P U B LI C -P RI VAT E INFR ASTR UCTUR E AD VISORY FACILITY 72068 March 2011 IMPACT STORIES PPIAF Supports Small-Scale Water Providers in Uganda To complement and support the Uganda Small-Scale Infrastructure Provider (SSIP) Water Program, PPIAF support was sought in 2009 to assess private operators’ ability to expand service delivery in Uganda’s water sector, which included reviewing the terms and conditions of available �nancing and the constraints private operators face. The recommendations from the PPIAF-funded study were implemented by the International Finance Corporation (IFC), who organized training sessions to present the Uganda SSIP Water Program to local banks in Uganda to assess their interest in �nancing private water operators. Following the training event, two banks expressed interest to provide pre-�nancing loans to the pre-quali�ed bidders for a tender in Busembatia, one of the small towns in the Uganda SSIP Water Program. The �rst �ve- year management contract was awarded in June 2010 to a private operator for the expansion of piped water services in Busembatia. This private operator was able to receive a loan from DFCU Bank, a Ugandan commercial bank, of approximately $100,000 for the expansion of piped water services. The new operator agreed to install 400 new water connections during the �rst two years of the contract, which is expected to bene�t 13,000 people. In small towns and rural areas of Uganda, where 90% of the population lives, water shortages are part of daily life. In these areas, 60% of the population lacks access to safe water, and water- borne diseases and infant mortality are widespread. Increasingly, the government of Uganda is reliant upon private operators to assist in the expansion of access to safe water supply within the country. These private operators are typically small and medium enterprises that are often unable to access �nancing from local banks to operate and expand their businesses. To help the Ugandan government achieve greater ef�ciency and improve access to water, the IFC was appointed by the Ugandan Ministry of Water and Environment as an Advisor to the Department of Water Development to assess the feasibility of various public-private partnership (PPP) options for private operators to increase sustainability and ef�ciency in the distribution of water to small towns and rural areas. The resulting Uganda SSIP Water Program, initiated in 2007, aimed to structure and implement PPP transactions in �ve small towns in the eastern region of Uganda (Kamuli, Nawanyago, Palisa, Tirinyi, and Nankoma), which would serve as replicable models for the water sector. During implementation of program activities, an additional �ve towns, including Busembatia, were added. The program comprised three components: 1) the design of access to �nance interventions to facilitate �nancing for private operators; 2) transaction structuring and implementation of water PPPs; and 3) provision of related public sector capacity building interventions for local government of�cials and technical staff from the Ministry of Water and Environment. PPIAF SUPPORT The government of Uganda, together with the IFC, sought Public-Private Infrastructure Advisory Facil- ity (PPIAF) support in 2009 for a study to assess private operators’ ability to expand service delivery in Uganda’s water sector. The objectives of the study were to 1) de�ne the characteristics of the private www.ppiaf.org operators participating in PPPs in Uganda’s water sector; 2) contract administration among public sector stakehold- examine their constraints and potential remedies to improve ers based on the proposed generic management contract. their service delivery; and 3) assess the terms and conditions of private �nancing available to the private operators. The Following the training event, two banks expressed inter- study provided recommendations to address the constraints est to provide pre-�nancing loans to the pre-quali�ed of high operating costs and lack of access to �nance, such as: bidders for a tender in Busembatia, one of the small towns in the Uganda SSIP Water Program. These loans • Educate banks about private operator operations and ac- would be re�nanced by a subsidy provided by the Global tivities to increase assurance of the repayment of loans Partnership on Output-Based Aid (GPOBA) upon veri- • Extend the duration of the management contracts from �cation of the water connections and water supply. three to a minimum of �ve years to allow private opera- tors to invest over a longer period and improve service As a result, the �rst �ve-year management contract was delivery, as well as recover the initial funds invested in awarded in June 2010 for the town of Busembatia to the water schemes, which would also give their potential a private operator, Trandint Limited, who had the low- �nanciers con�dence about the possibility of recovering est bid with a required subsidy of $270,000 for the ex- their loans pansion of piped water services. This winning private • Cluster small towns together to improve the viability of operator was able to receive a loan from DFCU Bank, a businesses, make supervision more ef�cient, and allow Ugandan commercial bank, of approximately $100,000. for larger contracts that capture economies of scale OUTCOMES DONOR COORDINATION The IFC incorporated the recommendations from the PPIAF- This PPIAF activity complemented the Uganda SSIP Wa- funded study in the Uganda SSIP Water Program. In particu- ter Program, in partnership with the Austrian Develop- lar, the IFC proposed a generic contract with a minimum ment Agency via the DevCo vehicle. It also complemented term of �ve years that would appeal to both private opera- the pilot output-based aid scheme designed and funded tors and lenders. The IFC also proposed clustering towns by GPOBA in 10 small towns and rural growth centers. within close proximity to another, but since funding was eventually only secured for one town, this approach could IMPACTS not be implemented. Furthermore, the IFC identi�ed al- ternative �nancing models with greater potential for suc- The new operator agreed to install 400 new wa- cess including leveraging its relationship with local banks ter connections during the �rst two years of the con- in Uganda, which were presented with a viable business tract, which is expected to bene�t 13,000 people. model for small-town water operations for the �rst time. Findings and recommendations from the study were also used to design and implement an effective training ses- RELATED PPIAF ACTIVITIES sion to present information on the Uganda SSIP Water Pro- IN UGANDA gram to local banks in Uganda and assess their interest in providing �nancing to private water operators. This train- • 2000: Country Framework Report, $400,000 ing provided a platform where the Ministry of Water and • 2007: Public-Private Partnership (PPP) Unit Environment and the Association of Private Water Opera- Feasibility Study, $325,000 tors could engage for the �rst time with local banks to de- • 2009: Private Water Service Delivery Access to scribe the operation of privately-operated water schemes. Finance, $74,810 The training also addressed weaknesses in the area of