Fresh water being poured into a jerry can. (Photo Courtesy IRIN)

Kenya is seeking a private sector solution to its burgeoning water supply shortages in a deal that could see a steep rise in costs and deny access to the millions of urban residents in the bottom income bracket.

The deal proposes to open the harvesting and purification of underground water for pumping to homes and offices through existing supply networks owned by local authorities.

It was revealed through invitation of tenders from qualified bidders who are expected to tap underground water and add some 300,000 cubic metres to the supply networks in Nairobi, and the surrounding districts before a national roll-out.

Five independent water producers will sink large boreholes around the capital to boost supply that have been declining with changes in weather patterns, according to Water ministry officials.

The plan paves the way for the entry of private equity-backed commercial water providers, mostly from Europe, to take a piece of the lucrative water business, that analysts say is set to deepen with the rapid growth in the urban population.

Kenya currently relies on state-owned service providers and not for profit organisations to meet its water supply needs but rampant corruption, ageing supply networks and illegal connections have rendered the systems ineffective.

The entry of private capital in the water supply business though expected to boost quality and volumes could also come with a heavy cost burden, analysts warned.

State-owned providers only meet 60 per cent of the daily supply needs of 750,000 cubic meters in Nairobi and its environs resulting in an acute water shortage and rationing in recent months.

By roping in private vendors, the state is borrowing a leaf from the power sector.

The offer to the private sector would constitute 40 per cent stake of the city's water supply --estimated to generate annual revenues of Sh7 billion.

Lawrence Simitu, the director of water services at the Ministry of Water Services, said poor weather has pushed the country to a crisis point that requires rapid response and a change in tact on both supply and financing of water projects.

"Our intention is to identify alternative water providers who can explore, develop and manage underground water," he said. "Current water sources are highly vulnerable to the effects of climate change and other environmental challenges and are therefore unreliable."

The statement though bold and responsive to the water supply crisis facing Kenya also amounts to an admission by the government that state backed water providers have failed to meet the country's water needs making it necessary, for the first time, to rope in private investors.

Though private water providers have recently stepped up their activity in the wake of the water shortage, they do not supply to the water grid.

Tender notices published last week in local dailies indicate that the investors will be required to drill boreholes at depths of between 600 and 1000 meters and show evidence of having carried out similar assignments in the past decade.

Water drillers

This condition knocks off nearly all the 40 locally based water drillers whose previous assignments have been restricted to depths of between 150 and 250 meters, says Mr Simitu, adding that the "investors will most likely come from abroad."

Local firms, however, can form a consortium with the international investors to get a piece of the business.

Under the new supply arrangement, private water producers will sell water in bulk to the established operators with large networks such as the Nairobi Water and Sewerage Company - placing them at the same level as Independent Power Producers (IPP) who generate and sell electricity to Kenya Power and Lighting Company (KPLC).

Potential investors have up to October 19 to present their bids for evaluation in November.

The winners will be announced in January to allow them set operations by April.

Water sector players reckon that the new plan could increase the cost of water significantly as the private investors look to reap returns and cover operational expenses that are expected to rise as the country turns to the more expensive underground water harvesting.

The country draws a huge chunk of its water from the surface and channelled into dams, which is cheaper compared to underground water.

On average, light water consumers using tapped water drawn from rainwater are charged a subsidized rate of Sh20 per cubic meter or 1000 litres while heavy consumers pay up to Sh55.

Community- based water projects that are sprucing up in peri-urban areas with the backing of some local banks are charging as much Sh60 per cubic metre.

Aggro Irrigation and Pump services, a local borehole driller reckon that one would requires in excess of Sh25 million to drill a well of 1000 meters, which excludes equipment costs such as pumps and pipes as well as operational expenses including staff, rent and fuel for running the pumps.

The private investors will be required to drill between 30 and 50 wells.

"It is almost impossible to sell 1000 litres for Sh20," says a source at Aggro Irrigation and Pump services, a clear pointer that consumers will have to pay more for water.

Fears of a possible increase in water prices comes barely a year after water companies increased their tariffs by at least 50 per cent for small users and by larger margins for industrial consumers.

This was attributed to the surging cost of purifying and supplying water and allows providers to build financial muscle to upgrade their ageing supply networks.

The expectations of the possible rise in water costs will step up the frequency of high utility bills that have persisted this year with high electricity prices.

Electricity cost

The cost of electricity has increased by more than Sh4 since the start of the year due the recent drought that has hampered Kenya's ability to generate electricity from hydro sources and forced it to turn to more expensive thermal power sources to meet demand.

The combined impact of high water and power tariffs is expected to pile inflationary pressure in an economy where recently unveiled official data is showing that households have knocked off some goods and services from their budgets to navigate the turbulent economic environment.

The impact of high inflation is already showing in reduced consumer purchasing power, whose impact is beginning to show in the form of slow movement of stock in retail outlets.

But the water regulator says it's would not sit and watch consumers getting reaped, adding that the private operators would have to justify any price increases.

"At the end of the day water is still a basic right, so will ensure that it's made available at an affordable cost," Mr Robert Gakubia, the chief executive of the Water Services Regulatory Board, said in an interview, adding that the regulator will not approve any tariff that seeks to exploit water consumers.

But the country has little choice since the government and existing water service providers has no cash and expertise to rollout the underground water project.

The government is faced with a tight national budget while the water providers have weak balance sheets that hinder their quest to tap into credit or offer infrastructure bonds.

But to water consumers paying more for water is a lesser evil compared to the pain of going without water.

More recently, however, soaring demand for water coupled with under investment on water infrastructure and poor weather has led to perennial water shortages across most urban centers.

Nairobi, for instance, has been experiencing acute shortage of water for the last three years brought home by insufficient rain.

This has forced the Nairobi Water Company to rollout a water rationing programme where residents get water at least once a week.

As a result, residents have to buy water daily with a 20-litre container going for between Sh5 and Sh10.

People who own boreholes are now also selling the water turning water vending into a lucrative trade.

Nairobi has over 3,000 boreholes -- some, which are privately owned by individuals or institutions.

To ease the problem, the government has been providing water using tankers and drilled boreholes, but most of them have been dug at depths that cannot sustain a commercial venture.