the private water companies. Cochabamba water concession projects in Bolivia were cancelled as a result of: Vested interests, combined with politics, lack of proper communication and street protests (Nickson and Vargas, 2002).

It is worth mentioning that regulatory mechanisms, whether through citizen participation or statutory, is crucial to the outcomes of privatization. It is widely recognized that regulation and regulatory governance are key elements of development-policy thinking in promoting pro-poor market-led development(Kirkpatrick and Parker, 2004).

### **2.5 Experience of ppp and privatization of provision of water services in Kenya**

Privatization in Kenya has been carried out in two phases. The first round of privatization was executed on a sectoral basis. It took place mainly in the late 1980s and early 1990s and happened without a comprehensive national policy on privatization. It involved financial corporations and utility corporations like electricity, telecommunications and water. Privatization of the concerned enterprises were guided by privatization policy entrenched through the revision of statutes for the concerned sectors or corporations. Privatization in Kenya began with a divestiture exercise that saw the government sell proportions of its shares in the public enterprises.

The second round of privatization is yet to come following the publication of The Privatization Bill, 2004. The bill defines privatization as


It envisages the following benefits to the Kenyan economy:


218 Current Issues of Water Management

federal government adopted an overall and regulatory role. A regional agency, *Acquontioqua*  was set up to own and operate water services in the city council of Marinilla and other municipalities. In 1997, *Acquontioqua* awarded a management contract for the urban centres to a domestic private firm through a transparent process which involved citizen participation. Within 3 years, an additional 3,500 people were connected to the system, unaccounted for water decreased, service level and water quality have been increased, existing infrastructure was upgraded and 99% of the city population was provided with water 24 hours a day (Cardone and Fonseca, 2003). Dagdeviren, H. (2008) in a study of ten commercialization of water services in Zambia, observed that the World Bank sponsored management contract of water services in the copper belt mining towns of Zambia had to be reverted to public utility, Nkana Water Service Company because its performance was no better than those of public companies. The unaffordability rate of water tariff in Lusaka, as measured by the ratio of household monthly expenditure to household income, increased

The accessibility to safe water rate also decreased from 73% in 1990 to53% in 2005 (World Bank, 2006). Most households in peri-urban areas due to the informal nature of most of the settlements, depend on boreholes, communal or public taps built by commercial utilities, NGOs, and donors. The management of the schemes for the water service provision in the informal settlements have taken various forms. Some are managed solely by the community, several are managed by communities in co-operation with public utilities, while others are managed by vendors (Dagdeviren, 2008). Barraque' (2003) argument that the economic and political areas are a product of a country's social governance and that for any policy to be successful, social, economic and political dimensions need to be taken into account. Therefore, if the intended policy is not contextualized within the appropriate pattern of social governance, it is doomed to be rejected. This could explain the rejection of privatization of water supply policies in Cochabamba, Bolivia, and Nespruit, South Africa and successful scheme in City Council of Marinilla Colombia where the citizens directly participated in developing privatization terms and contract between the council and the private water companies. Cochabamba water concession projects in Bolivia were cancelled as a result of: Vested interests, combined with politics, lack of proper communication and

It is worth mentioning that regulatory mechanisms, whether through citizen participation or statutory, is crucial to the outcomes of privatization. It is widely recognized that regulation and regulatory governance are key elements of development-policy thinking in promoting

Privatization in Kenya has been carried out in two phases. The first round of privatization was executed on a sectoral basis. It took place mainly in the late 1980s and early 1990s and happened without a comprehensive national policy on privatization. It involved financial corporations and utility corporations like electricity, telecommunications and water. Privatization of the concerned enterprises were guided by privatization policy entrenched through the revision of statutes for the concerned sectors or corporations. Privatization in Kenya began with a divestiture exercise that saw the government sell proportions of its

**2.5 Experience of ppp and privatization of provision of water services in Kenya** 

from 40% in 2002 to 60% in 2006 using 3% benchmark (Dagdeviren, H. 2008).

street protests (Nickson and Vargas, 2002).

shares in the public enterprises.

pro-poor market-led development(Kirkpatrick and Parker, 2004).


The privatisation of water services in Kenya was ushered in by the sectoral reforms through Water Act of 2002 even before the Privatization Bill of 2004 was published. The Government of Kenya established Seven Water Service Boards (WSBs) under one Water Regulatory Board (WSRB).In each of the WSBs, the Water Service Providers registered as Public Limited Companies(PLCs). Each was expected to embrace the commercialization of services principle in the provision of water as a public good to customers at a profit.

The local authorities in Kenya introduced commercialization as a strategy for ensuring sustainable and efficient delivery of water and sanitation services (UNCHS, 1998b).Towards this end, most local authorities have formed or are in the process of forming Public Limited Companies (PLCs) to run on strict commercial lines under 'agency contracts' from the parent local authority. The emphasis by local authorities is towards ensuring that under the framework of commercialization, companies formed to provide water plough back the bulk of their earnings into improving service delivery while allowing local authorities to retain part of the earnings to cover costs such as personnel expense (O. A. K'Akumu and P. O. Appida, 2006).
