The Government is seeking to borrow $135m (about sh360b) to finance the Water Management and Development Project.
The parliamentary committee on the national economy that scrutinised the loan request, noted that recent studies pointed to an increase in water stress in Uganda, hence the need to plan accordingly.
The project is aimed at improving access to water and sanitation services in urban areas as well as improving integrated water resources planning, management and development, according to the report read to Parliament by Frederick Mbagadhi (Kagoma County).
The loan is to be secured from the International Development Association (IDA) of the World Bank.
According to Mbagadhi, the project has three components.
The first, he said, involves identification, preparation and implementation of selected priority investments in the Kyoga and upper Nile regions, and the improvement of the national water resources, monitoring and information systems.
It is to do with supporting priority investments related to the implementation of the environmental aspects that compliment the Bujagali Hydropower project, including afforestation, restoration and protection of river banks.
The second component, according to the report, involves constructing and improving priority water supply infrastructure and sanitation in the municipalities of Arua, Gulu, Ishaka- Bushenyi and Mbale.
It also involves improving and expanding existing water supply infrastructure and sanitation in Butaleja-Busolwe, Budaka-Kadama-Tirinyi, Kumi-Nyero-Ngora, Rukungiri, Busia, Pallisa, Katwe-Kabatoro and Koboko.
The third component will enable the Minister of Water and Environment to oversee the project through its water sector liaison division. The report is yet to be debated by Parliament.
The committee recommended that the Government develops a comprehensive rehabilitation system and expands water supply systems covering both the small and large towns. MPs observed that rehabilitating newly constructed water sources is still a challenge.