Business Daily (Nairobi)
Michael Omondi
19 March 2008
City residents and Nairobi-based corporations will pay more for water beginning July as the water company moves to build the financial muscle it needs to upgrade the ageing transmission network.
The price adjustments are expected to inflate water bills by at least 65 per cent for small users and by even a larger margin for large consumers.
Although the Nairobi Water Company management reckons that the price adjustments would leave it in a better position to improve the quality and reliability of supply, higher costs are expected to increase the cost of living in the city, making access harder for the poor.
Highly-priced water is also expected to start a new round of consumer goods price inflation as manufacturers factor in additional costs into their products.
Consumer goods prices have been on a steady rise in the past two years as manufacturers contend with petroleum-driven high cost of energy and transport.
Industries consume more than 60 per cent of piped water in the city and are charged at a higher rate than domestic consumers. Tapped water in the city is charged at the rate of Sh12 per cubic metres for those consuming less than 10,000 cubic meters in a month. Beginning July, the water firm says it will charge low volume consumers at the new rate of Sh20 per cubic meter.
The water company reckons that low pricing of water has slowed down its ability to revamp the city's ageing system at a time when demand is growing at a faster pace.
The service provider reckons that without this price adjustment, Nairobi would face a water crisis in four years since it will not be able to raise the Sh6 billion it requires to upgrade the supply network.
"We are not revising rates to punish customers, but to improve services and get money to expand our capacity," said Mr Francis Mugo, the managing director.
The proposed increment is however still awaiting approval from the Water Services Regulatory Board, which is charged with tariff regulation.
Mr Mugo reckons that the current water and sewer infrastructure can only work for the city until 2012, when new sources of water must be found and improved transmission network built.
The water firm is also working on a plan that will enable it reduce piping losses from 40 per cent to 25 per cent and boost the supplied volumes from 460, 000 cubic meters per day to over 600, 000 cubic meters.
The firm is betting on the new tariffs to create a funding war chest to fund the projects.
Since 2004, when water services were privatised, the company has seen its revenues jump from Sh100 million per month to Sh230 million. Mr Mugo said the target is to cross the Sh400 million-mark with surpluses in excess of Sh1 billion by 2012.
Improvement in the company's financial position is also encouraging its managers to think of a listing at the Nairobi Stock Exchange by 2012.
On listing at the NSE, the water firm will be following in the footstep of its mentor, KPLC, which has been listed since the 1980's.
Since its inception in 2004, the company has been modelling its systems and strategies around those of KPLC, and it hopes its listing at the NSE would push it to the blue chip bracket.
Details on the IPO are still at the formative stage, but Mr Mugo said the listing plans would start taking shape in the coming two years.
"At this stage, it's my personal aim to seek quotation and not policy but will finally move to that direction," added Mr Mugo.
But despite the well-thought out recommendations designed to help achieve the water security, it could not come at a worse time when Kenyans are facing record inflation levels.
If the price increase is implemented, it would affect over 230,000 customers most of who have lost their purchasing power as escalating food, fuel and transport costs eat deep into their incomes.
Inflation hit a 14-year high in February as analysts warned of more shocks to come in consumer goods prices.
Rising food and fuel prices look set to be the key drivers of the living cost with analysts warning that inflation rates above the 25 per cent mark does not sound remote.
And with power supplier Kenya Power and Lighting Company (KPLC) working on plans to increase the cost of power, its clear that the city residents look set to face high utility bills.
The proposed tariffs also look set to hurt the big consumers, notably manufacturers, most as they currently pay Sh34 for the one cubic meter.
Under the new tariff regime, the big consumers, who consume over 60, 000 cubic meters per months, would see the costs escalate to Sh55 per cubic meter.
A move that looks set to invite a round of protest from manufacturers on claims that the revised prices would pile pressure on their production costs coming at a time when Kenya is viewed as an expensive post for doing business.
Currently, energy costs in Kenya are nearly four times higher than the prevailing rates in South Africa and Egypt, the country's main rivals in the regional market.
With the possibility that the cost of water is likely to increase by more than 65 per cent, manufacturers reckon that the move would help price the country out of the competitive regional market.
"This plans by Nairobi Water Company will only lower the competitiveness of Kenya's goods at the international market," says Mr Jacob Omolo, an economist at Institute of Policy Analysis and Research-a local think tank.
However, the water firm says the price revision is of high economic and social significance to the extent that if new investments in new water systems are not made now, the Nairobi water firm will be unable to meet the city's demand for water from 2012.
"We only have to options, revise the tariffs upwards or resort to serious water rationing in 2012," Mr Mugo.
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