Consultancy for feasibility study and development of the Nairobi Sanitation Output Based Aid (OBA) Project in 8 low income areas of Nairobi City Water and Sewerage Company
The objective of the consultancy was to prepare a project on sustainable access to sanitation and water services in selected low-income communities of Nairobi. The project achieved this through applying one-off OBA subsidies in order to make pro-poor sewerage and water connections financially viable. Subsidies of approximate 4.08 Million US$ based on verified outputs were to be offered targeting 16000 connections where access to primary water and sewer trunk lines is available. Selection of intervention districts were to be made in close consultation with the IDA Credit funded WaSSIP project and other on-going infrastructure projects.
This project, in line with NCWSC’s recently-approved Social Connections Policy, will use Global Partnership for Output Based Aid (GPOBA) subsidies to bridge the gap between the amount that households are willing and able to pay for water and sewerage connections, and the cost of providing these connections. NCWSC will provide household water and sewerage connections and will access credit from a finance institution (MFI) to pre-finance the capital costs. Once the target households are connected, they will repay NCWSC the unsubsidized component of the connection fee over an estimated period of 5 years through instalments in their water bills. Upon independent verification of service delivery, GPOBA will disburse its subsidy and directly reduce NCWSC’s debt to the finance institution.
Key activities undertaken in this assignment included:
- Program Viability Analysis covering approximately 8 settlements with at least sewerage 16,000 connections with output being:
- Define how the Funds will flow including option for subsidy payments either directly to NCWSC or through a MFI
- Project funding options (eg. NCWSC corporate loan vs secured project finance type arrangement).
- Recommendation on subsidy optimal disbursement arrangements (how much on connection [eg. 50%], how much on evidence of sustainable service delivery [eg. 50% after 6 months])
- Develop the financial and economic analysis of OBA scheme which defines the FIRR/EIRR), assess tariff cost recovery issue, and sensitivity analysis
- Drafting GPOBA Commitment Paper and the Operational Manual
- Develop a business Plan for NCWSC covering the approximate 8 settlements as stated above for each project on the basis of the Feasibility Studies that shall include the following:
- Demand analysis including projected monthly volume sales
- Project financial structure and proposed loan repayment period
- Provide a comparative study of the connection cost
- Project sustainability under the current tariff structure
- Planned service coverage (number of connections and geographical coverage) and revenue targets
- Actual or proposed commercial procedures to be followed (i.e. where are bills paid, use of mobile phones for billing and payments, how are accounts kept, details of audit, etc).
- Projected cash flow, profit and loss statement, and balance sheet for the term of the loan
- Sensitivity analysis of project’s Internal Rate of Return (IRR) and its Debt Service Cover Ratio (DSCR) when the tariff and volume water sales are varied
- Funds disbursement and loan repayment schedules
- Post implementation operating plan including details about billing, financial management, technical maintenance, human resource requirements, management contracting and organizational structure