The Impact of Infrastructure Development on Water

Supply Services and Viability of Small Towns

Case study: National Water and Sewerage Corporation (NWSC) Bushenyi and
Kitgum operational Areas

Maxi Julius Omuut

MSc Thesis: WM-WSM.18-32

March 2018
The Impact of Infrastructure development on water supply services and
viability of small towns

Master of Science Thesis

by
Maxi Julius Omuut

Supervisor
Prof. Margreet Zwarteveen

Mentors
Mireia Tutusaus Luque. Msc

Examination committee
Prof. Margreet Zwarteveen-Chairperson
Mireia Tutusaus Luque. Msc
Angela Huston. Msc-External examiner (IRC)

This research is done for the partial fulfilment of requirements for the Master of Science degree at the
UNESCO-IHE Institute for Water Education, Delft, the Netherlands

Delft
March 2018
 Although the author and UNESCO-IHE Institute for Water Education have made every effort
to ensure that the information in this thesis was correct at press time, the author and UNESCO-
IHE do not assume and hereby disclaim any liability to any party for any loss, damage, or
disruption caused by errors or omissions, whether such errors or omissions result from
negligence, accident, or any other cause.

© [Maxi Julius Omuut] [2018].

This work is licensed under a Creative Commons Attribution-Non-commercial 4.0

International License.
Abstract
Service delivery in the ‘rural-urban continuum’ also known as small towns poses a daunting
tasks to providers given the unique context within the towns where scale economies of
providing piped water services are low making it unattractive spectrum to venture. This study
aims to analyse the magnitude of how the development of infrastructure has affected the
financial sustainability and service provision specifically in the small towns of Bushenyi and
Kitgum in Uganda whose water supply system is being operated and managed by the National
water and sewerage Corporation (NWSC) a government parastatal.
This study majorly applied qualitatively research techniques and data analysis to critically
describe and explain how the current processes of infrastructure evolution i.e. the distribution
pipe network and treatment plants to expand services in NWSC has impacted on
access/coverage and reliability levels of service under the pressure of being financially
sustainable in a complicated context of small towns. Secondary data on national water policies
and guidelines on infra development in Uganda, NWSC policies, approaches and mandate for
services delivery, performance contracts both national and town levels was reviewed. This was
to provide insights on how the infrastructure policies and approaches that have significant
bearing on investment costs and service levels is developed at the National and NWSC head
office and eventually cascaded to the small towns operations.
The Strategic change of focus of NWSC and increased political mandate in the beginning of
year 2013 from a profit maximising organization operating in only 23 towns to a wider service
delivery model to expand services through infrastructure evolution of the pipe network and
geographical expansion of services via rapid takeover of new towns was a turning point that
shaped how NWSC provides services in towns. To understand the interplay of the reforms I
have conceptualized three chronological phases of how NWSC provides water supply services
in small towns in Uganda. These phases are; 1) Take-off phase, the key priority of NWSC is to
rapidly develop the pipe network and takeover of more towns to increase access/coverage,
increase presence while fulfilling the political mandate of the Government of Uganda but with
relative weight of financial sustainability in towns; 2) Stability phase-here the priority is to
guarantee supply reliability using lower costs mechanisms to enhance viability of towns thus
access is compromised; 3) Landing phase- the ultimate goal in this phase is the financial
sustainability of town utilities where focus is to enhance operational efficiencies of towns thru
optimizing operational expenditures and improved revenue collection efficiencies to increase
net cash flows but at the expense of access and reliability of services.
It is therefore concluded that aggressive infrastructure development does affect the financial
sustainability and service levels in small towns but at the different phases of service delivery
with varying degree of effect. Given that the mother utility (NWSC) priorities and importance
of the strategic goals and mandates to fulfill vary at different phases of service delivery.

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Acknowledgement
This study on “The impact of Infrastructure development on water supply services and viability
of small towns” is submitted as a partial fulfilment for the award of MSc. Water Management-
Water service management at UNESCO-IHE Institute of water Education, Delft, Netherlands
2016/2018. I glorify the almighty God for this achievement.
I would like to profoundly acknowledge the unwavering backing, commitment and
professionality from my main mentor Mireia Tutusaus Luque in ensuring that this piece of work
is produced with meticulousness. It was through your hard pushes that has made it possible. My
utmost gratitude to my supervisor Prof. Margreet Zwarteveen for your intelligent and
constructive comments in the course of the research that has enriched this report.
My sincere appreciation and gratefulness goes to ATWATSAN project for sponsoring my
studies in the Netherlands, otherwise this would have not materialized. I also extend my credit
to project SMALL for facilitating the data collection of this study. Many thanks to UNESCO-
IHE staff and students especially from Water Management Programme specifically Water
services management specialization for the class debates, group work that tolerated diversity in
culture, role plays. This enhanced my intelligence and critical thinking skills that has enabled
me accomplish this work. Special thanks to my close friends I met at IHE, Mr.Mbanga
Mwasaha, Janvière Tuyisenge, Biar kuai Biar, Isaac Barnes, Dr.Mary Kaggwa, Martin Odeke,
Mawoyo Tanyaradzwa, Lungile Sifundza, Richard Mutua, Roberto Narine (my former
roommate at Mina), Adriano Mateus Biza, Jussah Nguwo, Maaike Zwarts and to my Dutch
family Mr.Hans and Connie, you accepted me and made my stay in Netherland memorable.
In a special way, I particularly recognize the contribution of Dr. Eng. Silver Mugisha the CEO
of NWSC, you spared your valued time to discuss in depth about the research, and giving
insightful guidance and recommended relevant literature for review that broaden my thinking.
Further, my deepest appreciation to all my friends and NWSC top management first for granting
me study leave to pursue the MSc and then warmly welcoming me back to undertake research
from the organization. Thank you to all my respondents at NWSC head office, Bushenyi area
and Kitgum Area. You provided me with all the necessary and valuable data that enabled me
put together this report. Special gratitude to the Area Managers of NWSC Bushenyi and Kitgum
Francis Kateeba and Faith Nambuya respectively for the unconditional support you gave me
during the field work. I also salute the following from NWSC; Sonko Kiwanuka, Gilbert
Echelai Akol, Tom Buyi and Rose Mutonyi. I’m grateful for your kindness and being there
whenever I needed some support.
Most importantly my family, my wife veronica Ndagire Omuut, I’ll always remain indebted to
you for bravely taking up the mantle of taking care of our children Mckenzie Atekit, Malcolm
Epetait and Mclean Ojenatum who I left when he was 8 months old but you nurtured in my
absence. May God bless you abundantly. I’m also appreciative to my role model Papa Silver
Epetait for being an inspiration in my life. To all my siblings thank you for the moral support
and prayers. I salute my young brother Jose Ekeun for constantly checking on my family. Lastly
I dedicate this work to my late Mum Hellen Atekit Epetait (RIP), you taught me to always be
obedient and ambitious son, your legacy will always live.

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Table of Contents

Abstract i

Acknowledgement iii

List of Figures viii

List of Tables ix

Abbreviations xi

Introduction 1
1.1. Background 1
1.1.1. Problem Statement and Justification 2
1.2. Research Objective 3
1.2.1. Main Objective: 3
1.2.2. Specific objectives 3
1.3. Research Questions 3
1.3.1. General Research question. 3
1.3.2. Specific questions 3

Literature Review 4
2.1. Small town definition 4
2.1.1. Dynamics of small town’s water supply and sanitation 4
2.1.2. Why is the focus shifting to small towns? 5
2.2. Financial sustainability and full cost recovery in water service delivery 6
2.2.1. Conflicts of full cost recovery to achieve financial sustainability 7
2.3. Dynamics in developing water infrastructure 8
2.3.1. Challenges of infrastructure development 9
2.3.2. Critical role of infrastructure 9
2.3.3. Choice of Technology in water service delivery 10
2.3.4. Complexity in Town Water Infrastructure designs 11
2.3.5. Infrastructure Economies of scale 11
2.3.6. Economies of Densities 13
2.4. Infrastructure development and water services 13
2.4.1. Infrastructure impact on Access of services 14
2.4.2. Infrastructure impact on reliability of services 15

Research Methodology 16
3.1. Research Design 16
3.2. Multiple Case Study Selection 17
3.2.1. Geographical locations of study towns 17
3.3. Analytical framework 18
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 3.3.1. Lens of analysis: utility management Drivers 18
3.3.2. Financial flows 18
3.3.3. Infrastructure/technological choice as key focus of Research 19
3.3.4. Service levels 19
3.4. Data collection methods 20
3.4.1. Interviews 20
3.4.2. Secondary Data Collection 21
3.4.3. Observation data collection method 21
3.4.4. Triangulation 21
3.5. Limitation of the Research 23

Results and discussion small Towns and NWSC Head Office 24

4.1. Water sector in Uganda 24
4.1.1. Definition of Small Town’s and water supply services 25
4.2. The National Water and Sewerage Corporation Head Office 26
4.2.1. Background 26
4.2.2. Categorization of Towns 26
4.2.3. Challenges at takeover of small towns by NWSC 27
4.2.4. Roles of NWSC HO to the operational Areas 28
4.3. The development of infrastructure at NWSC Head Offices 29
4.3.1. General Polices of Infrastructure Development 29
4.3.2. Investment approaches for NWSC towns 29
4.3.3. Politics and power of infrastructure development 30
4.3.4. Pre-feasibility study approach 31
4.3.5. Technological choices and standards 32
4.3.6. Economies of scale and Densities of Infra Development 33
4.4. Perspective of financial Sustainability at NWSC HO 35
4.4.1. Measurement of viability of NWSC towns 35
4.4.2. Relation of Financial Sustainability and Infrastructure in towns 36
4.4.3. Financial flows at NWSC for infrastructural growth 36
4.4.4. Tariff structure analysis 36
4.4.5. NWSC cross Subsidy model 37
4.4.6. GOU Investment Subsidy 39
4.5. Service Delivery beyond boundaries 40
4.5.1. Struggles in providing Uniform service delivery across towns 40
4.5.2. Challenges of providing services 41
4.5.3. Definition of access/coverage for towns 42
4.5.4. Impact of infra growth on service levels of access 42
4.5.5. Predicaments of Service reliability in towns 43

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 45

5.1. Rapid Infrastructure growth and geographical expansion of Bushenyi/Ishaka
Area. 45
5.1.1. Increased Coverage/Access 45
5.1.2. Demand driven designs of the distribution Pipe network 47
5.1.3. Nyarunzinga Plant production capacity mismatch with utilization. 48
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 5.1.4. Shortfalls in the utilization capacities of Bushenyi/Ishaka Cluster 48
5.2. Service stabilization aim 50
5.2.1. Water supply stabilization challenges 50
5.2.2. Monitoring service levels 51
5.3. Strive for Financial sustainability in Bushenyi/Ishaka 51
5.3.1. Low cost schemes to Investments 52
5.3.2. Strategy of reducing Capex on Pipe Network 52
5.3.3. Struggles to the pathway of viability Bushenyi/Ishaka 54
5.3.4. Analysis of tariff vs unit cost of production 55
5.4. Rapid Infra growth of NWSC Kitgum Operational Area 56
5.4.1. Impact of the reforms on Access/coverage of services 57
5.4.2. Growth projection design of the distribution network 59
5.4.3. Overdesign of production sites 60
5.5. Challenges of water supply stabilization in Kitgum 62
5.6. Financial Sustainability Goal Kitgum 63
5.6.1. Frugal expenditure on pipe Network 63
5.6.2. The struggles of being viable in Kitgum Area 64
5.6.3. Tariff and unit cost of production analysis for Kitgum Area 66

Discussion and Conclusions 67

6.1. Phases of water supply service trajectory in NWSC towns 67
6.1.1. Take-off phase: Guaranteeing presence through infra development 67
6.1.2. The Stability Phase: water supply reliability 69
6.1.3. Landing phase: the ultimate goal financial sustainability 70
6.2. Conclusion 72
6.3. Recommendations 73

References 74

APPENDIX 79

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List of Figures
Figure 1: Small town Sub-Sector (Source: Hopkins et al., 2003) ........................................................................ 5
Figure 2 How Infrastructure contribute to development source: (Briceno-Garmendia et al., 2004, p. 4) ......... 10
Figure 3: Declining long run average cost curve of water production: Source (Ansar & Pohlers, 2014, p. 255) 12
Figure 4: Map of Uganda with the locations of Bushenyi/Ishaka and Kitgum Towns ..................................... 18
Figure 5: Analytical framework ...................................................................................................................... 20
Figure 6: Administrative structure of the Small Town Sub sector in Uganda .................................................. 25
Figure 7: Analysis of Unit cost of production large and small towns ............................................................... 34
Figure 8: NWSC tariff and unit cost of productions performance trends. ........................................................ 37
Figure 9: NWSC cross subsidy model of for small towns ................................................................................. 38
Figure 10: Analysis of the NWSC regional CSI from FY 14/15 to 16/17 ............................................................ 41
Figure 11: Five year trend of network expansion and new connection. .......................................................... 43
Figure 12: Analysis of new connections trends from Bushenyi Operational data Fy13/14 to 16/17. ............... 46
Figure 13: Updated 2017 GIS map of Pipe Network laid beyond Bushenyi/Ishaka Municipality ..................... 47
Figure 14: Analysis of plant capacity utilization trend. ................................................................................... 49
Figure 15: Performance trend of the annual water production (mᶟ) for Bushenyi/Ishaka Cluster ................... 49
Figure 16: Customer Satisfaction Index (CSI) Trend for Bushenyi/Ishaka ........................................................ 51
Figure 17: NWSC Bushenyi Analysis of expenditure on mains extensions vs Billings ....................................... 53
Figure 18: Performance trends billing, Opex and Working ratios ................................................................... 55
Figure 19: Performance trend of weighted av. tariff against the unit cost of production for Bushenyi town .. 56
Figure 20: Analysis of Capex budget on mains extensions Kitgum Source: NWSC Capex Budget Reports ....... 57
Figure 21: Pipe Network for NWSC Kitgum Service Area ................................................................................ 58
Figure 22: performance trend of annual new connections and pipe network expansion from 2013 to 2017 ... 59
Figure 23: NWSC Kitgum four year Plant Capacity Utilization ........................................................................ 61
Figure 24: Analysis of the production data for Period (FY13/14-16/17) .......................................................... 61
Figure 25: Analysis of the NWSC annual Customer Satisfaction survey Report (FY13/14-16/17) .................... 62
Figure 26: Four year Performance trends of Capex budgets on mains extensions and the billing ................... 64
Figure 27: 2013-2017 Break Even Analysis for Kitgum .................................................................................... 65
Figure 28: weighted av. tariff vs unit cost of production analysis ................................................................... 66
Figure 29: Phases of water supply provision in Towns.................................................................................... 73

viii
List of Tables
Table 1: Access to infrastructure by the richest and poorest 20% of the population ...................................... 15
Table 2: Summary of the Data collection methods with respect to research questions .................................. 22
Table 3: NWSC-Area Categorization ............................................................................................................... 27
Table 4: Critical Departmental roles of NWSC HO and Small Town Utilities .................................................... 28
Table 5: Villages with and without 100% pipe water supply ........................................................................... 31
Table 6: Performance Trends of NWSC Kampala water and the Small Towns ................................................. 34
Table 7: Working Ratio Performance of NWSC global, Large and Small Towns from FY2013 to 2017 ............. 35
Table 8: NWSC Global tariff and unit cost of production trends ..................................................................... 37
Table 9: NWSC KPI's for expansion of services ............................................................................................... 42
Table 10: Aggregated Production Capacities of Bushenyi/Ishaka Cluster ....................................................... 48
Table 11: Bushenyi Area CSI performance from FY2013/2014 to 2016/2017 .................................................. 51
Table 12: Typical NWSC Cost Estimates of 2"Pipe HDPE PN10 ........................................................................ 52
Table 13: Bushenyi Area Capex on pipe Network for the period 2013 to 2017 ............................................... 53
Table 14: Bushenyi/Ishaka Incomes and Expenditures from FY2013/2014 to 2016/2017 ............................... 54
Table 15: NWSC Bushenyi/Ishaka Tariff vs unit cost of Production Analysis ................................................... 56
Table 16: Kitgum Area performance on Network expansion and New connections made .............................. 58
Table 17: Plant Capacity utilization and practical plant capacity for FY13/14 to 16/17 ................................... 60
Table 18: Budgets on Capex on Pipe Network and Billings for four financial years ......................................... 63
Table 19: Income and Expenditures for Kitgum Area for Period FY2013/2014 to 2016/2017 .......................... 64
Table 20: Tariff performance and unit costs of production analysis for Kitgum .............................................. 66

ix
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Abbreviations
ATWATSAN: Alternative Approaches and Tools for improved Water supply and Sanitation
CAPEX: Capital Expenditure
COM: Cash operating Margin
DWD: Directorate of Water Development
GOU: Government of Uganda
HRW: Human Right to Water
ISDP: Infrastructure Service Delivery Plan
KPI: Key Performance Indicator
MWE: Ministry of Water and Environment
NWSC HO: National Water and Sewerage Corporation Head Office
NWSC: National Water and Sewerage Corporation
O&M: Operations and Maintenance
OECD: Organization for Economic Cooperation and Development
OPEX: Operations and Maintenance Expenditure
SCAP100: Service Coverage Accelerated Programme for 100% coverage
UBOS: Uganda Bureau of Statistics
UNDP: United Nations Development Programme
UNICEF: United Nations International Children's Emergency Fund
VOW: Value of Water Campaign
WATSAN: Water and Sanitation
WBG: World Bank Group
WHO: World Health Organization
WR: Working Ratio
WSP: Water and Sanitation Programme
WSSP: Water Supply Stabilization Plan
WUP: Water Utility Partnerships
WURD: Water Utility Regulatory Department

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CHAPTER 1

Introduction

1.1. Background
Sustained population rise in small towns is a concern in the discourse of water and sanitation
service delivery. It is estimated that the majority of the global population lives in small urban
Centres of less than 500,000 inhabitants (UN-HABITAT, 2006). These towns also referred as
secondary towns hosts approximately a billion people in developing countries who by far have
low levels of access to basic services like safe water and sanitation (UN-HABITAT, 2006;
Mugabi & Njiru, 2006). Estimates also reveal that rapid urban growth will take place in the
small cities where coverage of water supply services is still insufficient (Cohen, 2006).
Further, rapid growth has intensified the problem of widening the gap of underserved or
unserved population with water supply services (N. Pilgrim et al., 2007). It is reported that at
the current rate where population growth in small towns is outstripping the number of people
accessing water and sanitation services, more than 672 million people will be living without
access to improved sources of water and 2.7 billion people had no access to sanitation by 2015
(WaterAid/BPD, 2010). Although this was estimated for the urbanizing centres the
WaterAid/BPD (2010) report however claims that a greater fraction of the underserved
population will exist in the small towns. Cohen (2006) also supplements that urban
infrastructure development reviews depict that inhabitants of small towns are underserved in
regards to basic public services such as piped water supply, health, wastewater disposal, schools
among others.
Capital investments in small towns is not matching with the increasing demand for services
(WaterAid/BPD, 2010). This is not helped by the fact that majority of the funding for the water
sector is channelled to either mega cities or rural areas, in fact (Cardone, 2006; WaterAid/BPD,
2010) estimate that out of the USD $3 billion Official development fund meant for the water
and sanitation sector in 2003, only 13% or (USD $360 million) was allocated to the small towns
and yet over a billion people with deplorable water supply services is estimated to be living in
small towns of developing countries alone (UN-HABITAT, 2006). Expenditure on
development of infrastructure to improve access is quite high amidst the escalating demand for
maintenance and improving the existing infrastructure. Small towns are in need of capital
investments to expand services but do not have the financial capacity to adequately develop the
infrastructure thus posing a significant challenge on the level of water supply services (Alm,
2015)
Additionally infrastructure development poses a peculiar problem in small town’s financial
mechanisms (Cardone & Fonseca, 2006). Mistakes commonly made by planners of town water
systems is the use of predetermined national designs standard meant for urban water systems
and are transplanted to the town water systems (Lauria, 2003). Given the features of being in

Introduction 1
the rural-urban continuum, transitional in growth, towns have distinctive characteristics from
urban or rural contexts, therefore requiring a distinctive design strategies of their own (Hopkins
et al., 2003). Standard designs have resulted to systems being over designed in order to meet
the uncertain projected demand for 20 to 25 years most times not realised leading to excess
costs shifted to the clients or risks of ruining the finances of the utility (Hopkins et al., 2003;
Lauria, 2003; Pilgrim et al., 2004). This experience in turn has ensued construction of very
expensive systems to operate and manage thus serving only a few people who can afford (N.
Pilgrim et al., 2007). Thus, the appropriateness of designing town water systems based on
growth and demand projection is continuously being questioned (Lauria, 2003) because
unreliable and volatile growth is burdensome to the existing population in regards to investment
costs and operation and maintenance responsibility (N. Pilgrim et al., 2007).
In times where water utilities are encouraged (if not requested) to strive for financial
sustainability, it has posed a challenge to the water sector to realise it (Furlong, 2010). Being
financially sustainable is where the utility is able to generate and manage its own revenues to
adequately meet its short and long term obligations (Zieburtz, 2008). As part of the problem of
financial sustainability it stresses that fixed cost for the development of infrastructure ought to
be paid from the beginning of operations but because of a small customer base in towns, the
demand and revenues to cover the costs will not be realised in the shortest time (Kessides,
2004).
Besides that, utilities are increasingly required to operate efficient and effective systems that
reconcile the expansion of services with minimum incurred costs to enhance autonomy,
sustainable services (Kessides, 2004). It is ever more accepted among practitioners that being
financially sustainable is the cornerstone for well managed utilities (Rothstein & Galardi,
2007). Therefore, once fixed costs and operational costs are not well managed the end result is
unviability of utilities, although governments are encouraged to support utilities with
investment costs (Cardone & Fonseca, 2006). In addition, many utilities have a long tradition
of pricing their services at rates lower than required to meet the sum of full operations and
maintenance costs and capital investments that has resulted into unavailability of sufficient
funds for utilities to sustainably provide services. (Zieburtz, 2008)
1.1.1. Problem Statement and Justification
Water and Sanitation service provisioning in towns continue to experience difficulty and some
of those specific constraints have also been elaborated by (WaterAid/BPD, 2010; Mugabi &
Njiru, 2006; Adank & Tuffuor 2013; P Moriarty et al., 2002). Towns are synonymous with
higher costs of investment that is related to construction of centralized systems and yet the
revenue generation from these systems are low. Cost recovery mechanisms for at least operation
and maintenance of the system are difficult to achieve and also towns find it extremely
challenging to generate local revenue from either tariffs or attract external financial support for
the development and rehabilitation of infrastructure to facilitate the expansion of services(N.
Pilgrim et al., 2007). Furthermore the odd distribution of the population, puts towns at a
disadvantaged position to benefit from economies of scale and densities of piped water systems.
Towns are very volatile in economic and demographic terms because of being in the continuum
between rural and urban areas. Their transitional nature is highly vulnerable to changes in
economic activities and the consequences this has on service provision is severe. This position
calls for flexibility in approach in designing town water services.

Introduction 2
 And yet, utilities across the globe and specifically in the small towns are urged to strive for
financially sustainable practices to be in position to deliver adequate and sustainable water
supply and sanitation services. In order to achieve this, water utilities are encouraged to charge
the right price for water, which by so doing, would allow them to cover all operational costs
and eventually also any investments. However, setting up these tariffs in small towns is
problematic thus inadequate finance to develop additional infrastructure to expand services
coupled with lack of technical ability to manage and operate water systems has resulted to
utilities in towns not being self-sufficient, (Cardone & Fonseca, 2006).
Given the critical role of infrastructure in increasing access and reliability of services, it is
necessary to provide insights on how water utilities of small towns negotiate decisions in
regards to infrastructural development to meet increasing demand for water services under the
pressure of financial sustainability. Therefore the basis for undertaking this research is to
document and bridge the knowledge gap on how the roles of infrastructure development
determine financial sustainability strive and service levels in the small town context.

1.2. Research Objective

1.2.1. Main Objective:
The main objective of this research is to analyse how the development of infrastructure has
affected the financial sustainability and service levels in the small towns of Bushenyi and
Kitgum in Uganda.
1.2.2. Specific objectives
Below are the specific objectives in order to achieve the main objective of the research
 To examine how the current infrastructural development approaches in small town
water and sanitation services have been developed.
 To explore the financially sustainable practices that utilities in small towns undertake
amidst development of infrastructure
 To establish how service levels suffer or not from the practices/approaches of
developing infrastructure

1.3. Research Questions

1.3.1. General Research question.
The key research question for this study is; to what extent has infrastructure development
affected financial sustainability and Service delivery in the context of small town’s water and
sanitation systems?
1.3.2. Specific questions
Question: 1. how are the current infrastructural development approaches in small towns
established and who takes decisions
Question: 2. what are the revenue estimates generated from capital expenditure (Capex) and
operation and maintenance expenditures (Opex) in small town water utilities. What are
practices and measurement of financial sustainability?
Question: 3. how do the service levels suffer or not from the infrastructure development
approaches of water utilities in the small towns?

Introduction 3
CHAPTER 2

Literature Review
This chapter will give a deeper understanding on the topic of research through a review of
literature from journals, articles, working reports, international expert presentations on current
debates relating to infrastructure, general financial sustainability in water service provisioning
and in a small town context. The sections starts with water service delivery in a small town
background, followed by debates for and against financial sustainability and concludes with the
dynamics of infrastructural development. It does provide useful definition of key concepts on
how they are being used.

2.1. Small town definition

Several understandings of what is considered a “small town” in the water and sanitation context
have been put forward by many scholars but still no clear cut definition reached. Many describe
small towns based on characteristic such as population, size, management models, the level of
development of infrastructure and technology used, operations and maintenance needs of this
towns (Ryan & Adank, 2010). However, the seemingly recognized working definition of small
towns is gathered from the electronic conference of 2000 that defined small towns as
“settlements that are sufficiently large and dense to benefit from the economies of scale offered
by piped schemes, but too small and dispersed to be efficiently managed by a conventional
urban water utility. They require formal management arrangements, a legal basis for
ownership and management, and the ability to expand to meet the growing demand for water.
Small towns usually have populations between 5,000 and 50,000, but can be larger or smaller’’
(David & Pilgrim, 2000, p. 5)
Still, critics of this definition Njiru and Sansom (2002) wonder what constitutes a “conventional
urban water utility’? Since there is no agreement on that, and yet there exist many management
options with different performance levels. They also reason that there is no proof that supports
the notion that conventional urban water utilities cannot efficiently manage small town’s water
systems. Meanwhile, P Moriarty et al. (2002) contend that, by focusing on piped water systems
as the definition suggests makes it shallow because there exist a mix of other technologies in
towns. Also towns have a lower population densities making it difficult to benefit from the
economies of scale for piped water and affects the choice of technology for service delivery
(Mugabi & Njiru, 2006).
2.1.1. Dynamics of small town’s water supply and sanitation
Water supply and sanitation services in small towns is a complex situation. First of all there is
limited knowledge on how to effectively manage water and sanitation services (WATSAN) in
small towns despite of a vast existence of management alternatives for bigger towns, cities and
even the rural hinterlands (Njiru & Sansom, 2002). As more people from the rural continue to
flock to the small towns or rural growth centres upgrading to small towns, managing Watsan

Literature Review 4
services may prove to be problematic and explains why there are significantly poor services in
these towns.
Literature on small towns whether grey or peer reviewed (Hopkins et al.,2003; Njiru & Sansom,
2002; Mugabi & Njiru, 2006; Pilgrim et al., 2007) highlights some unique challenges associated
with small towns in the provision of sustainable water and sanitation services. These towns fall
between the gaps of not responding to neither typically urban nor typically rural management
models of service delivery (P Moriarty et al., 2002). Understanding of the grey areas known as
‘small towns’ that is in between the continuum of rural and urban is helpful in developing
significant and applicable management models of services (Hopkins et al., 2003). Most of these
models have been designed and supported using regular urban systems but transferred and
applied in the small town context (De Boeck et al., 2010). However, the context of small towns
is essentially distinct from that of primary cities, therefore there precise realisms need to be
understood within their contextual opportunities and challenges (N. Pilgrim et al., 2007). Fig 1
is an illustration of the rural urban continuum, the grey area known as small towns.

Figure 1: Small town Sub-Sector (Source: Hopkins et al., 2003)

Isolation of small towns in terms of service delivery explains the low levels of services in these
secondary towns. It is further reported that due to ambiguity on which approaches of service
deliver are suitable for towns, worsens the situations and has resulted into implementation of
the inappropriate approaches of either rural or urbanized solutions which do not take into
consideration of the local circumstance (WaterAid/BPD, 2010). Further still, small towns had
largely been abandoned in respect to investment in the water and sanitation services. They claim
that where attempts to develop water systems have been made, services dwindle immediately
after commissioning probably due to inconsideration of operation and maintenance provisions
or embracing of unsuitable management options (Njiru & Sansom, 2002)
2.1.2. Why is the focus shifting to small towns?
On the low, WaterAid/BPD (2010) suggest that small towns have been ignored because of the
rural –urban biases where greater attention from the development community is focusing on the
larger cities burdens and the rural poor dilemmas. However, on a national and global scale small

Literature Review 5
towns are attracting attention simply because many governments and the international
community have increasingly realised that towns can provide an opportunity for economic
development of a country (Rondinelli, 1983b; Otiso, 2005). The need to Improve services in
these towns is for some basic reasons such us; decongestion of the urbanized mega cities, rural
economies’ stimulation, easing of service provision in major urban centres and ultimately
resulting to social and economic development (Otiso, 2004). Additionally WSP (2010a) report
emphasize the importance of these towns in providing economic opportunities in terms of
employment, reduction of rural-urban migration and the controls the burgeoning of the urban
poor in informal settlements of mega cities. Thus shifting focus to towns escalates the need to
improve elementary public services in small towns to propel economic growth(Cohen, 2006).
Many international agencies such as the World Bank, African Development Bank, IRC
international water and sanitation Centre, Water and Sanitation Programme have organized and
sponsored international conferences and workshops specifically to discuss special challenges
of small town water and sanitation services (Ryan & Adank, 2010). The “Maputo Practitioners
workshop in 2010 in Mozambique” brought together participants across the globe representing
policy makers from local government, regulators, private sector, development partners to
discuss on sustainable management of small water supply systems in Africa for the emerging
small town sub-sector (WSP, 2010a). In the WaterAid (2014) review report on small town’s
emphasizes the increasing global awareness to prioritize delivery of improved water and
sanitation services to small towns and it was one of the major focus areas of Water Aide’s
universal strategy of 2009 to 2015

2.2. Financial sustainability and full cost recovery in water service

delivery
Financial sustainability in public services provision may have many meanings and
understanding depending on the context being referred too. Here, financial sustainability is
referred to as the ability of the utility to acquire and manage financial resources sufficient to
allow it to meet its mission over a longer horizon (Zieburtz, 2008). To provide sustainable
quality and reliable water services, utilities in small towns are urged to operate in a healthy
financial management system where the revenues of the utility at all time are in excess of the
sum of the operational costs, capital costs and environmental costs. The reasoning behind is
because government and donor subsidies are increasingly becoming unreliable, untenable and
costly in terms of debt service. Worst of it, studies have shown at a global scale, a declining
trend of aid financial flows to the water sector since 1999 from the international donors thus
the need to be self-sufficient (OECD, 2004; Cardone & Fonseca, 2006).
In the World Water Council's report by Cosgrove and Rijsberman (2000:2), the World Water
Vision incorporates the "move to full-cost pricing of water services for all human uses"
International water bodies like the World Water Council equally supports the notion of full cost
pricing of water as a deliberate step towards the recognition of the full economic value of water
and its externalities. It is maintained that financial resources need to be available at all time to
immediately address whatever challenge the utility may encounter in their daily operations,
therefore, the appropriate pricing mechanism of water services is a critical component in any
sustainability plan. However, the question of the day is to what extent should water prices
charged by utilities recover costs? Many argue that the price of water and wastewater services
should communicate with the true cost of providing water and waste water services to
consumers (Zieburtz, 2008). other studies have also shown a general consensus that services

Literature Review 6
must be paid for even the poor are prepared to pay for improved services to recover costs of the
service provider (Jaglin, 2002). Therefore full cost recovery from users is emphasized in recent
years.
Adequate finances enables the utility meet its short and long term goals of continuity of water
supply, equitable distribution of water, expanding coverage among others (Zieburtz, 2008).
However studies have shown that the prices of water charged by utilities have failed to recover
the investment and even O&M costs and is hindrance to adequate service delivery (UN-
HABITAT, 2006; Cardone & Fonseca, 2006; OECD ,2010). Long term survival of the utility
is hinged on its financial strength now and this can be achieved through adequate external
funding, careful spending, prudent planning and appropriate controls of its internally generated
revenues.
Utilities both in larger or small cities are encouraged to be financially stable due to the
complexity involved in managing water and waste water services coupled with the growing
need for development of infrastructure which require significant amount of capital expenditure
(UN-HABITAT, 2006). The capital intensive nature of the infrastructure places the capital
financing at the heart of the development of sustainable utility financial plans (Rothstein &
Galardi, 2007). This infrastructure used to treat and transport water needs to be sufficiently
maintained, it is an important measure in ensuring safety of drinking water. Poorly maintained
water supply systems especially in developing countries is attributed to insufficient financial
resources and poor asset management (Khatri & Vairavamoorthy, 2007), therefore the
deterioration of the infrastructure threatens the ability of the utilities to deliver, reliable, quality
and safe drinking water. In addition, the high levels of Non-Revenue water between 40-60%
according to Khatri and Vairavamoorthy (2007) in developing countries is attributed to poorly
maintained and manged water infrastructure. This therefore is a reflection of how being
financially sustainable is fundamental for utilities in water service provisioning.
2.2.1. Conflicts of full cost recovery to achieve financial sustainability
Controversy faced by Water service providers (WSP) in the pursuit of financial sustainability
is the strong criticisms from the human rights to water (HRW) activists who view this objective
as a neoliberal ideology that promotes privatization of services that aim for profitability and
full cost recovery rather than service delivery. It sparks off another debate on whether water
should be managed as an economic resource or public/social resource. HRW activists Mirosa
and Harris (2012) argue that access to water resource is a fundamental human right, therefore
it should be managed as public/social good by the state or public utilities that promote the end
goal of equity, universal access and efficient service delivery and managing water as an
economic good will deprive the majority poor the HRW.
Sharp conflict in water service provisioning is observed especially where there is considerable
overlapping authority of government agencies and regulations in the water sector. Most public
water utilities are mandated by law to operate in a commercial and viable manner, financially
sustainable and autonomous, take an example of NWSC in Uganda and Zambian utilities where
the principles of private enterprises are promoted (Schwartz, 2008).. However, quite often, there
exists contradictions with the national laws that are in support of equity and universal access of
water services, thereby reducing the role of utilities as basic service providers.
Critics of cost recovery principles Marson and Savin (2015) present quantitative empirical
evidence that shows the relationship of cost recovery and access not being linear in three

Literature Review 7
dimensions. 1) Utilities with poor financial performances cannot increase coverage due to lack
of own funds to invest while donors and governments are hesitant to invest in loss making WSP;
2) Utilities with moderate cost recovery can increase access because of availability of own
funds, government and donor support because of the financial sustainability of the investments;
3) strong focus on full cost recovery doesn’t increase coverage simultaneously because the
overstated focus on financial performance provides a disincentive to extend coverage to
unprofitable peri-urban areas. It is concluded that good financial results do not necessarily
translate into corresponding increase in coverage as supported by qualitative studies (Marson
& Savin, 2015; Bakker et al., 2008; Bayliss, 2011; Dagdeviren, 2008; Herrera, 2014; Jaglin,
2002) because utilities are incentivised to focus more in high income areas where they can make
profits forgetting low income areas.
Increasing water prices in the name of full cost recovery for utilities to be financially sustainable
as being promoted is in fact triggering more problems on the already existing ones in water
supply sector therefore increasing prices of water will worsen the poverty levels (Jaglin, 2002).
Because of increase in prices, the utility also stands a risk of losing out on revenue because of
non-payment by consumer that will obviously impact on its cash flow. It is acknowledged that
improving financial sustainability of public utilities is necessary but not at the cost of social
objectives. Bayliss and McKinley (2007) complement this view, in that as a result of high costs
and low incomes in sub Saharan Africa, heavy reliance on cost recovery is neither viable nor
socially desirable.
Additionally UNDP policy brief report also claims that on top of the worsening poverty level,
full cost recovery may lead to greater inequality across region as sighted in the case of Namibia
where wealthier regions with low cost of supplying water actually pay lower prices as compared
to poorer regions that pay more due to high costs of supplying water (Bayliss & McKinley,
2007),. Majority of the population in cities or towns of developing countries where striving for
social objectives has been postponed live in worsening poverty and flaring inequality (Jaglin,
2002). It is said that for utilities to recover O&M costs is reasonable but full cost recovery is
far from being attainable in developing countries (Schwartz, 2008). Already the poor are paying
more for water services because of relying on water vendors who charge exorbitant prices not
because they can afford but because they have limited options.
In summary the assumption that full cost recovery will translate into utilities remaining
financially sustainable in the future is continuously being questioned and debatable. Empirical
evidence as presented by Marson and Savin (2015) has it that strong emphasis on full cost
recovery will not led to automatic increase in access of service. However, what is generally
acceptable is that service providers need to be self-sufficient in order to sustainably provide
services.

2.3. Dynamics in developing water infrastructure

It is important to understand what is meant by infrastructure from the global perspective right
from the start of this section to set the stage for the debates and discussion on infrastructure
development in water supply that will follow. Alm (2015) broadly defines infrastructure as
capital facilities with long lifespan that enable the delivery of certain services in urban cities,
small towns, rural and household levels and also offer services that boost production in the
private sector. These may include services from power generating plants, transportation
systems, telecommunication, and water supply and sanitation systems among others.

Literature Review 8
However, for the purpose of this research the centre of discussion will be on water and
sanitation infrastructure specifically in small towns. Here water infrastructure will be referred
to as structures and services that are being operated by water and sanitation utilities in small
towns regardless of whether public or privately owned (VOW-Campaign, 2017). In the
provision of portable water supply and sanitation services whether in conventional urban
systems, intermediary towns or rural systems there is specific type of water infrastructure or
technology that is required to accomplish service delivery cycle. Such critical infrastructure
compromises of network pipes, water and wastewater treatment plants and pump stations,
storage tanks, sources (wells, intakes of surface water), pumps, water meters and land. These
are some of the fundamental assets that facilitate the delivery of water and sanitation services
in towns (Hopkins et al., 2003).
2.3.1. Challenges of infrastructure development
Availing infrastructure requires utilities to have the technical capacity to manage, operate and
maintain the assets, planning and financial mechanisms in place, the ability to acquire more of
infrastructure for the expansion of services (Alm, 2015). However, many utilities in developing
countries struggle a lot in the acquisition of this infrastructure let alone, have failed to
sufficiently maintain and manage the assets. Briceno-Garmendia et al. (2004) suggest that
increasing access and quality of infrastructure services needs sizable investment and
expenditures on operations and maintenance. However, this is contentious in the small town
subsector, as the population exist of the majority poor who are mobile with varying willingness
and ability to pay, yet the infrastructure is immobile and requires to deliver as promised by
design and affordability (Cardone & Fonseca, 2006). However, due to the capital intensive
nature of water infrastructure that requires large funding poses a big challenge to utilities in
small towns, as they do not have adequate funding to meet the growing demand for more
infrastructural services (WaterAid/BPD, 2010).
2.3.2. Critical role of infrastructure
The development of infrastructure is generally recognized as a springboard for economic
growth for countries especially developing countries and facilitates sustainable provision of
services (Briceno-Gamendia et al, 2004; Alm, 2015; VOW-Campaign, 2017; Kessides,2004;
World Bank, 1994). Because it “increases productivity and reduces the production costs, it has
to develop faster to match growth” of countries (World Bank, 1994, p. 2). Infrastructure that is
reliable contributes directly through supporting the delivery of crucial services such as
increasing access to safe drinking water, adequate sanitation, health and education that lead to
social development thus indirectly reducing poverty in developing countries although in many
developing countries there is still a deficit in infrastructure resulting into poor quality services
in small towns (Briceno-Garmendia et al., 2004).
However, there has been some debate and scepticism on the actual direct linkage that
infrastructure contributes to the economic growth of a country later alone a municipality or a
town (World Bank, 1994). Various studies on many countries report mixed results on the impact
of infrastructure on growth. According to Briceno-Garmendia et al. (2004), more than half of
studies have shown that investment in infrastructure has insignificant effect on growth or
productivity and even some find negative effect. Although Estache (2010) debates that
infrastructure may be necessary for the functionality of current economies but it is not
necessarily that more infrastructure will automatically cause additional growth altogether in the
various phases of development. In other words infrastructure matters but does not have to

Literature Review 9
explicitly conclude whether more or less infrastructure investments contribute significantly to
growth. Emphasis from recent studies have shown that infrastructure development on economic
growth has a high rate of return to investment of close to 6o% (World Bank, 1994:15).and also
due to the multiplier effect from the infrastructural services, production costs are lowered and
expansion of market opportunities (Prud'homme, 2004; Estache, 2010). This is illustrated in the
figure 2 below

Figure 2 How Infrastructure contribute to development source: (Briceno-Garmendia et al., 2004, p. 4)

2.3.3. Choice of Technology in water service delivery

There are varying technologies used for providing services in different contexts of urban, towns
and rural that have direct implication on the sustainable delivery of services such as; water and
sanitation, environmental services, health, Education and social justice (Furlong, 2011).
Therefore consideration of local condition is important for the suitable choice of technology
Hence making a choice of appropriate technology for sustainable delivery of such services is
paramount and is reliant on those who can afford it (Pilgrim et al., 2004). Technological option
involves selecting a suitable technology taking into consideration of the political,
environmental and socio-economic factors that fulfil preferred needs and objectives (Mara &
Alabaster, 2008; Prabhu & Vizayakumar, 1996). Interestingly. developing countries have a
tendency to import and implement technology and infrastructure designs of water systems
without due consideration of the local conditions and necessities and quite often a number of
such projects have failed and technologies abandoned (Lauria, 2003; Paterson et al., 2007).
Traditionally the water and sanitation sector has relied on two types of technology (centralized
and decentralized) in the delivery of services. Centralized systems is where there is only one or
a few small treatment/production plant of portable water and water is distributed to the town
using pressurized mechanisms, in contrast to the decentralized systems water/wastewater is
produced and supplied at individual or community level for instances, supply is from individual

Literature Review 10
or community wells (Daigger & Crawford, 2007). Centralized systems have become more
dominant and preferred choice of technology for urban water systems since they offer the best
possibilities to provide ‘cheaper’ water than other models as the marginal costs of offering the
last drop of water will be minimised in a centralized system (rather than in separate
decentralized systems) and they are operated mainly by monopolistic public utilities in
developing countries (World Bank, 1994, p. 6).
On the other hand, decentralized systems considered as an alternative technology has been
looked at as suitable for the rural areas or the peri-urban centres of the large cities where the
utility services are inadequate or non-existent. The alternative technology quite fittingly seem
to answer the needs of the inhabitants of these areas because it involved simple and easy to
maintain and manage water systems at the communal management. Njiru and Sansom (2002)
agree that the technology opted by small towns for extending services is crucial for the
management of water supply systems.
2.3.4. Complexity in Town Water Infrastructure designs
While designing what supply and sanitation systems, integration of the technical and financial
viabilities of these infrastructure is emphasized. In fact Pilgrim et al. (2004) stress that there
should be no room for blunder in the design phase of town water systems because any mistake
will result to substantial financial impact on tariffs and definitely affect the financial
sustainability. High initial investment costs are either transferred to the consumers or utility
bears the burden of recovering the costs from other sources of finance which is not sustainable
in the small town sub-sector. Likewise, in communities where population densities are
unpredictable and unevenly distributed, understanding the cost savings that may result from
the planning and development of network infrastructure is critical for planners (Mizutani &
Urakami, 2001). Additional the design approaches adapted in towns are encouraged not to be
reliant on finances from the government and other funders for investment (Pilgrim et al., 2004).
To lessen this, a vigorous process in planning and designing of town water supply system ought
to be undertaken to reduce on costly errors that may jeopardize the system Lauria (2003)
From the many design strategies suggested for town water and sanitation service delivery, the
phased or modular expansion strategy seems to be the encouraged and preferred option
according to literature on design models of infrastructure for small towns(Hopkins et al., 2003;
Lauria,2003). Here, towns need to plan to meet the current demand that reduces the start-up
costs and progressively plan to enlarge the system based on actual demand and willingness of
future customers to pay for services (Pilgrim et al., 2004). This approach would reduce the gap
between costs of the system and revenues to enhance financial sustainability
2.3.5. Infrastructure Economies of scale
A close scrutiny on the economies of scale can fetch significant savings in the water sector
once carefully analysed in the development of infrastructure (N. Pilgrim et al., 2007).
Nonetheless, for us to fully grasp where the benefits accrue from, we need to first understand
the meaning of the concept of economies of scale in general terms. In the world development
report World Bank (1994, p. ix), economies of scale is referred to as “a characteristic of a
production technology whereby unit costs decline with increasing output over a large range.
Economies of scale are a major source of natural monopoly’’.
Traditionally, Water infrastructure is capital intensive and requires significant amount of capital
expenditure to develop it thus making it monopolistic in nature, has no competitor and it is seen

Literature Review 11
as being wasteful for a community to have many utilities supplying water. Therefore it is
developed based on the assumption that the bigger the infrastructure the better as there is
potential to exploit the economies of scale (Ansar & Pohlers, 2014). This reasoning is valid
from the economic perspective considering that the long run cost of production will decline as
the utility produces additional cubic units of water from one particular infrastructure say for
instance from a treatment plant. Hence the water industry has customarily followed this
paradigm of the ‘’the bigger the better’’ or the bigger the cheaper to produce long term outputs
while developing urban water systems (Ansar & Pohlers, 2014). This is illustrated in figure
below
Cost (USD)

Quantity (m3)
Figure 3: Declining long run average cost curve of water production: Source (Ansar & Pohlers, 2014, p. 255)

However, some authors criticise this conventional theory of development of infrastructure

particular for small towns. Lauria (2003) argues that the bigger the system may not necessarily
mean the better. These bigger systems provide for excess capacity which is reliant on demand
that is (number of user connections that will be made in the future, connection rates, and per
user consumptions), seldom is demand realised in towns (Hopkins et al., 2003). Therefore
excess capacity should not be the overruling assumption but projected with certainty thus
consideration of alternative designs with or without excess capacity should be encouraged
(Lauria, 2003). In addition, the above understanding of infrastructure development is based on
two assumptions; 1). Demand is predictable and will be realized; 2). Only production costs are
considered. However, in small town’s demand is fragile and not easily realized, utilities face
difficulties in accurately forecasting demand (Flyvbjerg et al., 2005), O&M costs of the system
are not considered and yet these are fundamental costs for the effective operation of the system.

Literature Review 12
Also if water systems of towns are not appropriately designed there is a risk of missing out on
the economies of scale thus leading to high costs of investment, operations and maintenance
costs which will ultimately affect the financial viability of the utilities (Hopkins et al., 2003).
Take an example as demonstrated by N. Pilgrim et al. (2007) where planners need to be mindful
that the cost of network pipes (both water and sewer) is mainly determined by the length of the
pipe but not on the diameter of the pipe, therefore its less expensive to construct a large pipe
network that will accommodate for the growth of population density instead of constructing a
relatively smaller one that allows for modification to cater for changes in population
distribution. As a result, pipe network diameters have high economies of scale with regard to
their flow capacity whereas building longer networks for predicted demand have no economies
of scale related to it (Lauria, 2003). Understanding such dynamics of infrastructure
development is critical for decision makers in expansion of services. However , this technical
knowledge on design of water systems is lacking in small towns because they do not have the
capacity to hire specialists to plan and manage water systems to expand services (N. Pilgrim et
al., 2007)
2.3.6. Economies of Densities
This is particularly important for developing countries where a big number of people still are
without adequate access to safe drinking water and sanitation services, so if there is evidence
of economies of density more network expansion and new connections can be made at a
decreasing average cost as empirically measured by Nauges and Van den Berg (2008). To
supplement these findings Cohen (2006) contends that there are lesser per capita cost in
providing basic services and infrastructure in areas that are densely populated than low
population densities. Conspicuously small towns have low population densities and hence
limited economies of densities, this implies that more infrastructure is needed to serve the same
amount of people as evidenced by the study conducted by Nauges and Van den Berg (2008).
therefore, the realization of economies of density assumed in a ‘regular’ larger urban centre are
not applicable to small towns (Pilgrim et al., 2004). Economies of densities are more visible in
cities due to the high population density which are not realizable in the small towns.

2.4. Infrastructure development and water services

Water infrastructure generally is a foundation in the delivery of water supply and sanitation
services for any water service provider whether in urban, peri-urban, rural, or secondary towns.
Indeed water services may be defined as the delivery of access to water in such means that
meets a given set of indicators or standards, when these indicators are put together they define
the service (Moriarity et al., 2011). Although most infrastructure performance evaluation
criteria have tended to focus on financial and operational efficiency of the infrastructure,
prioritizing it may come at the expense of consumers, employees of the utility emanating from
high prices and reduced levels of services (Kessides, 2004). Importantly in the discussion of
water services delivery is the level at which services are to be offered by service providers.
Service levels in simple terms refers to a descriptive and differentiation between qualities of
services (Moriarity et al., 2011). Moriarity et al. (2011) further explains that service levels vary
from one country to another, may be set according to social and political factors, costs etc.
however, according to him the commonly used indicators that guide in evaluating the quality
of water services contain; Access, reliability of services, quality and quantity stated in litres per
day per capita. More elaboration on service level indicators follows in the next subsection.

Literature Review 13
2.4.1. Infrastructure impact on Access of services
Getting a universal understanding of access of services is problematic its self in countries but
also among sectors. However, the commonly used definition is that of UNDP which translates
access to a percentage of the population that is using improved sources of water such as piped
water, public stand taps, motorized boreholes, improved springs and wells (Kayaga et al., 2009).
Other international bodies like the World Bank categories access into rural and urban, where
by in urban, households are considered to have access if within 200 meters of safe water sources
while for rural access implies spending less hours of the day collecting water. A clear
manifestation of the need for more infrastructure development to bridge the gap of access to
services,
It is no secret that access or coverage of water supply and sanitation services is directly
proportional to the level of development of the infrastructure in countries. No wonder,
urbanization through infrastructural development is one of key drivers for the tremendous
progress in the increase of global access to water and sanitation (Patrick Moriarty et al., 2013).
This is not only restricted to cities but also the small towns of population of less than 500,000
people and the rural growth centre (UN DESA, 2011; Patrick Moriarty et al., 2013). The impact
of infrastructure on access of services is reflected on the number of connections made. It is
claimed that the rapid increase in the total number of customer connections in 2004 by NWSC
was attributed to the increased capital expenditure on infrastructure that drastically improved
access/coverage from 48 percent in 1998 to 65 percent in 2004 (Mugisha et al., 2007). It is
further reported that countries with high access of greater than 70% rely on piped water services
to house connections, although in developing countries in sub Saharan Africa and Asia are
nearing the coverage rate of 70% despite depending on point sources, they are most likely to
change to piped water services to house connections. This pits infrastructure at the forefront of
increased coverage.
On the contrary policies on infrastructure have significantly injured the poor, mostly through
inability of policies to provide universal access and not taking into consideration the incapacity
of the poor to pay and afford infrastructure services (Estache, 2010). Moreover affordability of
these services is part of a bigger problem. Estache (2010) illustrates that by practitioners relying
on World Health Organization definition of affordability where by households are not supposed
to spend more than 5% of their income on water which is contrary to the generally proposed
informal rule of not more than 15% income heightens the problem. Therefore the poor are most
doubtful to afford the infrastructural services. The access gap of services between the rich and
poor is widening, On a global perspective the gap between the deprived and the richest 20% of
the population is steadily greater in the low developed countries Estache (2010) as
demonstrated by the table below

Literature Review 14
Table 1: Access to infrastructure by the richest and poorest 20% of the population

(% of Population receiving services)

Source: (Briceno and Klytchnikova, 2006; Estache, 2010)

2.4.2. Infrastructure impact on reliability of services

Service reliability indicator in water services is widely reported as the best indicator to measure
the quality of services provided and is measured in terms of hours per day that users are supplied
with water and the proposed target is 24/7hr supply, which has relatively been met by over
50% of utilities in developing countries(Schwartz & Schouten, 2015) . Other author’s measure
reliability of services in two folds; I) at the water taps of consumers which effect is as a result
of direct control and management of the distribution network and II) at the production plants
(Tumusiime & Njiru, 2004). In a different view, Moriarity et al. (2011) look at service reliability
as people being aware that they can have access to water of good quality and quantity from a
particular source at a certain time and it is also measured in terms of promptness and
consistency. Therefore if water services are provided punctually after a certain schedule, even
if it is after three days that service is measured to be reliable. Nonetheless, the typically
challenging unreliable services include those that where there is frequent breakdown of the
infrastructure, it is not repaired on time and inconsistent in supply (Moriarity et al., 2011),
therefore state of infrastructure is crucial in reliable delivery of services.

Literature Review 15
CHAPTER 3

Research Methodology
This research is inspired by the author’s personal experiences of working with utilities in small
towns in Uganda and motivated to document in detail the underlying struggles that utilities
undergo in providing water supply and sanitation services. This chapter of research
methodology, is organized in six main sections which comprise of; research design, multiple
case selection. Analytical framework, data collection techniques and limitation of the research

3.1. Research Design

The research applies qualitative research methods that involved semi structured interviews and
observation of the current situation of water supply provision in small towns in Uganda. I find
this approach suitable since the research seeks to describe and explain how the current processes
of infrastructure development to expand services affects financial sustainability in a
complicated context of small towns. Therefore the research question is answered thru the
qualitative techniques while correlating it with some quantitative data, since the study seeks for
an explanation and description of the current situation in a particular context (Lowhorn, 2007).
This research comprised of three different phases, which included proposal writing and
literature review, data collection from the case studies and data analysis of the content collected
from the field and report writing.
Review of literature- this involved critical review of existing scientific knowledge surrounding
the applied concepts and debates on financial sustainability, infrastructural development, water
services and small towns. In search of relevant literature on the subject, various scholarly search
engines such as science direct, google scholar, Scopus, were explored for the soft copy of the
grey and peer reviewed documents, articles, books and book chapters, journals and reports. For
the hard copies, the IHE library service desk was contacted. To backup, the scientific literature
other relevant documents consulted include the UN reports, water and sanitation programme
reports, World Bank reports, Utility partnership report among others. This widen the knowledge
base.
Multiple case study (data collection) - this was carried out from two towns of Bushenyi/Ishaka
and Kitgum water supply system and NWSC head office being the national utility in Uganda
that manages urban piped water systems. Multiple case study was preferred because it enables
identification of unique characteristics of case studies through exploring resemblances and
differences and to a certain extent allows for generalization of findings (Daymon & Holloway,
2010). Therefore the rationale for choosing this research design method is to provide an in depth
description of how each utility’s version of growth of infrastructure has affected their financial
sustainability and service levels. Similar traits and differences in service delivery in the towns
is identified
Data analysis- this is the critical final stage of the research processes because its where we find
the ‘’major findings or the big picture’’ of the research after carefully carrying out a
comprehensive data interpretation to describe a phenomenon (Hancock et al., 1998). For this

Research Methodology 16
research the unit of analysis centred at the NWSC head office and the operational towns of
Bushenyi and Kitgum. Where the concepts of infrastructural development, water services and
financial sustainability are operationalized. It is viewed through the lenses of infrastructure,
financial flows and service levels to determine the relationships in the context of the small
town’s water utilities.

3.2. Multiple Case Study Selection

The decision of selecting the case studies for this research was majorly based on two water
supply and sanitation projects. That is project SMALL and ATWATSAN project being
implemented in Uganda. The project sites are within the case study small towns of Bushenyi
and Kitgum. Project “SMALL’’ is currently analysing the existing water and sanitation service
models in the small town of Bushenyi with the objective of developing ‘’fit for use’’ models to
improve performance of water and sanitation services in the small town where the users will
have access to safe, reliable and affordable drinking water (Tutusaus & Ferrero, 2017). The
project therefore facilitated my research expenses since the findings would contribute to the
project objective.
On the other hand the ATWATSAN project being the main sponsor for my MSc studies at IHE-
Delft is implementing water supply and sanitation project in the small towns of Northern
Uganda where Kitgum town is located hence the selection of Kitgum town as a case study. One
of the objective of the project is to increase coverage and reliability of water supply services in
northern Uganda small towns (ATWATSAN, 2016). The theme of the research aligns with this
project objective and it will contribute in understanding how the current infrastructure
development has affected the viability and service levels in the town of Kitgum.
This research, therefore reviews the development of water infrastructure such as;
production/treatment plants and distribution network that was developed or still being
constructed in the two towns of Bushenyi/Ishaka and Kitgum for the period 2013 to 2017. The
focus on this review period is mainly because it has been reported that in the financial year
2013/2014 NWSC launched a five year strategic direction that aimed for rapid expansion of
services through rapid development of infrastructure and geographical expansion by taking over
more towns (Mugisha & Berg, 2017)
3.2.1. Geographical locations of study towns
Bushenyi municipality - is located on the south-western region of the country with an estimated
population of 42,000 inhabitants. The water supply system is being managed by NWSC
Bushenyi Area, however it also has administrative and financial control over nine (9) other
independent smaller water systems in the branches of Kabwohe, Kitagata, Bugongi, Rubirizi,
Kyabugimbi, Kashenshero, Mitooma, Kabira and Buwheju to form the greater ‘’Bushenyi
Cluster Area’’ that covers 590km. With a total customer base of 8,646 they serve 65% of the
total population but have no conventional sewerage system NWSCBushenyi (2017)
Kitgum municipality: -is one of the recently taken over operational towns of NWSC, situated
in the Northern region of Uganda has a population estimate 44,000,000 people. The main
economic activity is subsistence agriculture, the water supply system is under the management
of NWSC Kitgum operational Area, and there is no conventional sewerage system. The two
towns are located on the Ugandan Map as shown below.

Research Methodology 17
Figure 4: Map of Uganda with the locations of Bushenyi/Ishaka and Kitgum Towns

3.3. Analytical framework

To be in position to comprehensively understand the sacrifices that utilities’ of Bushenyi and
Kitgum undertake while striving for financial sustainability amidst infrastructure development
to expand services. The research uses the Concepts of infrastructural development, water
services and financial sustainability to explain the dynamics of water supply and sanitation
services in the small towns. These concepts are used to build the analytical framework that
gives a broader perspective of the research objective and hence vital for answering the research
question.
3.3.1. Lens of analysis: utility management Drivers
Key driving forces in the sustainable delivery of water supply and sanitation services that
enhance service levels involves utilities having sufficient financial flows for capital investments
as it is increasingly being advocated (OECD, 2009). Therefore the study seeks to explore these
concepts through the lenses of infrastructure, service levels and financial flows from NWSC
head office and how it is cascaded to the operational towns. These concepts are fundamental
for improving efficiency, accessibility and sustainable management of water supply and
sanitation services in utilities as echoed in the Kampala statement (WUP, 2001). Below is
further explanation of the lenses
3.3.2. Financial flows
Traditional sources of finances in the water and sanitation industry are commonly known as the
3Ts, that is Tariffs (customer charges), Taxes (public coffers) and Transfers (official

Research Methodology 18
development Aid, grants) (OECD, 2010). The research will study the financial flows from
NWSC head office to the operational areas of Bushenyi and Kitgum and explicitly providing
how the concept of Financial sustainability is understood and the applied financial indicators
for measuring it such us working ratios, cash operating margins (difference between revenues
and expenditures) and collection Efficiencies (percentage of the billing that is collected) is
being defined at NWSC headquarter and translated to the operational areas.
Additionally, the research will also study the NWSC costs and revenues associated with service
delivery to the towns, that is, Capital expenditures (Capex) and operation and maintenance
expenditure (Opex) (Moriarity et al., 2011). Further seek to study the financial mechanisms for
sustaining service delivery within the town utilities and also explore whether there are other
possible sources of financing besides the traditional ones, for example, bonds in the market,
direct private investments, equity, micro finance, guarantees among others as explained by
Cardone and Fonseca (2006). Although government is inclined to fund most of the capital
investments in small towns but tariffing is acknowledged as the suitable source of financing for
operations and maintenance for utilities to enhance their financial sustainability (Alm, 2015;
Cardone & Fonseca, 2006).
3.3.3. Infrastructure/technological choice as key focus of Research
Infrastructure and financial flows in the water sector industry are vastly interconnected to each
other in that the choice of infrastructure/technology to be developed by utilities will control the
rates at which water will be priced. In this research, I focused on treatment/production plants
and distribution network because of indication of access. Also infrastructure is fundamental in
achieving the sustainable development goal of universal access for water and sanitation (UNDP,
2015). Given the context of small towns each of these systems will be useful in documenting
the existing or non-existing economies of scale and densities associated with infrastructure
development.
In addition, partly the rationale for focusing on treatment plants and distribution pipe network
as a unit of analysis in the research is based on N. Pilgrim et al. (2007) findings about the NWSC
management models of small towns. It is reported that due to the syndrome of oversizing
systems following standard designs in serving projected demand instead of current actual
demand, merely 42% of total capacity in the operational towns of NWSC is being utilized, with
exception of the capital city Kampala. This is because towns are not autonomous in making
management and investment decisions. utilities in secondary towns are encouraged to make
appropriate decisions in respect to infrastructural development that maximize revenues while
optimizing investment costs in order to have sufficient funds that can be used for expansion of
services.
3.3.4. Service levels
To determine the Service levels of water supply is a complicated process in its self, many people
have varying interpretations and it comprises of many indicators that vary from one context to
another. In this study the working understanding of service level is a set of indicators that are
qualitatively measured and when combined allows for other types of performance indicators to
be defined and monitored based on existing national and international standards and practices
(Patrick Moriarty et al., 2013). An explicit definition of the service levels is helpful in
monitoring the extent to which performance indicators comply with the set standards of service
delivery.

Research Methodology 19
The performance indicators considered for study are access and reliability of services because
of the strong linkage with infrastructure development and financial sustainability. Therefore for
purpose of this research, access and reliability of water services is defined according to the
NWSC context. Though studies in Uganda define access based on technology of service that
assumes that household connections serve six people, yard taps serve twenty four people and
Public stand pipes serve one hundred fifty people, this put water service coverage in small towns
at 70% by 2006 (Kayaga et al., 2009), whereas reliability is considered by NWSC as having a
minimum of 24/7 hours per day of water supply (NWSC PACE, 2012). Therefore service levels
are qualitatively determined from bi annual performance evaluations conducted by NWSC on
utilities that is measured against the National set standards and targets of 100% for access
(coverage) and 24/7 hour water supply.

Figure 5: Analytical framework

3.4. Data collection methods

The research applied three types of qualitative data collection methods namely; semi structured
interviews, field observations and secondary data collection method. Focus will be at the
NWSC headquarters and triangulated with the operational two utilities. Further deliberation of
these methods follow below.
3.4.1. Interviews
The aim of carrying out the semi structured interviews was to obtain a more detailed account
of the topic from the interviewees in order to answer the research question which required a lot
of probing, illustrations and elaborations (Hancock et al., 1998). Being that the research also
aimed to gain from some expert opinions, practices and knowledge on the topic, the semi
structured interview was preferred as the ideal method for the research (Harrell & Bradley,
2009). A careful selection of respondents was conducted based on their positions and direct

Research Methodology 20
involvement in planning, designing, operationalizing and management of infrastructure and
finances of water supply services at NWSC. The respondents included a director, senior
managers and Engineers from NWSC head office whereas at the NWSC operational towns of
Bushenyi and Kitgum, the respondents included the Area managers, the heads of technical,
Finance and commercial sections, some technical staff were also interviewed. There were 22
respondents interviewed. A complete list of respondents is attached in the annex section of this
report.
3.4.2. Secondary Data Collection
As a supplement to the primary data collection method of interviews, vast secondary data was
reviewed essentially to correlate the raw data from the interviews and also to analyse the
financial performance and service levels of the towns. Gain an in-depth understanding of
infrastructure development policies and designs practiced in both the small towns under study
and at NWSC headquarters. Quantitative Secondary materials like monthly operational reports,
financial statements, annual Capex and Opex budgets, bi-annual performance evaluation
reports and audited annual reports were particularly reviewed for the period 2013 to 2017 to
determine the performance of the towns and was useful in answering the research questions.
Further review of NWSC current development programmes, policies and action plans on
infrastructure, National WSS standard design manual and government of Uganda performance
contract with NWSC helped establish the state of affairs at NWSC in general and specific
service delivery in the towns.
3.4.3. Observation data collection method
The observation method was used in the research to validate or nullify the interviews that were
conducted (Hancock et al., 1998). The focus was observing the type and sizes of infrastructure
built, the landscape of environment which pose a challenge of construction of the infrastructure,
the behaviour and methods of the technicians while carrying out operations and maintenance.
The reliability of service to ascertain the number of hour’s water supply is available, the
pressure and rate of interruption in the system. This contributed to validating the responses on
service levels
3.4.4. Triangulation
In order to enhance the validity and reliability of the data collected from the field, a triangulation
strategy was adopted. Triangulation technique in qualitative research is believed to be a useful
strategy in reducing bias and contradictions in the findings such that only a honest suggestion
about some social phenomenon can be made (Mathison, 1988). For the purpose of this research
this strategy was of added value, as there was need to correlate the information obtained from
observation method, the interviewees and reviewed secondary data. It was also important to
validate information obtained from the NWSC headquarters with the realities on ground at the
operational level (in the towns of Bushenyi and Kitgum). Also within the administrative setup
of the towns, this gave a close to realistic picture.

Research Methodology 21
 Table 2: Summary of the Data collection methods with respect to research questions
Research Objective Research Question Data Required Sources of Data Method of data collection

To analyse how the development of infrastructure To what extent has infrastructure development Data on Infra development  NWSC Hqtr & Area  Semi structured interview
has affected the financial sustainability and affected financial sustainability and Service approaches staff, ISDP, policies  Secondary Data collection
service levels in the small towns of Bushenyi and delivery in the context of small town’s water and Actual investment, O&M budgets & designs  Observation
Kitgum in Uganda. sanitation systems? costs and revenues since  Capex, Opex and Rev.  Triangulation
FY2013/2014. Service levels statements
on water access and  Annual reports,
reliability performance reports

Specific Objectives Specific research questions

To examine how the current infrastructural How are the current infrastructural development Data on Infra development  NWSC Hqtr and the  Semi structured interviews
development approaches in small town water and approaches in small towns established and who practices, policies and operational area staff  Secondary data review
sanitation services have been developed. takes decisions designs  Review ISDP & WSSP
. designs & policies

To explore the financially sustainable practices What are the revenue estimates generated from Data on investment costs,  Review of Financial  Secondary data collection
that utilities in small towns undertake amidst Capex and Opex in small town water utilities? Opex and revenues reports i.e. income and  Semi structured interview
development of infrastructure What are practices and measurement of financial generated. Financial expenditure
sustainability? indicators of financial statements, balance
sustainability sheets, Capex & Opex
budgets, staff
To establish how service levels suffer or not from How do the service levels suffer or not from the Data on the Performance  NWSC Hqtr and the  Secondary data collection
the practices/approaches of developing infrastructure development approaches of water levels of the utilities in operational area staff  Field Observation
infrastructure utilities in the small towns? respect to access and  Performance  Semi structure interviews
reliability indicators evaluations reports
 Annual and monthly
report

Research Methodology 22
3.5. Limitation of the Research
The research is only focusing on two indicators (access and reliability) for determining service
levels that have a strong linkage with infrastructure development however, in water services
delivery there are more than two indicators that infrastructure influences but due to the time
constraint and magnitude of the work, the research will not cover all the indicators such us
quality, production quantity, Non-revenue water among others

Research Methodology 23
CHAPTER 4

Results and discussion small Towns

and NWSC Head Office
4.1. Water sector in Uganda
The overall coordinator and policy maker of the water sector industry in Uganda is the Ministry
of water and Environment (MWE) through its three directorates of; Directorate of Water
Resources Management, Directorate of Environmental Affairs and Directorate of Water
Development. The responsibility of providing general technical oversight for the supervision,
implementation and planning for the delivery of urban and rural water and sanitation services
across the country, including water for production lies with the Directorate of Water
Development (DWD). DWD also regulates the delivery of water supply and sanitation to both
small and large towns, provides capacity development and other support services to Local
Governments, Private Operators and other service providers (NWSC annual report, 2015).
Further still, DWD through the water utility and regulation department (WURD) is authorized
to regulate and monitor water authorities managing piped water and sanitation systems as
specified by the water act cap 152 by use of performance contracts(M.W.E-WURD, 2018).
WURD has mandated the National water and Sewerage Corporation (NWSC) as the water
authority responsible for the provision of piped water supply and sanitation services in
urbanized centres of both large and small towns that have been gazetted1 The national objective
of Uganda’s water supply and sanitation sector is to increase urban and rural access to water
supply services from 77% and 65% respectively to 100% and 79% by 2020 (N.W.S.C-
SCAP100, 2016). Figure 6 shows the configuration of the water sector in Uganda

1
Gazetting refers to the official publication of the mandate or delegated authority in the government gazette. When
a small town is gazetted by declaring it as a water and sanitation supply area a new water authority is appointed
by the minister of water and environment as the person or body responsible for the provision of water and sanitation
services in the small town.

Results and discussion small Towns and NWSC Head Office 24

 Sector coordinator & Policy
Regulator
Authority
Water
Figure 6: Administrative structure of the Small Town Sub sector in Uganda

4.1.1. Definition of Small Town’s and water supply services

There exists different versions on the definition and understanding of Small Town sub sector
in Uganda. For example small towns are referred to as gazetted town councils or town boards
thus, with the exception of the Capital city and Municipalities considered as large towns, the
rest of the urban centres are small towns (Kitonsa, 2017; Tumusiime & Njiru, 2004; Wood,
2000). Meanwhile, in the M.W.E-Manual (2013) small towns are considered as rural towns
with a population size of 5,000 to 15,000 inhabitants. Although according to N. Pilgrim et al.
(2007) population size of Uganda’s small towns is between 4,000 to 30,000 people. Also,
according to NWSC Corp Plan (2015), it suggests that towns are not only defined by the
population size but rather those urban centres with a conventional water supply system in place
and have been gazetted by the ministry of water and Environment for NWSC to take over the
management, operation and maintenance of the water supply systems. However this
categorisation of towns is not official as the MWE has continued to transfer the management
and operations of the water supply systems in these towns to NWSC irrespective of their
population. Therefore, population alone ceases to be a basis for the town categorization thus
the current definition that acknowledges any “gazetted town council or town board as a Small
town irrespective of its population and management model” holds (Kitonsa, 2017). So, where
the ministry refers to small towns NWSC refers to these as “new towns”.

Results and discussion small Towns and NWSC Head Office 25

4.2. The National Water and Sewerage Corporation Head Office
4.2.1. Background
The National Water and Sewerage Corporation (NWSC) is a public corporation entirely owned
by the Government of Uganda (GOU). Formed in 1972 by decree No. 34. The corporation’s
legal position was strengthened by NWSC Statute No. 7 of 1995, which was later incorporated
into the NWSC Act of 2000. Under the new legal framework, the powers and structure of
NWSC were revised to enable the corporation to operate on a sound commercial and financially
viable basis. The primary business of the Corporation as defined in the NWSC Act is to operate
and provide water and sewerage services in areas entrusted to it on a sound commercial and
viable basis (REEV, 2017). Further to that, as required by the performance contracts that NWSC
enters with MWE, they are to provide services efficiently and economically in the gazetted
towns to be able to achieve the key performance targets that are set by the MWE (GOU-NWSC-
PC5, 2015). The operations of NWSC has expanded from initial 3 towns of Kampala, Jinja and
Entebbe in 1972 to 27 towns by 2013. But since then the corporation has rapidly increased its
operations to over 200 major urban centres across the country in a span of 5 years (NWSC-
Annual.Report, 2017). The NWSC service coverage within its area of jurisdiction is targeted to
expand to 100% by the year 2020.
4.2.2. Categorization of Towns
According to NWSC towns are grouped in 3 categories; Small, Medium and large towns for
purposes of performance evaluation, defining the level of autonomy, the area management
structure and required competencies/ capacity needed. This is determined based on the criteria
of volume of business such as production (volume of water produced), customer base, Billing,
Revenue collection and the complexity of the system. These parameters are preferred because
it allows NWSC to create a progressive system in which towns are able to progress from a lower
category to a higher category based on billing, customer base, revenue collection. This
progression comes with incentives and promotions2. Therefore small towns according to these
categorization are those towns that have a monthly billing of less than Ushs 100 million,
medium towns have a billing between Ushs 100-300 million and larger/bigger towns those that
are billing more than Ushs 300 million. An increase in the volume of business that matches the
specific category qualifies for the town to be upgraded to that particular category. In regards to
my case studies, Bushenyi/Ishaka Area falls under the category of medium towns because their
monthly billing is averaging Ushs 220 million thus their performance is being evaluated against
towns in the medium category whereas Kitgum Area falls in the category of small town due to
their average monthly billing Ushs 70 million. Table 3 below shows an example of how towns
are typically categorized.

2
Hq3, Hq5-Respondents 3 and 5 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 26

Table 3: NWSC-Area Categorization

No Category Range(Billing) Areas Actual Av.

billing
1 A. Large Towns Above UGX 300m/= Jinja
1,241,732,045

2 B. Medium Towns UGX 100m/= to Bushenyi/Ishaka

300m/= Cluster 198,101,197

3 C. Small Towns Below UGX 100m/= Kitgum

53,988,932
Source: Author, analysis of NWSC performance evaluation report (period FY 2015/2016)

4.2.3. Challenges at takeover of small towns by NWSC

The continued takeover of new towns with ailing water supply systems coupled with
urbanization in towns has put huge pressure on NWSC to meet the surge in demand for water
and sanitation infrastructure. The main challenges in the NWSC small towns is limited network
expansion, old networks, high unit costs of production, high Non Revenue water (NRW) and
arrears (accounts receivables) and there are numerous reports on water shortages (M.W.E-
Manual, 2013).
When a new town is handed over to NWSC, most times the water supply infrastructure is
dilapidated and NWSC chooses to invest its funds to quick fix the electro mechanics, water
source improvements, network reticulation and some reservoirs, then customer metering and
do network intensification3 with the hope of recouping some money from the system for
sustaining supply within the town. Quite often these strategy has proved to be challenging and
unsuccessful as indicated from the statements of4. First there is always resistance from the
community to pay NWSC tariff as they consider it to be expensive, secondly there are always
alternative sources of water which are free of charge like hand pump boreholes. In the first
months of operations in the new towns NWSC will struggle to raise revenue for O&M of the
system. Therefore, NWSC has to find other sources of funds to stabilize supply and fix supply
deficits in terms of leakages, replacing old pipes etc. this implies improving the operational
efficiencies of large towns in order to raise the financial resources needed to develop the infra
that copes with demand to be able to sustain small towns.5
Uganda has a single capital city, 41 municipalities, 210 Town councils and very many Town
Boards thus 24% of the population leave in urban centre (Kitonsa, 2017). There is a minority
leaving in the urban areas where NWSC is mandated to provide services. Despite of progress
to increase portable water supply services in towns, there are still disparities in the level of
service provision in towns. The water supply systems in towns often breaks down and the water
authorities have to revert to the MWE for help to sustain services. Water sales are never as high
as projected by the operators because most towns have alternative sources of water like springs,
hand pump boreholes and wells though often heavily polluted, thus consumers resort to use of
unsafe sources. The level of infrastructure developed is low and the price of water is presumed

3
Network intensification means- laying pipe network of sizes 1inch to 1½inch
4
Hq1,Hq2,Hq9 Respondents 1, 2&9 from NWSC Head office
5
Hq1 Respondent 1 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 27

 to be high. Hence, it seems towns are considered uneconomical to manage (M.W.E-Manual,
2013).
4.2.4. Roles of NWSC HO to the operational Areas
Decision making processes taken at NWSC Head office are critical for the proper functioning
of the utilities in the operational areas. The Head office makes policies and regulates the
operations in the areas through performance contracts referred to as Performance Autonomy
creativity Enhancement (PACE contracts). Performance targets and standards are annually
negotiated and agreed upon, they also have control over the pool financial accounts for the
revenues collected from the areas and remit monthly management fees that facilitate the O&M
of the water supply systems in the areas. Similarly provide technical support and source for
funding for the development of infrastructure in the areas. Although the areas are given some
degree of autonomy to make decisions in regards to service delivery and Capital development
within their respective areas, for example they identify the need for mains extension, carry out
the feasibility study, cost and budget for the mains extension but the powers to approve
investment implementation lies with head office specifically the operations department. Annual
reviews of projects proposed by areas have resulted in some projects being rejected, cut down
or Area Managers and Engineers advised to postpone to the following financial years. This is
due to many reasons such as financial constraints, unviable projects, unbudgeted for projects or
simply projects not in the priority list. Below is a summary of the departmental roles at NWSC-
HO that have a direct influence on how the operations of town utilities are conducted.

Table 4: Critical Departmental roles of NWSC HO and Small Town Utilities

Key Function Specific Roles Department

Monitoring and  Monitoring and Evaluation of Corporate and Region/Area performance thru PACE Programmes
Performance contracts and
Evaluation  Provision of quarterly comparative benchmarking data from other Areas with the Performance
overall objective of encouraging contestability among Regions/Areas; Monitoring
 regular customer surveys with the overall objective of protecting customers’ rights and
promoting customer care in the Areas, in line with the service level expectations
stipulated in the customer charter
 inspect, audit or conduct a survey, for purposes of ascertaining compliance with set
standards
Operations and  Financial, Logistical and Technical Support
supervision of  Provision of Schedules of Tariffs, Fees, Rates and Charges
towns  Maintains all rights of ownership in the Assets related to the provision of the Services Operations/
in the Area Regional office
 Maintenance of the asset register
 General supervision of the towns operations

Rehabilitation  Plan, Design, Fund and implement any agreed rehabilitation and Major Capital Works Planning and
and capital in the Area Capital
works  Source for funding for the development of infrastructure Development
Procurement  Strategic support and guidance in matters of procurement and inventory and policies Procurement
and Inventory  Procurement Planning and Inventory
 Bulk procurement and stock of common inputs
 Central store management

Results and discussion small Towns and NWSC Head Office 28

Key Function Specific Roles Department
Financial  Strategic support and guidance in matters of financial management and policies Finance and
planning and  Computation and Payment of management fees and incentives Accounts
management  Payment of expenses, on behalf of the Area: VAT on billings, property insurance, Directorate
ground rates, plant insurance and treatment chemicals
 Provision of funds for development activities as set out in the approved Action Plan
 Control and Management of pool accounts for revenues

Source: (Kitonsa, 2017)

4.3. The development of infrastructure at NWSC Head Offices

4.3.1. General Polices of Infrastructure Development
The development of any infrastructure at NWSC is guided by NWSC policy documents,
programmes and GOU policy directions and directives, GOU performance contracts which are
often revised and updated6. Fundamental among the policy documents that steer infra
development include the five year Strategic directions SD (2013-2018 and 2016-20201) and
the corporate plan. An aggressive investment plan to expand services is emphasised as a priority
for the corporation. NWSC stepped up its infrastructure development in early 2014, with a
programme dubbed the ‘’Infrastructure service delivery plan (ISDP) and Water Supply
Stabilization Plans (WSSP)’’. These two plans entailed rehabilitation and construction of large
water supply systems like (upgrading treatment plants, transmission and distribution pipe
network), expansion and extension of the sewerage network and construction of Public Stand
Pipes (PSP) for the pro-poor urban settlements. The objective was to augment and increase
water supply access and reliability, pro-poor interventions to match the water demand for
rapidly growing urban poor population in cities and small towns since the mandate to takeover
more towns had increased (NWSC, 2015).
Additionally, in developing infra, NWSC has to align the infra development programmes to fit
within the Government of Uganda (GOU) policies, directives and ruling government agenda.
For instance investment plans are anchored on the National Development Plan (NDPII) (2015-
2020) which also has an objective to Increase Water Supply Coverage in rural areas from 65%
to 79% (2019/20) while ensuring at least each village has a clean and safe water source. Hence
the plans support the GOU determinations to accelerate provision of safe water services to a
100% of the population specifically to the 10,600 villages in the 62 districts of Uganda
(N.W.S.C-SCAP100, 2016)
4.3.2. Investment approaches for NWSC towns
Traditionally infra development has been demand driven vs supply driven approach. Supply
driven was through GOU funding and its generous behaviour of promoting “water for all”
methods to ensure that the majority of the population in either urban or rural have access to
portable drinking water. The GOU sources for funds and gives a directive to NWSC to extend
services thus whether you put infrastructure and people connect or don’t connect and consume
water, it was upon the consumers. The aim was to fulfil government programmes of extending
services closer to the population. But today NWSC emphasize a demand driven approach, with

6
Hq6, Hq7- respondents 6 &7 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 29

business orientation, meaning water is supplied and sold to recoup some money to meet the
costs of O&M, some depreciation and for minor investments for the sustainability of the
corporation. Practices for development of infra in towns involves understanding the people to
be served and their water consumption patterns, then decide on how to reticulate the network.
The customer base will determines what kind of system is to be put in place.
Infra development mechanisms in NWSC is ideally cross cutting to all towns not specific for
small towns, reason being that towns within NWSC jurisdiction are overseen by the same
infrastructural policies, where by each town comes up with an investment plan that meets the
current focus of the corporation’s general investment strategy for a specific period of time.
Accordingly the operational area’s specific investment plans with clear milestones and
deliverables need to fit within the key focus areas of the strategic direction. Cost estimates for
the infra development is generated from the regional office, that provide technical support to
the areas in planning, budgeting and disseminate to the areas the planned budget and each area
develops budget that fits within the regional office investment plan. Due to limited financial
resources, regional budgets are usually capped and each area is restricted to implement the
approved budgets, although there is room for flexibility, adjustments are mainly for emergency
situation for example an intervention on a water source that is drying up, main pipeline network
that has been washed by floods among others. An emergency procurement can be initiated to
stabilize supply as a quick fix to the challenge.
4.3.3. Politics and power of infrastructure development
Infrastructure development is also politically engineered and is inseparable from water services
provisioning, neither is NWSC immune from the political influences whether at the national
level or local level. The corporations’ change of expansion strategy from concentrating in large
towns to takeover of new towns is a strategy to tap into the political backing for infrastructure
financing despite of the financial burden of operating in small towns and the challenge of
meeting high stakeholder expectations (Mugisha & Berg, 2017). Indeed there is more political
will to finance the development of infrastructure because there has been an increase in service
coverage and given that this is the strategic aspiration of the national government. On the other
hand, while allocating funds for Capex in towns, political consideration is taken into account.
That is to say, towns with strong political demand are given first priority to reduce on the
political pressure for demand of services. 2nd consideration is for towns with high demand for
services (i.e. towns that have taken long without water services) but with less political demand
for services. Hence priority is given to infra development plans/programmes that promote the
interest of the GOU as a key stakeholder/partner for strategic reasons 7 Therefor these policies
have shaped how infra is developed, where to develop it and who has the power to decide the
beneficiaries of the infrastructure.
Growth of infrastructure is established following two approaches, when it’s a big and complex
project a consultant is hired to do the designs and costing. Although there are no thresholds for
hiring consultants, however, the project is considered big when the estimated costs are over 10
million euros and complex when it has stringent conditions attached mainly from the powerful
external funders, for example influence decisions on where to hire a consultant and contractor
from, most times they are not locally sourced, funders come with own interests for instance
decide on whether to build treatment plants instead of network expansion, financing conditions.
If the project is medium and less complex, designs and costings are done “in-house” by NWSC
7
Hq2- Respondent 2 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 30

Planning and Capital Development Directorate’s Engineers. The project is less complex when
it has minimum conditions, easy to manage and most especially internally funded by NWSC.
However much emphasis is put on “in-house capacity” to do most of the work since the
expertise is available and also to minimise the cost of hiring consultants. NWSC has now
adopted the initiative and designed its own first water supply systems at Kapeeka and funded it
from the internally generated funds. This is just one of the many internal projects that have
saved millions of shillings for the corporation8
4.3.4. Pre-feasibility study approach
In the identification and development of water and sanitation projects, one of the requirement
in the MWE water supply design manual is that studies are conducted to assess water and
sanitation coverage, the status of towns (district headquarters, counties or sub counties),
populations and strategic environmental assessment (M.W.E-Manual, 2013). In compliance
with the design manual requirements, NWSC while implementing the Service Coverage
Accelerated program to achieve 100% coverage by 2020 (SCAP100) conducted an in-house
prefeasibility study. The objective of the study was to identify and select suitable technical
options that could provide a safe and reliable water supply for the villages in the project area in
order for the GOU and NWSC to take a decision on the appropriate options to consider for the
feasibility study (NWSC-Pre-Feseability.Report, 2016).
From the studies conducted, by June 2016 NWSC was already operating in 170 towns across
62 districts, 400 counties and in 15, 500 villages (estimated population of 14 million people)
however the administrative districts are projected to increase to 80 with a population of 16.4
million using a Uganda Bureau of statistics annual growth rate of 3.03% (UBOS, 2014). The
aim of the project is to have 100% coverage targeting all the unserved villages within NWSC’s
jurisdiction installed with 140,000 new house connections and 20,000 Public stand pipes (PSPs)
by 2020, two PSPs per village and one PSP serving 200 people (N.W.S.C-SCAP100, 2016).
Below is a summary of the outcome of the prefeasibility study carried out from NWSC
operational areas categorised on regional basis down to the village level

Table 5: Villages with and without 100% pipe water supply

Source: (N.W.S.C-SCAP100, 2016, p. 9)

From the survey 12,000 villages with estimated population of 8.5 million people are without
access to reliable and safe drinking water, therefore the project aims to accelerate service

8
Hq6, Hq7 Respondents 6&7 from NWSC head office

Results and discussion small Towns and NWSC Head Office 31

coverage to 100% by 2020 to these unserved villages through the list of identified technical
options of infra development listed below according to their order of priority;
 Network intensification from an existing water supply system
 Pipe water extension and network intensification from an existing water supply system
 Mini potable water system
 Supply from ongoing/planned major infrastructure project
The implementation of the project has also defined the route and the type of technology that
NWSC intends to undertake while extending services to a larger part of the community
4.3.5. Technological choices and standards
Installation of more water points inform of Public stand pipes (PSPs) is the preferred choice of
service delivery model that is being promoted for water service supply expansion at the village
level. Therefore more water points will be constructed to serve the majority of poor population
in the small towns rather than the centralized system after the implementation of SCAP100
programme. Although these service expansion model has been developed to suit the
characteristics of villages in Uganda where challenges of affordability for individual
connections are prevalent, the majority poor live and O&M of the system challenges may crop
up after the installation of the PSP in the villages, universal access to infrastructure service is
doubtable because of affordability issues, thus the majority poor will still be left out (Estache,
2010). This model of expansion of service is also unpopular according to the SDG criteria for
classifying access of service as it is not a safely managed improved water source compared to
the preferred house hold connections (WHO & UNICEF, 2017). In NWSC house hold
connection technologies are majorly preferred in the urban centres of large and small towns.
Hence when serving the community “we try to match the level of service to the expectation of
the community” there may be communities that are not ready for house connection but are in
preference with PSP, therefore we try to meet the needs and expectation in service levels 9
Technology to be adopted is mainly determined by the dynamics of sources of water and
“optional analysis” of the technology carried out. If it’s an NWSC funded project the cheapest
and cost effective options are preferred while other funders may dictate on the choice of
technology”, there are towns that have gravity schemes, ground water, surface water and
already existing bigger water supply system. These are all taken into consideration and the
cheapest optional technology is adopted. External funders often prefer very expensive but
sustainable technological options such as gravitating water from reliable surface water sources
using bigger pumping mains to augment water supply in the small satellite towns rather than
drilling boreholes. Therefore, there is no standard technology, every technology adopted
responds to challenge on ground e.g. if the raw water has a lot of iron and manganese, you may
need to put in aspects like aerators which is different from when you extracting water from
underground but with less manganese and iron removal10.
On the other hand, as a guiding tool in developing the designs for the pipe network in towns,
the Area Engineers are also asked to use the Ministry of Water and Environment standard water
supply design manuals and adhere to NWSC standards. But, the national standard design
manual mainly focuses on the water supply systems of the rural areas and the urban areas, for
instance, The per capita consumption used on the rural areas are 20 l/day for population up to

9
Hq3 respondent 2 from NWSC Head office
10
Hq6, Respondent 6 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 32

5,000 persons, 35 l/day for medium towns up to 20,000 persons and 50 l/day for the larger
towns (M.W.E-Manual, 2013, P. 2-4). Bushenyi and Kitgum areas falls neither of the above
categorization, being a towns with transitional growth, with a population of over 40,000
people(UBOS, 2014). Therefore designing the pipe network based on the above consumption
patterns may be misleading and leads to over sizing of the pipes which results to construction
of expensive systems thus increase in O&M costs of the system (Lauria, 2003)
4.3.6. Economies of scale and Densities of Infra Development
The Engineering approaches of developing infra in small towns differs from those in large
towns. When we take for instance, “In Kampala we’re talking about big volumes of water to be
abstracted (with large diameters of pipes and huge treatment plants) for bigger population
densities with higher demand thus preference for centralized systems to benefit from the
economies of scale”11. Whereby the unit cost of producing water in Kampala was 1,961shs/mᶟ
which is much lower as compared to Bushenyi/Ishaka at 3,236shs/mᶟ and Kitgum 3,530shs/mᶟ
for FY 2015/2016 respectively, for the reason of large differences in the volumes of water being
produced and the customer base. In small towns the population densities are low, even if the
borehole yields were too high, with other standby boreholes which are sufficient you cannot
use very big sizes of pipe. They require micro infra suitable for the small populations.
The unit cost of production as defined by NWSC is the average cost incurred to produce a cubic
unit of water in a water supply system. These costs includes all the operating and depreciation
costs (NWSC annual report, 2015). From the analysis of NWSC‘s annual water production
figures against the operating expenses plus depreciation for four financial years (FY2013/2014
to 2016/2017) reveals that the cost of producing a cubic unit of water in a large town/city like
Kampala is almost 2-3 times lower than the cost of producing water in the small towns. This
finding is consistent with other studies which show that bigger utilities have a much lower unit
cost of production and greater performance as compared to smaller utilities (World.Bank, 2017)
In the FY13/14 the unit cost of production of water in Kitgum town was Ushs.5, 429/mᶟ with a
total volume of water produced of 172,172mᶟ/year. Bushenyi area’s unit cost of production was
relatively lower at Ushs 3,371/mᶟ to produce 538,670mᶟ. In the same financial year Kampala
city’s unit cost of production was at Ushs.1, 625/mᶟ producing 63 million cubic meters of water.
The big disparity in the costs of production is as a result of high economies of scale and densities
of water supply in large towns where the infrastructure is well developed that can produce huge
volumes of water, rapid increase in the number of connections due to speedy population growth,
urbanization and increased operational efficiencies. Scale economies are still low in the small
towns, they have low connectivity levels, fewer customers and limited network expansion.
Table 6 below illustrates the performance trend of KPI’s used to determine the unit costs of
production of the large town/City utility (Kampala Water) against the small town of Bushenyi
and Kitgum

11
Hq1 Respondent 1 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 33

 Table 6: Performance Trends of NWSC Kampala water and the Small Towns

KPI’s Kampala Water Bushenyi/Ishaka Kitgum

FY FY FY FY FY FY FY FY FY FY FY FY
13/14 14/15 15/16 16/17 13/14 14/15 15/16 16/17 13/14 14/15 15/16 16/17
Water Produced ‘000’(m3) 63,833 63,802 66,306 77,201 539 712 1,187 1,211 172 316 337 307
Operating Exp. (million) 103,722, 119,186 130,039 113,252 1,825 2,806, 2,842 3,353 935 1,163 1,190 1,142
Unit cost. (ushs/m3) 1,625 1,868 1,961 1,467 3,371 3,939 3,236 2,770 5,429 3,678 3,530 3,722
Network Expansion (Km/yr.) 116 153 161 271 68 90 76 25 13 10 6 3
New Con,/yr. 15,324 14,982 18,951 22,862 408 1,027 1,097 787 529 574 233 329
Source: Author’s analysis of NWSC Performance from audited annual reports 2013 to 2017

large vs small towns Unit costs of production

6,000

5,000
costs (Ushs/m3)

4,000

3,000

2,000

1,000

-
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial years

Kampala Water Bushenyi/Ishaka Area Kitgum Area

Figure 7: Analysis of Unit cost of production large and small towns

It should also be noted that in the FY2013/2014 when the unit cost of production for Kitgum
town was incredibly highest, that’s the period when NWSC took over the management and
operations of the water supply system of Kitgum town more (details 1n chapter 5). This is also
an indication that on takeover of a new town the unit cost of production is certainly higher but
with the possibility of cost savings from the aggregation and subsequent revamping of the
infrastructure within the town, the unit cost of production will progressively decline in the
following years as observed, although it is not straightforward that with the aggregation the unit
costs will decline (World.Bank, 2017). However, it has encouraged NWSC management to
cluster more towns so as to benefit from economies of scale, for example administrative scale
economies, “instead of having an engineer for each town, we have one engineer managing over
5 towns in a cluster form. Therefore his salary is economically spread across the towns. Thus
management proficiency is what is sustaining the operations of these towns”12

12
Hq1 Respondent 1 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 34

4.4. Perspective of financial Sustainability at NWSC HO
The aim of NWSC in general is to strive to be a viable institution to sustain service delivery.
Therefore towns are also urged to generate revenue from water sales that is sufficient to meet
operational and maintenance expenses (Opex) only with some surplus that is ploughed back for
Capital investments. This is the understanding of being financially sustainable in the NWSC
context. Surplus here is referred to as the net profit after depreciation and interest deduction.
Though, NWSC doesn’t often use the term financial sustainability because it means full cost
recovery of O&M and Investment costs and yet it is not the case. There attempts to use a phased
approach in imparting financial sustainability in towns is one way of pushing towns to move
one step at a time in the strive of being self-reliant. For example on “takeover of a small town
that cannot cover its employee costs, a target is given, within six months of operations to be in
position to generate enough revenue to at least cover its employee costs, then moved to Energy
costs (Electricity and Fuel). Then may be in the next one year they should be able to cover all
the O&M costs”13
4.4.1. Measurement of viability of NWSC towns
Key Financial indicator used to measure the viability of NWSC towns is working ratio; which
measures whether the billing of a town is able to recover all its operational costs excluding
capital expenditure calculated as Opex divided by the billing of that Town. which means “the
lower the ratio the better, a ratio greater than 100% means that the town is not breaking even
(not viable), at 100% implies it’s just breaking even and a ratio below 100% indicates that the
town is making more money than its expenditure” (viable town). The table below shows
NWSC’s working ratio performance for the period FY2012/13 to 2016/2017

Table 7: Working Ratio Performance of NWSC global, Large and Small Towns from FY2013 to 2017

Working Ratios “%” (WR)

Financial years FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17 Av. WR
NWSC Global (%) 80 83 96 84 78 84.2
Break Even Point (%) 100 100 100 100 100 100
Source: Authors analysis of the NWSC Annual Reports (FY2013 to 2017)

For the period under review, NWSC at a global scale has generally been a viable utility because
the average working ratio of 84% is below 100% (the breakeven point) this enables NWSC to
cover all the O&M costs across its towns. Refer to chapter five for more detailed analysis of
working ratios for the case study towns of Bushenyi/Ishaka and Kitgum.
Following these calculations, NWSC argues that small towns can be viable in the long run with
the identification and development of the right investment needs. To substantiate the argument,
“from NWSC experience, they have taken over towns before that were claimed not to be
financially sustainable for example (Arua, Bushenyi and Soroti), by the time we took over they
were very small towns, Bushenyi had about 500 accounts and billing about Ushs 5m, Arua had
1,000 accounts and billing Ushs 3m but with the right investment14 put in these towns Arua,

13
Respondent 3 from NWSC Head office
14
‘Right investment’ is referred to mean appropriate investment for towns with high impact for example network
intensification

Results and discussion small Towns and NWSC Head Office 35

Bushenyi and Soroti are billing about Ushs 230m”15. By investing in these towns, you increase
coverage and more people get connected and pay for services. Although it is appreciated that
this is a process which takes a long time but with right investments, towns can become viable.
4.4.2. Relation of Financial Sustainability and Infrastructure in towns
During takeover, most towns are not viable but NWSC revamps infrastructure in these towns
with the objective of making them self-sufficient16. The viability of these towns is enhanced
through expansion of the distribution network to increase the customer base through new
connections, increase production capacity through water systems upgrade and rehabilitation to
guarantee reliability of supply and optimising the operational costs (NWSC-SD, 2016). Due to
low levels of connectivity in the new towns taken over by NWSC, a strategy has been devised
to enhance the viability of the new towns by ensuring an expansion of the distribution network
by 5km annually in each of the new towns taken over. This is a policy to achieve the strategic
priority area of financial growth and sustainability (NWSC-SD, 2016).
What is emphasized, is for utilities in towns to invest in highly impacting projects with less
costs in order to widen coverage and grow the area. For example, if the area is to expand the
network by laying 10km of either 2inch (DN50) pipe or 4inch (DN100 or 150) pipe size,
“between large diameter, medium diameter or small diameter pipe sizes, which one is
sustainable and highly impacting to lay for the 10km?” what is highly impacting and sustainable
is the small diameter pipe size, submains extensions17 to reach many people to increase billing18.
Even the Allocation of Capex is directed to high impacting projects especially network
intensification with small diameters of pipes that can easily be extended to many people at a
lower costs.
4.4.3. Financial flows at NWSC for infrastructural growth
NWSC uses a cocktail of sources for financing investments in the small towns but most notably
is through GOU investment subsidies, internally generated funding thru tariffs, cross subsidies,
infrastructure fund and loans and grants form development partners. Given the critical need of
investments in towns and increase in demand for services, these sources of funding is still
insufficient as according to statements from19
4.4.4. Tariff structure analysis
The corporation has a uniform tariff structure that is applicable to all the towns under its
jurisdiction, the reason behind is to promote equity in water pricing. The tariff structure
comprises of four categories of; Domestic, commercial, Institutional and Public stand pipes
(PSP). Whereby each category has a different tariff band (NWSC annual report, 2015). When
the tariff structure of NWSC in general as the national utility is critically examined for the last
four financial years (2013 to 2017) against the unit cost of production of water. It shows that
the weighted average tariff20 has been generally higher than the unit cost of production. This
implies that the tariff alone in general is able to cover the O&M costs of the water supply and

15
Respondent 3 from NWSC Head office
16
Hq4 Respondent 4 from NWSC Head offices
17
Submain extensions refers to a pipe network with pipe sizes of 2inches
18
Hq1 Respondents 1from NWSC head office
19
Hq4,Hq3,Hq2,Hq1 Respondents 4,3,2,&1 from NWSC head office
20
Weighted average tariff (WAT) is referred to as the average tariff for the four categories (Dom, Com, Inst and
PSP) but weighted using the volume of water sold per category. Calculated as;
𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝐶𝑜𝑚𝑚𝑒𝑟𝑐𝑖𝑎𝑙 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝑖𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝑃𝑆𝑃
𝑊𝐴𝑇= (𝐷𝑜𝑚.𝑡𝑎𝑟𝑖𝑓𝑓)+ (𝐶𝑜𝑚.𝑡𝑎𝑟𝑖𝑓𝑓)+ (𝐼𝑛𝑠𝑡.𝑇𝑎𝑟𝑖𝑓𝑓)+ (𝑃𝑆𝑃 𝑇𝑎𝑟𝑖𝑓𝑓)
𝑇𝑜𝑡𝑎𝑙 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝑇𝑜𝑡𝑎𝑙 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝑇𝑜𝑡𝑎𝑙 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑 𝑇𝑜𝑡𝑎𝑙 𝑤𝑎𝑡𝑒𝑟 𝑠𝑜𝑙𝑑
4

Results and discussion small Towns and NWSC Head Office 36

sewerage systems and remain with some operating surplus that is ploughed back for investing
in infrastructure in the needy towns as illustrated in Fig.8

Table 8: NWSC Global tariff and unit cost of production trends

Financial Years FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17

Unit Costs of Prod (Ushs/mᶟ) 1,672 1,852 2,137 2,271 2,083

Weighted average tariff 2,115 2,422 2,263 2,668 2.855

Av. unit Cost of Production vs weighted average

Tariff Global
Amounts (Ushs)

FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17

Av.Unit Costs of Production Weighted average tariff

Figure 8: NWSC tariff and unit cost of productions performance trends.

The tariff is covering across board the operational expenses plus depreciation hence, it is not a
full cost recovery tariff. In the NWSC-Annual.Report (2016), it was stated that, at full cost
recovery tariff charges (i.e. O&M and investments costs), the price of water would have to
increase by more than 100% across the tariff categories, the full cost recovery tariff was
estimated at Ushs 5,408 in the FY 2015/2016. This would be quiet expensive for majority of
the ordinary citizens to afford as supplemented by21 who said “If the tariff was made to recover
all costs then water would not be affordable”. However, on a town by town basis tariff analysis,
you find that even the O&M recovery cost tariff charged, in some towns doesn’t cover all the
operational expenses because the cost of operation is so high. But in large towns where there
are huge economies of scale the tariff is able to recover O&M costs, depreciation and generate
some operational surplus that is used to finance small towns Opex as highlighted earlier. In the
next chapter, I will be able to analyse the tariff structure of the case study towns of Bushenyi
and Kitgum.
4.4.5. NWSC cross Subsidy model
The Corporation has also instituted its internal cross subsidy mechanisms in its operational
areas for sustainable delivery of services. This is where by the surplus generated from the
operational efficiencies of medium and large towns are used to cross subsidize the investments
and operational expenses of small towns water supply systems. From the analysis below of the
Towns viability, reveals that the towns of Bushenyi/Ishaka and Kitgum had a higher unit cost

21
Hq2 Respondent 2 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 37

of production than the weighted average tariff from FY 2013 to 2016. The implication of this
is that, the operational costs from this towns cannot be recouped by the tariff only, therefore
their operational costs have to be subsidized by the large towns that have surplus income
generated as a result of lower unit costs of production as shown in fig 9.

Unit costs of production vs weighted av tariff. for

Towns
6,000

5,000

4,000
Amount (Ushs)

3,000

2,000

1,000

-
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Axis Title

Kampala Water Bushenyi/Ishaka Area Kitgum Area weighted Average Tariff

Figure 9: NWSC cross subsidy model of for small towns

So the deficits in O&M costs are covered from the utilities that are able to generate surplus such
as Kampala water, Jinja, Mbarara and Entebbe. Surplus from this large towns is managed
centrally at NWSC head office and is ploughed back for investment in other towns that are not
breaking even, this is how the large towns subsidize the small towns. The cross subsidy model
has enabled NWSC generate funds to finance its own projects, a typical example is the ISDP
and WSSP programme which was being implemented across all the operational towns of
NWSC. This programme was funded 100% by NWSC internally generated funds, majorly from
the surplus of big towns (NWSC, 2015)22. However, the small Towns are expected to cover
O&M costs, these costs according to NWSC include Employee related costs, Premises
maintenance, static plant maintenance, pipework maintenance, transport and mobile plant,
supplies and services and establishment costs but most of them are small and cannot meet these
costs therefore they are highly subsidized. The Operational expenses of towns is critically
examined in the next chapter specifically for the case study towns.
To supplement the cross subsidy model and casting the net wide for sources of funding for infra
development NWSC has also established an “infrastructure fund” to meet the short and long
term infrastructure investment needs in its operational towns. This funds enable to build a strong

22
Hq4 Respondent 4 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 38

financial foundation for the corporation that easily ties with the capital markets funds either at
national level or internationally. The infrastructure fund is designed in such a way that there is
significant contribution from the new connection policy which requires the rich category of
customers pay for their individual connection to facilitate NWSC install more free Public Stand
Posts. Additionally, the tariff adjustment of 10% usually implemented over two years also
contributes to the infrastructure fund (Mugisha & Berg, 2017). Once the resources have been
secured they are “ring fenced” and specifically utilized for Capital development projects.
NWSC is also desirous to venture into market financing of its investments as indicated in the
policy documents NWSC-SD (2016), as one of the strategic priority areas to explore for
financial growth and sustainability however, the initiative has not been strongly developed.
Therefore there is heavy reliance on the traditional means of financing infrastructure which
include revenues from water sales, GOU subsidy and through development partners.
4.4.6. GOU Investment Subsidy
Infrastructure development at NWSC is highly subsidized by GOU through the investment
subsidies stipulated in the performance contracts agreement between GOU and NWSC. As part
of GOU responsibility and obligation towards expansion of services, the government has a
responsibility to source and fund major investments in water and sewerage projects, contribute
towards infra development in all the new towns taken over by NWSC and shoulders costs of
investments deemed to be of social nature (GOU-NWSC-PC5, 2015). For instance, the
SCAP100 programme currently being implemented is cost shared between NWSC and GOU.
The GOU is contributing Ushs 22.5 billion (48%) and NWSC is contributing Ushs 42 billion
(52%) towards project implementation in the financial year 2017/2018, this is a three year
project23. Accordingly, the GOU has already fulfilled its commitment by depositing all the funds
to NWSC for procurement of pipes.
As a buffer, the GOU every financial year provides NWSC subvention fund amounting to Ushs
3 billion specifically for the development of infrastructure in the new towns, the criteria for
allocation of the funds to the towns is at the discretion of NWSC. However, today, the towns
have become so many, the amount of the grant from the GOU has remained unchanged since
2013, and therefore the proportion per town has reduced as proclaimed24. So, the Subsidy given
for Capital expenditure (Capex) to improve on network expansion is insufficient, consequently
stagnating access to water supply services at 71% since 2016 (M.W.E-SPR, 2017). Principally,
government plays a fundamental role in the development of infrastructure in the new towns.
Development partners as external funders for most major water and sanitation (Watsan) projects
are equally instrumental in how infra is developed at NWSC. Once there is a critical need for a
Watsan project to be developed, the GOU can take a loan from the development partners like
World Bank and then on-grants it to NWSC as subsidy or sometimes NWSC directly takes
investment loan from the local or international banks to finance its investments. P&CD
directorate at NWSC then prepares proposals and submit to different funding agencies such as
World Bank which is currently financing projects in Bushenyi, Arua, Gulu, KFW financing
investments in Gulu and Kampala, AFD Watsan projects in Kampala25

23
Hq1-Hq9 Respondents 1 to 9 from NWSC Head offices
24
Hq4,Hq5,Hq9 Respondents 4,5&9 from NWSC Head office
25
Hq6,7,8&9 Respondents 6-9 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 39

4.5. Service Delivery beyond boundaries
In its quest for raising the level of service provision, NWSC is extending the distribution pipe
network beyond its areas of jurisdiction that was restricted to only the urban centres as defined
by the act, but now are extending services to the peri urban, sub counties and villages through
its internal programmes. However, it is not only for raising service delivery levels but also
increasing the customer base who in turn pay for services and widen the financial basket for the
utilities through increased revenues for “better service” provisioning. By better service it
means, more supply reliability, a more steady functionality of water production system,
increased network expansion resulting to more new connections in the towns, increase in
attention to the poor, stakeholder engagement and more opportunities for encouraging
accountability (Mugisha & Berg, 2017).
4.5.1. Struggles in providing Uniform service delivery across towns
NWSC also while developing infra strives for uniform service provision and high customer
satisfaction levels across its operational towns with defined standards regardless of the size and
viability of towns. That is to say, the quality of service received by a consumer in Kampala is
expected to be the same kind of service received by a consumer in Bushenyi, Kitgum and
Moroto (small towns) as stated by26. Therefore, there is not supposed to be discrimination in
service delivery based on viability and sizes of towns. Things like, a consumer in Bushenyi or
Kitgum is supposed to receive blue water because they are not financially sustainable while in
Kampala they receive good quality water because they are viable are unheard of27. This is a
strategic objective of NWSC but it is not an easy task as outcomes from the customer
satisfaction surveys (CSS) conducted by NWSC programmes and performance monitoring
department to measure the level of satisfaction on the services provided by NWSC reflects
contrasting results. This is an indication that it’s difficult to provide services at a uniform level.
The level of satisfaction on the quality of services varies from region to region and town to
town as illustrated in the figure below

26
Hq3 Respondent 3 from NWSC Head offices
27
Hq3, Hq5, Hq7 Respondent 3,5 &7 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 40

 Regional Customer Satisfaction Index (CSI)
90

88

86

84

82
CSI %

80

78

76

74

72
FY 14/15 FY 15/16 FY16/17
Financial years

Central West &South Western North & Eastern

Kampala Metro NWSC Global GOU PC V Target

Figure 10: Analysis of the NWSC regional CSI from FY 14/15 to 16/17

The analysis of the CSS reports for 2015 to 2017 shows that NWSC performed above the
minimum standard of GOU performance contract of CSI target of 80% in the past two years
but fail short of achieving the target in the FY 14/15. Although it is argued that the decline
resulted from the methodical changes in the survey (NWSC-CSS.Report, 2015). At the regional
level CSI varied from region to region though above the minimum standard. Therefore the
service provision cannot be uniform.
4.5.2. Challenges of providing services
Despite of the efforts and steps taken by the organization to enhance service delivery in towns
quite often services have continued to suffer. Sometimes services suffer in towns due to the
internal bureaucratic processes of delay in procurement and delivery of pipes for network
extensions resulting from financial constraints28. In the Managing Directors’ (MD) message,
it’s acknowledged that during the FY 2016/2017 one of the key challenges that NWSC
encountered was of limited infrastructure financing in the wave of increased demand for service
delivery. However by the end of the same financial year, the corporations had made a profit of
Ushs 70 billion which is ploughed back for investments to improve services like network
expansion as being implemented currently in towns (NWSC-Annual.Report, 2017). Therefore
one can assume that once the utility is financially strong, the level and quality of services
proportionally goes up but one needs to be aware that there could be some management
challenges that will hinder the utilities in towns to achieve that.

28
Hq8, Hq9 Respondent 8&9 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 41

4.5.3. Definition of access/coverage for towns
The measurement of service coverage/access at NWSC is still vague though from (NWSC-
Annual.Report, 2016, 2017; NWSC annual report, 2015) water service coverage is computed
as the percentage of the population served over the target population. But for a geographical
service area to be considered to have 100% coverage it has to have all the pipe network in place
that is, the mains extensions, submains and intensifications. The Areas that are not fully covered
are those with only mains extensions but without intensification network to reach out to all the
villages. Take for example, ‘the city centre of Kampala has 100% access because it has all the
pipe network, 15km off the centre is 85% access and 30km away drops to 70% due to lack of
intensification pipe network” therefore access is a hybrid of events Hq1, Hq5, Hq6. Others
define coverage based on the interpretation from SCAP100 programme that aims to achieve
100% service coverage by 2020 by having at least two water points for each village within
NWSC jurisdiction and each water point serving 200 people within a reasonable walking
distance of 0.5km. by having two water points in each village means, that village is 100%
covered or has access to water services (N.W.S.C-SCAP100, 2016)29 .
4.5.4. Impact of infra growth on service levels of access
Eestimates for the last five years show that NWSC service coverage has steadily been on the
rise from 77.8% in 2013 to 78.8% as at 30th of June 2017. Although the increase in the service
coverage is mainly attributed to rapid expansion of the network but also the rapid geographical
expansion of the service area (191 towns taken over since 2013) has significantly contributed
to increased service levels. However the service coverage level is mostly low in the new towns
due to low connectivity (few connections) and limited pipe network (NWSC-Annual.Report,
2016, 2017; NWSC annual report, 2015)
Almost all the respondents acknowledge that Infrastructure growth has had immense effect on
the magnitude of people accessing water supply services. “Feedback from the consumers show
that the investment in water system has had significant impact in terms of access, more
customers have been connected, and there has been tremendous improvement in the hours of
supply in towns, quality of water and all these vary from time to time”30. Considering 3 key
performance indicators of water network expansion, total connections and new connections per
year measure the level of service expansions at NWSC, reflect a direct relationship (Mugisha
& Berg, 2017). The aggressive growth rate of 962% of network expansion in the past five years
(2013-2017) as depicted from the table has translated into close to 100% increased number of
new connections per year from the base year of 2013, this is an indication of the significant role
development of infra has on access of services.

Table 9: NWSC KPI's for expansion of services

KPI FY 12/13 FY 13/14 FY 14/15 FY 15/16 FY 16/17 % growth

Network expansion (Km/yr.) 86 470 1,448 888 911 962
New Connections per yr. 21,637 28,068 34,165 38,836 43,214 100
Annual total connections 317,292 366,330 415,838 472,193 529,402 67
Source: Authors analysis of NWSC audited Annual reports for FY12/13 to 16/17

29
Hq2, Hq7 Respondent 2&7 from NWSC Head offices
30
Hq3 Respondent 3 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 42

 Network Expansion and New connections trends at
50,000 NWSC
45,000
40,000
35,000
30,000
no./year

25,000
20,000
15,000
10,000
5,000
-
2012/2013 FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial Year
Water network expansion (Km/yr) New Connections per yr

Figure 11: Five year trend of network expansion and new connection.

On the contrary, this direct relationship of infra development and increase in new connections
that increases access is assumed to be applicable only to the water supply systems, even then
its proportionality is challenged. “The direct proportionality of infra development to
improvement in access is a yes and no answer because often investments have been done but
people do not apply for connections e.g. sewerage infrastructure because the cost of connections
are high31.
4.5.5. Predicaments of Service reliability in towns
Service reliability is measured by the average number of hours in a day with water supply
service and according to the target and standard of NWSC is supposed to be 24hr water supply
(NWSC-KPI.Report, 2017)32. It was challenging to obtain reliable information in regards to the
global level of reliability of services at NWSC as this indicator is not often monitored and
evaluated on by the programmes and performance monitoring department. Nonetheless, there
is a general belief that service reliability has improved greatly in the new towns that NWSC has
taken over because budgets are re-allocated to prioritize water stabilization plans, they have
rehabilitate water supply infrastructure and establish new sources of water by drilling more
boreholes. A case in point is, “Kumi and Palisa towns taken over in 2017 never used to have
water completely but now they have water for 3hrs to 12hrs for a day” 33. Thus providing water
on a 24hr supply is still a myth in some towns because during drought (dry season), some
sources of water like ground water abstraction in northern Uganda is greatly affected, the
boreholes are drying up even the surface water is lowering like for the case of Bushenyi/Ishaka.

31
Hq6 Respondent 6 from NWSC Head offices
32
Hq2 Respondent 2 from NWSC Head offices
33
Hq2 Respondent 2 from NWSC Head offices

Results and discussion small Towns and NWSC Head Office 43

Even towns with 24hr supply have dry zones amidst them. These affects the ability of the
utilities to provide services regularly34
The closest attempt that NWSC has undertaken to determine the level of service reliability in
towns in relations to the rapid development of infrastructure is through customer satisfaction
surveys. In the surveys, NWSC has listed a number of service attributes which its customers
demand for and among them is the “water supply reliability and sufficient supply pressure”.
From the results of the annual surveys conducted from 2015 to 2017, the NWSC global
performance shows that the customers were least satisfied with supply reliability and sufficient
pressure an indication that water supply services were not being provided on a 24hr supply
despite the aggressiveness in infra development in towns (NWSC-CSS.Report, 2015, 2016,
2017). The majority of the complaints raised by the customers was related to supply reliability
and low pressure. In fact, in the CSS report of 2017 unreliable water supply problem accounted
for 25% of the criticisms raised out of the total respective attributes.
General opinions of the staffs interviewed is that towns have improved service delivery largely
due to the financial support from NWSC Head office for capital investments to increase
coverage/access and short term interventions to improve on the supply reliability. From the
struggles of being financially sustainable resulting from low economies of scale and densities,
certainly if the towns were not getting any financial support from Head office, then the levels
of services would have deteriorated, as they would not be in position to expand the network or
upgrade water sources so really these two depend on each other. If towns are to improve service
levels of access and reliability on their own, then they need to raise the level of their operational
efficiencies, aim at being self-sufficient to cross subsidize each other.

34
Hq1, Hq2. Hq4, Hq8, Hq9 Respondents 1,2,4,8&9 from NWSC Head office

Results and discussion small Towns and NWSC Head Office 44

CHAPTER 5

Transformation of services in the

Towns of Bushenyi/Ishaka and Kitgum
Service provision in the towns of Bushenyi/Ishaka and Kitgum have continuously been
transformed since 2013 when NWSC reformed its operations to focus more into a broader
aspect of service delivery through geographical expansion and rapid development of
infrastructure. All in strive for sustainability and improvement of the water supply system to
meet the ever increasing demand. NWSC has taken bold steps of increasing access of services
through a swift takeover of new towns and rapid growth of infra. We shall first discuss the
evolution of service delivery in Bushenyi/Ishaka town then later on Kitgum town.
5.1. Rapid Infrastructure growth and geographical expansion of
Bushenyi/Ishaka Area.
NWSC took over the management and operations of Bushenyi Town council water supply
system from the urban water authority in 2002. Since then the Town council was elevated to
municipal status in 2010 with the annexation of Ishaka town council plus some parishes to form
the Bushenyi/Ishaka municipality (Bushenyi-Ishaka.Municipality, 2015). This also gave birth
to NWSC Bushenyi/Ishaka operational Area. The area has been implementing Infrastructure
service delivery plans (ISDP) since FY 2013/2014 that has seen a fast growth of the pipe
network to expand service and continuous takeover of new towns to increase geographical
coverage. More 10 towns of Kabwohe, Bugongi, Rubirizi, Kitagata, Kabira, Kashenshero,
Mitooma, Rutookye, Kyabugimbi and Buhweju have been added to Bushenyi/Ishaka
operational area as the main administrative Centre to form what is commonly known as
“Greater Bushenyi/Ishaka Cluster”. As a cluster the total pipe network has grown tremendously
from 193km in FY2013/2014 to 561km at the end of FY2016/2017 registering a growth rate of
191%. This network serves 9,621 with the total annual billings and revenues of Ushs 2.6 and
2.5 billion respectively.
5.1.1. Increased Coverage/Access
With the rapid growth of the mains extensions and intensification of distribution pipe network
accessibility/coverage level of services has improved greatly in Bushenyi/Ishaka and it’s
estimated at 80% within the municipality. Although the general target of NWSC is to increase
coverage to 100% by 2020 through the SCAP100 programme. Some factors that have hindered
the utility in Bushenyi to achieve 100% coverage as per now include; commitment to invest
was low due to insufficient return to investment from the town, some water schemes are still
under the district authority, sparse population on hilly areas but since there is commitment now
to carry out more investments there is optimism of achieving 100% coverage35
Improved levels of access to services resulting from investment in mains extensions,
intensification and geographical expansion through takeover of new towns has seen

35
BI1, BI2, BI4 Respondents 1, 2 & 4 from Bushenyi/Ishaka Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 45

Bushenyi/Ishaka area rapidly increase its customer base. The total no of connection has more
than tripled from 2,595 connections in the FY 2013/2014 to 9,621 connections by the end of
FY 2016/2017 representing 271% growth in the customer base. Annual average new
connections made has also doubled from 408 connections per year in 2014 to 830 connections
per year in 2017 translating into a growth of 103% (Bushenyi/Ishaka.Area, 2017 ,2014, 2015,
2016). The new connection performance trend for Bushenyi/Ishaka area is presented below

NEW CONNECTIONS PER YEAR

1097
1027
No.connections per year

787

408

FY 13/14 FY 14/15 FY 15/16 FY 16/17

Financial years

Figure 12: Analysis of new connections trends from Bushenyi Operational data Fy13/14 to 16/17.

In order to achieve NWSC rapid expansion service delivery model, Bushenyi/Ishaka area has
extended services beyond the geographical boundaries of the municipality although this is
outside its mandate of operating only in urban centres. It is being fuelled by the increased
political and public demand for services. The map below shows the extent to which the pipe
network has gone beyond NWSC mandated service area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 46

Figure 13: Updated 2017 GIS map of Pipe Network laid beyond Bushenyi/Ishaka Municipality

5.1.2. Demand driven designs of the distribution Pipe network

In here, the community in need initiate the demand for services through the local leadership.
Specifically the chairman Local council 1 (LC1) mobilises the community to request for
services by formally writing to NWSC Bushenyi main and the branch offices. A physical survey
of the community to benefit from the mains extension is then undertaken to assess the viability
of the place (cost-benefit analysis), distances, size of existing pipe, topography of land and
elevations for pressure rating. This approach has to a large extent enabled the utility to precisely
extend services to locations where there is actual demand for services. Although sometimes the
local politicians also put pressure on NWSC to extend services to locations with less demand
and resultantly only a few people connecting to the network 36
When making choices of the sizes of pipes to be laid, more focus is given to sub-mains and
intensifications as a mode of service extension. “Generally for the reason that, the mains
extensions may not respond to demand but sub mains or intensifications are the ones that
respond to demand since they criss-cross villages and costs of connections is reduced enabling
many people to connect”37. A demand for services of less than 15 people is considered a new
connection and an intensification is laid (pipe sizes 1”, 1¼” ) but a demand for more than 15
people calls for sub and mains extension (2”, 3” and above). Hence the use of small diameter
pipes of sizes 1inch to 1¼inchs commonly referred to as “intensifications” though they are
developed hand in hand with mains extensions (large diameter pipes of 2” and above) is
considered as an effective means of extending services in Bushenyi. It is how decision making
is reached. In other words, emphasis is put on not only extending services randomly but viable
extensions that are high impacting in terms of wider coverage and quick returns to investments.

36
BI1,BI2, BI4 Respondents 1,2&4 from NWSC Bushenyi/Ishaka Area
37
BI2 Respondents 2 from NWSC Bushenyi/Ishaka Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 47

5.1.3. Nyarunzinga Plant production capacity mismatch with utilization.
The Nyarunzinga treatment plant built by Government of Uganda (GOU) was designed to
produce water to adequately serve only the Bushenyi/Ishaka Municipality with a designed
capacity of 2000mᶟ/day. Despite of the recent upgrade of the plant to increase production
capacity, results show that during the wet season, when the water table at the wetland is normal
and at full production, the plant produces averagely 1500mᶟ/day and during dry season’s
production drops as low as 500mᶟ/day. It operates at 75% capacity utilization implying plant
not fully utilized (still has capacity to produce additional 500mᶟ/day). In fact, as put it by
BI1“Nyaruzinga plant would have the capacity to sustain water service delivery and adequately
meet demand projected to increase to 3000mᶟ/day in the next 5years if it was not drying up
during dry spells”. The indication of this, is that the plant was over designed though not by
NWSC, the reason for the overdesign is because of the use of standard national designs in the
water supply design manual that project future demand of 10 to 20 years instead of actual
demand which has not been realized (M.W.E-Manual, 2013). This has already been highlighted
as a problem occurring in towns (N. Pilgrim et al., 2007).
5.1.4. Shortfalls in the utilization capacities of Bushenyi/Ishaka Cluster
When the cluster is combined the total production capacity of the plants is estimated at about
4,521mᶟ/day with a capacity utilization of 73% as at the end of 30th June 2017 (NWSC-
Annual.Report, 2017). It should be noted that each town has an independent water supply
system with the exception of Bushenyi and Ishaka towns that have an interconnected pipe
network with one water treatment plant at Nyaruzinga water works .Below is the analysis of
the combined production capacities of the treatment plants of Bushenyi/Ishaka as a cluster to
assess how the use of standard designs while developing treatment plants have impacted on
actual capacity utilization (demand) from the financial years 2013 to 2017

Table 10: Aggregated Production Capacities of Bushenyi/Ishaka Cluster

Financial Years (FY) FY 13/14 FY 14/15 FY 15/16 FY 16/17

Designed/practical Plant Capacity (m3/day) 2,000 3,104 3,233 4,521
Average Production (m3/day) 1,476 1,952 3,244 3,317
Capacity Utilization (%) 74% 63% 100% 73%
Source: Authors analysis of 4years Bushenyi Area production data.

Similarly the outcome of over designing the plant capacities to meet future demand instead of
current actual demand is observed in almost all the financial years except for FY15/16. The
plant capacities were underutilized in FY 2014, 2015, and 2017 with capacity utilization of
74%, 63% and 73% respectively, literally this would mean the cost of water would be too high
resulting from high investment costs. In the FY2016 the practical plant capacity was fully
utilized at 100%, that is to say production was at optimal level, although it dropped again in
FY2016/2017 attributed to rehabilitation of the Nyarunzinga plant to increase production and
the takeover of more towns with new plants. The lowest capacity utilization was recorded in
the FY 14/15 at 63%. See the graphical illustration below.

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 48

 plant capacity utilization 2014-2017
5,000 120%
4,500
100%

Capacity Utilization( %)
4,000
Water Production (m3)

3,500 80%
3,000
2,500 60%
2,000
1,500 40%
1,000 20%
500
- 0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial years

Practical Plant Capacity (m3/day) Average Prodcution (m3/day)

Capacity Utilization (%)

Figure 14: Analysis of plant capacity utilization trend.

In spite of Bushenyi cluster being unable to operate at full capacity, the annual water production
has constantly been on the increase since NWSC channelled its focus to the development and
revamping of the infrastructure in towns. A reflection of the relevance of developing
infrastructure to meet the ever growing demand for services. From FY13/14 water production
has increased from 538,670mᶟ/yr. to 1,210,764mᶟ as per the end of Fy16/17 a growth rate of
125%. The trend is illustrated in the figure 15 below.

Annual Water Production (mᶟ)

1,187,455 1,210,764

712,432
538,670

FY 13/14 FY 14/15 FY 15/16 FY 16/17

Figure 15: Performance trend of the annual water production (mᶟ) for Bushenyi/Ishaka Cluster

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 49

5.2. Service stabilization aim
After takeover of a town and subsequent rapid development and rehabilitation of the
infrastructure, the next agenda of NWSC was to guarantee that there is constant water supply
in the towns through carrying out “quick fixes” of the defects in the water supply systems
inherited and also continue expanding the pipe network to improve on the connectivity in towns.
The ultimate goal is to enhance viability through more new connections to increase billing from
a wider coverage/access and also to progressively improve on the number of hours of water
supply, usually from a few hours common in towns to a reasonable number of 12hrs/day then
ultimately a target of 24/7hr supply. More reliable services would increase on water sales and
thus revenues that would cover O&M of the water system and also increases the visibility of
the utility38 .
5.2.1. Water supply stabilization challenges
Water supply and infrastructure growth in Bushenyi is heavily hinged on the reliability of its
water sources which have posed a peculiar challenge to the area and has shaped how and why
infrastructure is developed, the financial flows and service provision in the town as it was
strongly emphasized39. The wetland/swamp where surface water is abstracted is mainly
recharged by rainfall thus during dry season when there is no rainfall the wetland dries up and
there is little or almost no water produced and supplied. Thus supply has continued to be
intermittent but it is more prevalent in the dry spell whereby the area is forced to rationed
services in order to meet the demand. In actual, supply during rainy season is put at 24/7hrs
however, in the dry spell (July to September), water supply is for half a day (6hrs)40 though even
when there is sufficient production some hilly places don’t receive water 24/7hrs because of
the terrain of the land. However, the management of the utility has come up with proactive short
term measures to sustain service delivery during dry season. Such as the initiatives of partnering
with a private irrigation project- (Presidential Initiative on Banana Industrial Development
(PIBID) to interconnect the irrigation transmission pipe line from another source of water with
NWSC transmission line, then water is pumped to the treatment plant
But as a lasting solution to overcome this challenge NWSC is currently constructing a massive
new treatment plant at Kitagata to augment supply. Which has a daily production capacity of
3000mᶾ/day, this is sought to solve the challenges of intermittent water supply and be able to
meet the increasing demand for service within Bushenyi/Ishaka town and the satellite towns.
However, “this project will turn out to be a white elephant if there is no catchment protection,
the source of water for the new treatment plant will also dry up”41. Other options of borehole
drilling are also being pursued, so far four boreholes have been drilled still to boost the water
supply to ensure continuity, therefore with this interventions there is hope that Bushenyi will
have a stable supply in the future42

38
Hq1,Hq2, BI1 Respondents 1&2 from Head office and respondent 1 from Bushenyi/Ishaka Area
39
All the respondents interviewed from Bushenyi/Ishaka
40
BI1-BI7 Respondents 1-7 from NWSC Bushenyi/Ishaka Area
41
BI1 Respondents 1 from NWSC Bushenyi/Ishaka Area
42
BI2 Respondents 2 from NWSC Bushenyi/Ishaka Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 50

5.2.2. Monitoring service levels
To be certain on service levels in NWSC towns, regular monitoring is conducted annually by
the NWSC Head office through the call centre staff. Frequently customers are randomly called
to find out on their supply challenges and also through the annual customer satisfaction surveys
(CSS). Customers of respective towns are requested to give feedback by rating the performance
of NWSC towns in terms of unreliable and intermittent water supply. Unsurprisingly, the CSS
of 2017 ranked Bushenyi/Ishaka the 3rd out of over 200 NWSC towns with the highest number
of complaints and criticism for unreliability of services. However the general customer
satisfaction index shows a high performance above NWSC minimum standard of 80%. An
indication that customers appreciate the efforts and interventions that the utility is putting in
place to guarantee supply reliability, thus high willingness to pay for services. The performance
trend in the CSI for the period under review for Bushenyi is highlighted below

Table 11: Bushenyi Area CSI performance from FY2013/2014 to 2016/2017

FY 13/14 FY 14/15 FY 15/16 FY 16/17

Customer Satisfaction Index (%) 96% 97% 92% 86%
NWSC Min Standard (%) 80% 80% 80% 80%
NWSC target (%) 100% 100% 100% 100%
Source: Author’s Analysis of NWSC annual Customer Satisfaction Survey Reports from FY13/14-16/17

CSI TREND FOR BUSHENYI/ISHAKA

120%

100%

80%
CSI %

60%

40%

20%

0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Customer Satisfaction Index (%) NWSC Min Standard (%)
NWSC Max Standard (%)

Figure 16: Customer Satisfaction Index (CSI) Trend for Bushenyi/Ishaka

5.3. Strive for Financial sustainability in Bushenyi/Ishaka

Following the rapid infrastructure growth together with takeover of new towns to expand
services and major interventions to stabilize supply. Presently the NWSC’s focus is veering
towards getting the town utilities to the right path of being financially sustainable in order to
reap from the earlier on massive investment in infrastructure. The aim is to improve the viability
of towns through increasing billing to enhance the working ratios, improving unit costs of
production below the tariffs by Optimizing operational expenditures and cost effectiveness on
Capital expenditure through proactive approaches that reduce cost on investments.

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 51

5.3.1. Low cost schemes to Investments
Cost sharing initiative- as one way of sharing the costs of investments the customers from the
benefiting community are requested to provide free physical labour for excavating trenches
with NWSC bearing the costs of pipes and fittings (Mugisha & Berg, 2017). This is where by
the community mobilise themselves and provide free labour for excavation of the pipe network
and NWSC extends services. Bushenyi area has taken an extraordinary lead in implementing
this approach where the community trench for themselves at a free cost” this has been achieved
through proactive sensitization and community engagement. “This approach has greatly
reduced on the cost of service expansion by over 50% as explained”43. Take an example, given
the NWSC standard rates provided to the engineers for estimating the costs of developing mains
extensions for budgeting purposes where by a 2” HDPE pipe costs Ushs 8,000/meter, labour
costs at Ushs 2,500/meter and cost of fittings is 10% of total cost of labour and pipes. The
savings made from labour costs from 3 randomly selected mains extensions established using
the cost sharing initiative are illustrated below.

Table 12: Typical NWSC Cost Estimates of 2"Pipe HDPE PN10

Costs of mains extension (2"Pipe HDPE PN10)

Location Pipe Cost of Fixed Fittings Total Cost %
length pipe (Ushs Labour cost (10% (Ushs) savings
(m) 8,000/m) cost total cost) Labour
(2,500/m)
Opposite 22%
Court Road 2,000 16,000,000 5,000,000 2,100,000 23,100,000
Kabagarame- 22%
Ruharo l 4,000 32,000,000 10,000,000 4,200,000 46,200,000
Rwakanyonyi 22%
3,000 24,000,000 7,500,000 3,150,000 34,650,000
Total 22%
9,000 72,000,000 22,500,000 9,450,000 103,950,000
Source: Analysis of mains extensions cost estimates (Capex budget 2015/2016)

From these three mains extensions alone the utility was able to save Ushs 22.5 million which
is 22% of total cost of the mains extensions resulting from the cost sharing initiative with the
community. The money saved is re-invested in purchasing of more pipes. This has also
translated into rapid increase in the number of kilometres of pipe network extension laid by the
utility.
5.3.2. Strategy of reducing Capex on Pipe Network
In the last four years (2013 to 2017) Bushenyi cluster has seen its Capital expenditure on mains
extensions alone over blown beyond the annual budgets for it to be in position to meet the ever
increasing demand for services in towns. Capex on pipe network tremendously shot up above
annual budgets particularly in FY13/14 to 14/15 during NWSC infrastructure growth evolution
period. However, Capex on pipe network started to be gradually reduced from FY15/16 to
16/17, an indication that the utility is moving away from pumping more funds into pipe network
development to focus more into returns to investments already made to steer towards being
financially sustainable. In the table below, shows the Capital expenditure budget on pipe
network and the billing trends for Bushenyi for four financial years (FY13/14 to 16/17)

43
BI1 Respondents 1 from NWSC Bushenyi/Ishaka Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 52

Table 13: Bushenyi Area Capex on pipe Network for the period 2013 to 2017

Financial year %
FY 13/14 FY 14/15 FY 15/16 FY 16/17 Averages growth
Budget Mains extensions
Costs (Ushs) million 44,377 129,445 317,500 185,640 169,241 281%
Actual implemented
Costs (Ushs) million 658,460 1,829,764 1,179,709 689,497 1,089,358 65%
Billings Ushs 'millions' 1,097,276 1,257,464 2,789,407 2,644,450 1,947,149 77%
Source: Author’s analysis of the Bushenyi Area approved Capex budget on mains extensions

In general there has been a huge sum of funds sunk into mains extensions from NWSC head
office, it is argued that because of the explosive growth of the population of Bushenyi/Ishaka
municipality and the annexation of satellite towns is responsible for the increased demand for
services. As a response NWSC had to commit more funds beyond its annual Capex budgets for
expansion of services to match the demand, to the extent that annual average actual expenditure
on mains extensions alone has increased by 65% since FY2013/14. In return the annual average
billing has also progressively increased though not proportionally from Ushs one billion in FY
13/14 to an annual average of Ushs.1.9 billion by 2017 a growth of 77%. An indication that
there is potential in towns to grow given the right investments and strategies of infra
development. Therefore utilities in towns should be prepared with investments to match up the
demand in order to realise business growth and expand services.

Capex Budget mains extension vs Billing trends

3,000,000

2,500,000
Amount (Ushs million)

2,000,000

1,500,000

1,000,000

500,000

-
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial Year

Budget Mains extensions Costs (Ushs) million Actual implemented Costs (Ushs) million
Billings Ushs 'millions'

Figure 17: NWSC Bushenyi Analysis of expenditure on mains extensions vs Billings

It should be noted that the funding of the Capex budget on distribution pipe network is entirely
through the NWSC head office conveyed through Performance Autonomy and creativity
Enhancement (PACE) contracts that the Bushenyi area has signed with NWSC head office.
Some mega projects such treatment plants are funded by donors for example the multibillion
Kitagata water treatment plant under construction in Bushenyi is being funded by both World

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 53

Bank though the GOU and NWSC internally generated funds. Whereby 75% of the project
budget is GOU that on-grants to NWSC and 25% is from NWSC coffers. Therefore the utilities
in towns are not allowed to get investment loans.
5.3.3. Struggles to the pathway of viability Bushenyi/Ishaka
Going by NWSC Head office measurement of financial sustainability using the financial
indicator of working ratio, Bushenyi/Ishaka cluster is still not yet a viable utility given that by
the end of the financial year 2017 the WR was at 107%. On the other hand using the
Bushenyi/Ishaka area measurement of financial sustainability based on the financial indicator
of “Cash Operating Margin” (COM), which is defined as the difference between
incomes/revenues and operating expenditure, the utility posted a positive COM of Ushs 16
million in the FY16/17. Implying that the area was able to meet its operational costs and remain
with a surplus though small but can be re-invested for minor investments because the revenues
collected are higher than the operating expenses. However, the biggest cost of the utility is
employee related costs, static plant and pipe network maintenance accounting for 48% and 23%
respectively of the total operating expenses in the FY2016/2017.

Table 14: Bushenyi/Ishaka Incomes and Expenditures from FY2013/2014 to 2016/2017

FY 13/14 FY 14/15 FY 15/16 FY 16/17

TOTAL INCOMES Ushs '000' 1,068,354 1,508,939 2,542,593 2,833,343
OPERATING EXPENSES
Employee related costs 579,234 932,792 1,315,712 1,359,860
Premises and maintenance 26,510 57,360 75,794 103,769
Static Plant & Pipe Network Mtnce 366,528 530,929 727,019 650,850
Transport & Mobile Plant 30,687 80,052 93,458 103,300
Supplies & Services 126,618 219,872 319,686 316,895
Administrative Expenses 102,837 215,499 222,894 282,691
TOTAL OPERATING EXPENSES Ushs ‘000’ 1,232,414 2,036,504 2,754,563 2,817,365

Billing Ushs ‘000’ 1,097,276 1,257,464 2,789,408 2,644,450

Cash Operating Margin Ushs ‘000’ -164,060 -527,565 -211,970 15,978
Break Even Analysis/WR (%) 112% 162% 99% 107%
Source: Authors analysis of audited Income and Expenditures statements of accounts for Bushenyi /Ishaka Area

Breakeven (viability) analysis trends from the time of launch of the infrastructural revolution
shows that Bushenyi area has gradually improved its working ratio from 112% in 2013 to 107%
in 2017, indication that the utility is heading towards the right direction of being financially
sustainable as demonstrated below

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 54

 Bushenyi Breakeven Analysis performance trends
3,000,000 180%
160%
2,500,000
140%
amount Ushs '000

2,000,000 120%

WR %
100%
1,500,000
80%
1,000,000 60%
40%
500,000
20%
- 0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17

Total Operating Expenses Billing Break Even Analysis

Figure 18: Performance trends billing, Opex and Working ratios

Although Bushenyi area has an average working ratio of 120% and is not breaking even, but
all respondent agree that with the upcoming commissioning of the Kitagata treatment plant
slated for January 2018, the area is projected to grow billing to an estimate of Ushs 400
million/month, services will expand by July 2018 and consequently break even and start
supporting other towns that are not breaking even44. In addition, water sales being the main
source of revenue for the area, many programmes have been initiated to enhance billing and
revenue collection performance of the area for example Performance Enhancement with Safe
Sanitation (PEWISS) programme that is coordinated by the commercial section has seen the
utility increase its monthly billing progressively from Ushs 1 billion at the end of 2014 to Ushs
2.6 billion in 2017 and an annual increment of Ushs 6 billion in five years’ time is projected45.
Therefore “Bushenyi/Ishaka area has been able to demonstrate that small towns can turn out to
be viable with the right investment plan in place that drastically stabilizes and expands services
and a well-structured financial management system with some external support.
5.3.4. Analysis of tariff vs unit cost of production
As earlier mentioned in chapter 4 that NWSC HO applies a uniform tariff to all its operational
areas for purposes of equitable provision of water supply services across the country. Therefore
utilities in towns are not mandated to levy independent tariff bands for water and sanitation
services regardless of the costs of operations incurred. The tariff is structured in such a way
that, it is able to recoup at least O&M costs plus depreciation and remain with some surplus for
investments, thus the operational areas are tasked to meet the O&M costs as a minimum
requirement through their water sales revenue46. However, due to low economies of scales and
densities and operational inefficiencies that are prevalent in towns, small towns have higher
unit cost of production of water than large and medium towns (World.Bank, 2017). Below I

44
BI1 to BI7 Respondents 1 to 7 from Bushenyi/Ishaka area
45
BI1, BI3, BI5 Respondents 1, 3&5 from Bushenyi/Ishaka area
46
Hq1,Hq4, BI1, BI3, Respondent 1&4 from head office and Respondent 1&3 from Bushenyi/Ishaka

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 55

present to you the analysis on performance of the NWSC weighted average tariff against the
unit cost of production of water in Bushenyi/Ishaka for the period 2013 to 2017.

Table 15: NWSC Bushenyi/Ishaka Tariff vs unit cost of Production Analysis

FY FY FY FY
13/14 14/15 15/16 16/17
Unit Cost per m3 (Ushs) 3,371 3,939 3,236 2,770
Weighted Average water Tariff 2,422 2,263 2,668 2,855
Source: Author’s analysis of the audited NWSC annual reports 2013 to 2017

This means for that period the tariff alone was unable to recoup the O&M costs plus
depreciation, therefore the operations of Bushenyi were being subsidized by other medium and
large towns that were making surplus from their operations. However, there is a sigh of hope
as the unit cost of production declined below the weighted average tariff in the FY2016/2017
implying from tariffs alone, the utility was able to meet its O&M costs and depreciation, an
indication of being on the ideal pathway of financial sustainability. A graphical presentation
below shades more light

Weighted Av. Tariff vs Unit Cost of Production

4,500
4,000
3,500
unit cost Ushs/m3

3,000
2,500
2,000
1,500
1,000
500
-
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial years

Unit Cost per m3 (Ushs) Weighted Average water Tariff

Figure 19: Performance trend of weighted av. tariff against the unit cost of production for Bushenyi town

5.4. Rapid Infra growth of NWSC Kitgum Operational Area

The water supply system for the town of Kitgum was one of the first five systems that were
taken over by NWSC in 2013 following the organization’s change of direction of focus in
service delivery from the orientation of profit maximising to a larger focus on expansion of
services. Therefore it was one of the pioneering towns for the change of strategy for service
delivery. Kitgum town was estimated to have a population of about 44,604 people according to
the National population census of 2014 (UBOS, 2014). Current customer base is 2,979 with a
monthly average billing of Ushs 73 million and revenue collection of Ushs 66 million giving a

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 56

collection efficiency of 91% as at 30th June 2017 (Kitgum.Area, 2017; NWSC-
Regional.office, 2017)47.
When NWSC took over the management and operations of Kitgum water supply system, the
total distribution pipe network was only 62km but since then with the increase in demand for
services, the area has expanded its distribution network to the total length of 94km that shows
a growth of infra by 52% within a period of four years. .Annual trend of mains extensions for
Kitgum town show that although the utility doubled the number of kilometers above the
minimum target of 5km set by NWSC for new towns taken over in the first two years of
operations but the annual trend of mains extension laid has persistently been dropping.
Something the management of Kitgum explained that, sometimes NWSC HO delays to deliver
pipes or they are given pipes less than the approved capex budget for mains extension due to
financial constraints and bureaucratic processes. In particular, FY 15/16 and 16/17, they had
budgeted for 9km of pipe network for each year but they only received 6km and 3km
respectively which were laid (NWSC-Ops.Capex, 2017, 2016)48

Water Network Expansion (Km/yr)

12.5

10

3.4

FY 13/14 FY 14/15 FY 15/16 FY 16/17

Figure 20: Analysis of Capex budget on mains extensions Kitgum Source: NWSC Capex Budget Reports

5.4.1. Impact of the reforms on Access/coverage of services

The Service coverage in Kitgum area has greatly improved from the estimated 65% in 2013 to
current estimate of 80% within the Municipality boundaries as stated by49. NWSC Kitgum is
also extending service beyond the municipal boundaries to the peri-urban settlements that are
rural thru household connection but largely water points. The clients they serve according to
NWSC categorization include; domestic (household consumers), commercial (business
community), institutions (schools and hospital) and ministries (Police, prisons and army
barracks). There is a general ambition to achieve a target of 100% service coverage by 2020

47
KA1, KA2, KA4 Respondents 1,2&4 from Kitgum Area
48
KA1, KA2 Respondents 1&2 from Kitgum Area
49
KA2 Respondent 2 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 57

through the implementation of the ongoing SCAP100 programme. Here presented is a pipe
Network map of service coverage beyond the Kitgum municipal boundaries

Figure 21: Pipe Network for NWSC Kitgum Service Area

Expansion of the pipe network has resulted into increased number of connections from the
inception of network expansion service delivery model. Connections increased from 1,968 in
FY2013/2014 to 2,976 in the FY2016/2017 reflecting a 51% growth rate. However, the average
no. of new connection established per year has declined by 28% resulting from the decline of
48% of average number of pipe network expansion laid. This is graphically illustrated from the
figure 22

Table 16: Kitgum Area performance on Network expansion and New connections made

FY FY FY FY
Average Growth/Decline
13/14 14/15 15/16 16/17
Water Network Expansion (Km/yr.) 12.5 10 6 3.4 6 -48%
New Connections Per year 529 574 233 329 379 -28%
Total Connections 1968 2497 2730 2979 2544 51%

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 58

 ANNUAL NEW CONNECTIONS VS PIPE NETWORK
EXPANSION
700 14
600 12

pipe network km/yr

500 10
No.NC/year

400 8
300 6
200 4
100 2
0 0
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Axis Title

New Connections Per year Water Network Expansion (Km/yr)

Figure 22: performance trend of annual new connections and pipe network expansion from 2013 to 2017

It is also claimed that infra development in Kitgum has brought employment, increased service
expansion has created job opportunities within the utility, two plumbers and one plant operator
have been added to the technical staff of Kitgum. Water vending is now a booming business in
the municipality, water vendors draw water from the water kiosks installed and selling it to
customers where the extensions have not yet reached. Therefore the customers and Kitgum
municipality have benefited more from the infra development, the considerable reliability in
services has improved livelihood of the community in terms of safe drinking water and some
income from sale of water, brought development in the area and its believed it contributed to
the elevation of Kitgum Town council to Municipality status
5.4.2. Growth projection design of the distribution network
Critical decisions on which locations to expand the network is based on demand surveys
conducted by the field team regularly, they look out for potential areas that are developing in
terms of building constructions, markets, schools, congested villages, trading centres and
sometimes they get written requests from local authorities or leaders to extend services to their
villages, population densities are taken into consideration in order to reach a decision. In a
nutshell, mains extensions are based on growth projections whereby a main line is laid with
expectation of meeting future demand resulting from anticipated growth of the area.
Data often used for design of the pipe network is the sizes of the existing pipe lines which is
got from the GIS updated maps of the area, current population consumption patterns per local
councils. Much emphasis is put into consideration of the capacity of the existing pipe line in
place to accommodate further extensions, as stressed “we cannot extend water say for about
5km, when even the existing pipeline does not allow for further modification to extend service
to about 1km”50. This design approach of the distribution network suggests more emphasise on
the technical aspect of the designs. But, planners when designing town water systems are urged
to integrate both technical and financial viabilities of the infrastructure because any mistake can

50
KA2 Respondent 2 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 59

lead to great financial impact to utility, high initial investment costs which is transferred to
customers inform of increased tariffs (Pilgrim et al., 2004).
5.4.3. Overdesign of production sites
NWSC Kitgum area inherited a water supply system that has two sumps (production sites)
named Primary Teachers College (PTC) sump and Hilltop sump. They abstract underground
raw water using 5no.motorized boreholes that pump water to the sumps where the water is
treated from, using only chlorine. Three boreholes (Mican, YY Okot and KTI) pump water to
PTC sump and 2 boreholes (Pandwong and Lemo) pump water to hilltop sump. Water from the
sumps is pumped to two elevated tanks with storage capacities of 300mᶟ each. It’s from these
elevated tanks that water is distributed by gravity to the town centre and surroundings using a
range of interconnected pipe network. In other words, Kitgum operational area is being served
by two separate centralized water supply system.
Analysis of the production capacities for the combined treatment plants for the last four years
(2013-2017) shows that the plants where over designed to provide for excess capacity that meets
future demand which has not yet been realised. The average water production per day against
the practical plant capacity for the period under review shows that there has been gross
underutilization of plant capacity because capacity utilization is even below 50% of practical
plant capacity since NWSC takeover of the water supply system as shown from the table below.

Table 17: Plant Capacity utilization and practical plant capacity for FY13/14 to 16/17

FY FY FY FY
13/14 14/15 15/16 16/17
Practical Plant Capacity (m3/day) 2539 2539 2376 2376
Average Production (m3/day) 472 866 921 841
Capacity Utilization (%) 19% 34% 39% 35%
Source: Authors analysis of Kitgum Area water production data

Luckily for NWSC Kitgum, they do not have to recover the investment costs for the treatment
plants because the plants was built by the GOU, otherwise the water supply system would be
too expensive to operate and maintain as the price of water would inevitably be too high.
Graphical performance trend of plant capacity utilization of NWSC Kitgum system is hereby
illustrated.

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 60

 Trend of plants Capacity Utilization
3000 50%
2500 40%

utilization %
2000
m3/day

30%
1500
20%
1000
500 10%

0 0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial yr

Practical Plant Capacity (m3/day) Average Prodcution (m3/day)

Capacity Utilization (%)

Figure 23: NWSC Kitgum four year Plant Capacity Utilization

Regardless of the underutilization of plant capacity, water production in Kitgum has seen
substantial improvement since the launch of rapid expansion of services. The utility improved
its annual volume of water produced from 172,172mᶾ/annum in 2013 to an average of
283,162mᶾ/annum, a percentage growth of 64%, this is an indication that due to the increase in
demand for services, and reliability has also improved despite of the intermittent supply during
the dry seasons. Performance trends is illustrated below

Annual Water Production (mᶟ)

337,147
316,190 307,137

172,172

FY 13/14 FY 14/15 FY 15/16 FY 16/17

Figure 24: Analysis of the production data for Period (FY13/14-16/17)

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 61

5.5. Challenges of water supply stabilization in Kitgum
When NWSC took over Kitgum town council water supply system in 2013, the service levels
were predominantly low, water production was low despite of having plants with big production
capacities but producing only on average 14,348mᶾ/month, the distribution network was only
62km covering about 65% of the municipal population and service reliability was as low as 2
to 3hrs water supply a day51 a situation that is synonymous with water supply services in small
towns often referred to as “low level Equilibrium”(World.Bank, 2017). Some interventions that
are being undertaken to address the challenge include; drilling of 2 additional high yield
boreholes to augment the existing ones as quick fixes to guarantee supply; procurement of
pumps and securing a generators for standby power since one of the biggest challenges faced
by the utility is erratic power supply from the Electricity Company. Sometimes, there is
sufficient water to supply but power is on and off affecting production, hence unreliability of
services52
Supply reliability keeps fluctuating resulting from season variations and the particular locations
of customers because the Area is reliant on ground water sources therefore averagely, the supply
is 16 hrs per day. During rainy season the service level is high (service is everywhere) but
during the dry season depends on ones’ location, those near the main network grid will continue
benefiting full time supply but those who are very far will have intermittent supply53, though
the area aims to achieve 24/7hr supply as per the NWSC standard. There are signs that the
number of hours with supply is continuously improving from 3 to 6 to 12 and now to 16hrs, in
fact for the period I was in Kitgum for data collection, I didn’t observe supply interruptions.
Customer feedback is positive on service reliability, customers are generally satisfied with the
level of service delivery. According to the Customer satisfaction surveys conducted from
takeover of the system the average Customer Satisfaction Index has been 85% which is above
the minimum of 80% as the acceptable level of service delivery by NWSC standards.

CSI TRENDS FOR KITGUM AREA

120%
100%
80%
60%
40%
20%
0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17

Customer Satisfaction Index (%) min.standard (%) Target Standard

Figure 25: Analysis of the NWSC annual Customer Satisfaction survey Report (FY13/14-16/17)

51
KA1, KA2, KA3, KA4, Respondents 1,2,3&4 from Kitgum Area
52
KA2, KA3 Respondents 2 &3 from Kitgum Area
53
KA2, KA4, KA5 Respondents 2,4&5 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 62

5.6. Financial Sustainability Goal Kitgum
With the improvement of service levels, NWSC ultimate goal is to ensure that the operations
in the town is efficiently managed to foster the utility to be self-reliant and guarantee sustainable
delivery of services. In order to strengthen the urge for self-sufficiency, Capital expenditures
for Kitgum Area have majorly been funded from NWSC Head office through, cross subsidies
from other NWSC areas (Kampala water, Mbarara, Jinja and Entebbe) and also by the GOU
investment subsidy for towns, as Kitgum town doesn’t generate adequate revenue from the
water sales as its major source of income to carry out capital investments and O&M. However,
NWSC point of interest is to see to it that Kitgum Area is on the right track of being financially
sustainable whereby as a minimum requirement, the local billings should be able to cover the
O&M expenses plus depreciation in the long run as it was stated54
5.6.1. Frugal expenditure on pipe Network
NWSC invested heavily on mains extension to a tune of Ushs 104,055 million on the first year
of operations (2013/2014) as it has been the practice to pump investment funds for newly taken
over towns and then systematically reduced its pipe network expenditures to only Ushs 36,877
million, a decline of 65% by the end of FY 16/17. The gradual reduction of expenditure on pipe
network indicates change of priority from minimum investments on pipe network to more focus
on returns to investments by connecting more customers to the pipe network already established
to increase billing. In return it has seen a steady growth in the billing by 183% by the end of
FY2016/2017, a situation that is pointing towards being self-reliant.

Table 18: Budgets on Capex on Pipe Network and Billings for four financial years

FY 13/14 FY 14/15 FY 15/16 FY 16/17 Growth/decline

Budget pipe network Ushs '000 - 54,900 114,000 98,280 79%

Actual Capex pipe network Ushs '000 104,055 90,792 86,571 36,877 -65%
Billings ‘Ushs '000 307,651 544,517 764,595 870,787 183%
Source: Authors Analysis of the Kitgum Area annual Capex Budget for FY 13/14 to 16/17

Graphical presentation of the performance trends of Kitgum Area Capex budgets on the growth
of billing is shown below

54
KA1, KA3 Respondents 1 & 3 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 63

 Budgets on Capex pipe network vs Billing trends
1,000,000 120,000
Amount Ushs "000"

100,000

Amount Ushs '000'

800,000
80,000
600,000
60,000
400,000
40,000
200,000 20,000
- -
FY 13/14 FY 14/15 FY 15/16 FY 16/17
Financial Year

Budget Mains extension Ushs '000 Billings'Ushs '000

Actual Budget implemented Ushs '000

Figure 26: Four year Performance trends of Capex budgets on mains extensions and the billing

5.6.2. The struggles of being viable in Kitgum Area

The utility is tasked by NWSC Head office to meet O&M costs as a minimum requirement
through local water sales revenue, from the monthly operational budget, however. Kitgum area
is still struggling to meet all its O&M cost, still depends on other towns that have surplus income
to finance its operations. It means the utility doesn’t generate sufficient funds that can enable it
cover its O&M costs including depreciation and remain with a surplus for investments. By the
end of the FY 2016/2017, the average monthly billing was Ushs 72 million and the revenue
collection was Ushs 66 million giving a collection efficiency of 91% (NWSC-Regional.office,
2017). This its self is a challenge, because the utility was not in position to collect all its billings
hence inadequate cash flows.
On the other hand the average operating expenditures for Kitgum for the last four years (2013-
2017) Ushs 892,741 million has been above the average billing of Ushs 621,888 million giving
a working ratio of 144% a confirmation that the utility has not been breaking even (unviable).
It’s not generating sufficient funds to even cover its own O&M costs, later on some surplus for
minor investments. The highest operational expenditure for the period under review has been
on employee related costs and pipe network maintenance which accounted for 52% and 24%
respectively for total operating expenses for the town.

Table 19: Income and Expenditures for Kitgum Area for Period FY2013/2014 to 2016/2017

Descriptions FY 13/14 FY 14/15 FY 15/16 FY 16/17

TOTAL INCOMES Ushs ‘000’ 271,893 488,954 688,488 790,400

OPERATING EXPENSES Ushs '000'

Employee related costs 421,976 492,435 474,878 482,802
Premises and maintenance 32,937 19,093 21,223 29,097
Static Plant & Pipe Network Mtnce 155,829 188,713 230,525 277,898
Transport & Mobile Plant 28,101 49,116 45,746 52,348

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 64

 Supplies & Services 25,027 17,749 16,710 35,442
Administrative Expenses 99,936 118,256 125,479 129,648
Total Operating Exp. 763,806 885,362 914,561 1,007,235

Billing Ushs '000' 307,651 544,517 764,595 870,787

COM Ushs '000' (491,913) (396,408) (226,073) (216,835)
Break Even Analysis/WR (%) 248% 163% 120% 116%
Source: Author’s review of audited financial statements of Kitgum Area

However, from the time of takeover of Kitgum town, the working ration was extremely high
due to high operational expenditures coupled with very low billing, but with the investments
made by NWSC as an intervention to improve service delivery, the WR and the Cash Operating
Margin (COM) have been improving from 248% and Ushs -491,913 million in 2013/2014 to
116% and -216,835 respectively, thus performance trend shows a positive down ward sloping
curve. This therefore indicates that the utility though not yet viable but is on the right track
towards being viable. A pathway that NWSC HO desires for towns water supply services to
undertake.

Kitgum Area Break Even performance Trend

300%

250%

200%
WR %'

150%

100%

50%

0%
FY 13/14 FY 14/15 FY 15/16 FY 16/17
FINANCIAL YEARS

Break Even Analysis/WR (%)

Figure 27: 2013-2017 Break Even Analysis for Kitgum

Besides the mains extensions, other in-house performance enhancement programmes have been
initiated at the area level as efforts for striving for Financial Sustainability, an example of such
programme is the SPARK120m an acronym for S-suppressed account55 reduction, P-production
growth. A-arrears reduction initiatives, R-revenue collection efficiency, K-know your
customer. The aim of the programme is to improve all the above indicators to achieve a billing
growth target of Ushs 120 million by the end of the financial year 2017/2018 (Kitgum.Area,
2017)56. It is the Kitgum area action plan with clear objectives and deliverables on how to make
the utility viable. “Once the billing set target of 120 million is achieved, then the Area will be

55
Suppressed accounts are water connections that are off supply, mostly disconnected for non-payment of bills
56
KA1 Respondent 1 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 65

financially sustainable”57.it is claimed that there is more demand for services than supply,
therefore to meet that demand, the area has to innovate and come up with action plan such as,
drilling more boreholes to increase production and supply before end of FY 2017/201858
5.6.3. Tariff and unit cost of production analysis for Kitgum Area
For the period under review (2013-2017). The cost of producing a cubic unit of water has
generally been higher than the NWSC weighted average tariff. An indication that the NWSC
uniform tariff alone does not recoup the operations and maintenance costs, depreciation and
remain with some surplus for minor investments, the utility is not mandated to increase tariffs
to recover costs. Therefore, Kitgum area has been relying on other large towns to sustain its
operations through cross subsidies.

Table 20: Tariff performance and unit costs of production analysis for Kitgum

FY FY FY FY
13/14 14/15 15/16 16/17
Unit Cost per m3 (Ushs) 5429 3678 3530 3722
Weighted Average water Tariff 2422 2263 2668 3253
Source: Authors Analysis of audited NWSC annual reports from 2013 to 2017

However, due to persistent emphasis for the utility to optimize operational costs as an avenue
of heading towards self-sufficiency, the trend is showing an improvement in the unit cost of
production. Performance has drastically improved from Ushs 5429/mᶾ in 2013 to Ushs 3722/mᶾ
in 2017 an improvement of 46% the gap between the unit costs and average tariff is narrowing
a positive sign for the utility being on the path of financial sustainability

weighted av.tariff vs unit cost of production:

6000

5000

4000
AMOUNT USHS

3000

2000

1000

0
FY 13/14 FY 14/15 FY 15/16 FY 16/17
YEARS

Weighted Average water Tariff Unit Cost per m3 (Ushs)

Figure 28: weighted av. tariff vs unit cost of production analysis

57
KA3 Respondent 3 from Kitgum Area
58
KA1,KA2, KA3 Respondent 1,2& 3 from Kitgum Area

Transformation of services in the Towns of Bushenyi/Ishaka and Kitgum 66

CHAPTER 6

Discussion and Conclusions

6.1. Phases of water supply service trajectory in NWSC towns
NWSC has undergone several reforms with the cardinal objective of continuous performance
improvement and maximization of service provisioning to majority of Ugandans. These
requirements were imposed to NWSC with the establishment of the performance agreement the
Corporation holds with the Ministry of Water and Environment. Up until recently, NWSC has
achieved and sustained these objectives which facilitated its acclaim of being recognized as one
of the best performing water utility in Africa ("NWSC Accolades ", 2017). However, at the
beginning of the year 2013 NWSC has seen their performance challenged as well as the
strategic development and the way the organization arranges daily operations. The reason for
this change is the expansion of their mandate from operating only in 23 towns through a profit
maximizing angle to a wider service delivery model of expanding services and
professionalising the utility countrywide (Mugisha & Berg, 2017). This expansion has been
accompanied by a re-alignment of the Corporation’s strategic goals with the increased political
mandate of meeting GOU national goal of accelerating access to safe drinking water and
sanitation service in the urban and rural communities.
In this section I make an attempt at conceptualizing how the political mandate and the
corporation’s strategic goals work along each other. I propose to understand this process in
three chronological phases to understand the development of water supply service delivery in
small towns in Uganda under the auspices of NWSC. Based on my focus in understanding the
influence of financial sustainability, the importance of infrastructure development and its
impact on access, I describe how each and every one of these elements plays a different role in
each of the phases and how that is linked to the challenges present in small towns in Uganda,
as well as the requirements laid upon NWSC.
6.1.1. Take-off phase: Guaranteeing presence through infra development
During the first phase, taking place just after take-over in 2013, the fundamentals are laid down
to prepare water systems in small towns to move along the following phases leading to a
reconciliation of NWSC’s original objectives of achieving financial sustainability. However,
the main visible priority during this phase is infrastructure growth and geographical expansion
to increase coverage.
As collected in the Infrastructure Service Delivery Plan (ISDP) report (NWSC, 2015), NWSC
expanded 470 km of water mains pipe network. By the end of the financial year (FY)
2014/2015, this figured had increased to 1.448 km. This is a major change from the average
annual network extension of 80 km that NWSC had developed in previous years, prior to the
introduction of this plan. The expansion of this network, that responds to the take-over in one
year of an additional 23 towns (total of 66 owns by FY 2013/2014), translated into increased
coverage from 77.5% to 78.5% (NWSC-Annual.Report, 2014).

Discussion and Conclusions 67

The rapid expansion of NWSC during this phase is of crucial importance and it serves the
Corporation two purposes. First, the rapid expansion, and therefore their compliance with the
mandate imposed by the Ministry of Water and Environment allows them to show the Ministry
their willingness to provide services despite the challenges, and their capacity to take on more
towns despite the immediate burden on the Corporation’s performance. This can eventually be
accompanied with a, justified, continued lobbying to the Ministry garnering political backing
for investment financing for the present and future water projects (Mugisha & Berg, 2017).The
expansion of NWSC helps fulfil the political mandate of GOU aimed to increase urban and
rural access of water supply services from the 77% and 65% respectively to 100% and 79% by
the year 2020 thru household connections and installation of more water points (N.W.S.C-
SCAP100, 2016). Second, the increased presence of NWSC in many towns and rapid infra
growth is to show to the users that NWSC has the capacity to deliver better services. The
presence and immediate improvement of services, allows NWSC to introduce practices such as
water tariff and payment requirements that lay the basis to move towards a system that would
cover the costs of operations.
a. Relative weight of financial sustainability
At this stage, the financial viability of towns seems to remain important but it is not a priority.
More connections are made to increase water sales thus high billing, tariffs are introduced and
customers are sensitized to pay for water services to enable the utility generate some funds to
cover O&M costs of the system, aspects that point that NWSC never completely abandons
being a commercially viable utility. However, and most importantly is the development of infra
and takeover of small towns in spite of the related risks of operating in small towns and the
challenge of meeting expected high demand for services emanating from operating in a broader
community. In addition, satisfying the political mandate is one avenue of seeking for political
backing for capital financing. For example, the SCAP100 programme being implemented in all
NWSC towns and the construction of the massive Kitagata treatment plant among others that
are heavily funded by the GOU are evidences of gained political support for infrastructure
financing. The management of NWSC seems to acknowledge these challenges during this phase
and chose expansion of the network at the expense of costs because they believed that taking
over unviable towns and aggressive network expansion and increased connections, would result
into future pay-off in terms of increased revenue (Mugisha & Berg, 2017).
b. Challenges of infrastructure development in small towns also materialize in Uganda.
The rapid expansion of services in small towns translates into an immediate burden to NWSC.
the problems that others have identified that affect infra development in small towns such as
low economies of scale and densities resulting to high per capita costs of extending services,
over designed systems leading to underutilization of production capacities, high costs of
investments due to construction of centralized systems and dilapidated infra (WaterAid/BPD,
2010; Mugabi & Njiru, 2006; Adank & Tuffuor 2013; P Moriarty et al., 2002), these challenges
also materialize in Uganda. Designs of the water supply systems that provide excess capacity
do not always necessarily mean that the bigger the infrastructure the better results it will deliver,
especially for small towns. Critics of this approach argue that future demand needs to be
projected with certainty but rarely is demand in towns realised due to the peculiar characteristics
of small towns being in the rural-urban continuum, therefore errors in projections may turn out
to be costly to the utility in terms of investment costs especially when the expected connections
are not met (Hopkins et al., 2003; Lauria, 2003).

Discussion and Conclusions 68

From the cases of Bushenyi/Ishaka and Kitgum that I have studied I have been able to show
how the magnitude of the infrastructure vis-a-vis the slow realization of demands (coupled with
other environmental hurdles) translate into a direct burden of the operational expenses of these
systems. To re-affirm the importance of the take-off phase NWSC had no choice but to take
over water supply systems in towns that are overdesigned. The production plants in my cases
are not at full capacity utilization and the situation is worse in Kitgum because capacity
utilization is below half the plant production capacity. Such systems have a direct impact on
the costs of service delivery in towns. This phenomenon is common with design of urban water
system based on national standard designs that assume “bigger is better or cheaper” because of
the potential to exploit economies of scale. This assumption is binding for large towns where
there are high economies of scale, where average unit cost of production declines with
additional production of a cubic unit of water (Ansar & Pohlers, 2014).
The systems in small towns operated by NWSC have been able to overcome these
shortcomings, precisely because of being operated under a bigger organization that is able to
make ends meet. The burden of striving for a theoretical financial sustainability and ‘right
pricing’ of water is ultimately to translate all costs to the user tariff, and therefore make the
consumers bear the costs of producing and distributing water (Zieburtz, 2008). In the case of
small towns under NWSC, these costs are recovered through a combination of cross-subsidies
established within the system of NWSC by which bigger systems (bigger towns or cities) are
able to subsidize with their surplus the funding shortcomings encountered in small towns. In
addition to that the investment costs in Uganda are generally borne by the Government of
Uganda through either national budget allocation transfers to NWSC or through development
projects. Furthermore, the use of cost savings design approaches that can aid the unpredictable
population in these towns (Mizutani & Urakami, 2001). NWSC invests on intensification of the
distribution pipe network using small diameter pipes of 1inch to 1¼inch together with submains
of 2”. This is considered to be of high impact to both the utility and benefiting community. It is
considered cheaper but effective in extending services to a wider coverage and services are
extended nearer to community which also reduces on the connection fees for the consumers.
6.1.2. The Stability Phase: water supply reliability
Upon a strong development of the pipe network in the town, attention is shifted towards
guaranteeing reliability of water supply in the town increasingly turning to low costs
mechanisms to expand services while sustaining water supply reliability. At this phase it
involves gradually reducing capital expenditure on pipe network and focus on improvement of
the water sources, rehabilitation of the treatment plants to enhance efficiency in production and
network upgrade to increase capacity utilization to improve reliability of services. Reducing
costs on pipe network itself is a detriment to the goal of improving access of services as the
kilometres of pipe network and new connection established per annum will simultaneously also
reduce as seen from the cases. This suggests that the target of NWSC in this phase is to satisfy
the existing consumers with improved reliability service levels.
a. Challenges of infrastructure development in small towns also materialize in Uganda.
During this phase, the priority of NWSC is to progressively improve the number of hours per
day of supply. Therefore, also moving towards the achievement of other performance
requirements laid upon NWSC. Even though the target is 24/7 supply, improvements are
targeted to achieve a reasonable ’12 hour supply’. Rarely has this target been achieved in towns
despite of the interventions, due to hash climatic conditions that are beyond the utilities capacity

Discussion and Conclusions 69

to handle that affects the water sources hence service levels have continued to suffer. Here still,
interventions with minimum costs are emphasized to stabilize services. When required, short
term interventions (quick fixes) are encouraged such as the PIBID project in Bushenyi to
maintain the supply. However, due to the capital requirements of these interventions, reliability
plans come at a considerate cost (for NWSC, not necessarily the system) making it difficult to
strike a balance between improving service level and returning to a low cost operations.
Furthermore, the populations in towns has been growing rapidly thus continuous increase in
demand for services (UN-HABITAT, 2006). Therefore prioritizing reliability at the expense of
access has partially contributed to the low levels of access to services in towns as also pointed
out by Mugabi and Njiru (2006), also in Uganda.
b. Emphasis on improved services to transition towards financial sustainability
I argue that this is a complex phase to draw and that therefore it does not have clear boundaries.
This phase is a transitionary phase through which NWSC would move through as soon as
possible. During such a stability phase continuity of supply will induce the willingness of the
existing consumers to pay for improved services and attract more users to connect to the
network that will result into increase in revenue. However, reliability of services in towns is
still challenging, as the problems of not only adverse climatic variations but also high O&M
costs due to old network still persist (Njiru & Sansom, 2002). This has led to increases of the
operational expenditures to levels whereby if NWSC HO was not shouldering some of the costs,
service delivery would be worse. Hence towns still find it difficult to guarantee reliable water
supply and this has also been increasingly reflected in the feedback from the customer
satisfaction survey conducted by NWSC (NWSC-CSS.Report, 2015). This partly contributing
to the low willingness to pay and attract more consumers to connect to the unstable pipe water
supply. The situation is also made worse by the fact that consumers are surrounded with
alternative sources of water which are free but heavily polluted.
Though, the continuous network upgrade to reduce on “dry zones” has stabilized service to
some extent and has allowed the utilities to maximise on water sales that eventually increased
billing putting the utilities on the pathway of being financially sustainable. Key agenda in the
stability phase is continuity of service at minimum costs to increase water sales and billing from
the enlarged happy customer base. This phase would therefore be characterized by promotion
of customer satisfaction, through improved services, in order to rapidly move towards financial
sustainability, therefore this last one gaining clear importance over time.
6.1.3. Landing phase: the ultimate goal financial sustainability
Having improved services, although not everywhere and to everybody, the present and future
ultimate goal of service delivery in towns is what I call the ‘Landing phase’, in which all efforts
are geared towards achieving financial sustainability. In this phase, the objective is enhance the
viability of towns as also directed by the constitutional mandate of operating as a commercially
viable entity (NWSC-ACT, 1995). Focus of NWSC is to improve operational efficiency
through optimizing operational expenditures and improve revenue collection efficiencies to
increase the net cash flows in order to steer utilities in towns to the pathway of being self-reliant
for sustainable provision of services. The decision to prioritize viability is because NWSC has
limited options of sustaining services in towns, whereas the mandate was expanded but the
financial conditions in the performance contracts with the MWE have not been revised and yet
political demand and public expectation for improved services have drastically increased.

Discussion and Conclusions 70

Therefore they are left with no choice but to introduce business minded aspects in the provision
of services.
a. Required reinterpretation of financial sustainability
Once again realizing that small towns are unviable in the short term and indeed difficult
business ventures as many have already highlighted (Adank, 2013; Mugabi & Njiru, 2006;
WaterAid/BPD, 2010). As an alternative, NWSC is providing a new understanding of financial
sustainability. In this understanding they implicitly accept that local billings generated in towns
should be sufficient to cover Opex only, depreciation and remain with some surplus that can be
ploughed back for minor investments, but putting additional requirements to small towns does
not deliver results. This is contrary to the generally acceptable interpretation where by utilities
are urged to generate funds that are sufficient to cover its investment costs, O&M costs and
environmental costs(OECD, 2010; Zieburtz, 2008). This reinterpretation is only possible in
Uganda as funding for capital expenditure in towns are subsidized from NWSC HO, the
Government of Uganda or development partners.
In view of steering town’s utilities to the trajectory of being viable NWSC uniform tariff
structure is set up in such a way that, tariff alone is able to recoup the operational expenditures,
depreciation and remain with some operational surplus. This confirms the customary problem
faced by utilities in towns of not being able to charge the a tariff that would allow to fully
operate as single entities (UN-HABITAT, 2006; Zieburtz, 2008). However, NWSC argues that
charging a full cost recovery tariff of water would increase water price by more than 100%
across the tariff categorization making it very expensive for ordinary citizens to afford and
inequity of services (NWSC-Annual.Report, 2016). Due to the relatively higher cost of
production in small towns, as corroborated in the cases of Bushenyi/Ishaka and Kitgum,
pushing for full cost recovery would only but damage the sustainability of services further. The
users would be burden even more with higher prices, which could potentially lead to less
payments and dissatisfaction with the services (Jaglin, 2002). The re-interpretation of cost
recovery for small towns as done in Uganda seems to indicate that a compromise in the
understanding of full cost recovery is necessary for specific contexts. Judging by the
improvement in operation and financial performances of the two cases studied, not charging
full cost recovery tariffs, or ‘right tariff’, does not necessarily lead to poor performance. The
implementation of incentives to these small towns and the sharing of responsibilities among
levels of operations (between HO and areas) could indicate that there are other ways of
promoting ‘sustainable operations’ besides solely pricing practices. Although full cost recovery
tariff is deemed necessary because the utility would have sufficient finance to meet with easy
its short and long term obligations (Cosgrove & Rijsberman, 2000:2)
b. Returning back to demand-driven approach to guarantee financial sustainability
To revert NWSC to its constitutional mandate, demand driven approaches of infrastructure
development are preferred over supply driven as it reflects a business context of service
delivery. This approach allows the utility to meet the actual demand for services but not the
unpredictable future demand common in towns. Thus the utility is able to guarantee that water
is sold and will generate revenue, which will recover O&M costs. Even while designing the
pipe network as practiced in NWSC Bushenyi, allows the pipe network to be developed in
phases that meets the current demand, this reduces the initial investment costs and gives the
utility the opportunity to progressively plan to expand the network that meets the future

Discussion and Conclusions 71

demand. This model of design of systems is embraced in towns water supply systems because
it narrows the gap between the cost of the system and revenues to be generated (Hopkins et al.,
2003; Lauria, 2003). Therefore to develop the infrastructure will require less start-up Capex
and the utility is able to generate revenue from the already existing demand to cover O&M cost
from the commencement of the operations but if the start-up Capex is high and given that
customer base in towns are usually low, demand and revenues will not be realised in the short
run to meet these costs thus unviability (Kessides, 2004). This obviously encourages an implicit
selection of customers and makes a distinction between those who can and those who cannot
pay for services or are able to upfront the funds to afford the connections.
However, a consideration of the local condition in the design approaches and technologies
adopted for town system is important and it depends upon those who use it (Pilgrim et al, 2004).
For example in Kitgum area, where designs of pipe network are based on projected growth,
differently from Bushenyi, there are slower in realizing ‘adequate’ working rations but they
show the same positive trend as in the other case. This shows that design approaches of
infrastructure within small towns is not universal thus highlighting one more time the
complexity of providing services in these towns.

6.2. Conclusion
In conclusion, aggressive infrastructure development affects financial sustainability and service
levels in towns at the different phases of service delivery with varying magnitude of
consequence given that there are different levels of priorities and importance in each phase.
Although the aspects of infra development, service levels and financial sustainability are
considered in each phase, the degree of priority and importance differs. At the takeoff phase,
coverage/access to services is the cornerstone of the phase because the focus of NWSC is to
effectively expand services through network extensions and geographical coverage to increase
the customer base thru new connections and public stand pipes thus increase visibility of NWSC
as well as fulfilling the political mandate. Although less attention is given to viability of the
utilities in small towns at this stage but it is as well important because some aspect of efficiency
service provision is introduced. In the stability phase service reliability with a quick transition
to financial sustainability is promoted, the intervention carried out to stabilize services are
carried out with minimal costs from the operational budgets except for special cases. Though
there is a challenge of striking a balance between services levels and costs thus complicating
the phase. The landing phase, being financially sustainable now and in the future is key priority
over service levels hence the emphasis of improving the operational efficiencies of utilities by
optimizing operational expenditures and rapid increase in revenues. Focus on demand driven
approaches of infra development with a business mind that brings some cost savings and
reducing on the unit costs of production are aspects of returning NWSC to its mandate. This
approach will allow the utility generate some surplus that can be ploughed back for investments
in the future. It’s a paradox to provide services in towns, tinkering with one indicator
consequently affects another that explains why NWSC choses to give different levels of priority
to the performance indicators in the phases of service delivery. This is the extent of how infra
growth has affected financial sustainability and service levels in town’s water systems. The
diagram below shows how I have conceptualized the relationship of the three chronological
phases of service delivery in the towns

Discussion and Conclusions 72

 Take off Phase
Rapid infra & takeover of towns
 Increase access/GOU mandate.
 Relative importance of viability
 Challenges in towns also in Ug

Landing Phase

Stability Phase Financial sustainability

 Viability (WR =<100%)
 Reinterpretation of FS,
Service levels Tariffs vs unit costs
 Reliability at low cost  Demand Driven
 Prob. of reliability in Ug
 Transitional to viability

Figure 29: Phases of water supply provision in Towns

6.3. Recommendations
As requested. there is still need for GOU and NWSC HO to continue supporting small towns
with investment subsidies for capital expenditure to levels where towns can be self-reliant as
being encouraged (Cardone & Fonseca, 2006). Because the risks of providing services in towns
seem to be overwhelming than the returns if the end goal is for towns to be viable. For this
reason, NWSC needs to explore other investment financing options such as market financing
that can quickly boost town’s financial strength rather than relying only limited options of
external support. For reasons as others have claimed that financial aid for capital investments
for the water sector from external funders has continued to decline as funds from government
and donors are unreliable thus the urgent need for town utilities to be financially sustainable
(Cardone & Fonseca, 2006; OECD, 2010). Hence with the tariff in place that recoups O&M
costs, depreciation and some surplus income for minor investments utilities in towns should be
tasked to generate sufficient revenues to sustain their operations without depending on external
support as a minimum requirement within a specified period of time. This is the desired
arrangement of financial sustainability curve being pursued by NWSC as exhibited in the two
case study utilities with its cross subsidy model although uncertainty still lingers on the
sustainability of this model in water service provisioning for towns.

Discussion and Conclusions 73

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APPENDIX
Appendix A: Respondents interviewed and the codes
No. Station Name Position Codes

NWSC HEAD OFFICE

1 NWSC Hqtr Eng. Alex Gisagara Director Engineering services Hq1
2 NWSC Hqtr Eng. Lawrence Sn. Manager Operations N&E region Hq2
Muhirwe
3 NWSC Hqtr Prof. Mahmood Sn. Manager Operations S&W Region Hq3
Lutaya
4 NWSC Hqtr Mr. Silver Emudong Sn. Manager Finance and Accounts Hq4

5 NWSC Hqtr Mr. Jude Mwoga Sn. Manager Programmes and Performance Hq5
Monitoring
6 NWSC Hqtr Eng. Denis Taremwa Manager Water supply Infrastructure Dev’t Hq6

7 NWSC Hqtr Eng. Cyrus Aomu Principle Eng. Planning and Capital Dev’t Hq7
8 NWSC Hqtr Aaron Magara Regional Engineer N&W region Hq8

9 NWSC Hqtr Geoffrey Dwoka Regional Engineer N&W region Hq9

BUSHENYI/ISHAKA OPERATIONAL AREA

10 Bushenyi/Ishaka Francis Kateeba Area Manager BI1

11 Bushenyi/Ishaka Rogers Mugabe Area Engineer BI2

12 Bushenyi/Ishaka Francis Oluka Area accounts Officers BI3

13 Bushenyi/Ishaka Owona John Bosco Branch Manager Ishaka BI4

14 Bushenyi/Ishaka Alex Ashabahebwa Commercial Officer Billing/Revenue BI5

15 Bushenyi/Ishaka Peter Engwanyu shift overseer BI6

16 Bushenyi/Ishaka Mr.John Plumber BI7
KITGUM OPERATIONAL AREA
17 Kitgum Area Faith Nambuya Area Manager KA1

18 Kitgum Area Samson Munanura Area Engineer KA2

19 Kitgum Area Patrick Opio Area Accounts Officer KA3

20 Kitgum Area Fred Bongomin Commercial Officer Billing/Revenue KA4

21 Kitgum Area Moses Okello Plant Operator KA5
22 Kitgum Area Owona B Plumber KA6

APPENDIX 79
 Appendix B: interview guiding questions
B1: Questions for respondents from NWSC Head office
General Questions: To what extent has infrastructure development affected financial sustainability and Service
delivery in the context of small town’s water and sanitation systems?
1. How does NWSC define a ‘small Town’s water and sanitation service?
2. What infrastructural development policy frameworks are there for small town’s water and sanitation services?
3. What financial policies and mechanisms are in place to ensure sustainable provision of water supply services in
small towns?
4. How is the government supporting small town’s water supply services?
5. Who else is funding small town’s water and sanitation services? What do they fund?
Research Questions Questions Summary of
Responses
How are, the current  How is, the infrastructure in small towns developed?
infrastructural  What is the preferred infrastructural service delivery models in towns?
development And why?
approaches in small  What data is available at the phase of design of the water supply system?
towns established and  What are the current design approaches for the water supply systems in
who takes decisions? small towns? How and where do they take place?
 How is infrastructure need determined and how are costs estimated?
 On what basis are the designs for the water supply system based on?
(System boundary limits, growth projections, demand studies?)
 How does the infrastructure development respond to the pressure of
demand for services in towns
 Who are key stakeholders in the development of infrastructure for small
towns and why?
 Where do the designs come from? Who is responsible?
 Has the infrastructure development achieved the intended objective and at
what costs?
 Has the infrastructure developed in small towns realised the economies of
scale/densities? If not why not? If yes kindly explain
What are the revenue  From where do the funds for Capital expenditure (Capex) in small towns
estimates generated come from?
from capital  What is considered financial sustainability in NWSC and how is it
expenditure (Capex) measured?
and operation and  How is financial sustainability translated into small town utility operations
maintenance and what are some of the practices that are exhibited?
expenditures (Opex) in  How are the finances for capital expenditure for small towns allocated,
small town water based on what criteria?
utilities? What are  What costs are utilities in small towns expected to cover? And through
practices and which means?
measurement of  Who meets the operations and maintenance expenditure of utilities in
financial sustainability? small towns?
 In case of a shortfall of revenues against O&M costs how is the difference
covered and how do the utilities negotiate with head office to ensure
continuity in supply
 What happens in case there is a surplus of revenues from small towns?
How is it managed?
 Who and how are the tariffs set for small towns, what costs does the tariff
recover (investment or O&M or both?)
 Where do you see small towns financial sustainability strife in the future

APPENDIX 80
How do the service  How are the utilities in small towns performing in terms of access and
levels suffer or not reliability of water supply services
from the infrastructure  Have utilities in small towns been able to improve service levels amidst
development financial challenges? explain
approaches of water  Why are services still not adequate in small towns despite of injection of
utilities in the small funds to small towns
towns?  What is the relationship between financial strength of the utility and the
level it provides services
 How Has the viability of utilities contributed to the levels of services
offered

B2: Questions for respondents from NWSC Bushenyi/Ishaka and Kitgum Areas
General Questions: To what extent has infrastructure development affected financial sustainability and Service
delivery in the context of small town’s water and sanitation systems?
6. How is the general water supply situation in the towns of Bushenyi/Kitgum?
7. What infrastructural development initiatives have been undertaken since 2014 to improve water and sanitation
services?
8. What financial policies and mechanisms are in place to ensure sustainable provision of water supply services in
small towns?
9. How is the local government supporting small town’s water supply services?
10. Who else is funding small town’s water and sanitation services? What do they fund?
Research Questions Questions Summary
of
Responses
How are, the current  How is, the infrastructure in Bushenyi/Kitgum developed? Who initiates
infrastructural the process, who decides?
development  What type of infrastructure and technology is used to extend services?
approaches in small  What data is available at the phase of design of the water supply system?
towns established and  What is the current design practice for the water supply system here? How
who takes decisions? is it done?
 What is the design capacity of the treatment plants? Is it fully utilized?
What are the limitations? What is being done to rectify?
 Have there been network extensions of OD90 and above? If yes, where?
What was the goal? Who sanctioned it?
 What has been the impact of the network extensions?
 How is infrastructure need determined and how are costs estimated?
 On what basis are the designs for the water supply system based on?
(System boundary limits, growth projections, demand studies?)
 How does the infrastructure developed respond to the pressure of demand
for services in towns
 Who are key stakeholders in the development of infrastructure in the
towns and why? And their roles
 Where do the designs come from? Who is responsible?
 Has the infrastructure developed achieved the intended objective and at
what costs?
 Has the infrastructure developed been beneficial? If not why not? If yes
kindly explain. Who has benefited and how?

APPENDIX 81
What are the revenue  How is financial sustainability perceived in the area?
estimates generated  From where do the funds for Capital expenditure (Capex) in small towns
against capital come from?
expenditure (Capex)  What are the actual costs of investments on production plants and
and operation and distribution network since 2014?
maintenance  What are the actual O&M costs for the infrastructure developed
expenditures (Opex) in  Who generates the budget for Capex? Based on what data?
small town water  What are the revenues generated from the investments? Any other sources
utilities? What are of revenue?
practices and
 How is, revenue collection managed and what is the collection efficiencies
measurement of
of the utility?
financial sustainability?
 What efforts are in place to ensure that the largest percentage of billed
revenues are collected? Why put effort on collection efficiency?
 Is the utility projecting an increase or decline in revenues and by how
much?
 What costs are utilities in small towns expected to cover? And through
which means?
 How are O&M costs met? From which budget or allocation?
 In case of a shortfall of revenues against O&M costs how is the difference
covered and how do the utilities negotiate with head office to ensure
continuity in supply
 What happens in case there is a surplus of revenues? How is it managed?
 Where do you see small towns financial sustainability strife in the future
How do the service  Who is served and at what service level?
levels suffer or not  To what extent has the utility been able to increase coverage/access?
from the infrastructure  Any plans to expand services, to who and why?
development  Why is coverage/access still not 100% despite the development of infra
approaches of water  How Has the viability of utilities contributed to the levels of services
utilities in the small offered
towns?  How many hours per day is service available for consumers?
 What is causing unreliability of services
 How has the utility been able to sustain service delivery?
 How are service levels of access and reliability measured? Why is it
important

APPENDIX 82
 Appendix C: Photos from the case study towns of Bushenyi and Kitgum

C1: Photos from Bushenyi/Ishaka Operational Area

PVC Pipes for mains extension

Aeration treatment process

Nyarunzinga Dam intake

Interview Area Engineer Bushenyi Interviewing Area Manager Bushenyi

APPENDIX 83
 C2: Photos from Kitgum Operational Area

Borehole pumps PTC pump stations NWSC Plumbers Reconnecting a customer

Hilltop Pumping station Kitgum Alternative sources of water

interview with the plant operator Kitgum interviewing Area Manager Kitgum

APPENDIX 84
 Appendix D: MSc. Thesis supervision Agreement

APPENDIX 85
APPENDIX 86
APPENDIX 87
APPENDIX 88
APPENDIX 89