kenya water market survey for the netherlands …ii kenya water market survey for the netherlands...

Kenya Water Market Survey

for the Netherlands Water Sector

Commissioned by the ministry of Foreign A>airs

KENYA

WATER MARKET SURVEY

FOR THE NETHERLANDS WATER SECTOR

March 2017

The Netherlands Business Hub

Commissioned by

RVO/EKN

ii Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

Version Status Originated Checked Reviewed Authorised Date

0.1 Initial draft FS 18.01.17

0.2 Check FS SM 26.01.17

0.3 Review FS SM SK 26.01.17

1.0 Client draft FS SM SK SK 27.01.17

2.0 First Client

Issue FS SM SK SK 14.03.17

3.0 Second

Client Issue FS SM SK SK 22.03.17

The Netherlands Business Hub in Nairobi has become operational over the course of

2016 with a mandate to support, promote and service Netherlands business interests in

Kenya and East Africa and by doing so contribute to strong bilateral relationships. It now

boasts specialist business developers for the top sectors water and agri-food. The NL

Business Hub is an initiative by the Dutch business community and the Dutch Embassy

in Nairobi. The NL Business Hub primarily is a commercial service organization that

provides members and clients with market information and networks, with possibilities to

develop and participate in programs targeting business opportunities. Hands on services

include: market surveys, lead and project development, partner search, match making,

organising trade missions, representation, technical and financial advisory services and

serviced office space. The NL Business Hub is established as an autonomous legal

entity in Kenya that is financially self-sustaining with limited start-up funding from the

Netherlands Enterprise Agency.

Web: www.nlbusinesshub.com

Address: Dik Dik Gardens 5, Kileleshwa, Nairobi, Kenya, P.O. Box 21373 – 00100 GPO

Author: Ir. Folkert Schoustra, Business Developer Water, Netherlands Business Hub

Tel: +254 734045062

Email: [email protected]

iii Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

List of Abbreviations AELAN Eastern African Land Administration Network

AFD Agencie Française Developpement

AfDB African Development Bank

ASAL Arid or Semi-Arid Land

BADEA Arab Bank for Economic Development in Africa

CAPEX Capital Expenditure

CRM Client Relation Management

CWSB Coast Water Services Board

D2B Develop to Build

DANIDA Danish International Development Agency

DBFOT Design Build Finance Operate Transfer

DFID Department for International Development

DGGF Dutch Good Growth Fund

DRIVE Development Relevant Infrastructure Vehicle

EKN Embassy of the Kingdom of the Netherlands

EoI Expression of Interest

EPC Engineering Procurement and Construction

EPZ Export Processing Zone

EU European Union

EXIM Export Import

FINEXPO Belgian Directorate Financial Support to Exports

FMO Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V.

ICB International Competitive Bidding

IFI International Finance Institution

IWRM Integrated Water Resources Management

JICA Japan International Cooperation Agency

KMT Kenya Market Trust

G2G Government to Government

GCF Green Climate Fund

GDP Gross Domestic Product

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit

GoK Government of Kenya

GoN Government of Netherlands

KenInvest Kenya Investment Authority

KEWI Kenya Water Institute

KfW Kreditanstalt für Wiederaufbau

KIFFWA Kenya Innovative Finance Facility for Water

KMA Kenya Maritime Authority

KPA Kenya Ports Authority

KPWF Kenya Pooled Water Fund

KSH Kenyan Shilling

LAPSSET Lamu Port South Sudan Ethiopia Transport Corridor

MASP Multi-Annual Strategic Plan

MoU Memorandum of Understanding

MOWASCO Mombasa Water and Sanitation Company

MWI Ministry of Water and Irrigation

NABC Netherlands African Business Council

NCA National Construction Authority

NICHE Netherlands Initiative Capacity Development Higher Education

NFP Netherlands Fellowship Programme

iv Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

NGO Non-Governmental Organisation

NIB National Irrigation Board

NL Hub Netherlands Business Hub

NRW Non-Revenue Water

NUFFIC Netherlands Universities Foundation for International Cooperation

NWCPC National Water Conservation and Pipeline Company

NWP Netherlands Water Partnership

OBA Output Based Aid

ODA Official Development assistance

ORIO Ontwikkelingsrelevante Infrastructuurontwikkeling

OS Ontwikkelingssamenwerking

PEWAK Performance Enhancing of Water Utilities in Kenya

PhD Philosophy Doctor

PIB Partners in Business

PPP Public Private Partnership

PSD Apps Private Sector Development Applications

RVO Rijksdienst Voor Ondernemen (Netherlands Enterprise Agency)

SDG Sustainable Development Goal

SGR Standard Gauge Railway

SIDA Swedish International Development Cooperation Agency

SME Small to Medium Enterprise

TMEA TradeMark East Africa

UN United Nations

USD United States Dollar

VEI Vitens Evides International

VNGI Vereniging Nederlandse Gemeenten International

WASH Water Sanitation and Hygiene

WASPA Water Services Providers Association

WB World Bank

WSB Water Services Board

WSP Water Service Provider

YEP Young Expert Programme

v Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

Table of Contents List of Abbreviations .............................................................................................................. iii

Table of Contents .................................................................................................................. v

1 Executive Summary ....................................................................................................... 1

1.1 Winning strategies .................................................................................................. 1

1.2 Tackling perceived obstacles for doing business in Kenya ...................................... 3

2 Introduction .................................................................................................................... 5

2.1 Background............................................................................................................. 5

2.2 Structure of the report ............................................................................................. 5

3 Business Demand Water Sector Kenya ......................................................................... 6

3.1 Maritime and logistics ............................................................................................. 6

3.1.1 Localised water transport ................................................................................. 6

3.1.2 LAPSSET ........................................................................................................ 6

3.1.3 Other port developments ................................................................................. 6

3.1.4 Maritime Safety ................................................................................................ 7

3.1.5 Export Processing Zones and growth hubs ...................................................... 7

3.1.6 Summary ........................................................................................................ 7

3.2 Agriculture and Fish ................................................................................................ 8

3.2.1 Irrigation ........................................................................................................... 8

3.2.2 Fisheries .......................................................................................................... 9

3.2.3 Summary ......................................................................................................... 9

3.3 Drinking Water including Water harvesting / Water treatment / Bulk water supply /

Sanitation .......................................................................................................................... 9

3.3.1 Large scale bulk water supply .......................................................................... 9

3.3.2 Sanitation ....................................................................................................... 10

3.3.3 Small scale infrastructure and NRW management by WSPs ......................... 11

3.3.4 Real Estate Development and general construction ....................................... 11

3.3.5 Summary ....................................................................................................... 11

3.4 IWRM including flooding ....................................................................................... 12

3.5 Food and Beverages ............................................................................................. 13

3.6 Hydropower .......................................................................................................... 13

3.7 Education / Knowledge exchange ......................................................................... 14

4 Dutch Offerings Water Sector ...................................................................................... 15

4.1 Context of Top Sector Water ................................................................................. 15

4.2 NGOs (III) ............................................................................................................. 15

4.3 Knowledge Institutes (III)....................................................................................... 16

4.4 Consultancy (II) ..................................................................................................... 17

vi Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

4.5 Contractors (I) ....................................................................................................... 17

4.6 Manufacturers (I) .................................................................................................. 17

5 Financing options of water projects .............................................................................. 18

5.1 Government of Netherlands Financial Instruments................................................ 18

5.2 G2G Finance ........................................................................................................ 19

5.3 PPP ...................................................................................................................... 20

5.4 Government of Kenya ........................................................................................... 20

5.5 International Finance Institutions ........................................................................... 21

5.6 Donors / Grants .................................................................................................... 22

5.7 Private Equity ........................................................................................................ 22

6 Recommendations ....................................................................................................... 23

6.1 Development of business cases............................................................................ 23

6.1.1 Direct Award to Dutch consortium implementation water project, using GoN

instruments and aiming at exceptional circumstances .................................................. 23

6.1.2 Direct award through foreign G2G finance ..................................................... 24

6.1.3 Private financing small drinking water projects ............................................... 24

6.1.4 Open tenders ................................................................................................. 24

6.1.5 Identify and fill capacity gaps winning tenderers ............................................ 25

6.2 Investing in human capital through knowledge exchange ..................................... 25

6.3 Tackling perceived obstacles ................................................................................ 26

6.4 More cooperation EU countries ............................................................................. 26

6.5 Managing water market information ...................................................................... 26

6.6 Upscaling of water market information to East Africa ............................................ 27

Appendix A Selected list of opportunities, leads and tenders

Appendix B Summary of findings previous market surveys

Appendix C Objectives and methodology

1 Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

1 Executive Summary This market survey provides a gap analysis of the needs in the Kenyan water market and

how to fulfil these with the offerings of the Netherlands Topsector Water.

The water sector in Kenya is characterised by high demand for development of water related

infrastructure and limited resources in terms of monetary and human capital. There is an

increased focus on innovative finance models such as PPPs and DBFOT, and associated

projects financing models. This is supported by macro-economic policies such as the Water

Act 2016 which was gazetted in September 2016, the PPP Act 2012, the National Water

Master Plan and Vision 2030 which states ambitious development targets.

Significant investments in infrastructure are ongoing and show no signs of slowing down.

Examples of megaprojects currently ongoing and in the pipeline are the Standard Gauge

Railway, LAPSSET, Galana Kulalu Irrigation and the Export Processing Zones (EPZs)

(Figure 1).

The demand in the water related sectors in Kenya can be categorised in three main playing

fields:

I. Project Implementation / Construction (Direct Award or ICB)

II. Project Development / Consultancy (ICB)

III. Managerial / Capacity Building (ICB)

The Netherlands Topsector Water is well equipped and has shown interest to service the

needs in all three fields.

It is likely that the countries surrounding Kenya similarly have a great amount of

opportunities. It is therefore recommended that a water market survey be commissioned for

the other countries in East Africa.

1.1 Winning strategies Re I Direct Award to Dutch consortium for implementation water project, using GoN

instruments and aiming at exceptional circumstances

A possible strategy to win large water projects in Kenya is to develop a water related project

that suits Dutch suppliers jointly with GoK. A Dutch consortium can be formed to execute

and finance the project. Dependent on the project specifics the consortium could comprise

designers, groundwater specialists, knowledge institutes, contractors, manufacturers,

equipment suppliers and finance institutions. An MoU can be created between the project

promoting GoK agency and the consortium, possibly with the help of KenInvest. Then a

yes/no option can be presented to GoK Treasury. This decision will be influenced strongly by

the amount of grant, the loan conditions, value for money and economic feasibility and

viability of the project. With a 50% grant for the implementation phase e.g. through DRIVE,

GoK Treasury can consider using an ‘exceptional circumstances’ clause to short track

approval.

The Dutch consortium can be strategically positioned using solid market intelligence, local

representation, and making clever use of instruments made available by the Dutch

Government, especially PSD Apps (project identification), PIB (forming partnerships), D2B

(development phase), DRIVE (implementation phase). This could possibly be combined with

KIFFWA to close any financing gaps, and Atradius to provide export guarantees and

establish favourable loan conditions. Some projects have part of the financing allocated to

approximately 50% of the required budget. These projects specifically could be suitable


targets, as a successful DRIVE application would provide the rest of the required financing

avoiding the need to find additional investors.

The eligible projects should be carefully selected on the basis of criteria such as: support of

local government, (co-)finance available, competence of promoting organisation, likely social

and environmental impact (dams are not favourable in this respect because of relatively

large footprint and relocation requirements), likelihood of implementation, quality of

information available, political stability and security in the project area.

Re I II and III Open Tenders

Despite apprehensions of many Dutch companies, open tenders is a realistic avenue to win

work in Kenya. It was noted by various GoK client organisations that Chinese firms are not

particularly strong at PPP projects due to lack of managerial strength, and that Dutch firms

are of high repute but have shown little or no interest.

In order to win open tenders for construction projects it is recommended to:

- Have access to up to date market intelligence. It is best to know about tenders in

advance through local intelligence. Some tenders can be known about up to six

months in advance. Then it is possible to prepare your consortium including the right

local and other partners (with healthy balance sheets) and prepare your bid timely in

order to strike before the competition. This can include a DRIVE application which

takes approximately four months.

- Bid on tenders with high quality specifications and managerial requirements that the

Chinese cannot bid for. Again market intelligence is crucial.

- Be in it to win it. Submit an expression of interest once a relevant tender is out. A

number of GoK organisations have indicated that there have been very little

expressions of interest received on open tenders from Dutch firms. This despite the

fact that Dutch firms are of high repute, and various organisations have indicated that

Dutch firms would have a good chance of winning tenders, particularly on PPP

projects.

- Have a local partner with the right complementary skills, who is well aligned, and is

well versed in tender negotiations and procedures. With the right local partner on

board, it is possible to get significant improvement of results.

- Use PPP combined with the right financial instruments made available by GoN; D2B,

DRIVE and export credit. This can be done for open tenders as well as direct awards.

To make use of these instruments it is necessary to proactively express interest with

consortia and have the intelligence regarding the tender well in advance.

- Personal relationships are the key to success. Build relationships with the people in

charge. This can be done most effectively by establishing or engaging local

representation in country.

- In many cases, after winning a tender, the winning companies require capacity gaps

to be filled in terms of design and construction in order to service the tender. This

provides opportunities for Dutch firms, especially ones offering specialised services

e.g. certain dredging expertise. It is required to have the market intelligence of recent

tender awards and associated capacity gaps to be filled. This can be achieved by

engaging someone on the ground in Kenya scanning all project wins and following

these up with enquiries.

Re III To address the perpetual shortage of human capital it is essential to keep investing in

knowledge exchange programmes between the Netherlands and Kenya. The large alumni

network in Kenya who studied in Netherlands and are now coming through the ranks in


Kenyan society, are an important source of potential business for the Dutch private sector.

This investment in human capital through e.g. NFP is a long term strategy that seems to

work effectively in terms of strengthening cultural and economic relations between the

Netherlands and Kenya. Dutch Universities could benefit for instance by additional fees for

PhD students.

NUFFIC has a substantial budget for knowledge exchange, although this may be subject to

change in light of elections in Netherlands in 2017. GoK has budgets available for training

and development of staff, both on national level and county level, and Netherlands is high on

the list of preferred destinations for institutional capacity building (based on discussions).

The VNGI has budgets to support this. This also provides opportunities for Dutch training

and consultancy firms. The YEP programme provides another opportunity for Dutch firms to

participate in knowledge exchange within private sector organisations.

1.2 Tackling perceived obstacles for doing business in Kenya One of the findings of the market survey is that the fears/obstacles that stop Dutch firms

from tendering need to be addressed. In summary key obstacles for Dutch firms expanding

business in Kenya include:

- The Dutch water sector do not have time access to business intelligence / market

information.

This needs continuous serious investment, either by GoN for benefit of the Dutch

water sector collectively or by individual companies.

- The Dutch water sector are not coordinated enough to be able or willing to invest in

the formation of consortia to collaborate to develop PPP leads, including access to

finance / GoN financial instruments.

The forming of consortia and securing of finance involves high risk upfront capital (to

the tune of up to 10% of the project CAPEX), which requires serious investment from

either GoN or private sector companies as well as timely coordination. The GoN can

play an essential role through investing in these project development phases in a

way that benefits specifically Dutch businesses, by use of financial instruments like

PSD Apps and D2B or other means.

- Contacts with the right stakeholders,

This requires continuous investment in economic diplomacy. The GoN and EKN have

an important role enabling this.


Figure 1 Opportunities Map Kenya


2 Introduction

2.1 Background EKN wishes to develop a more comprehensive and in-depth understanding of various water

dependent economic sectors to inform the Dutch business community, to strategically

support and guide Dutch investments and interests and to support the Netherlands Business

Hub in fulfilling its mission on water and related sub-sectors.

This market survey provides a gap analysis of the needs in the Kenyan water market and

how to fulfil these with the offerings of the Netherlands, in the context of Kenya and East

Africa. The study was executed ‘hands on’ with a focus on the most important players in the

water sector in Kenya, with a view to determine opportunities and bottlenecks for the Dutch

water sector, and identify concrete steps for a coherent approach to serve identified

demand. It builds on previous market surveys commissioned by EKN. This report is a

summary of the market information providing a snapshot in time at Quarter 4 of 2016. It is

intended to be reissued every two years. For up to date market information it is required to

refer to the Netherlands Business Hub’s CRM system.

2.2 Structure of the report Section 3 describes the business demand/pull per water subsector. It provides information

on projects in the pipeline, as well as ambitions and challenges of key client organisations. It

is based on first hand and inside information through direct contact with the key players in

Kenya.

Section 4 deals with the business supply/push of the Netherlands water sector. It describes

the ambitions and offerings of the key Dutch players.

Of relevance for the gap analysis are common and promising finance options for water

projects in Kenya. These are the subject of Section 5.

Recommendation for winning strategies for increased significance of the Dutch water sector

in Kenya are laid out in Section 6.


3 Business Demand Water Sector Kenya

3.1 Maritime and logistics

3.1.1 Localised water transport

Around Mombasa, there are plans (drafted in a feasibility study by a Dutch consultant in

2016) to develop a localised passenger water transport system. Related projects that may

be procured in the near future include the construction of five floating jetties and associated

access roads and terminals (approximately 4M Euro) and six water bus vessels including

docking and refuelling infrastructure (approximately 17M Euro), and the second Nyali Bridge

construction.

Water transport around Lake Victoria is currently underused, specifically around Kisumu and

Homa Bay. The water transport is run by the private sector, but generally the prices are so

high that road transport is favoured. The Kisumu County Ministry of Public Works feels that

the ferries should be faster and cheaper. This provides an opportunity for consultants to

develop water transport through master planning, feasibility studies, construction and

ultimately suppliers and operators of the vessels required. It should be noted that there

currently is a Dutch funded company building vessels for localised water transport. This

market is likely to continue to grow.

3.1.2 LAPSSET

The Lamu Port and South Sudan and Ethiopia Transport corridor (LAPSSET) project aims

for Kenya to partner with Ethiopia and South Sudan. It will provide a new port at Lamu, and a

transport corridor from Lamu to Isiolo and from there to Addis Ababa and Juba. The CAPEX

of LAPSSET is estimated approximately 25B USD, financed through PPP models, of which a

significant proportion is for the water industry.

The first three births at Lamu are under construction by a Chinese firm and the dredging has

started, scheduled for completion in 2018 (first birth) and 2020 (second and third birth). The

road Lamu-Isiolo is currently being designed as part of an EPC tender. The first three births

of Lamu are funded by GoK, the other 29 berth will be done through PPPs. The terminal

operation contracts will be separate. Some of the housing developments have also started.

The project will generate significant water demand and opportunities for the Dutch water

sector in fields I, II and III, including: water for three resort cities: at Lamu, Isiolo and Turkana

and three international airports, a multipurpose dam in Tana River for water supply by

Tanathi WSB (Chinese firms have expressed interest in this), borehole fields and

desalination plants, groundwater mapping along the northern corridor, water required for

Turkana Crude Oil winning and a pipeline and oil refinery either in Lamu or Isiolo, water for a

coal plant near Lamu, and industry water to be provided by Coast Water Services Board

(CWSB).

3.1.3 Other port developments

Kenya Ports Authority (KPA) intends to move the dry bulk facilities from Mombasa to a new

port in Kilifi, in order to become eligible for green port accreditation in Mombasa. Also at

Shimoni and Malindi new small ports are planned, which are still in the early development

phases.

The Mombasa Port Programme is a long term improvement campaign by KPA assisted by

TMEA including an expansion and improvement of the port of Mombasa; Berth 1-14 and the

Kipevu Oil terminal relocation are all imminent projects. Other tenders expected soon as part

of this programme include water supply and waste management of the port, and provision of

renewable energy for the port with a focus on wind and solar and potentially equipment


provision mobile cranes and eco hoppers. There are also concrete plans for a 2M USD

cruise terminal at Mombasa.

The Ministry of Transport aims to rejuvenate the existing port of Kisumu, and to create a new

port 6km away from the existing port as part of the terminal of the Standard Gauge Railway

(SGR). The SGR from Mombasa to Naivasha is being built, and a commercial agreement

has been signed with the EXIM Bank of China to develop the project from Naivasha to

Kisumu and Malaba, including the new port of Kisumu. Rift Valley Railways aims to revive

the old railway from Mau to Kisumu and wishes to develop these plans further. This may

provide opportunities for the Dutch water sector to get involved in consultancy (II) around the

existing port rejuvenation, which will require master planning, design, construction (I) and

capacity building (III). There are also opportunities for specialist maritime construction firms

to assist in the new port construction (I).

3.1.4 Maritime Safety

Also around lake Victoria, the Lake Victoria Basin Commission is currently securing a 30M

USD loan from AfDB for a Maritime Communication and Rescue system for Kenya, Uganda,

and Tanzania. The purpose of the project is to improve the safety of navigation on Lake

Victoria. This is a four year project with a tender expected early 2017 (I, II and III).

KMA in Mombasa is also in need of improved response planning for maritime safety

incidents, with funding from the World Bank. There is opportunity for Dutch know-how to be

deployed (II and III).

3.1.5 Export Processing Zones and growth hubs

A recent development focus is the establishment of Export Processing Zones and growth

hubs. These will need water, power, roads, agro-processing, cold storage and financing. The

two most significant growth hubs planned are the Mombasa Export Processing Zone (EPZ)

and Kisumu/Ginga EPZ. The Export Processing Zones Authority Act provides incentives to

industry in these zones through tax advantages. Muranga County is also mentioned in

particular as a regional growth hub. It is intended that demand for water is created by

regional growth hubs like these. The EPZs and growth hubs provide opportunities

infrastructural and logistic master planning, feasibility studies, detailed design (II) as well as

project implementation (I) and capacity building (III).

3.1.6 Summary

There are significant developments in the maritime and logistics sector, providing

opportunities for Dutch businesses all playing fields I construction, II consultancy and III

capacity building. Most of the projects are financed through PPPs and contracts that require

the tendering consortium to bring in finance, and in some cases projects are financed by IFIs

or GoK. In summary, business demand and opportunities can be characterised as

development and implementation of:

- Local water transport systems

- Ship building

- Master planning and feasibility studies

- Water supply for new ports and LAPSSET developments

- Port development

- Specialist dredging

- Terminal operation

- Port equipment mobile cranes, eco hoppers

- Bathymetry


- Water for mining: manganese, titanium, limestone, coal, iron ore and production of

cement

- Water for oil winning and refinery

- Cruise terminals

- Renewable energy provision for ports

- Navigational safety systems

- Specialised Rescue Vessels

- Oil spill equipment

- Planning and realisation of growth hubs

- Logistics expertise and infrastructure

- Cold storage

3.2 Agriculture and Fish

3.2.1 Irrigation

The highest investment needs and potential in Kenya are in irrigation, rather than drinking

water or maritime. It its Vision 2030 the GoK aims to enable 1M acres of agricultural land to

reach full irrigation potential. The National Irrigation Board (NIB)’s vision is to achieve this by

investments in terms of infrastructure, harvesting equipment, market linkages and

development, implementation and operation of complete value chains.

The PPP model seems to be the most appropriate for irrigation projects, with specific crops

defined. Approximately 80% of Kenya is ASAL, and 20% arable (highlands). Especially the

ASAL areas provide a tremendous opportunity if high-tech irrigation technology is used using

groundwater, on renewable energy. The National water masterplan states that 50,000ha of

ASAL land are to be developed using groundwater. As ASAL areas are mostly flat lands full

mechanisation is possible. Illustratively maize yield has plateaued at 1.7ton/ha, whereas with

the proper irrigation and mechanisation techniques 6ton/ha should be achievable. There

generally is a need to create a focus per business case in terms of water requirement

geographically linked to crops, value chains and markets.

Particularly in Western Kenya there is significant opportunity to develop irrigation schemes,

due to favourable climatological conditions, availability of land and fertile soil of high quality.

Devolution has transformed agriculture in Kenya and there is now more opportunity to assist

and influence the newly formed governments (III). The new Water Act 2016 provides

Regional Development Authorities with more power to promote agriculture schemes.

Challenges for implementation are that often irrigation schemes lack a multipurpose or high

level strategy element focussing on market linkages, and that operation and maintenance

are often suboptimal. Another risk for irrigation projects is when there is no control over

tariffs for irrigation water use. There are examples of schemes (e.g. Mwea Irrigation

Scheme) that were not successful because not many users were paying for water usage

resulting in the project revenues falling short. In addition there is a lack of data of where the

grown crops end up, making it difficult to monitor value chains. This creates a need and

opportunity for high level capacity building/knowledge exchange.

A particularly ambitious irrigation project is Galana Kulalu. The intention is to develop 1M

acres of land for purpose of food security: livestock, horticulture, maize and fruit trees.

Currently, a pilot project of 10,000 acres is being completed using an Israeli consultant. The

techniques being trialled are centre pivot systems and drip systems aiming at two crops per

season. The MWI intends to develop Phase II of the project in 2017.

It was indicated that on recent tenders for DBFOT contracts for irrigation projects including

Nyatika Dam (16B KSH), Radat Dam (10B KSH), Lowaat Dam (16B KSH) and Thuci Dam


(3B KSH), there were no Dutch firms or consortia that have expressed interest. The projects

are now going to Chinese, Israeli and French firms. There are a significant amount of large

projects (48 in NIB’s pipeline alone) that provide an opportunity for investment through

DBFOT contacts which require a combination of consultancy (II), construction (I) and

capacity building (III). Most projects include an element of water harvesting, water storage,

conveyance, and on farm irrigation equipment. A list of projects in the pipeline and tentative

scope for action is provided in Appendix A.

There is increasing competition in the irrigation market from the Chinese, the Japanese and

the Israeli’s who provide irrigation solutions including operation and capacity building.

3.2.2 Fisheries

Around Lake Victoria it was indicated that there is an opportunity for aquaculture farming and

fish industry. A problem for fishing and fisheries around Lake Victoria is Water Hyacinth and

general poor water quality around the lake suffocating fish and aquatic wildlife. Solutions

need to be found for this, which provides opportunities for Dutch firms (II). In the coastal

areas, there is need and opportunity for modern fishing method and associated vessels and

equipment (I, II and III).

3.2.3 Summary

The investment needs and opportunities in the irrigation/agricultural sector are the greatest

of all water subsectors and generally require a combination of consultancy (II),

implementation (I) and capacity building (III). The opportunities for Dutch firms in irrigation

and aquaculture can be summarised as follows:

- Bulk water infrastructure: dams and boreholes

- Pipes / conveyance

- Renewable energy

- Harvesting equipment

- Capacity building/knowledge exchange

- Develop Value Chains

- Groundwater mapping, geohydrological studies

- Feasibility studies and Design of irrigation projects

- Water storage infrastructure

- On farm irrigation equipment

- DBFOT contracts

- Gauging stations

- Fish farms

- Modern fisheries

- Eradication/management Water Hyacinth

3.3 Drinking Water including Water harvesting / Water treatment / Bulk water

supply / Sanitation

3.3.1 Large scale bulk water supply

Provision of bulk water for drinking is a significant demand throughout Kenya. For example,

Mombasa requires 180,000m3/day, but is currently getting approximately 46,000m3/day. In

Kisumu, one of the biggest ambitions of the county is to expand water supply. There are

currently 65 large scale water projects being promoted nationally, and 38 multipurpose

dams.

Water Services Boards (WSBs) are government parastatals under the umbrella of the MWI

with a mandate to create bulk water infrastructure. Water Service Providers (WSPs) are


responsible for maintenance and operation, but the WSBs remain owners of the

infrastructure on behalf of the national government. There are eight WSBs in number: Lake

Victoria South, Lake Victoria North, Rift Valley, Athi, Northern, Coast, Tana and Tanathi.

Apart from Water Services Boards, the Regional Development Authorities, like Coast

Development Authority, and Lake Basin Development Authority also have within their remit

to develop bulk water sources and sell this to the WSBs. On a national level the National

Water Conservation and Pipeline Company (NWCPC) is responsible for mapping of water

resources, harvesting these and handing the water over to WSPs (Counties). Whereas the

WSBs are reliant for funding mostly on donors, the NWCPC is predominantly funded by

GoK.

Mache Dam in Kwale County near Mombasa (approximately 300M USD) is an example of a

large project, financed through a loan from an International Finance Institution (IFI), the

World Bank, to the GoK. The EPC contractor for this project is paid by the GoK. Separate

contracts of 20M USD is set aside for investing in the distribution network in Mombasa which

involves specialist drilling and retrofitting of pipework in established urban areas (I and II),

and 5M USD for organisational optimisation of the WSP MOWASCO (III). Projects like these

provide opportunities for Dutch firms.

There are a number of projects that have gone wrong, mostly due to lack of quality in the

definition phases of the project. There is also a stringent need for better operation,

maintenance and handover of large water projects. Badassa Dam, Uma Dam, and Wajir

water supply are recent examples of projects that have stalled due to inadequate definition

phases. There is an opportunity for Dutch companies to help with these (I and II).

The main constraint mentioned is access to finance. Key drivers are to invest in cheaper

technologies like solar/hybrid pumped solutions, gravity fed water supply systems,

multipurpose dams and desalination. Also, in most cases it is necessary to include an

element of groundwater mapping in these projects. This provides opportunities for project

development, design, innovation (II), construction (I) and capacity building (III).

Currently desalination projects are developed in Mombasa and Lamu, through both

unsolicited Expressions of Interest and open tenders. The true cost recovery of these

projects lies in the recovery of sea minerals. There are a number of open tenders for

desalination plants to be published in the foreseeable future (see Appendix A).

3.3.2 Sanitation

Sewerage systems are generally lacking (e.g. 16% coverage in Kisumu), or existing systems

need upgrading. This results in a significant need/opportunity is provision of sewerage

schemes and associated competence needed by WSBs and WSPs. A percentage of

revenues of water schemes are to be ringfenced for sewerage, supplemented by revenues

through fixed sewerage tariffs. Improvement of management of existing sewerage

infrastructure is also a priority. The current sewerage pumping stations use significant

amounts of energy and have frequent breakdown. Examples of this are Miritini and Kipevu

Pumping Stations in Mombasa. What is required is to turn sewerage Pumping Stations into

water treatment facilities to reuse the water e.g. for industry and avoid pumping altogether,

and reuse faecal sludge for agriculture. This provides an opportunity for innovative solutions

(e.g. Nereda) to be implemented, for example natural sewerage treatment processes that

purify water without chemicals using aerobic granular sludge technology thereby saving 50%

on energy-costs, delivering high quality effluent for low costs and requiring only a quarter of

the area of conventional activated sludge installations.


Some WSBs wish to develop integral projects of water supply and sanitation combined. This

provides opportunities for the Dutch water sector to form broad consortia that include

expertise regarding design (II), construction (I), finance, operation and maintenance (III) of

combined water and sewerage projects. There is also demand to improve storm water

drainage which is currently often mixed with sewerage.

3.3.3 Small scale infrastructure and NRW management by WSPs

In order to meet the ambitious Vision 2030 goals as well as the UN’s SDG6 virtually all the

WSPs have a range of projects to be executed, ranging from intakes, water treatment works,

distribution networks, maintenance to networks, sanitation and non-revenue water

management. One of the changes of the new Water Act 2016 is that the WSPs will become

responsible for both developing and operation of the water utilities infrastructure. The

counties will be the owners, whilst WSBs will continue to do large scale projects. This

change is likely to provide additional opportunities for capacity building (III) of WSPs and the

counties in terms of organisational and technical advisory services (II), as well as training

(III). It was indicated that in many cases specifications are set to high standards, which suit

European firms, but are out of reach for Chinese bidders.

The Water Services Providers Association (WASPA)’s has a mandate to advocate, influence

and form consortia improve the quality of water service provision in Kenya. Main donors of

WASPA include VEI, RVO, WB and EKN.

KIFFWA seeks to facilitate finance acquisition to WSP projects through the Kenya Pooled

Water Fund (KPWF). The demand greatly outstrips the funding supply through the KPWF,

which focusses on a limited number of selected WSPs (approximately six). This leaves an

unfulfilled demand for financing and delivery of relatively small potentially viable drinking

water projects of in the range of 2M USD CAPEX. There is also significant demand and

hence opportunity for consultancy regarding NRW and Performance Based Contracting for

WSPs providing opportunities with regards to consultancy (II), implementation (I) and

maintenance (III).

In rural and underserved areas there is much demand for prepaid water systems, low cost

water filters on household level, and human and solid waste management including low cost

small scale sanitation. The WSTF has a mandate to provide funding for schemes like this.

There are various NGOs who intend to invest in small scale water treatment and prepaid

water dispensing systems in underserved areas of Kenya.

3.3.4 Real Estate Development and general construction

Countrywide there is significant real estate development projected, which provides good

opportunities in the water sector. According to the National Construction Authority (NCA) the

housing deficit is currently 200,000 units annually in 2016. Private investors are sought to fill

this gap.

The construction industry in Kenya generally has grown 13.1% in 2014 and 13.6% in 2015

and is likely to continue to see growth. This has resulted in a need for construction

equipment, and ways to facilitate access to construction equipment. Currently the NCA is

setting up a revolving pooled fund for hiring construction equipment.

3.3.5 Summary

Many GoK bodies have a number of bulk water supply projects in the pipeline, ready for

implementation. Most of these projects include various elements like water harvesting in the

form of multipurpose dams and groundwater well fields, water conveyance, treatment,

storage, distribution and sewerage. It is indicated that if a consortium of Dutch companies


can be formed capable of Design (II), Build (I), Finance, Operate and Transfer (III) of such a

project, the project scope in terms of size and content could be determined/finetuned to suit

the consortium, and single sourcing (choosing a supplier without competitive bidding for a

justifiable reason) would be considered.

Some of the project leads identified are listed in Appendix A. These include desalination

projects, multipurpose dams, water treatment plants and pipes and distribution networks.

The demand in the drinking water/sanitation sector can be summarised as follows:

- Bulk water supply

- Groundwater mapping / borehole fields

- Specialist drilling and retrofitting

- Project Development Phases: Master planning, many feasibility studies, and detailed

designs

- Desalination for water supply

- Capacity building and institutional strengthening

- DBFOT contracts

- Innovative financing models

- Pumping stations

- Sewerage schemes provision or upgrading of existing infrastructure

- Better energy efficient sewerage treatment

- Reuse of water. There is a new focus on the reuse of products from sewerage and

waste water, and also solid waste.

- Water Treatment Works; new plants, small as well as large scale, and upgrading

dilapidated existing plants

- Distribution network expansion and upgrade

- NRW management; these projects include performance based contracting, PPP,

capacity building, inclusion of latest technology water supply modelling and water

meters. These can be won through both open and restricted tenders

- Prepaid water metering systems and dispensers

- Treating storm water, which is currently often mixed with sewerage

- Water solutions and equipment for real estate developments

3.4 IWRM including flooding The water situation in many parts of Kenya is characterised by lack of water and recurrent

floods. In the peri urban areas in and around Kisumu for instance, the towns of Ahero and

Maseno face significant challenges with regard to drainage and flooding. Kisumu County has

started an ongoing dredging and desilting routine of approximately 90km of small water

courses, using the spoilings to raise dykes. This is done as an improvised routine flood

control measure, whilst special programmes are in place in case of flooding emergency. This

system of flood prevention appears to have reduced flooding over the last two years,

however, it is not backed up by hydrological analyses. A new dam is part of the County

Integrated Development Programme in order to control flooding. The Lake Victoria Basin

Commission intends to commission a project for IWRM review for Lake Victoria in 2017 (II).

It was indicated that there is a need to offer holistic packages / masterplans with regards to

water management infrastructure and land use. Currently the bigger picture lacks,

particularly for GoK County governments and numerous NGOs and aid activities all

seemingly doing their own little thing. These holistic plans should also include financing,

creating demand for water, water efficiency, water security and sanitation.


There is generally a lack of IWRM related data, including groundwater and surface water

quality and quantity, and know-how as well as management capacity (III).

High level capacity building (III) through long term knowledge exchange programs is in

demand as this may provide some long term alleviation of the skills shortage related to

IWRM, whilst at the same time promoting the Dutch solutions and exposing them to Dutch

mentality, and ensuring that Kenyans have networks in the Netherlands.

Opportunities for the Dutch water sector present themselves in terms of equipment provision

for dredging activities (I), as currently this is done with normal excavators. In addition,

consultancy in terms of water master planning and flood studies are required (II), as well and

potential construction of required control measures (I). It is noteworthy that the ‘First Kisumu

County Integrated Development Plan 2013-2017’ reaches the end of its validity and is in

need of renewal. The new Water Act 2016 encourages a more strategic approach to be

taken by county governments. This provides an opportunity for Dutch consultants.

- Project Development Phases: Master planning, many feasibility studies, and detailed

designs.

- Technical execution groundwater mapping

- Groundwater related equipment supply

- Telemetry equipment supply, installation and training

- Knowledge exchange IWRM

- Catchment wide hydrogeological studies/Catchment management plans

- Treating storm water, which is currently often mixed with sewerage

- Maintenance dredging of water courses and associated equipment

- Disaster response planning

3.5 Food and Beverages Due to the steady GDP growth and upcoming middle class over the last years, there is

increasing market high end beverages. The production of beverages, especially beer and

juice, however, is in the hands of a small number of powerful local players, who are

protective of the market. There are reports of other players wishing to start production of

high end beverages in Kenya being hindered through foul play by local competition, e.g. with

import clearance procedures at the port and in other ways. This makes starting a beverages

production a risky enterprise. Importing beverages seems a feasible opportunity.

Demand for bottled water remains high and is likely to keep increasing, especially in areas of

low connectivity to a drinking water supply network. There are companies, including Dutch

firms, that successfully operate in this market using the process of Reverse Osmosis

filtering. There are opportunities to increase production high quality drinking water.

There is a continuous need for groundwater mapping and extraction to service private sector

users, e.g. in the food and beverages industry, but also other industries like mining.

- Import of high end beverages

- Production of bottled high quality drinking water

- Groundwater mapping and extraction

3.6 Hydropower There is approximately 5,000MW additional capacity required between 2014-2017, mostly

sought to be coming from renewable energy sources: solar, wind and geothermal, as well as

from oil and gas. The Kenyan government seeks to shake off overreliance on climate

vulnerable hydropower, which in 2013 constituted 49% of its national energy generation


contribution. Instead a diversification of energy sources is sought with geothermal, wind and

gas turbines featuring prominently.

There are however a significant number of multipurpose dams planned, where energy

generation is one of the purposes alongside water harvesting for irrigation, drinking water,

wildlife preservation and aquifer recharging.

- Hydropower for use in multipurpose dams

3.7 Education / Knowledge exchange There generally a significant skills shortage in Kenya, also in water industry. Following

devolution, there are now 47 newly formed county government, all requiring competent

administrators. This provides an opportunity for capacity building (III) and knowledge

exchange. It appears that long term investments through for example the NFP are effective

in the sense that talented Kenyans are capacity built, and accustomed to Dutch solutions

and values. Later on, when they rise through the ranks of the career ladder in Kenya they

are more likely to apply Dutch solutions, use their networks built up in the Netherlands in

order to move Kenyan society forward.

The main challenge for Kenyan Universities is financial resource mobilisation. This is being

addressed by generating fees from students, involving the private sector in generating

income hiring out equipment, training and services, as well as donor grants. The main

funders of knowledge exchange programs are NUFFIC, EU, SIDA, NORDIC and GIZ.

It was noted that the Chinese government had donated a large training facility for

engineering parts manufacturing machinery, as part of winning the contract for construction

of the SGR.

The NCA indicated that there is a need for setting occupational standards in the water

industry and construction industry as a whole, as well as research into construction

materials, including the use of local cost effective construction methods.

There is generally a significant continuous need for capacity building / knowledge exchange

(III) in Kenya. In the water industry specifically when it comes to:

- High Tech Equipment provision and user training;

- Field and Soil Mechanics

- Hydrology

- Software, and cloud based applications

- Monitoring and metering techniques

- Setting occupational standard in the water and construction industries

- Business management

- Governance

- IWRM

- Development of value chains


4 Dutch Offerings Water Sector

4.1 Context of Top Sector Water The Dutch water sector has the insights and expertise to address the needs of the Kenyan

water sector. The key selling points are the world class design and consultancy firms,

knowledge institutes, organisational and institutional practices, contractors, dredgers, ship

builders, equipment manufacturers, port operators and logistics experts, irrigation techniques

and high value horticulture. Combining the Dutch strengths in

I. Project Implementation / Construction

II. Project Development / Consultancy

III. Managerial / Capacity Building

together would strengthen an NL proposition (e.g. design and implementation linked to

capacity building is more attractive than bringing e.g. mostly Chinese labour and Chinese

engineering capacity). Importantly, the Netherlands also has money to invest and a well-

developed financial sector as well as a number of GoN financial instruments to facilitate

investment in the water sector.

At the November 2015’s Amsterdam International Water Week international experts

concluded that ‘it is not technology that is lacking – it is people, the investors that need to

step up their game. What is lacking is the political will and the partnerships that move us

forward.

It is up to international water experts to show decision makers how to make the transition

towards a circular economy and towards resilient cities. Which decisions lead to a smart and

sustainable future? Is a quick fix cheaper or more expensive than a more holistic long term

approach? Besides, if you look at a problem from different perspectives, it almost always

becomes an opportunity. Wastewater is a valuable source of nutrients. Coastal Defences are

valuable housing developments. It is clear that the circular economy is a very good business

case – and luckily, more and more decision makers are coming around.

We need international cooperation, smart partnerships, new ways of investing and financing.

But above all, we need courage. Again: it is not just about technology. It is us. So let’s work

together!’ [excerpt from Henk Ovink, Special Envoy for International Water Affairs for the

Kingdom of the Netherlands, preface 2016-2017 Dutch Water Sector].

4.2 NGOs (III) There are numerous NGOs active in Kenya. NGOs fulfil an important role linking supply from

donor countries including the Netherlands to fulfil needs in developing countries like Kenya.

Historically and currently NGOs are the channel for the aid moneys facilitating supply to

meet demand. This results in numerous opportunities for Dutch suppliers of training,

consultancy, planning, equipment, knowledge institutes, construction and logistics.

The amount of grant and aid money is expected to drop in the near future; e.g. the GoN’s

policy is to go from aid to trade and the new US presidency has cast uncertainty over the

USAID budget allocations. As a result NGOs are now seeking to fulfil their role on a more

commercialised basis, increasingly focusing on economic and commercial viability of their

projects, and moving towards PPP models. This is expected to result in more sustainable

outcomes, and more private sector involvement, less market distortion, better partnerships

with knowledge institutes and organic capacity building of local partner organisations.

An example of such an approach is PEWAK (Performance Enhancing Water Utilities in

Kenya), a current aid programme funded by DFID, with KEWI involved. The programme


aims to improve the functionality and commercial viability of rural water supply, and

addressing NWR in urban areas, working with thirteen WSPs.

Smart Water for Agriculture is a 6M Euro programme by EKN aimed to inform agricultural

suppliers, generate innovative market solutions, create access to finance, improve

knowledge management and form business and market linkages. An important part of the

four year programme is an investment fund and an innovation fund. This is all based on the

principle that sustainability can be best achieved through solid commercial principles.

Other examples of programmes Dutch NGOs are Roads for Water which promotes water

harvesting techniques from road schemes, and Flood Based Farming funded by the EU.

4.3 Knowledge Institutes (III) There is much exchange of knowledge between Dutch and Kenyan knowledge institutes, for

example the cooperation between the Technical University of Kenya as well as KEWI and

Unesco IHE. The Netherlands Fellowship Programme (NFP) has resulted in numerous

Kenyan alumni who studied in the Netherlands. In general these alumni feel very

enlightened by studying in the Netherland, and many them use their networks for increased

business with the Netherlands. The general consensus is that investment in people and

human capital through education and knowledge exchange is more effective than other

methods in developing Kenya as well as strengthening the bilateral ties between Kenya and

the Netherlands in the long term.

Examples of knowledge exchange programmes other than NFP include an IWRM

programme that is currently running funded by NUFFIC. As a result IWRM is now developed

into a curriculum for a Master’s degree, and currently a number of PhD students and master

students are studying at Kenyan universities with a NUFFIC grant. Another programme by

NUFFIC is AELAN, to do with Land Administration, run by University of Twente. A Dutch firm

with a branch in Nairobi delivers the training for this program.

The Netherlands Initiative Capacity development Higher Education (NICHE) is a capacity

building programme funded by NUFFIC for sustainable strengthening of higher education

and technical vocational education and training capacity in partner countries including

Kenya, thus contributing to economic development and the reduction of poverty.

The Young Expert Programme consist of YEP Water and YEP Agrofood. The main goal of

both programmes is to offer young Dutch professionals the opportunity to gain experience

abroad and to offer young local Kenyan professionals the opportunity to gain experience with

working in an international environment through Dutch organisations including the private

sector.

Successful examples of knowledge exchange are UNESCO IHE graduates now in

managerial positions in GoK bodies like WSBs. They are more open to Dutch solutions and

Dutch suppliers. Dutch Universities have an opportunity to benefit for instance by additional

fees for PhD students.

NUFFIC has a substantial budget for knowledge exchange, although this may be subject to

change in light of elections in Netherlands in 2017. GoK has budgets available for training

and development of staff, both on national level and county level, and Netherlands is high on

the list of preferred destinations for institutional capacity building. The VNGI has budgets to

support this.


There are opportunities for knowledge institutes to get involved in commercial projects, and

add substantial weight and credibility to a Dutch consortium. The strategy of involving an

influential Dutch knowledge institute into bids for large project is likely to be effective.

4.4 Consultancy (II) A number of renowned Dutch consultancy firms are either already active or have shown

interest in doing business in Kenya through participation in trade missions and themed

platform meetings, canvas sessions or round table discussions. Together, these consultants

form a formidable combination of know-how and expertise, that could tackle any project in

the water market in Kenya. A tailor made combination of world class expertise could be

assembled to suit the pre-construction phases of any project opportunity.

In many cases it is recommended or essential to partner with local consultancy firms to keep

the costs down, make best use of local knowledge and networks, and comply with local

Kenya regulations (Investment Promotion Act 2014) hence to increase the chances of

winning tenders. A number of potential partners for Dutch consultants in the water space

were suggested by client organisations.

4.5 Contractors (I) There are a number of contractors, equipment providers and dredgers who have operations

ongoing in Kenya or have expressed interest in developing these. The combined capacity is

able to tackle any construction challenge in the water industry in Kenya, provided the right

consortium is formed.

The Kenya Local Content Bill 2016 requires construction projects to have at least 30% of the

contract value going to Kenyan businesses. For this purpose we describe local content as:

“participation and development of nationals in the workforce and local suppliers, goods and

services.” Today, in the African context, the aim of local content is simple: to transfer

knowledge, skills and value (including jobs and procurement) to the local economy,

companies and people. A number of potential partners for Dutch contractors in the water

space were suggested by client organisations.

4.6 Manufacturers (I) There are significant market opportunities for Dutch manufacturers of high end piping, water

storage tanks, irrigation equipment, water treatment and water dispensing systems. A

successful strategy has proven to be to partner with local manufacturers to service the high

end as well as the cheaper bulk work of products.

There are a number of shipbuilders that are active in the Kenyan market. A Dutch shipyard

has deployed a fleet of ships around Mombasa for various clients including the military.

Around Lake Victoria, a firm is manufacturing ships using mainly Dutch equipment and

Dutch private equity financing.


5 Financing options of water projects

5.1 Government of Netherlands Financial Instruments The GoN has a number of financial instruments available to support and promote

investments in Kenya and its water sector. Apart from knowledge exchange programmes like

NFP and NICHE, there are 34 subsidies and financing instruments that the GoN makes

available in Kenya. The most relevant may be:

- DGGF; The Dutch Good Growth Fund (DGGF) is designed to help small and

medium-sized enterprises (SMEs) that wish to invest in and export to low- and

middle-income countries. The focus is specifically on expanding the possibilities for

SMEs in the Netherlands in low- and middle-income countries which simultaneously

contribute to local development. If there is a direct benefit for Dutch SMEs and the

investment has major development relevance, larger companies may be eligible for

funding as well. The DGGF therefore provides a package of financing and insurance

possibilities aimed at investment and trade transactions that contribute to

development.

- DRIVE; The Developmentally Relevant Infrastructure Investment Vehicle (DRIVE) is

a programme providing concessional financing in collaboration with international

companies delivering sustainable turn key solutions, used in 60 countries. It has

been created in 2015 as a successor to ORIO, which was a G2G tool. DRIVE

provides a 50% grant (in Kenya) for construction projects. Application and

commitment for DRIVE should come from construction companies. The criteria for a

successful application are: sustainable economic growth, private sector development,

value for money. Themes are water, food security, sexual reproductive health,

human rights and climate change. DRIVE need expanding of the project portfolio,

over various sectors. The ideal route for DRIVE is ICB plus concessional financing.

Direct award is also possible, although this may be difficult in light of Dutch

Government policy opposing this.

- Develop to Build (D2B) has also been created in 2015. Before then D2B and DRIVE

were combined as ORIO. ORIO used to be a G2G tool and D2B is still, used in 35

countries. D2B is a 100% grant for development phases, studies and designs of large

infrastructural projects. Government bodies should apply for it. The budget reserved

for D2B is 75M until 2020. The criteria and themes for a successful application are as

those of DRIVE. Also D2B needs expanding of the project portfolio, over various

sectors. The GoN is generally not in favour of G2G finance in Kenya, due to

concerns of mismanagement of funds by local beneficiary governments historically.

Having said that, there are various options for management of G2G project funds:

either the funds are managed by the beneficiary GoK body, or the money could be

managed by a party stipulated by the funder, e.g. by the executing consortium or a

third party. This may provide an opportunity to address potential concerns of

mismanagement of funds by beneficiary Government agencies.

- PSD Apps provides tailored, demand-driven tools for embassies to achieve their

ambitions. It includes a broad range of tools, such as starting up a curriculum for

universities to enhance local knowledge, or organize a mission to facilitate

knowledge exchange between Dutch and local experts.

- Atradius Dutch State Business is the official credit insurance agency of the

Netherlands since 1932. On behalf of and for account of the Dutch state, Atradius

covers financial risks related to export transactions and investments in enterprises

abroad. Atradius’ mission is to help Dutch enterprises do business abroad and to add

value to the Dutch economy by enabling Dutch enterprises to offer their export


products and services on the most competitive terms and conditions. Atradius does

this by providing insurance and guarantees which protect the balance sheets of

Dutch enterprises and enable them to obtain financing for their export transactions

and foreign direct investments.

- Partners in Business (PIB) aims to strategically position Netherlands’ top sectors,

including the water sector in promising foreign markets by facilitating partnering of

the GoN, companies and knowledge institutes. To this end, a tailor made programme

can be developed jointly with RVO over a number of years. All activities with the PIB

programme fall within the following three modules:

1. Promotion and matchmaking;

2. Knowledge exchange and networking;

3. Economic diplomacy.

- KIFFWA stands for Kenyan Innovative Finance Facility for Water. It is a co-developer

of water initiatives in Kenya. It provides early stage capital and finance expertise to

support the creation of viable water investment opportunities and attract (private)

providers of finance. KIFFWA is being set up as a local organisation in Kenya with

funding of EKN in Nairobi. The Kenya Pooled Water Fund (KPWF), is an initiative by

KIFFWA that develops and finances bankable proposals for water utilities (WSPs).

The concept draws in and combines donor guarantees and local capital markets

(bonds issuance) to on-lend long term to utilities at affordable rates. By providing

early stage capital and finance expertise to implementers, KIFFWA supports

initiatives across all water sub-sectors to reach financial close. KIFFWA will become

a self-sufficient organisation and therefore seeks refunding at financial close in the

form of a success fee or an equity stake in the initiative. The setting up of KIFFWA is

an untied aid programme by EKN, and as such not likely to specifically benefit Dutch

businesses. The WSTF has been involved with KIFFWA since 2014, and

collaborates with KIFFWA providing assistance with capital to fill in some of the

viability gaps for projects of the Kenya Pooled Water Fund. The World Bank intends

to work together with KIFFWA by providing a project facilitation fund and by providing

a viability gap fund.

5.2 G2G Finance The consensus amongst GoK client organisations is that G2G financing combined with tied

aid is a very effectively means for winning business. Most large construction projects are

won using this type of financing. Numerous GoK parastatals have indicated that they are

fully supportive of the tied aid principle. The Chinese, Japanese and Koreans use G2G

finance for example to win mega projects like the SGR railway, port development in Lamu

and Mombasa and Konza City technology centre respectively. Countries like Belgium and

Italy have recently won interesting projects through G2G finance e.g. Mavoko Dam (30M

USD, Belgium) and Kiambere Dam (14M USD, Italy). G2G financing of water projects works,

it is allowed constitutionally in Kenya, and done successfully by European countries. This

process avoids lengthy tendering (and retendering) procedures.

Although the financial instruments of GoN are partially based on G2G finance, in the recent

past the GoN has been hesitant to use G2G finance tools in Kenya. The GoN does not

support the principle of tied aid. However, there are ways to increase the chances for Dutch

companies to win business using untied financing, and also to avoid the local beneficiary

government spending any money ineffectively or unaccountably. These include investing in

the pre-phases of a project to position Dutch firms with a competitive advantage, influencing

the scope of the tenders such that they suit Dutch consortia, and stipulation a third party to

control project finances of a ‘G2G’ project.


5.3 PPP To realise Vision 2030 water sector development and service delivery objectives, Kenya

requires over 3B USD of investments in infrastructure and enhancing operational efficiencies

in the medium term. Only a limited part of this budget is available with Government and

development partners.

The GoK has therefore developed a PPP Policy 2011 and enacted PPP Act in December

2012. These policy and legal instruments provide a framework for the participation of private

sector in financing development, construction, operation, and maintenance, as well as

management of infrastructural projects for public service delivery. Similarly, the ministry has

developed National Water Policy 2012 and passed new Water Act 2016 to provide

favourable environment for PPPs so as to cope with increased water services demands and

operational efficiencies [MWI, 2013 Promoting Public Private Partnership Initiatives].

The PPP unit of MWI was installed following the PPP act. There is a separate PPP node for

drinking water and for Irrigation within the MWI. The PPP act requires contracting authorities

to consult these nodes for approval of PPP schemes. The intention is to create, on county

and subnational level, a pipeline of viable PPP projects.

The PPP Act 2012 spells out interaction allowing unsolicited expressions of interest for

projects with public bodies (Sections 51 to 53). This is a good way to win projects. The

Kenya Investment Authority (KenInvest) is a statutory body established in 2004 through an

Act of Parliament (Investment Promotion Act of 2004) with the main objective of promoting

investments in Kenya. KenInvest offers to match donors like the UN to assist with funding

such projects.

It is intended that the new Water Act 2016 will organise the water sector more suited to

business models of PPPs and DBFOT contracts than current regulations, and will

institutionalise this formally. Regional entities will define the projects, and the WSBs will be

linked to the counties. The distinction between infrastructure development and service

provision which is currently detrimental to defining the revenue models of PPPs will be

adjusted and improved with the Water Act 2016.

Financing for water projects is likely to come mostly through PPP. The revenues for drinking

water projects should be generated from tariffs 80%, WSTF can plug funding gaps 10%, and

grants can complete viability gaps 10%. Some NGOs are much engaged with PPP projects

and increasingly promote this concept.

5.4 Government of Kenya All GoK financial commitments need to be approved by GoK Treasury. If a project would

come on the GoK balance sheet, the reality is that approval from Treasury will be slow if at

all forthcoming, due to competition for limited funds. Grant is an essential element for

Treasury approval. The viability of a project is key for Treasury approval. Typical loan

conditions include:

- Grace period (often approximately 5 years)

- Grant element (at least 30%)

- Interest (usually around 3%, must be less than 5%)

- 10-20 years repayment period.

Unsolicited EoIs are possible under strict circumstances. These circumstances include

things like uniqueness, urgency, exceptional circumstances. A 45%-50% grant is likely

qualify as such an ‘exceptional circumstance’.


The NWCPC mainly operates projects using Design Build Finance contracts with the GoK as

sovereign guarantor. Fees are paid by the GoK upon completion of certain milestones in

accordance with the contract. This means that financing of these projects are not dependent

on revenues generated by these projects, and that they are not PPP projects. The most

effective finance model for these projects is G2G finance.

Other useful GoK bodies include KenInvest, a GoK parastatal under the Ministry of Industry

with a mandate to promote foreign investment into projects, e.g. they are able to assist with

negotiating MoUs between the GoK and project consortia.

The Water Services Trust Fund (WSTF) is a Kenyan State corporation with a mandate to

financially support projects for water and sanitation for underserved areas, both rural and

urban. Subsidies are provided to individual households in the form of post construction

incentives, provided when people have installed sanitation facilities in residential properties.

WSTF also provide funds for capacity building and technical assistance, and for prepaid

water meters schemes serving underprivileged communities. Main funders for the WSTF are

GIZ, KfW, WB, Finland, EU, SIDA, DANIDA, Bill and Melinda Gates Foundation.

Netherlands is no longer a donor.

5.5 International Finance Institutions The main Multilateral Development Banks active in the Kenyan water market are the World

Bank (WB) and the African Development Bank (AfDB). Generally these institutions provide

financing through open project tenders.

FMO is the Dutch development bank. FMO has invested in the private sector in developing

countries and emerging markets for more than 46 years with a mission is to empower

entrepreneurs to build a better world. FMO invests in sectors where the contribution can

have the highest long-term impact: financial institutions, energy and agribusiness. Alongside

partners, FMO invests in the infrastructure, manufacturing and services sectors. With an

investment portfolio of EUR 9.2 billion spanning over 85 countries, FMO is one of the larger

bilateral private sector development banks globally.

Japan International Cooperation Agency (JICA) gives out loans (sometimes untied) for

projects. Some of the projects have been won by e.g. French and German contractors.

Chinese firms are excluded from bidding for JICA financed projects.

The EXIM Bank Korea and EXIM Bank China only give out tied finance deals, only Korean

and Chinese firms respectively are eligible.

BADEA (Arab Bank for Economic Development in Africa) gives out untied funding. For

instance NIB has done various projects using BADEA funding.

The Islamic Development Bank lends at good rates of 0.5% to projects in parts of Kenya

where the Islamic population would benefit most in regions like Isiolo, Mandera, Wajir and

Marsabit.

Kuwait Fund gives untied aid. For instance NIB has used this on its projects.

KfW Entwicklungsbank (KfW Development Bank) is another significant bilateral development

bank. An example of a project funded by KfW is Nyeri WSP water supply project, with GoK

as guarantor.

The Belgian FINEXPO is a bilateral development bank providing tied finance agreement

benefitting Belgium firms. The Italian Government also provides tied G2G finance.


5.6 Donors / Grants Design phases of large water projects are usually grants by donors. Construction and

implementation phases usually

There is an increasing trend towards Results Based Finance, Aid on Delivery and Output

Based Aid. All these are mechanisms to fund social projects that actually work.

Currently a significant amount of procurement is done through Output Based Aid (OBA). If a

beneficiary hit certain targets then a percentage (usually 50%) of the loan will be turned into

a grant.

5.7 Private Equity The Kenya Market Trust (KMT) is a Kenyan NGO for purpose of market facilitation, including

in the water sector. KMT receives funding from DFID and GCF. KMT can help arrange

domestic private finance through bonds which could help leverage investments. KMT would

consider jointly funding consultancy projects for instance with the KPWF.

There are a number of Dutch and other private equity firms active in Kenya, all with their own

specific target sectors. Clients of private equity firms typically consists of consortia including

local developers and international developers.

Some equity fund management companies have excluded dam projects form their portfolio

because of the usually significant issues surrounding social and environmental impact.

KIFFWA is another initiative that aims to attract private finance for water projects.


6 Recommendations

6.1 Development of business cases There are numerous business cases and projects in the pipeline of the GoK parastatals (see

list in Appendix A). Three main playing fields can be distinguished relevant to Dutch

Businesses:

I. Project implementation/construction, including DBFOT contracts. This can be done

through either unsolicited expressions of interest/direct award, or open tenders

II. Technical Advisory/consultancy services. Mainly through open tenders

III. Management / Capacity Building. Mainly through open tenders

Possible strategies of winning projects through either single sourcing or open tenders are

discussed below. For companies already active in Kenya repeat business from existing

clients is an additional, preferred, way.

6.1.1 Direct Award to Dutch consortium implementation water project, using GoN

instruments and aiming at exceptional circumstances

A possible strategy to win large water projects in Kenya is to develop a water related project

that suits Dutch suppliers jointly with GoK. A Dutch consortium can be formed to execute

and finance the project. Dependent on the project specifics the consortium could comprise

designers, groundwater specialists, knowledge institutes, contractors, manufacturers,

equipment suppliers and finance institutions. An MoU can be created between the project

promoting GoK agency and the consortium, possibly with the help of KenInvest. Then a

yes/no option can be presented to GoK Treasury. This decision will be influenced strongly by

the amount of grant, the loan conditions, value for money and economic viability of the

project. With a 50% grant for the implementation phase e.g. through DRIVE, GoK Treasury

can consider using an ‘exceptional circumstances’ clause to short track approval.

The Dutch consortium can be strategically positioned using solid market intelligence, local

representation, and making clever use of instruments made available by the Dutch

Government, especially PSD Apps (project identification), PIB (forming partnerships), D2B

(development phase), DRIVE (implementation phase). This could possibly be combined with

KIFFWA to close any financing gaps, and Atradius to provide export guarantees and

establish favourable loan conditions. Some of the projects listed in Appendix A have part of

the financing allocated to approximately 50% of the required budget. These projects could

be targeted first, as a successful DRIVE application would provide the rest of the required

financing avoiding the need to find additional investors.

The eligible projects should be carefully selected on the basis of criteria such as: support of

local government, (co-)finance available, competence of promoting organisation, likely social

and environmental impact (dams are not favourable in this respect because of relatively

large footprint and relocation requirements), likelihood of implementation, quality of

information available, political stability and security in the project area.

Although the Netherlands Government does not support the principle of tied aid and is

hesitant to apply G2G finance, this is not necessarily a problem. It is possible to position a

Dutch consortium so that either direct award (or single sourcing) is desired by the client

organisation and tendering becomes a formality or is avoided altogether. This is achieved

best through the use of clever PPPs, creating MoUs with GoK bodies, and/or investing in the

preconstruction phases of a project.


It is established practice for donor countries to invest in the pre-phases of projects in the

form of Technical Assistance and grant in order to position the associated partner

companies in the driver’s seat to win the follow up phases of the project. Alternatively, in

combination with the use financial support by GoN instruments, tenders can be written such

the Dutch consortium is in a lead position to win. This can be done for instance through

inclusion of certain quality criteria in the scope and timing of the tenders.

To demonstrate commitment of Dutch consortia, many GoK bodies have indicated they

would like to see a credible prequalification tender on one of the outstanding open tenders

first.

The following would be a possible procedure to win a large water project in Kenya

A challenge for this approach is that there is potentially a long lead time required for project

development. However, it is anticipated that the above process could be completed within

one year.

6.1.2 Direct award through foreign G2G finance

This is the finance mechanism that is used most successfully by other countries to win large

projects. The Chinese, Japanese and Koreans use it for example to win mega projects like

the SGR railway, port development in Lamu and Mombasa and Konza City technology

centre respectively. Other European countries like Belgium and Italy have won significant

projects using G2G finance tools. Some Dutch companies with a branch in a country that

applies effective G2G financing have won business through this mechanism. An example is

a piping manufacturer, that has recently won a project funded by the Belgian FINEXPO

through their Belgian branch.

6.1.3 Private financing small drinking water projects

Many WSPs have drinking water and sanitation projects where a relatively small investment

could yield a significant return. Examples are management of NRW, distribution network

upgrades, installation of metering equipment and valves. It may be possible to attract private

investors combined with grant money to execute more of this work if viability can be

demonstrated. Please note that KIFFWA is leading the way in this.

6.1.4 Open tenders

Despite apprehensions of many Dutch companies, open tenders is a realistic avenue to win

work in Kenya. It was noted by various GoK client organisations that Chinese firms are not

- Select most suitable project and adjust scope PSD Apps

- Form consortium PIB

- Submit EoI Dutch consortium to GoK promoting body e.g. WSB D2B

- MWI approval

- Upon MWI approval sign MoU between WSB and Consortium detailed

programme, cost and quality aspects of the project

- Draft financial agreement

- Draft contract document

- GoK Attorney General approval of legal aspects

- GoK Treasury to sign deal

- Start detailed design

- Agree final costing

- Final contract documents for signing GoK and consortium. DRIVE


particularly strong at PPP projects due to lack of managerial strength, and that Dutch firms

are of high repute but have shown little or no interest.

In order to win open tenders it is recommended to:

- Have access to up to date market intelligence. It is best to know about tenders in

advance through local intelligence. Some tenders, including some mentioned in

Appendix A, can be known about up to six months in advance. Then it is possible to

prepare your consortium including the right local and other partners (with healthy

balance sheets) and prepare your bid timely in order to strike before the competition.

This can include a DRIVE application which takes approximately four months. Track

all tenders through newspapers and tender websites.

- Bid on tenders with high quality specifications and managerial requirements that the

Chinese cannot bid for. Again market intelligence is crucial.

- Be in it to win it. Submit an expression of interest once a relevant tender is out. A

number of GoK organisations have indicated that there have been very little

expressions of interest received on open tenders from Dutch firms. This despite the

fact that Dutch firms are of high repute, and various organisations have indicated that

Dutch firms would have a good chance of winning tenders, particularly on PPP

projects. The Chinese firms have a track record of cheap delivery of infrastructure,

but a poor reputation when it comes to managing and maintaining it during a longer

contract duration. Open tenders typically are assessed on the basis of 75% quality

and 25% cost. There are real opportunities in consultancy and construction. Recently

one of the WSBs had published a tender for capacity building; and there was not a

single applicant. This could have been easily won by Dutch firms if only a tender

would have been submitted.

- Have a local partner with the right complementary skills, who is well aligned, and is

well versed in tender negotiations and procedures. With the right local partner on

board, it is possible to get significant improvement of results.

- Use PPP combined with the right financial instruments made available by GoN; D2B,

DRIVE and export credit. This can be done for open tenders as well as direct awards.

For use of these instruments it is necessary to proactively express interest with

consortia and have the intelligence regarding the tender well in advance.

- Personal relationships are the key to success. Build relationships with the people in

charge. This can be done most effectively by establishing or engaging local

representation in country.

6.1.5 Identify and fill capacity gaps winning tenderers

In many cases, after winning a tender, the winning companies require capacity gaps to be

filled in terms of design and construction in order to service the tender. This provides

opportunities for Dutch firms, especially ones offering specialised services e.g. certain

dredging expertise. It is required to have the market intelligence of recent tender awards and

associated capacity gaps to be filled. This can be achieved by engaging someone on the

ground in Kenya scanning all project wins and following these up with enquiries.

6.2 Investing in human capital through knowledge exchange To address the perpetual shortage of human capital it is essential to keep investing in

knowledge exchange programmes between the Netherlands and Kenya. The large alumni

network in Kenya who studied in Netherlands and are now coming through the ranks in

Kenyan society, are an important source of potential business for the Dutch private sector.

This investment in human capital through e.g. NFP is a long term strategy that seems to


work effectively in terms of strengthening cultural and economic relations between the

Netherlands and Kenya.

Successful examples of knowledge exchange are UNESCO IHE graduates now in

managerial positions in GoK bodies like WSBs. They are more open to Dutch solutions and

Dutch suppliers. Dutch Universities could benefit for instance by additional fees for PhD

students. NUFFIC has a substantial budget for knowledge exchange, although this may be

subject to change in light of elections in Netherlands in 2017. GoK has budgets available for

training and development of staff, both on national level and county level, and Netherlands is

high on the list of preferred destinations for institutional capacity building. The VNGI has

budgets to support this. This also provides opportunities for Dutch training and consultancy

firms. The YEP programme provides another opportunity for Dutch firms to participate in

knowledge exchange within private sector organisations.

6.3 Tackling perceived obstacles One of the findings of the market survey is that the fears/obstacles that stop Dutch firms

from tendering need to be addressed. Appendix B lists the findings and perceived obstacles

of previous market surveys, and comments on the issues in the light of recent developments.

In summary key obstacles for Dutch firms expanding business in Kenya include:

- The Dutch water sector do not have time access to business intelligence / market

information.

This needs continuous serious investment, either by GoN for benefit of the

Dutch water sector collectively or by individual companies.

- The Dutch water sector are not coordinated enough to be able or willing to invest in

the formation of consortia to collaborate to develop PPP leads, including access to

finance / GoN financial instruments.

The forming of consortia and securing of finance involves high risk upfront

capital (to the tune of up to 10% of the project CAPEX), which requires

serious investment from either GoN or private sector companies as well as

timely coordination. The GoN can play an essential role through investing in

these project development phases in a way that benefits specifically Dutch

businesses, by use of financial instruments like PSD Apps, PIB and D2B or

other means.

- Contacts with the right stakeholders.

This requires continuous investment in economic diplomacy. The GoN and

EKN have an important role enabling this.

6.4 More cooperation EU countries It was perceived by some Kenyan Government organisations that there is negative

competition by various European Countries, which hinders a holistic tackling of the

problems. With increased cooperation between the EU countries, there is an opportunity to

‘make the pie bigger’. Examples of where various European donors have been in each

other’s way are the French AFD and the German KfW both doing studies in the Kisumu

area. This can be addressed through increased coordination on Embassy level.

6.5 Managing water market information The Netherlands Business Hub is now established in Nairobi and has invested and

continues to invest in personal relationships with key players in the water industry in Kenya.

All gathered information regarding client organisations, projects and key people is stored and

continually updated in the NL Hub’s CRM system. It is recommended that the GoN take an

active role in investing in the regular updating of this market information by commissioning a


renewed market survey at least every two years in order to maintain relevance. For Dutch

businesses interested to expand activities in Kenya there is an opportunity to obtain

membership of the NL Hub to gain access to the relevant market information.

6.6 Upscaling of water market information to East Africa It appears that there are numerous opportunities in the water market in Kenya that can be

developed for the Dutch water sector. Some of the opportunities identified are cross

boundary, like the aquifer development, regional transport systems and water management

of the Lake Victoria and LAPSSET related projects. It is likely that the countries surrounding

Kenya have similar opportunities. It is therefore recommended that a similar water market

survey be commissioned for the other countries in East Africa.

Kenya Water Market Survey for the Netherlands Water Sector; RVO/EKN Ref MAV16KE02

Appendix A Selected list of opportunities, leads and tenders

The following table is not in a particular order. All opportunities below are categorised in terms of status, timing and potential scope of action in order to pursue. The seemingly most promising leads are in bold.

Promoting Organisation

Lead title Description of project

Approximate value (USD)

Status classification / Scope for action

Coast Development Authority

Dembwa Dam

Multi purpose dam: Hydro, irrigation, drinking water, wildlife conservation.

80M USD Needs finance for DBFOT. CDA’s highest priority, high chance of implementation. Potential for unsolicited EoI short term


Sabaki Dam

Multi purpose dam: Crop farming, livestock, aquaculture, wildlife conservation, water supply

100M USD Needs finance for DBFOT Potential for unsolicited EoI medium term


Umba Dam

Dam for Kwale, Msasambara catchment

- Needs finance for DBFOT. Potential for unsolicited EoI long term


Lake Chala

Multi purpose dam, irrigation, eco-tourism, domestic water supply, forestry, livestock, 50km pipeline

400M USD Feasibility study done, but in need of updating. Needs finance for DBFOT. Potential for unsolicited EoI short/medium term


Water Desalination Project

High output 300,000m3/day sea water desalination project intended to promote utilization of the readily available sea water, create job opportunities and meet the increasing demand of water in Mombasa

1B USD Needs finance for DBFOT. Project could be split into smaller stand-alone projects. Alignment is required with other stakeholders in the coast region that wish to promote similar projects: CWSB and Mombasa County Government. Potential for unsolicited EoI short/medium term

Coast Water Services Board

LAPSSET Water supply for port of Lamu, and in future planned airport and oil refinery. Water supply from Tana River through a new Garsen-Lamu pipeline. Treatment, pumping, storage, conveyance and distribution.

200M USD Construction on Lamu port has commenced, therefore high chance of implementation. Progress of LAPSSET project needs to be monitored. Needs finance for DBFOT. Potential for unsolicited EoI short/medium term, or await and be prepared for open tender.







Barricho Wells Field II

Boreholes for bulk water additional capacity 90m3/day. Wells, submersible pumps, collection network, treatment, storage 104km pipeline conveyance

200M USD Needs finance for DBFOT. Potential for unsolicited EoI short/medium term or await and prepare for open tender.


Msambweni Aquifer Study

Exploratory study into capacity of aquifers

200,000 No finance arranged. Await open tender. Probably short/medium term.


Deep well studies Garsen

Exploration of capacity of aquifers

200,000 No finance arranged. Await open tender. Probably short/medium term


Rehabilitation of Mazeras storage tanks

Inspection and repair of 30,000m3 concrete storage tank

200,000 No finance arranged. May get included in another tender. Possibility for unsolicited EoI, under the stated budget, or wait for open tender.


Expansion of Njoro Kubwa water supply in Taveta

Abstraction from sping, pipeline and storage

40M USD Needs finance for DBFOT. Potential for unsolicited EoI in medium term, or await and prepare for open tender

Athi Water Services Board

Various feasibilities, design and construction projects

Await open tenders design and construction projects, or potential for unsolicited EoI for a selected project. Follow open tenders.

Gatundu Water Service Provider

Mukiunyi water intake

Weir and intake structure, water treatment 4,000m3/day, 6km conveyance, distribution, sanitation

2M Needs finance for DBFOT. Potential opportunity for KPWF medium term.


Kinunya Kenyatta Road Water Project

Weir intake, conveyance, treatment 9,000m3/day, distribution

3M Needs finance for DBFOT. Potential opportunity for KPWF medium term.


NRW reduction

Control valves, metering, mapping, capacity building,

3M Needs finance. Potential opportunity for KPWF medium term.






upgrade distribution network

Kenya Maritime Authority

Navigational Safety

Safety certification, licenced suppliers of safety equipment, training of relevant bodies, framework of governance

100M This will be an open tender, with funding coming from IFIs, but has not yet tendered. Be prepared for open tender medium term.

Kenya Port Authority

Terminal operation

Operation of container terminal Mombasa

Open tender. Follow and be prepared for open tender short/medium term.

Uganda Water Transport

Ferry transport

Manufacturing of 5 ferries required in the next five years

Probalbly open tender. Follow and be prepared for open tender

Lake Victoria Basin Commission

Maritime communication and rescue system

Maritime communication centre, Maritime transport study, Project management over 4 years, Purchase specialised boats.

30M USD International tender early 2017. Follow and be prepared for open tender short term.


Transport system Lake Victoria

Design and installation of new transport system integrating roads, air and maritime transport

600M USD Expected Tendering 2017. Await and prepare for open tender short/medium term


Lake Victoria Water and Sanitation project

Improvement of water and sanitation around Lake Victoria, including a 3M m3 water storage tank in Tanzania

300M USD Expected Tendering 2017. Await and prepare for open tender short/medium term

Lake Victoria North Water Services Board

Kakamega-Busia Water and Sanitation Company Limited

Rehabilitation of 25km of distribution pipeline of various sizes, reduction of NRW and improvement on bulk and consumer metering

1M USD Needs finance for DBFOT. Potential project for KPWF medium term.

Lake Victoria North Water Services Board

Nzoia Water and Sanitation Company

Reduction of NRW, replacement of old and dilapidated asbestos cement pipeline sections,

7M USD Needs finance for DBFOT. Potential project for KPWF medium term






Limited (NZOWASCO)

upgrading of billing software, provision and installation of a meter testing bench

Northern Water Services Board

Garissa Water and Sanitation Company Limited

Construction of river bank infiltration well field, new pre-sedimentation basin and clear water sump

11M USD Needs finance for DBFOT. Potential for unsolicited EoI or await open tender long term

Mombasa County

Desalination

Desalination plant with private funding. Feasibility, design, installation

Tendered recently

Mombasa County

Distribution network

Distribution network upgrade of Mombasa and surroundings. North mainland, south mainland, Likoni. All in separate tenders

50M USD To be tendered soon. Prepare for open tenders short term.

National Irrigation Board

Lower Nzoia Phase II

Irrigation and Embankments

33M USD Part of the funding is provided by the WB. Prequalification expected in June 17. Prepare for open tender short term.


Lower Kuja

On farm irrigation infrastructure, canals, regulator gates. Design and value chains.

14M USD Needs finance for DBFOT, part of design completed. Potential for unsolicited EoI, or await open tender long term.


Kavunyalalo Irrigation Project

Irrigation infrastructure and equipment

15M USD Designs done, lack of money for implementation. Potential for unsolicited EoI, or await tender long term.


Kano Plains irrigation project

Pumped irrigation. Design and implementation

33M USD Needs finance for DBFOT. Potential for unsolicited EoI, or await tender long term.


Mitunguu Irrigation Development Project

Formalisation of abstractions at Kithanu River.

100M USD Needs finance for DBFOT. Project can be packaged in smaller sized projects. Potential for unsolicited EoI, or await tender medium/long term.


Perkerra Irrigation Scheme

Extension of existing scheme. The Radat Dam

27M USD Needs finance for DBFOT. High chance of implementation as dam






(already tendered) forms part of the overall scheme.

has already been tendered. Potential for unsolicited EoI, or await tender medium term.


Hola Irrigation Scheme

Irrigation project on Government owned land.

53M USD Partially funded by BADEA. High chance of implementation as part of funding has been secured. Low chance of complications as project is on GoK owned land. Suits well with perhaps DRIVE to complement and complete funding. Potential for unsolicited EoI short term, or await and prepare for open tender short/medium term


Usueni Wikithuki Irrigation Development Project

Near Tana River in Kitui County, no dam required, full mechanisation possible.

67M USD Designs complete. Needs finance for implementation. Potential for unsolicited EoI in short/medium term, or await open tender in long term.


Nyabomite Irrigation Development Project

Relatively small irrigation project

5M USD Needs finance for DBFOT. Potential unsolicited EoI short term, or await open tender medium/long term.


Lumi Irrigation Development Project

Irrigation infrastructure



Soy Irrigation Development Project

Dam is existing, irrigation infrastructure is lacking



Kocholia Upper Sio

Irrigation project 25M USD Financing by AfDB 20B KSH, Korea EXIM 2.5B KSH, deficit 1B. implementation guaranteed. Prepare for open tender short term.







Galana Kulalu Phase II

Project ambition to irrigate 1M acres for food security. In 2017 a pilot of 10,000 acres will complete. Challenges to implementation include insecurity, wildlife, poor roads and inadequate finance

500M USD Tender already open. Potentially await more open tenders short term.

National Water Conservation and Pipeline Company

Koru Dam Nyanza

Dam in Kisumu Region

Currently being procured under a Design Build Finance contract.


Isiolo Dam

180M USD Soon to be procured under a Design Build Finance contract. Potential for unsolicited EoI or await and prepare for open tender short term.


Kinja Dam

Dam in Nyahururu region

80M USD Currently being procured under a Design Build Finance contract


Pesu Dam

Dam in Nyahururu region

130M USD Currently being procured under a Design Build Finance contract.


Londiani Dam



Bosto Water Supply project



Uma Dam

Dam project in Kitui region, stalled at the moment due to termination of construction contract. Assessment of works to date, design review and completion.

12M USD outstanding works

Outstanding works soon to be procured under a Design Build Finance contract. Good opportunity for unsolicited EoI. World class technical expertise required. Could be grouped with Badassa Dam and other NWCPC opportunities. Short term.







Badassa Dam

Dam project in Isiolo region, stalled at the moment due to termination of construction contract. Assessment of works done, design review and completion.

15M USD outstanding works

Outstanding works soon to be procured under a Design Build Finance contract. Good opportunity for unsolicited EoI. World class technical expertise required. Could be grouped with Badassa Dam and other NWCPC opportunities. Short term.

Rift Valley Water Services Board

Nakuru water supply and sewerage

Water treatment, supply, sewerage and waste water treatment, to use water of a planned dam near Nakuru

100M USD Awaiting developing and DBFOT contract. Potential for unsolicited EoI short term.

Tana Water Services Board

Nyeri bulk water project

Dam, treatment and conveyance. WSP infrastructure is there, with paying customer base.

100M USD KFW loan for previous bulk water supply almost paid off, demonstrated revenue potential. Potential for unsolicited EoI short/medium term.

Tanathi Water Services Board

Kitimui Dam

Planned dam approximately 15km from Kitui, identified 50 years ago by the British, and prioritised in the National Water Masterplan.

60M USD AfDB has been approached for funding of the design phase. Awaiting a credible EoI for DBFOT contract. Potential for unsolicited EoI short term.


Appendix B Summary of findings previous market surveys Several market studies have been carried outperformed in the recent past, targeting bilateral

economic relations with Kenya, which are also relevant for the water sector:

- ‘Kenya Positioning Survey for the Water Sector’ by Aidenvironment, commissioned

by RVO/NWP. February 2015;

- ‘Market Study Infrastructure & Logistics Kenya’ by NABC. October 2014.

- ‘Market Study to Strengthen Economic Cooperation in the Energy Sector Kenya’ by

Triple E, commissioned by EKN Nairobi. October 2014;

- ‘Market Study Urban Development Spatial Planning Kenya’ by Urbanicity

commissioned by EKN Nairobi. October 2014.

- ‘Kenya Water Scan’ by DHV-Acacia-Panafcom, commissioned by EKN Nairobi.

September 2011.

The following provides a brief summary of findings of previous relevant market surveys. This

is meant to provide a sort of benchmark in time, to enable us to identify possible trends in

the water market. In addition, it is useful to see how previously identified obstacles for doing

business have maintained or lost relevance over time, and how to best tackle the most

persistent ones.

Summary of opportunities identified in previous market studies

Opportunity Study Remarks in light of current market survey January 2017

WASH sector: - Innovative finance - Capacity development - Water provision for areas

with problematic groundwater

Aidenvironment, 2015

Still accurate. KIFFWA has been initiated to address innovative finance.

Water management and safe deltas:

- Climate smart agriculture and water harvesting for food security particularly for ASALs

- Catchment level planning and water resource management

Aidenvironment, 2015, DHV-Acacia-Panafcon, 2011

Still accurate. Opportunities for Dutch consortia to win significant tenders (see Section 6)

Higher water productivity in agriculture:

- Irrigation equipment and knowledge for capital extensive agriculture

- Water in horticulture - Fish farming equipment or

knowledge - Water management in

cash crops (potatoes, coffee and cotton


Still accurate. Smart Water for Agriculture program funded by EKN has started, providing market linkages to meet these needs.

Ports: Key developments in - port management - infrastructure and development (Mombasa and Lamu),

Aidenvironment, 2015; NABC, 2014,

Still accurate. Some of the port development contracts have been progressed by GoK. See recommendations in Section 6.


Opportunity Study Remarks in light of current market survey January 2017

- strengthening of the transport and logistics infrastructure and operations within the port area (including the city of Mombasa) as well in the hinterland, - and the need to invest in human capital to support the growing demand for equipped personnel in the these areas.

Air: Apart from the developments in air infrastructure, improvement of port management and transport and logistics are priority areas

NABC, 2014 Still accurate. Opportunities especially in terms of Export Processing Zones. See recommendations in Section 6.

Road: Kenya aims to strengthen its road network significantly through public-private funded projects

NABC, 2014, Triple E, 2014

Still accurate.

Rail: significant investments in the railway system ( the current one being totally outdated)

NABC, 2014 Still accurate. Apart from SGR which has started, there are numerous localised railways that counties want upgrading.

Oil and Gas and related infrastructure

Aidenvironment 2015, Triple E, 2014

Still accurate. See recommendations in Section 6.

Financial sector Triple E, 2014 Still accurate.

Renewable energy - Solar - Wind - Geothermal - Waste to energy

Triple E, 2014 Still accurate.

Energy consultancy Triple E, 2014 Still accurate.

Water harvesting DHV-Acacia-Panafcon, 2011


Human capacity building DHV-Acacia-Panafcon, 2011, NABC, 2014


Summary of perceived obstacles for doing business

Perceived obstacle for doing business

Study Remarks in light of current market survey January 2017

Get to financial resources Aidenvironment, 2015

See recommendations in Section 6. Serious investment required in project development phases.

Realisation of the right contacts Aidenvironment, 2015

See recommendations in Section 6. Continuous investment required in economic diplomacy.

Formation of strategic alliances - PPPs - Temporary coalitions - Partnerships


See recommendations in Section 6. Serious investment required in project development phases.




- Local representation

Successfully dealing with culture Aidenvironment, 2015

See recommendations in Section 6. Having the right local partners is important in terms of dealing with cultural issues.

External factors to companies like:

- Political economic developments

- Opportunity costs - Competition - Tender conditions

NABC, 2014 It is crucial to keep abreast of political developments, and carefully choose the right opportunity to invest in. Market intelligence requires continuous investment. See also recommendations Section 6.

Inter- and intracompany factors like:

- Financial ability to invest and innovate

- Cross sector organisation and collaboration

- Product portfolio, innovation

- Access to financiers - Existing business

intelligence and understanding the market

- Sense of urgency - Ties with NL Government - Access to the right

stakeholders

NABC, 2014 See recommendations in Section 6. Serious investment required in project development phases. Market intelligence requires continuous investment.

Effective public private collaboration

- Quality and execution of strategic & comprehensive public private programming

- Access to business intelligence/information about the market developments

- Availability and clever use of export and development financing mechanisms required to create and maintain position in the markets

- Leveraging ODA interventions for Dutch private sector involvement

- G2G framework, focusing on economic diplomacy

- Government-private sector collaboration

NABC, 2014 See recommendations in Section 6. Serious investment required in project development phases. Market intelligence requires continuous investment as well as economic diplomacy.




- Strategic organisation and positioning of Holland Inc

External barriers like: - National Government

Policy - Political instability - Price pressure from

competitors - Foreign competition - National budget deficit - Inflation - Credit market / interest

rates - Cost of fuel - Imitation/ counterfeiting - Finance regulations - Existence of a functional

stock market - Corruption - Environment regulations - Corporate consumer

demand - Finance availability at

clients - Availability of qualified

staff

Triple E, 2014 Tenders and business opportunities need to be carefully selected. Continuous investment in knowledge exchange may address some of these issues in the long term. See recommendations in Section 6.

Internal barriers like: - Finding/attracting qualified

personnel - Supply chain risks - Ability to forecast results - Balance sheet

uncertainties - Protection of intellectual

property rights - Counterpart risks - Maintaining margins - Working capital

management

Triple E, 2014 Tenders and business opportunities need to be carefully selected. Continuous investment in knowledge exchange may address some of these issues in the long term. See recommendations in Section 6.

Challenges: - Poor local management

skills - corruption - Obtaining market

information - Low labour productivity - Red tape - Supervising activities from

the Netherlands - Overcoming cultural

differences

Dasuda, 2014 See recommendations in Section 6. Investment in knowledge exchange may address some of these issues. Investment in local representation and market intelligence is required.




Business environment: - Funding terms and

conditions - Organising trade finance - Profit repatriation - Payment collections - Fiscal and tariff structures - High taxation

Dasuda, 2014 See recommendations Section 6. Serious investment required in project development phases, local representation, economic diplomacy and knowledge exchange.

No capable counterparts or hosting organisation

DHV-Acacia-Panafcon

Investment required for knowledge exchange, market intelligence.

Summary of recommended interventions identified in previous market studies

Recommended intervention Study Remarks in light of current market survey January 2017

GoN to design a strategic program for the sector, Holland Branding and Top Sector promotion. Promote and Support the Dutch Approach.

NABC, 2014; Dasuda 2014

Being address through topsector water, and see www.dutchwatersector.com; GoN needs to invest in this.

GoN to make use of business intelligence in strategic processes and execution

NABC, 2014 See recommendations Section 6 regarding winning tenders.

GoN to include financing options (export & development financing as well as playing money)

NABC, 2014 See Section 6.

GoN to organise G2G framework and strategic diplomatic travelling

NABC, 2014 Consider alternatives to G2G finance where it is stipulated that the project finances are managed by a third party and not be the beneficiary government body.

Invest in relationship capital NABC, 2014 This is very important. Knowledge exchange programmes are a long term investment.

Intervene cleverly in knowledge exchange through Dutch knowledge institutes

NABC, 2014; Triple E, 2014

Knowledge exchange is effective building human capital and a long term investment in bilateral relationships

Include tangible project generation models

NABC, 2014; Triple E, 2014

See recommendation section 6, which includes suggestions for these.

Strengthen the presence of the Dutch private sector in Kenya

NABC, 2014 This needs continuous investment by GoN. Also through project generation as suggested in Section 6 the presence of the Dutch private sector can be strengthened.

EKN to influence GoK through policy advocacy; Promote ownership and commitment of

Triple E, 2014; Dasuda, 2014;

Is being addressed through KIFFWA project


GoK; Coordination with the Kenya Government on water resources development

DHV-Acacia-Panafcon, 2011

EKN to provide access to finance Triple E, 2014 Investment is required in development phases of projects, including access to finance. EKN could consider using of PSD Apps

EKN to develop quality standards, certification and labelling

Triple E, 2014

EKN to develop a regular discussion platform with the Kenyan authorities

Triple E, 2014 Still accurate.

Use tied aid to strategically position Dutch firms

Dasuda, 2014 Still accurate, see also recommendations Section 6.

Catalytic role through economic missions and strategic scouting studies

Dasuda, 2014 Still accurate, see also recommendations Section 6.

Use EKN local political and business network to gain business intelligence

Dasuda, 2014 Continuous investment required

Align top sectors with MASP and other GoN strategies

Dasuda, 2014 Still accurate

Nomination of a Kenya water coordinator through NWP


This has occurred

Develop and support projects that are in line with MASP and Water OS


Focus is moving away from Aid, and towards Trade. Now focus is on innovative financing, and PPP

Substantial development funding supplied by GoN in line with MASP and Water OS


See Section 6 for recommendations on funding towards project development.


Appendix C Objectives and Methodology In line with its Multi-Annual Strategic Plan 2014-2017, the Embassy of the Kingdom of the

Netherlands in Nairobi (EKN) is exploring options to facilitate trade and investment in

important economic sectors in Kenya. The aim of The Netherlands’ Top Sector Water is that

the added value of the Dutch water sector will double by 2020 compared to 2010, especially

through export and construction projects [source: The Netherlands’ Ministries of Foreign

Trade and Development Cooperation; of Economic Affairs; and of Infrastructure and the

Environment (2016), Convergerende Stromen – Internationale Waterambitie].

This market survey aims to identify opportunities in the Kenyan market, and pragmatic ways

to turns these into business wins for the Netherlands water sector.

The policy of the Dutch Government in relation to Kenya is to go ‘from aid to trade’, aiming to

establish a mature bilateral relationship based on trade rather than aid. One of the measures

taken is to establish a Netherlands Business Hub in Nairobi, specifically aimed at supporting

and promoting the Dutch business interests in Kenya. The objective is that through an

intensified trade relationship, the relations between the two countries will continue to

strengthen. One of the objectives of this market survey is to support a solid establishment of

the Netherlands Business Hub in Nairobi and its network to invest in relationship capital, and

to provide concrete and immediate opportunities for EKN and RVO initiatives like KIFFWA,

D2B and DRIVE. Leads and opportunities identified and associated relevant information are

recorded and continually updated in the Netherlands Business Hub’s CRM system.

Interviews and desk research that form the basis of the information for this report were

conducted in Quarter 4 of 2016.

The geographical area covered in this report includes the whole of Kenya. The main method

used to gather the market information was through interviews with key actors in the Kenyan

water industry, supplemented with desk research. The leads and opportunities identified are

stored, continually monitored and updated in the Netherlands Business Hub’s CRM system.

Apart from identifying the opportunities in the water sector in Kenya, this report aims to

provide suggestions for the Dutch water sector how best to approach these opportunities.

The opportunities, concerns and obstacles and recommendations for Dutch companies that

were raised in previous reports are revisited in this survey (Appendix B).

An important aspect to be addressed concerns the systematically updating and fine-tuning of

the market study in order to maintain and improve strategic focus and review actual

developments and responsiveness in bilateral economic relations in the water sector. A

CRM system is an important tool used by the Netherlands Business Hub to manage

relationships and interactions with clients, providing geo-thematic client and leads

information and managing follow up with the Dutch water sector.

This is a publication of

Netherlands Enterprise Agency

Prinses Beatrixlaan 2 | 2595 AL Den Haag

Postbus 93144 | 2509 AC Den Haag

T +31 (0) 88 042 42 42

E [email protected]

www.rvo.nl

This publication was commissioned by the ministry of Foreign Affairs

© Netherlands Enterprise Agency | month and year

Publication number: RVO-061-1701/RP-INT

NL Enterprise Agency is a department of the Dutch ministry of Economic Affairs that

implements government policy for Agricultural, sustainability, innovation, and

international business and cooperation. NL Enterprise Agency is the contact point

for businesses, educational institutions and government bodies for information and

advice, financing, networking and regulatory ma_ers.

Netherlands Enterprise Agency is part of the Ministry of Economic Affairs.

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