Date: May 25, 2019

To: Mark J. Sullivan, Ph.D.

Senior Lecturer, The Ohio State University Fisher College of Business

Keely L. Croxton, Ph.D.

Associate Professor, The Ohio State University Fisher College of Business

Martin P. Kress,

Executive Director, The Ohio State University Global Water Institute

From: Global Applied Project Team #5

MBA Candidates William Baldridge, Urmi Basu, Karl Bissett, Nicolas Box,

Erin Collin, and Kartik Mukundan

The above listed MBA candidates are pleased to submit the enclosed documents in satisfaction

of the course requirements for BUSMHR 7022, Global Applied Projects (GAP), offered during the

Spring 2019 semester.

GAP Team #5 completed a business consulting project for The Ohio State University Global Water

Institute (GWI) in which the team traveled to Kenya and Tanzania during May 2019 to interview

industry and academic experts about sustainable village water systems and the merits of a

franchise business model. Based on the information obtained from these interviews, the team

developed a franchise offering document that GWI intends to distribute to interested franchisors

in Tanzania, who in turn will provide to potential franchisees in rural villages, as part of

implementing GWI’s Rural Water Service Franchise Model.

The two documents enclosed with this cover letter consist of (1) the franchise offering document

and (2) a supporting white paper. In order to main consistency with existing GWI business assets,

some passages from Sustainable Village Water Systems Program (SVWSP) for Tanzania: Rural

Water Service Franchise Model, Version 6.1, as well as several standard legal franchise contracts,

were copied and used directly in the franchise offering document and supporting white paper.

Approval for the use of verbatim passages within the team’s documents was received from Dr.

Croxton on May 20, 2019, and shall not be considered plagiarism or academic misconduct under

the University’s Code of Student Conduct. All other written content of the documents is the

original work of the team.

Respectfully,

GAP Team #5

GLOBAL WATER INSTITUTE

SUSTAINABLE VILLAGE WATER SYSTEMS

PROGRAM (SVWSP) FOR TANZANIA:

RURAL WATER SERVICE FRANCHISE OFFERING May 2019

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Table of Contents

Executive Summary ...................................................................................................................................2

Business Concept........................................................................................................................................2

Marketing Plan ..........................................................................................................................................4

Management Structure ............................................................................................................................7

Operating Plan ........................................................................................................................................ 11

Disclosure of Risks .................................................................................................................................. 20

Renewal/Termination/Transfer of agreement ................................................................................. 22

Financials .................................................................................................................................................. 25

Appendices ............................................................................................................................................... 28

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Executive Summary

In 2017, an estimated 40%, of water points were nonfunctional--affecting nearly 23 million

people. Lack of clean water has significant impacts on community health, particularly for women

and children who must often travel far in order to collect water. Additionally, lack of a consistent

potable water source puts agriculture and livestock at risk, negatively impacting the overall

village economy and preventing individuals from escaping the cycle of poverty.

A primary reason for the failure of Village Water Systems (VWS) is mechanical failure of the

equipment necessary to extract and distribute the water. This problem is further compounded

by the community’s typical lack of ability to pay for repairs. Due to community leaders’

commitment to maintaining the community as a whole--not just the water system--available

funds are devoted to the most pressing needs at the moment, preventing sufficient funds from

being maintained in a dedicated account to cover the cost of major repairs to ensure continuous

operation of the water system. Ultimately, the current operational model prevents VWS from

being sustainable in the long-term, and from serving those who need them most.

The proposed Ohio State University Global Water Institute (GWI) Franchise Model seeks to

address the issues outlined above, thus ensuring long-term sustainability of VWS, and effectively

serving Tanzania’s rural populations. Transparency and accountability will be the two driving

factors in developing crucial community relationships and achieving success for this model. The

Franchisor will be responsible for the standardization of operations, brand development, ongoing

education, and technical management of the VWS; thus ensuring consistent high-quality service

at all Water Distribution Points under the Franchise partnership. The Franchisee will be

responsible for utilizing the materials and support provided by the Franchisor to operate the VWS

and all Water Distribution Points in accordance with brand standards, and will also be responsible

for maintaining a strong relationship with the community.

The mission of the Franchise Model is to provide sustainable VWS for rural East African

communities.

Business Concept

The proposed business concept is centered on a Franchise Model for rural water distribution. A

central Franchisor will establish a brand that will be licensed to Franchisees in rural villages

throughout Tanzania to operate local water pumping and distribution services.

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In the proposed Franchise Model, a Franchisor obtains capital to invest in high-quality, reliable

and efficient solar-powered pumping systems. This reduces the operating costs and improves the

reliability of groundwater pumping and delivery. The Franchisor introduces the prospective

village to a public-private partnership in which the Franchisor installs the new solar-powered

pumping equipment in exchange for the right to operate the village water system. The Franchisor

retains ownership of the pumping equipment, but will lease the borehole and distribution system

from the village.

In conjunction with the Village Council and Community Owned Water Supply Organization

(COWSO), the Franchisor recruits, selects and trains a Franchisee to be the private operator who

handles the day-to-day operations of the water system according to the Franchisor’s brand

standards. This Franchisee sub-leases the water infrastructure from the Franchisor, and makes

the Franchisor’s lease payment to the Village. The Franchisee also pays the Franchisor to license

intellectual property such as branding and logos, service standards, proven operating and

maintenance procedures, training and marketing materials, and access support services such as

an established supply chain and a network of trained repair technicians.

The Franchisor will employ Maintenance Technicians and Field Support Consultants to assist with

complex repairs and business operations, respectively. Field Support Consultants will also visit

Franchisees on a regular basis to ensure compliance to the Franchisor’s brand standards. Routine

maintenance on the water distribution system will be completed on a regular basis by the

Franchisee. Breakdowns in the pumping equipment that require the assistance of the Franchisor

will be reported immediately, and the Franchisor and Franchisee will operate within a Service

Level Agreement in order to restore functionality of the water system in a timely manner. Major

repairs will be paid for out of a Capital Replacement Account (CRA) that the Franchisee will

contribute an agreed upon portion of sales revenue to on a weekly basis. The consistent funding

of this account is fundamental to the sustainability of the water system.

As a contractual relationship exists between the Franchisor and the Franchisee, and the

Franchisor has defined its standards of performance, Franchisees can lose their rights to their

water business, including their economic investment, if they fail to meet their obligations.

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Marketing Plan

Target Market

The target market is to be identified as rural villages in Tanzania who currently do not have access

to clean water as defined by the Ministry of Water (MOW) standards. Target villages have a

population size of approximately 3,000 villagers, and an estimated 75% of the population willing

and able to purchase clean water. The average person will need approximately 10L of water per

day.

Demographic

The target customer will be women who are responsible for daily collection of water for domestic

use. These individuals will have sufficient income to pay the amount per bucket as determined

by the community. Additionally, they, or someone in their immediate family (i.e., children or

other close family members) will be physically capable of travelling to the Distribution Point,

collecting the water, and transporting it home.

Geographic

Following MOW standards, the target market lives within 400m of a Distribution Point, and

currently does not have access to a source of clean water.

Psychographic

The target market will have two key motivations for using the Franchisee’s service: convenience

and, health benefits.

Convenience will be a key factor in driving use of the Franchisee’s service and in increasing

willingness-to-pay. If customers have another option that is more convenient--even if the water

is not clean--the Franchisee should anticipate the loss of potential customers to this source. For

this same reason, the Franchisee should anticipate use of the service to decline during the wet

season by as much as 50% when customers can more readily obtain water via methods such as

rain-barrel collection.

Knowledge of the benefits of clean water for domestic use is also expected to increase use of the

Franchisee’s service and willingness-to-pay by adding to the value proposition of the service.

Customers who understand the health benefits of clean water will also be more likely to continue

to purchase clean water during the wet season--even if it’s limited to drinking water--which will

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help to mitigate the problems of seasonality. It is believed that people who do not currently

possess this knowledge can be educated via outreach materials and additional training. This will

be a key aspect of the Franchisor and Franchisee’s marketing activities, as addressed in the

marketing section below.

For recommendations for a potential secondary market, see Appendix 1.

Branding

The Franchisee will operate under the Franchisor’s central brand. Maintaining and leveraging the

strength of the Franchisor’s brand will be key to Franchisee’s sustained success. The goal is for

the Franchisor’s brand to be strongly associated with the provision of reliable, safe, affordable

water. The Franchisor will provide branded signs to be displayed at Distribution Points in the

village, along with branded uniforms to be worn by attendants working at the Distribution Points.

Franchisees will commit to maintaining brand standards as defined by the Franchisor. This will

include (but will not be limited to):

● Consistent hours of operation

● Routine and preventative maintenance of the water system

● Rapid escalation of breakdowns to limit system downtime

● Maintaining brand image (clean uniforms, well maintained Distribution Points)

Franchisors will employ Field Support Consultants who will be responsible for ensuring

compliance by the Franchisee to brand standards and will measure compliance during their

regularly scheduled visits via a Brand Standard Scorecard.

Marketing

Community Relationships

The Franchisor will work with the Village Council and COWSO to develop the community’s

understanding of the benefits of clean water and improved sanitation. These efforts will focus on

general health, hygiene, sanitation, the need to pay for water services, the benefits of an

independent private sector franchisee, and water-stewardship training for the community at

large, with an emphasis on involving local women as trainers. Building trust with the community

will be foundational to the success of the Franchisor and Franchisee. After this initial marketing

effort by the Franchisor, Franchisees will be primarily responsible for local marketing efforts, with

ongoing support from the Franchisor.

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The Franchisee will be responsible for ongoing social marketing efforts emphasizing the health

and economic benefits of clean water (using materials provided by the Franchisor) to stimulate

demand for water services. The Franchisee will also be responsible for maintaining a transparent

and positive relationship with the Village Council and COWSO through regular communication

and meetings, the frequency of which will be determined in collaboration with the community at

the start of the relationship, but whose frequency will be no less than once per month.

Marketing Campaigns

The Franchisor will produce and distribute marketing materials to Franchisees that build brand

awareness and provide value to the community on a semi-annual basis (one campaign at the

start of the rainy season, and one at the start of the dry season). The Franchisee will maintain

sole responsibility for the appropriate distribution of the marketing materials provided by the

Franchisor. Examples of marketing campaigns include (but are not limited to):

● A branded calendar with pictures of community members to be distributed to customers

by the Franchisee.

● Marketing material outlining the potential agricultural benefits of using clean water (i.e.

the potential to increase crop yield and the resulting economic benefit).

● Marketing material to be distributed at the village medical clinic, focusing on one

particular health benefit of choosing to drink safe water.

● Branded water bottles to be distributed to the village school, used as awards for high

achievement in the classroom.

Competition

Competition in most areas is anticipated to be low, due in part to the Franchisor’s selection of

communities that do not have access to clean water. The greatest threat of competition comes

from other sources of water that are either free or more convenient for customers to collect--

even if that water is not clean. This includes ground water, lakes/rivers, and rainwater. The threat

of this competition is expected to be greatest during the rainy season, when this water will be

more readily available, and when customers will be more price-sensitive due to high levels of

financial resource scarcity during this time.

Additional threats stem from other boreholes established in the community that are operated by

someone other than the Franchisee. This threat is anticipated to be low due to the selection of

communities without access to clean water--if the community were to have another established

borehole, the Franchisor would assume it is not functioning sufficiently to meet community

needs, and therefore still represents a minor competitive threat.

The greater threat stems from another borehole being established after the Franchisee’s

operation is already in place. Mitigation from this type of threat is expected to originate from

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well-established relationships already formed with community members. Due to the extended

time period typically necessary to establish a new borehole, any indication of this potential threat

would be immediately addressed in meetings with the Village Council/COWSO. The Franchisee

and Franchisor can explain the negative impact this would have on the ability of the franchise to

operate effectively and discourage them from allowing entrance of the competitor.

Pricing

An initial pricing scheme for water will be determined by the Franchisee in close partnership with

the Franchisor and the Village Council/COWSO. Determining the community’s willingness-to-pay

and incorporating their feedback into the pricing scheme will be essential to the maintenance of

good community relationships while ensuring a sustainable usage rate within the community.

The Franchisee, Franchisor (or a representative thereof), and Village Council/COWSO will meet

on an annual basis to review and potentially adjust the price per 20L jerrycan.

Should the Franchisee wish to offer additional services around their water system (i.e. delivery

to community members who are unable to fetch water from the Water Distribution Point), a

standardized price will be determined by the aforementioned parties.

Management Structure

Roles and Responsibilities

The detailed roles and responsibilities of each party in the model and the reporting structure are

provided in Appendices 3 and 4, but an overview of the responsibilities for the key roles are as

follows:

Franchisor: The Franchisor can be an existing or newly created entity. They must possess

extensive in-country business experience; prior knowledge of franchise system management is

preferred. The Franchisor is primarily responsible for selecting and supporting Franchisees and

ensuring the growth and management of the franchise system. The Franchisor will work with the

MOW, regional and district governments, and must leverage this support to establish credibility

with the community regarding the benefits of the Franchise Model. The Franchisor raises capital

to install new solar-powered pumping, distribution system, and storage equipment in the

community, and in turn obtains the right to operate the VWS. The Franchisor retains ownership

of the pumping equipment but will pay the village to lease the borehole and distribution system.

The primary responsibility of the Franchisor is recruiting and selecting Franchisees. Subsequently,

8

the Franchisor must provide training, marketing, field support, and compliance oversight

necessary for the Franchisee to meet the obligations set forth in the franchise agreement. The

Franchisor will assess the viability of new technologies such as automated kiosks (eWaterPay)

and prepaid meters to improve efficiency and reduce operating costs. It will also maintain a

supply chain by working with the preferred vendors to ensure replacement parts are available to

the Franchisee in a timely manner. This will likely be implemented with several parts depots

strategically located throughout the country which stock the higher cost, longer lead time parts.

The Franchisor will also maintain a network of trained Repair Technicians and Field Support

Consultants, whose responsibilities are outlined below.

Field Support Consultants: The Franchisors will provide Franchisees with initial training required

to run the business. However, this will not be sufficient for most Franchisees to reach their full

potential. Therefore, ongoing operational and other support will also need to be provided to help

the Franchisees learn the best practices and continue to improve their profitability and

performance. To provide this additional support, the Franchisor will employ Field Support

Consultants who will assist the Franchisee on a regular basis.

Field Support Consultants will act as the direct communication line between the Franchisor and

the Franchisee. Their primary goal is to assess the Franchisee’s operations to ensure that they

are adhering to the brand standards and help the Franchisee be as profitable as possible. It is

important to note that this role is not intended to be the Franchisee’s supervisor or boss, but

rather a consultant who is an employee of the Franchisor, able to provide support to the

Franchisee. They must conduct regular and surprise audit visits to the villages to ensure that

quality standards are being adhered to. They will also attempt to ensure that problems at the

village level are identified and resolved before they lead to severe problems, non-performance,

or default by the Franchisee.

Repair Technicians: The Franchisor will train and maintain a network of repair technicians. These

repair technicians will be responsible for major repairs of the water systems. Each mechanic will

be responsible for a cluster of villages, with the number based on required maintenance

schedules and number of Franchisees. Franchisor will be responsible for creating a training

program that will lead to the certification of repair technicians. The training program may be

delivered by the University of Dodoma (UDOM), vocational and technical schools, or by the

Franchisor. Only certified repair technicians will be permitted to work on Franchisee-managed

equipment.

Franchisee: This individual manages the day-to-day operational aspects of the water services

system. It is the Franchise’s responsibility to meet brand standards established by the Franchisor.

Tasks required to fulfill this role include collection of user fees, employing and managing

attendants and security personnel, ensuring integrity of equipment and infrastructure,

maintaining financial records, and paying into a CRA that will be the source of funds for major

repairs. The Franchisee will also:

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● Conduct local marketing efforts to develop relationships with the local community, and

must contact the Franchisor as soon as output performance issues arise.

● Sub-lease the water infrastructure from the Franchisor and makes the Franchisor’s lease

payment to the Village.

● Pay the Franchisor to license intellectual property and receive support services.

● Maintain a supply of lower-cost/high-use parts and supplies on-hand to ensure that any

disruption in water availability will be limited.

● Make all transactions associated with VWS operations transparent to all stakeholders.

Village Water Committee (VWC) or Community-Owned Water Supply Organization (COWSO):

This is a community-based entity to which the Village Council may delegate its responsibility for

maintaining the village’s water supply. The Franchisor leases the borehole and distribution

system from the Village Council or the VWC (or COWSO) for a percentage of the water system

revenues. The VWC (or COWSO) is responsible for using this fund to distribute water for free for

vulnerable portions of the population (i.e., elderly, disabled, orphans, etc.). The Franchisee will

work with the VWC (or COWSO) to obtain community feedback, improve customer service and

satisfaction, and improve community education on the benefits of clean water and improved

sanitation and hygiene.

Establishment of Franchisor/Franchisee Relationship

The Franchisor, in consultation with the VWC/COWSO, will identify candidates to serve as the

Franchisee of the village water system. The Franchisor’s selection of the winning candidate will

require the approval of the VWC/COWSO. Franchisees are expected to meet minimum

requirements to enter into an agreement for providing village water services. The required and

desired attributes of a Franchisee include the following:

Required Attributes

● Residency in the village (or nearby village) where the water system is located

● Financial capacity to operate a business until breakeven

● Dependability and trustworthiness

● High motivation and desire to learn how to be successful in business

● Willingness to train employees

● Literacy in Swahili

Desired Attributes

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● Female

● Basic business acumen and experience

● Experience managing and directing teams

● Experience handling cash and electronic/mobile payments

● Technical or diploma school training

● Literacy in English

Prior training and certification in operating a VWS is not required. Operational training will be

provided to the Franchisee as described in the training section of this document.

The Franchisor and Franchisee will sign a written franchise agreement that will be countersigned

by the VWC/COWSO and the District Water Engineer (DWE) of the MOW. The Franchisor is

responsible for ensuring the draft franchise agreement is reviewed by an attorney located in the

region of the subject village for conformity with national and local laws prior to execution. The

term of the franchise agreement will be set by the Franchisor and disclosed in the franchise

agreement. Termination, assignment, and renewal of the agreement is described in a separate

section of this document.

Initial Franchise Fee

The Franchisor will require the payment of a non-refundable initial franchise fee from the

Franchisee. The purpose of this fee is to demonstrate that the Franchisee has the financial

wherewithal to be successful as the operator of the VWS. The fee will cover, in part, the expenses

borne by the Franchisor in establishing and supporting the Franchisee’s operations. Unlike a

security deposit remitted under a private operator contract, the initial franchise fee is not

refundable to the Franchisee under any circumstances.

The amount of the initial franchise fee shall be based on several factors, including the estimated

yield of the water source and the population of the area to be served. A table of recommended

initial franchise fees is listed in Appendix 2. The actual franchise fee shall be disclosed in the

franchise agreement.

The payment of the initial franchise fee is due as a single lump sum, upon execution of the

franchise agreement. Other than the initial franchise fee, there is no application fee or other

start-up fees due from Franchisee to Franchisor. No fee is required for renewal, transfer, or

assignment of the agreement.

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Operating Plan

Pre-Site Selection

Before selecting a site for establishment of a franchise, the Franchisor shall approach the Ministry

of Water at the regional level and the ward councilors and sensitize them on the Franchise Model.

This may be done by emphasizing the model’s social impact as opposed to its profit margins.

Government buy-in will enable the Franchisor to draw on government support for licensing and

registration as well as in cases any conflict arises between the village and the Franchisee.

It is also important to determine whether the village has a high willingness to pay for clean water.

This may be ascertained through discussions with the village council and determining the existing

sources of water and the quality of the same. The Franchisor should ensure that the village’s

willingness to pay for the water is enough to enable a prospective Franchisee to make a profit. A

document with a realistic estimate of the potential profit that can be made could also be a driving

factor in establishing buy-in with the Village Council/village.

Historically, there have been multiple water projects initiated by various organizations that have

been abandoned halfway or have not materialized due to changes in the legislative/regulatory

environment. If the village is a site of such an abandoned/failed project, it might be important to

gain the village’s trust that the Franchisor is committed to the project. This may be done through

multiple face to face meetings with the Village Council/village and engaging a person trusted by

the village to speak on the Franchisor’s behalf.

As established above, the Franchisor will determine who the Franchisee will be if and when a

water kiosk/infrastructure is established at the village. The time spent drilling the well and setting

up the infrastructure could be used for training the Franchisee. This will ensure that the

Franchisee is ready to commence operations once the infrastructure is in place.

Onboarding and Training

Onboarding

For onboarding a Franchisee, the process must begin at the regional level and works its way down

with the project proposal. After the DWE (on behalf of the MOW) and villages approve the

project, selecting a Franchisee will require proper vetting to be considered for performance and

quality of service standards. First and foremost, cooperation with the Village Council and COWSO

in selecting a Franchisee is paramount to a Franchisor’s, and VWS success. The Village Council,

alongside the Franchisor, should asses the following skills and characteristics of a potential

Franchisee:

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Business experience

● Accounting/record keeping experience – To maintain payments and open and close daily

operations for reporting purposes.

● Financial reporting (profit & loss statement) – Used to report to Franchisor current

financial performance of the Franchisee’s operations.

● Years managing (operating) a business – Method of gauging managerial performance of

operating water system operations.

Personal background

● Age

● Education

● Health

● Skills/talents

● Outside interests

● Motivation

● Financial capacity

Relationships

● Community engagement/respect

● Business relations/partners

● Interpersonal skills – Community engagement and government relations

Desired qualities in a Franchisee, although not required, consist of technical or diploma school

training and some business experience with management to optimally operate the VWS.

Minimum Franchisee qualities consist of respect among the community, motivation, financial

capacity, and willingness to learn and operate a small business. Dependent on any weaker

elements of a candidate, training will finish off the on-boarding process to shore up lesser skill

sets of a Franchisee.

Training

Training a new Franchisee is another critical element the Franchisor has during on-boarding, and

throughout operations. For initial training, Franchisees will be provided technical training and

business education. The purpose of such training is to ensure a Franchisee develops fundamental

knowledge to operate and grow the franchise. Training elements will include:

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Technical training

● Operating equipment

● Preventative and corrective maintenance

● Warranties of parts

● Water quality testing

● Understanding of system sensors

● Troubleshooting/critical thinking

Business management

● Collection of payments and matching with sensor readings

● Accounting

● Payroll and operating expenses

● Scheduling

● Financial reporting

● Auditing and record keeping

● Ethics

● Government regulations

Employee training (done by Franchisee)

● Pump operations

● Distribution point attendance/responsibilities

● Payment collections

● Interpersonal skills

● Routine maintenance techniques

● Open/close of business

Marketing

● Brand standards

● Community relations/outreach

● Interpersonal skills

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Initial and ongoing training will rely heavily on in-person, hands-on training with workshops,

exercises, and educational cartoons for optimal learning. Training will be catered to water

franchise operations, and all training will be funded by the franchisor, including travel and lodging

at the franchisor’s proposed location. Lastly, training will be continuous over a predetermined

schedule for all Franchisees, and remedial training will be required to Franchisees who fail to

meet operational standards. Employee training will be conducted by the Franchisee at their

expense which will help promote learning for the Franchisee and ensure brand and operational

standards are adhered to.

Daily Operations of the VWS

Open/close of business

A Franchisee will open operations by inspecting respective surrounding location of operations,

such as boreholes, pumps, and immediate surrounding piping. After completing inspections, all

operators will record current meter readings at respective meter locations and open access to

the water points.

To close operations for the day, operators will cease operations from collections of payments

received for water. These transactions should be matched with meter reading at close of business

hours to account for leakage and record for reporting purposes. Another inspection of the

location of operations will be conducted. Lastly, if security guards are employed during hours of

non-operation, the attendant should brief the guard of any expected visits and report anything

outside of the brief to the Franchisee.

Preventative and corrective maintenance

Per engineers’ recommendation, a thorough preventative maintenance schedule should be

established according to expected part life based on usage, generally denoted in hours. This

should be tracked/logged daily during close of business inspections for repair schedule purposes.

All routine maintenance requiring downtime should be communicated to village council and

COWSO three days prior and completed within 24 hours from downtime beginning. Corrective

maintenance, as in replacement of parts outside of routine preventative maintenance schedules

due to breakage, should be reported within 12 hours from awareness of unplanned repair issue,

and completed within three days upon awareness of repair needs.

Payment collection

During hours of operations, all operators are expected to receive payment via cash or mobile

banking. Regarding mobile banking, an account (M-Pesa) will have to be established for each

franchise operation for billing and collection purposes. If monthly payment schemes are

15

implemented, a form of tracking usage must be established as mobile banking systems do not

currently support such functionality. If credit purchases are available, the operator at a purchase

site must record and provide a billable invoice for a collection period no longer than 30 days

following time of purchase. Non-monetary payments will not be accepted, and villagers will be

independently responsible for procuring the necessary cash ahead of time.

Community relations

As discussed, establishing relationships among Franchisors, Franchisees, and the community is a

critical element to the franchise’s success. To promote success and sustainability, community

engagement must occur on a daily basis. Primarily, engagement will be conducted during the

point of sale transaction with a customer. As all customers are community members, operators

should take the time to interact and talk with customers as they gather water. Furthermore,

operators should meet with the village council regularly to discuss operational status and

progress in future planning. Once plans or changes are agreed upon with a Franchisee and Village

Council, the Franchisee can communicate the news to community members as purchases are

made. Lastly, Franchisees must communicate regularly with the DWE of the MOW.

Supply Chain

The Franchisor will also manage a supply chain of parts and components. To standardize all the

maintenance/repair parts in the system, the Franchisor will order parts from a list of vetted

preferred vendors. Whenever possible, parts will be obtained from local manufacturers and

suppliers. The supply chain will be designed so that major components can be delivered to the

community and the repair technician can make any necessary repairs within __ hours.

Major Repairs and Parts Replacement

The Franchisor, via Field Support Consultants, will periodically inspect the wells to avoid any

disruption in service. The Franchisee will notify the Franchisor of all equipment malfunctions,

breakdowns or other non-normal condition, should they occur. If the condition is outside the

capability of the Franchisee as defined by the Operations and Maintenance Plan and in discussion

with the Franchisor’s maintenance team, the Franchisor will dispatch a certified technician to

handle the repairs and/or parts replacement. The Franchisee will also notify the Village Council

(or its designee) and the DWE that a system problem has occurred which will require

maintenance support from the Franchisor. The Franchisee will permit only technicians certified

and assigned by the Franchisor to work on water system equipment. The cost of spare parts,

labor, and travel will be paid by the Franchisee to the Franchisor from the CRA.

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Record Keeping and Financial Reporting

The Franchisee is responsible for accurate record keeping and financial reports for the VWS. Each

month, the Franchisee will have 15 days to prepare and distribute a report with the following

information to the Franchisor, VWC/COWSO, DWE of the MOW, and other relevant stakeholders:

● Revenues

● Expenses

● Volume of water pumped

● Volume of water sold

● Number of operational days for period (subject to verification by the VWC/COWSO)

● Evidence of Monthly Deposit and Support and Maintenance Fee payment

● Current balances of each operational account and the CRA

● Maintenance activities and schedule

● Concerns (if any)

● Other key information (if needed)

The Franchisor will provide adequate training to the Franchisee to ensure the understanding of

recordkeeping and reporting requirements and ability to meet those requirements. Additionally,

the Franchisor’s Field Support Consultants will be available to assist the Franchisee to properly

create and maintain records and reports.

To the best of the Franchisee’s ability, all financial and operational records should be maintained

and distributed in electronic format. The public disclosure of tariff rates and/or financial

performance required by district, regional, or national laws and regulations is the responsibility

of the Franchisee.

Following each quarter, the Franchisor will have 15 days to prepare and distribute a report with

the following information to the Franchisee, VWC/COWSO, DWE of the MOW, and other relevant

stakeholders:

● Revenue per month

● Expenses per month

● Current balances of each operational account and the CRA

● Number of regular maintenance visits performed

● Credit history for each site

● Number of trainings conducted for social and community awareness in each community

● Number of certified mechanics in network, number lost, number recruited

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● Details about major breakdown repairs (if any)

● Number of Field Support Consultant visits

● Benchmarking of Franchisee performance

● Other key information (if needed)

Quality Assurance

Water Quality

Water quality testing will be done by the Franchisor after the borewell has been drilled and the

operations are handed over to the Franchisee. The Franchisor will not hand over operations to a

Franchisee unless the water quality from the borewell complies with the MOW standards.

The Franchisor will, as part of its training programs, equip the Franchisee with the know-how and

the equipment to conduct periodic water quality checks. The latest water quality report should

be available for viewing, on request at the Distribution Points. The Franchisee will ensure that

the water quality reports are transmitted to the Franchisor within 24 hours of the receipt of the

test results.

If based on the results of a quality check, the Franchisee finds that the quality of the water has

fallen below the MOW standards, it will stop distribution of the water and will give immediate

written notification to the Village Council, the Franchisor, and the DWE.

During this period, the Franchisee will take all actions requested by the Franchisor in order to

ensure that the water quality is brought back to the MOW standards. Once the MOW standards

have been re-attained, the Franchisor shall inform the Franchisee, in writing. On receipt of such

written communication, the Franchisee may begin distributing water again.

The Franchisor shall not sell any water on his premises that has not been sourced from the VWS

unless he received written permission to do so from the Franchisor.

Service Quality

Hours and days of service, service levels:

The hours of operation, number of days of service each year, and flow rate of the water at

Distribution Points will be defined in the Service Level Agreement.

Collection of revenue from customers:

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The Franchisor shall collect revenues from its customers. The revenue amounts collected will be

based upon the meter reading at the point of distribution. The current schedule of tariffs shall

always be clearly and prominently displayed in the Distribution Point. Tariffs may be adjusted on

an annual basis after mutual agreement between the Village Council, the Franchisee and the

Franchisor. The Franchisee may agree to any tariff so long as the rate does not fall below 50 TZS

per 20 L. In the event the Village Council does not agree to an amount that is 50 TZS per 20 L or

higher, the Franchisee will inform the Franchisor and suspend provision of water services

immediately.

Preventative and corrective maintenance:

Preventive maintenance refers to all actions which must be performed on a regular basis to

maximize the working life of the equipment and components. The schedule, procedure and the

reporting requirements for preventative maintenance has been agreed upon between the

Franchisor and the Franchisee.

Corrective maintenance refers to repairing or replacing equipment and components upon their

failure, provided that such failure affects the normal operation of the water scheme. Corrective

maintenance to be completed by the Franchisee and Franchisor respectively.

Notification and downtime for maintenance:

The Franchisee shall notify the Village and the Village Council of any planned service interruption

(eg: preventative maintenance) and the reasons for the same at least two (2) calendar days

before such interruption. The notification shall be in writing and shall also state the time when

water services will be restored.

The Franchisor shall also inform the Village and the Village Council, in writing of the reasons for

and estimated time to repair any unplanned service interruption lasting more than twelve (12)

hours no later than one (1) calendar day after the start of such interruption.

Cleanliness of premises and display of branding:

The Franchisor shall ensure that the water kiosk, any water infrastructure such as water taps and

the tiled area around the distribution points and the paths to the same are clean and free of any

waste, vegetation, or infestation. The Franchisor shall prominently display branding on the water

kiosks and distribution points as agreed upon with the Franchisor.

Conduct with customers:

19

The Franchisee shall treat each customer with respect. Franchisees shall ensure that all

customers have easy access to information about the services and shall promptly respond to

requests for information from customers. The Franchisee shall ensure that all customers are able

to file complaints about the services at the water kiosk. The DWC/COWSO will accept and

document all complaints from customers and work with the Franchisee to resolve reasonable

complaints promptly.

Performance Reviews and Corrective Actions:

The Franchisee and Franchisor have performance incentives and penalties built into the the

franchise agreement.

Incentive 1: A key to water system sustainability is a high level of service. In order to further

incentivize the Franchisee and the Franchisor to act swiftly and comprehensively in the case of

an outage, a penalty mechanism will be put in place as follows:

● After a reported outage, the Franchisor will have a 72-hour grace period to restore service

(may vary depending on the severity of the issue). After this grace period, the Franchisor

will be required to deposit, into the CRA and the Village Account, the daily-prorated

portion of the previous month’s deposit for these two accounts, until service is restored.

If it is determined that the outage could have been avoided by following the Preventative

and Corrective Maintenance Plan, the Franchisee will receive a warning. If this occurs

more than twice in a 36-month period, the Franchisee can be terminated per the franchise

agreement.

● The Franchisor and Franchisee will be held accountable for the number of operational

days per month. Additional penalties will be put in place if water is not available to the

end-consumers for more than 15 days per year.

● These penalties will incentivize the Franchisee to contact the Franchisor quickly if there is

a maintenance need, incentivize the Franchisor to restore service in a timely manner, and

will help maintain long-term financial sustainability of the Village Water System by

depositing additional funds into the Repair Account.

Incentive 2: Two necessary contributors to financial sustainability of each Village Water System

are (i) consistent collection of tariffs and (ii) deposit of these collections into a secure account.

● A benchmark tariff collection percentage (actual revenue divided by revenue based on

metered flow) will be defined in the Service Level Agreement. If in a given month the

Franchisee revenue is below the required benchmark, the Franchisee will be required to

20

fund the deficit from their share of excess proceeds to make whole the CRA, the Village

Account, and the Franchisor payments.

● Should the benchmark percentage fall below the target Service Level Agreement, the

Franchisee will be put on notice that their franchise will be reviewed for termination

should the benchmark be missed three times in a 36-month period.

Disclosure of Risks

As with any business venture, the Franchisee assumes certain risks and cannot be guaranteed to

make a profit. In addition to customary risks in operating a business, the Franchisee for a

sustainable village water system must be willing to accept the following risks:

● Financial projections provided by the Franchisor are only estimates and not a guarantee

of actual future performance. Accordingly, the Franchisee should perform adequate due

diligence and independent financial analyses before entering into an agreement with the

Franchisor.

● Local demand for water will vary with the change of seasons.

● Market penetration is uncertain and will depend on the willingness of village residents

to pay for water.

● Over time, the yield of water from the aquifer may become insufficient to adequately

serve the needs of the village, and water quality could deteriorate below MOW

standards.

● The population in the village may decrease over time. Financial projections that assume

a constant or increasing village population may overstate the profitability of the village

water system in the event the population decreases.

● Leaks in the VWS and spillage at the distribution points will result in lost revenue.

● Village residents could steal water directly from the pumps, storage tanks, buried pipes,

or distribution points. The Franchisee is solely responsible for preventing security

breaches and unauthorized access to water.

21

● Employees of the Franchisee could misappropriate water and/or steal tariff payments.

● The number of people in the village (or nearby villages) who are qualified to serve as

employees of the Franchisee may be limited. The Franchisee is solely responsible for

addressing staffing needs to ensure operations meet service level expectations of the

Franchisor, VWC/COWSO, and other stakeholders.

● Franchisor-owned equipment could require repairs or replacement that require

significant time to complete. In addition, imported parts and supplies could face

significant delays clearing through customs. Such delays could impact the ability of the

Franchisee and Franchisor to meet its obligations under the Service Level Agreement.

● Exclusivity of territory is not guaranteed, and competitors could enter the Franchisee’s

market.

● Reputational damage to the Franchisor’s brand in other villages could adversely impact

the Franchisee. In the event that the Franchisor’s brand image is negatively impacted by

factors beyond of the Franchisee’s control, negative publicity in other villages could result

in lower water sales in the Franchisee’s village due to the association with the Franchisor’s

brand.

● Pricing differences among villages could result in arbitrage opportunities by third

parties. If individuals or groups purchase water in lower priced areas and resell the water

at a profit in the Franchisee’s territory, the Franchisee could be negatively impacted by

lost sales.

● Third-party service providers (i.e., repair technicians) contracted by the Franchisor may

be unable to meet service level expectations.

● Deteriorating financial condition of the Franchisor could impair its ability to perform its

responsibilities under the terms of the franchise agreement. The Franchisor is expected

to maintain sufficient capital and cash flow to meet its obligations; however, during times

of financial difficulty, the Franchisor may not be able to honor its commitments.

● The CRA could become significantly underfunded. The Franchisor may lack the ability to

obtain financing to replenish the account and/or pay for major repairs. This could result

in lost sales for the Franchisee or subsequent financial arrangements in which the

Franchisee must pay directly for major repairs of the Franchisor’s equipment to ensure

continued operations.

22

● District, regional, and national regulatory requirements and oversight could change

with little or no advance notice. Water is a regulated industry, and changes to national,

regional, or district policies could directly impact the ability of the Franchisee to perform

its roles and responsibilities and/or make a reasonable profit.

● In the event the village water system expands to include metered water connections to

individual houses or businesses, customers could default on their invoices, directly

impacting residual profits of the Franchisee. The failure of only a few customers who

consume significant volume of water could eliminate the Franchisee’s net profits.

● The Franchisee could encounter contract disputes, legally unenforceable contract

provisions, and the unwillingness or inability of other parties to perform or honor prior

commitments. Mediation and litigation of disputes may become costly and negatively

impact the Franchisee’s profitability and reputation in the community.

Renewal/Termination/Transfer of agreement

Requirements for Renewal of Agreement

At the mutual agreement of the Franchisor and Franchisee, the franchise agreement between

both parties may be renewed for a term of three years through the execution of a new franchise

agreement. No additional fee will be required to renew the agreement. The financial and

operational performance of the Franchisee will be a key determinant in whether the agreement

will be renewed. There is no limit to the number of times the agreement may be renewed. Any

change in terms (e.g., revenue sharing amounts or service level benchmarks) must be

documented in the renewal agreement. The terms of the renewal agreement will take effect on

the date specified within the document.

Termination of Agreement by Franchisee

With sufficient notice, the Franchisee may terminate the franchise agreement early. In order to

ensure the successful continuation of water services for the village, the Franchisee must provide

advance notice of at least three months before terminating their role as the operator. In the

event the Franchisee decides to not renew the agreement at its expiration, the Franchisee should

notify the Franchisor at least three months prior to the expiration date in order to facilitate an

orderly transfer of the operations to a new operator. All operation manuals and branded

materials should be remitted to the Franchisor at the termination or expiration of the agreement.

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Additionally, the Franchisor retains the right to review the financial and operational records of

the Franchisee.

Termination of Agreement due to Death or Abandonment of Franchisee

In the event of the death, abandonment, or default of the Franchisee, the Franchisor shall obtain

custody of all operation manuals, branded materials, residual parts and supplies, financial and

operational records, and other items pertaining to the village water system. The Franchisor shall

immediately consult with the VWC/COWSO to identify an individual to temporarily operate the

village water system and collect revenue until a new Franchisee is selected and enters into a

franchise agreement with the Franchisor. In the instance of abandonment or default of the

Franchisee, the Franchisor reserves the right to sue the Franchisee for recovery of any damages

incurred.

Termination of Agreement by Franchisor without Cause

In the event the Franchisor decides to not renew the agreement at its expiration, the Franchisor

should notify the Franchisee at least three months before the expiration date in order to facilitate

an orderly transfer of the operations to a new operator. All operation manuals and branded

materials should be returned to the Franchisor at the expiration of the agreement. The

Franchisee has the option, but not the obligation, to sell residual parts and supplies and other

assets to the Franchisor. The Franchisor retains the right to review the financial and operational

records of the Franchisee.

Termination of Agreement by Franchisor with Cause

In the event the Franchisor determines that the franchise agreement shall be terminated with

cause due to the failure of the Franchisee to meet its obligations and/or adhere to performance

standards, the Franchisor shall immediately retain custody of all operation manuals, branded

materials, parts and supplies, financial and operational records, and other items pertaining to the

village water system. The Franchisor will immediately consult the VWC/COWSO to identify an

individual to temporarily operate the village water system and collect revenue until a new

Franchisee is selected and enters into a franchise agreement with the Franchisor.

Transfer of Agreement by Franchisee

The franchise agreement between Franchisor and Franchisee may be transferred or assigned by

the Franchisee to another party, only with the expressed consent of the Franchisor,

VWC/COWSO, and DWE of the MOW. A letter of assignment shall be executed by both parties,

and the new Franchisee shall adhere to all provisions of the original agreement. The Franchisee

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is not required to pay a fee to the Franchisor to transfer or assign the agreement to another

operator.

Transfer of Agreement by Franchisor

The franchise agreement between Franchisor and Franchisee may be transferred or assigned by

the Franchisor to another party at any time, subject to the approval of the VWC/COWSO and the

DWE of the MOW. A letter of assignment shall be executed by both parties, and the new

Franchisor shall adhere to all provisions of the original agreement. The Franchisor is not required

to pay a fee to the Franchisee to transfer or assign the agreement to another party.

Dispute Resolution

The franchise agreement will be governed by the laws of the United Republic of Tanzania. If any

dispute arises out of or in connection with the franchise agreement, the Franchisor or Franchisee

shall give a written notice to the other party and meet within 14 days to reach an amicable

settlement. In the event that the parties do not resolve a dispute within 30 days of notice of the

dispute, either party may refer the dispute to the Regional Secretariat for mediation after giving

written notice to the other party at least 14 days beforehand. In the event that a dispute remains

unresolved after mediation by the Regional Secretariat, either party shall be entitled to filing a

lawsuit for legal resolution according to applicable law.

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Financials

Flow of Funds in Franchise Model:

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Summary of Operating Financial Assumptions

• Customers will purchase 10 L per person per day in the dry season and 7 L per person per

day in the wet season

• A village leases its borehole to the Franchisor and receives 10% of sales to buy water for

elderly and disabled

• Franchisee deposits 20% of sales into a Capital Replacement Account

• Franchisee pays Franchisor 10% of sales for the sub-lease and license

• Franchisee retains the remainder of sales (60% of sales). Assuming operating expenses as

40% of sales, the balance (20%) is the Franchisee’s compensation and profit

Detailed Financials

Borehole, Pumping Equipment and Distribution System Lease Payment

The Franchisor leases the borehole from the Village Council. This lease payment will be deposited

by the Franchisee (on behalf of the Franchisor) into the Village Council’s account on a weekly

basis and will be equal to 10% of water revenues.

Franchise Licensing Fee Payment

A licensing fee is required from the Franchisee in exchange for access to the Franchisor’s

intellectual property (service standards, proven operation and maintenance procedures, access

to an established supply chain, and brand name). The license payment will be 5% of water

revenues and will be deposited weekly into the Franchisor’s account.

Borehole, Pumping Equipment and Distribution System Sub-lease Payment

The Franchisee will sub-lease the borehole, solar-powered pump, controller, solar panels and

distribution system from the Franchisor. The sub-lease payment will be 5% of water revenues

and will be deposited into the Franchisor’s account weekly from the operating account.

Capital Replacement Account (CRA)

The Franchisee will deposit 20% of water revenues into a CRA that can only be used for major

repairs and parts replacements. Deposits will be made weekly from the operating account. The

CRA will be jointly administered by the Franchisee and the Franchisor. Transfers of funds out of

the CRA can only be made with the approval of Franchisor, VWC, and the DWE for essential

capital repairs for individual parts greater than 1,000,000 TZS. All funds deposited into the CRA

27

will be owned by the Franchisor because they are dedicated to the repair of the Franchisor’s

assets of the VWS (i.e., the pumping equipment and solar panel) and will not be reimbursed or

transferred back to the Franchisee at the end of the franchise agreement, or any renewals

thereof.

Routine Operations and Maintenance Expenses

The Franchisee will be responsible for all maintenance expenses and routine operations including

salaries for maintenance workers and water point attendants, security of the VWS, community

outreach, training, and local advertising.

The Franchisee will be responsible for minor repairs and maintenance, which includes ensuring

all above-ground infrastructure is in good working order. They will be supported in this role by

training provided by the Franchisor, as well as training manuals and operational handbooks in

English, Swahili, and pictorial format. The Franchisee will keep a stock of routine parts such as

gaskets, tap spouts, piping, and tools so that there is no delay in addressing routine maintenance

issues.

Residual Profit to Franchisee

These operational expenses are expected to average 40% of monthly water sales revenues. The

funds remaining at the end of each month after the above payments, deposits, and expenses are

accounted for will be considered as the Franchisee’s profit, estimated at 20% of sales revenue.

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Appendices

Appendix 1: Secondary Target Market

A secondary target market has been outlined below. This secondary market is a potential option

for future expansion, if it can be determined that the borehole will be capable of supporting these

additional activities in the long-term. At this point, it is inadvisable to utilize the borehole for

these activities as there is little knowledge about the longevity and life-cycles of boreholes, and

therefore such activities may have significant negative impacts on the long-term sustainability of

the borehole.

Secondary Market

A secondary market will include individuals responsible for agriculture, as well as those

responsible for the care of livestock. Target individuals will hold primary responsibility for the

oversight and wellbeing of livestock and/or agricultural fields, and will be personally invested in

ensuring these entities continue to thrive, even throughout the dry season. The target customer

will be of higher-than-average income, and will have control or significant influence over the

family’s discretionary income.

Use of the Franchisee’s water for agriculture is a driver for the Franchisee’s target consumers, as

it will allow them to grow crops during the dry season. This will result in an additional crop

rotation not typically possible during this time. The additional food resources obtained will drive

willingness to pay for the Franchisee’s services.

With regards to livestock, the secondary market will be driven by the desire to ensure continual

care for the health and wellbeing of their livestock herd, even during the dry season when water

is scarce. Cattle is a symbol of status and wealth, as well as a food resource, and therefore it is

imperative that the water needs of these animals are met throughout the year. Customers will

purchase water not because they value it for its higher quality, but because it will be required to

maintain the herd. Therefore, strong patterns of seasonality are anticipated, with the bulk of

purchases occurring only when free sources of water are insufficient to meet the needs of the

herd.

Distribution of water for this purpose could be achieved by using a trough near the distribution

site, and charging per head of livestock allowed to come up and drink the water for a set period

of time. The Franchise could work with COWSO to determine appropriate price per head, which

would differ between cattle and goats/sheep. The Franchisee would need to ensure that the

trough was set far enough away from the distribution point to prevent contamination of that site

by the animals.

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Appendix 2: Recommended Initial Franchise Fee

Population Initial Fee in TSH (USD)

< 2,000 546,500 ($500)

2,000 to 3,000 655,800 ($650)

3,000 to 4,000 874,400 ($800)

> 4,000 1,093,000 ($1000)

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Appendix 3: Business Model Detailed Roles and Responsibilities

The Franchisor will be required to:

1. Educate village councils regarding the Rural Water Service Franchise Model and the

benefits of private operations.

2. The Franchisor will enter into an agreement to lease the borehole from the village council

or COWSO in exchange for the rights and responsibilities to operate and maintain the

village water system.

3. Recruit and select capable Franchisees to manage the day-to-day operations of a village

water system.

4. Provide Franchisees with training and field handbooks to assist in financial management

and operations / repairs of the Village Water System.

5. Hire and train certified repair technicians for major repairs of VWS. Training could also be

outsourced to UDOM, NGOs, or other suitable providers.

6. Employ Field Support Consultants to provide business ongoing consultation services to

and regular audit of the Franchisees.

7. Complete major water system repairs within ___ hours of request (customized based on

distance of village to source of spare parts).

8. Hold an inventory of parts and order appropriate quantities from the preferred list of

approved vendors for maintaining quality, timeliness and standard of repairs.

9. Submit the Quarterly Franchisor Report (described below) to each private operator,

COWSO and District Water Engineer.

10. Serve as Backup Franchisee in the event of non-performance of a Franchisee.

11. Market services and brand to local communities.

12. Monitor the borehole and solar system sensors to help proactively anticipate issues with

borehole quality or solar system performance.

13. On a yearly basis, provide technician for assessing the yield of each water point at the

community level.

The Franchisee will be required to:

1. Submit a one-time non-refundable franchise fee to the Franchisor.

2. Submit a Monthly Franchisee Report to the COWSO, the Franchisor, and the District

Water Engineer.

3. Complete minor repairs and maintenance to the Village Water System.

4. Employ personnel for the operation of the pumping equipment, collection of funds,

distribution of water, and routine maintenance (with a focus on female employment).

5. Provide security for the water system infrastructure

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6. Remit weekly deposit to Capital Replacement Account.

7. Remit weekly sub-lease payment to the Village Council account.

8. Remit weekly lease and license payments to the Franchisor account.

9. Remit salaries to Franchisee employees.

10. Report any outages or maintenance issues in a timely manner to the BMSC and COWSO.

11. Engage in marketing and education activities to increase water sales and expansion of the

Village Water System.

The Village Council or Village Water Committee/COWSO will:

1. Help identify and vet potential Franchisees.

2. Grant exclusive operations and services arrangement to the Franchisee (Water Services

Agreement).

3. Use sub-lease payment fund from Franchisee to distribute free water to the needy

(disabled, aged, orphans, etc.)

4. Oversee Repair Account and authorize disbursements for repairs.

5. Act as liaison between the Franchisee and community members.

6. Report outages to the Franchisee.

7. Maintain record of operational days.

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Appendix 4: Reporting Requirements

Each of the reports generated will be circulated among the system partners.

The Monthly Franchisee Report will include:

● Revenues

● Expenses

● Quantity of water pumped

● Quantity of water sold

● Number of operational days for period

● Evidence of Monthly Deposit and Support and Maintenance Fee payment

● Maintenance schedule

● Concerns (if any)

● Other key information (if needed)

The Quarterly Franchisor Report will include:

● Revenue per month

● Expenses per month

● Number of regular maintenance visits performed

● Number of trainings conducted for social and community awareness in each community

● Number of certified mechanics in network, number lost, number recruited

● Details about major breakdown repairs [if any]

● Number of field consultant visits

● Benchmarking of private operator performance

● Other key information [if needed]

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Appendix 5: Pricing

Unless changed as per the provisions of the contract, the Franchisee will collect the following

amounts from the customers:

i. TZS ___ per (20-liter container)

ii. TZS ___ per head of livestock at the water trough

iii. TZS ___ per m3 of water for private connection customers

iv. TZS ___per m3 of water for public institutions (school, dispensary)

GWI Franchising Operations Project White Paper

GAP Team #5: Baldridge, Basu, Bissett, Box, Collin, Mukundan

May 25, 2019

1

Implementing a Sustainable Water Franchise System in East African Villages

PROBLEM STATEMENT:

Access to clean drinking water is the central theme in any campaign aimed at eradicating diseases and

improving the general health of a population. This is because water is so inextricably enmeshed in our lives -

we drink it, use it to water our crops and livestock and to clean and bathe our bodies. Contamination of our

water sources, therefore, has the potential to affect our health in multiple ways. This problem is compounded

in arid regions like Tanzania where villages must depend upon the vagaries of the weather or an inconsistent,

often contaminated source of groundwater to meet basic needs. This problem adversely affects the health

and well being of women and children in these villages as, socially, it falls to them to collect the water required

to meet these needs at home and they must often travel long distances in order to do so.

Several organizations have tried to address these problems by developing and implementing village water

systems where funds/loans are provided for drilling borewells in the village and distribution systems are

developed so that the community has access to a clean, potable source of water. This infrastructure is then

handed over to the community for upkeep and maintenance. However, these models have faced several

problems including equipment failure, paucity of funds for maintenance and vandalization.

SCOPE OF SOLUTION:

A franchise model proposed by The Ohio State University Global Water Institute (GWI) seeks to address the

issues outlined above to ensure long-term sustainability of village water systems in Tanzania. This model

envisions a public private partnership where a franchisor invests and implements high-quality, reliable and

efficient solar-powered water pumping systems in a village in exchange for the right to operate the village

water system. However, the franchisor itself does not manage the operations but rather recruits, selects and

trains a franchisee (ideally a person from the village community) to be the private operator who handles the

day-to-day operations of the water system in conjunction with the Village Council and Community Owned

Water Supply Organization (COWSO). The franchisee will sub-lease the water infrastructure from the

franchisor and pay the franchisor for training, marketing and maintenance support services. As there will be

a contractual relationship between the franchisor and the franchisee, the franchisor will be able to hold the

franchisee to high standards of performance.

GAP Team #5’s mandate was to review the said model through observations and interviews with people and

organizations familiar with the GWI model, with social impact franchising and with implementation of water

delivery systems in Tanzania, and develop a business offering for potential franchisees.

RESEARCH AND ANALYSIS:

Takeaways from Michael Seid’s session: Franchising overview and social franchising

GWI Franchising Operations Project White Paper

GAP Team #5: Baldridge, Basu, Bissett, Box, Collin, Mukundan

May 25, 2019

2

Franchising is a form of licensing where the licensor (or Franchisor) provides a licensee (or Franchisee) the

right to conduct business under a trademark and/or trade-name in a specific region. The Franchisor

establishes and enforces brand standards and may also transfer proprietary knowledge and processes to the

licensee (Franchisee) to enable him to conduct such business. The Franchisee, in consideration for these

assets, pays certain fees to the Franchisor whether in the form of an annual franchising fee/royalties or

upfront startup fee or a combination of both.

In short franchising is a strategy for expansion of a business and for third party distribution of a product or

service in areas which may be difficult for the Master Franchisor to otherwise reach while ensuring consistency

of customer experience across such regions by virtue of brand standards. This model is often used by

companies to enter regions where the local law requires investment by indigenous companies. Moreover,

since the new franchisees usually do not need to build brand awareness around the brand, it allows individual

entrepreneurs who would otherwise have to invest in considerably larger amounts of capital, to further an

existing proven business. This helps in creating a solid middle class apart from generating local jobs.

Additionally, companies often use this kind of arrangement as a means of conserving capital. For example,

when the Coca Cola Company realized that it was far too expensive for its bottom line to transport full bottles

of liquid across the country, it changed its business model to one where the franchisee would purchase

concentrate from it and add the water and bear transportation costs to retailers in its region of business.

To ensure that the franchise is successful, the model must first be sustainable. To ensure that the model is

sustainable, the franchise must build up critical mass in a specific area. The idea is not to serve as many areas

as possible but to serve one area to the extent possible. The franchisee should also have skin in the game and

carry an element of risk - usually in the form of capital investment and product or service expertise in the

franchise model. This will ensure that they are motivated to develop the business and cannot walk away from

it all easily. The franchisor should be able to support the franchisee in an advisory capacity (by providing

training, enforcing brand standards, etc.) that allows the franchisee to function independently. The franchisor

should also look for opportunities to ensure that the product or service evolves with the changing needs of

the consumers that it serves.

The distinction between social and commercial franchising insofar as structure is concerned is minimal - both

types of franchising must have a consistent and sustainable business model. The commercial franchising

model (as is clear from models established by McDonald’s, Subway etc.) is concerned with customers that

want to buy what is available in the market, whereas social franchising (for example: models like that of CPW

and Fundifix) focuses on what the customer needs to buy and what they often must buy to survive. It is the

application of business format franchising to address the needs of people who are at the bottom of the

pyramid. As the services that are offered aim to address the lack of accessibility to fundamental needs, fair to

say that while building a social franchising model, maintenance of the dignity of the customer is a central

tenet.

Takeaways from initial interviews:

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The team met with John Bongiorno, the President of WorldServe International, an organization that installs

solar-powered deep-water wells and uses a water franchising model to deliver water in East Africa. The team

also met with Ray Menard, the President for Cheetah Development, an organization that used to provide

micro-loans to individuals in Tanzania to set up businesses, and Jenn Allport, managing contractor for USAID

for a WADA project in Tanzania.

Our conclusions from these meetings were that the reason for the failure of most of the water distribution

systems that were built was a lack of proper maintenance post-installation. This lack of maintenance was

primarily due to lack of buy-in from the village which could not reconcile their need for clean water with the

fact of an unknown third party operating the water distribution system. Even where there was buy-in from

villages, failures to thrive were driven by mismanagement of funds for maintenance by the Village Council,

who had to juggle competing priorities for the village with scarce resources. The team learned that it was

important to ensure that financial leakages were avoided by accepting payments only through mobile

payments and avoiding cash or in-kind payments to the greatest extent possible. Payments should be

collected on a per bucket basis (each bucket = 20 liters) and there should be provision of value-added services

(e.g., mobile phone charging) to drive traffic to the water distribution points.

The team also learned that the main source of competition would be two-fold: (1) rainwater collected during

the rainy season that would drive down well water use during such time, and (2) different sources of water

available freely, even if the water from such sources were not safe to drink.

Takeaways from in-country interviews and team observations:

Our in-country meetings reiterated some of the team’s conclusions from earlier conversations. In order for a

franchise to be successful, buy-in from the village community is necessary. Our meeting with the CFW in

Nairobi, Kenya, indicated that without this buy-in (in the form of an initial franchise fee and royalties) from

the franchisee, they are unlikely to feel a sense of ownership of the franchise. While our initial discussions

about the model had incorporated ideas about setting penetration targets for the franchisee, we realized that

in order to establish a business, it was far more important to standardize the procedural aspects of the

business and ensure that customer had a consistent experience.

Subsequent meetings highlighted other aspects of the model. The CFW, USAID and the World Bank stressed

on the importance of engaging with the government and other regulatory bodies and maintaining channels

of interaction with them in order to have a voice in determining the course of new water regulations. USAID

and CFW also emphasized the importance of collecting data not only at the level of the franchisee but also in

the initial planning phase to project whether the water table would be able to support the population growth

in the future. Our meeting with the KenGen Foundation drove home the importance of clean water education

programs beginning at the school level to generate the community buy-in that underpin the success of a

community based water distribution system. Our meetings with David Kangethe as well as professors from

the University of Dodoma (UDOM) underscored the need for transparency. They recommended metering the

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water at the tap as well as any distribution points and prioritizing drinking water over usage for agricultural

purposes. David suggested that this distinction could be made through tiered pricing while UDOM countered

that such a distinction could be seen as unfair. Most individuals with whom the team met reinforced our initial

conclusions that involving women as franchisees for the water franchise model would be beneficial in terms

of increasing transparency, raising a self-reliant middle class and ensuring that the profits are reinvested in

the community.

RECOMMENDATIONS:

Based on our meetings and our observations, we created two sets of recommendations. We captured the

recommendations for the franchisee in our franchisee offering document. Our recommendations for the

franchisor are captured here.

For example, the franchisor should ensure that the villages have adequate storage tanks in case of unforeseen

emergencies like an embargo on spare parts or a breakdown of the distribution system on account of an act

of God. We also recommend that once the water distribution franchise model is established, the franchisee

should be supported by the franchisor in providing ancillary services that not only drive traffic to the water

points but also preserve aquifer levels in the long term. One example of such ancillary services could be

creating a nursery next to the water distribution point and distributing tree saplings for planting to ensure

greening of the surrounding areas. Another example could be provision of information about improved

farming techniques that conserve water and yet produce higher yields.

Another service that would increase the long-term viability of the business and help sub villages without their

own aquifer or borehole to avail of these water services could be through creation of a delivery service. This

delivery service could be in the form of an ox cart that could be loaded with drums of water to be delivered

to different households on a daily subscription basis or through a premium payment for delivery. Another

method of distribution could be delivery through piped systems with consumption metered at service

location. This would ensure transparency in the collection of revenue even if collections were in the form of

cash.

Moreover, in order to be able to manage the water resources to ensure that the same were available for the

benefit of the future populations, the franchisor should work with organizations like the USAID to collect data

for resource management. This would ensure the franchisor’s alignment and give them clarity about the long-

term water prospects of that area.

The franchisor, as a stakeholder in the water services sector, should also engage with the Tanzanian Ministry

of Water through meetings, seminars or conferences conducted by the government to review and discuss

guidelines, policy, and operations on health issues pertinent to the water sector to ensure constant awareness

of any upcoming changes to existing regulations, to have a say in what those changes should be and to create

organizational flexibility to incorporate those changes.

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Finally, in order to be able to scale the model while avoiding the pitfalls of reactive learning, we also

recommend that the franchisor work with organizations that have experience in the franchising sector, such

as KenGen Foundation, WorldServe International and Majitech. This will ensure timely knowledge transfer

and information sharing among these organizations.

References:

1. Meeting with Michael Seid on March 22, 2019

2. Franchise management for dummies, by Michael H. Seid and Joyce Mazero, John Wiley and Sons, Inc.

3. https://www.investopedia.com/terms/f/franchise.asp

4. Telephonic meetings with John Bongiorno, Ray Menard, Jenn Allport

5. Interviews with Abraham Orare (CPW), David Kangethe (WorldServe International), KenGen

Foundation, Cliff Nyaga (Fundifix) in Kenya

6. Meeting with Rebecca Gianetti (Country Director, Global Water Institute) and visit to Ghalyuangu

village in Tanzania

7. Meetings with University of Dodoma faculty Joel Mmasa, Victor George and Adam Mawkalobo in

Dodoma, Tanzania

8. Meetings with Emmanuel Kannaisa (EWaterPay), Francis Mtitu (USAID), Teri Gilead (World Bank),

Bahati Hakimu (BMFarm Africa), Erastus Mtui (Coca Cola) in Dar, Tanzania