President (Dr) William Ruto recently revealed his Government’s plan to develop Kenya’s water markets as part of the measures to address the recurring famine crises mainly in Northern Kenya. This is in line with the increasing expansion of water markets globally as one of the solutions for resolving water scarcity issues and enabling water to move to more productive uses. Water markets facilitate a voluntary exchange of water rights between buyers and sellers with the underlying purpose of distributing water among competing uses.
Given that water markets are after all, markets, many existing water markets around the world treat water as an economic good subject to demand and supply forces. The markets are of course subject to various restrictions such as limits on total water used from a particular source and preservation of ecosystems dependent on a water source.
In our case, the new Government intends to use the water markets to fulfil the need for water as a basic human right as provided in our Constitution. The proposed water markets therefore seem to be more about structuring the delivery of a public service as opposed to a voluntary exchange of water rights between willing buyers and sellers.
This comes with significant cost and risk implications for Government that require proper stakeholder management to achieve project success.
Water, unlike other assets such as minerals and oil, is not a fixed asset but, as one writer puts it, ‘a large-scale environmental asset the size and quality of which are subject to substantial uncertainty depending on weather and hydrological conditions.’
Its transportation costs are relatively high and water use is riddled with externalities. Water is heavy and its transportation is governed largely by the path of existing waterways- these could be inter-County as is our case. Further, water has a wide variety of competing purposes for example, domestic, agricultural, industrial, and ecological uses.
Management of third-party effects and political factors surrounding water are therefore relatively important compared to many natural resource markets.
Media reports indicate that the new Government seems to be considering the development of the aquifers in Turkana County an endeavor which the former Government through the Ministry of Water put a pause on citing high costs of desalination.
Another possibility is to divert surface water from viable basin areas for supply to the North or embarking on a large scale water harvesting and storage project along Tana River which can then be used to supply the North. In all these options, the water resources are currently within the control of the National Government but would require inter-County transfers to reach the target users.
As such, in addition to negotiations with private sector parties, the Government, presumably through the Water Resources Authority (WRA), will have to engage with the affected County Governments to ensure their mutual corporation. This is especially important for the host County Government that may feel a sense of ownership over the water and expect a benefit or a share of revenue earned from its exploitation.
Put simply, if water is extracted from Turkana to supply Mandera, sensibility requires that Turkana is also provided with a water system that improves the supply of safe and adequate water to its residents. This would mitigate backlash from the County Government, its political leaders and the local community similar to the issues raised by Murang’a County over the construction of the Northern Water Collector Tunnel.
Further, the private contractors would have to be given timely access to the land required for construction of the infrastructure for the inter-county transfer of water to the Northern region. The Water Act, 2016 provides for the grant of easements and compulsory acquisition of land for purposes of infrastructure build. Compliance with the legal process would be critical.
Given that compulsory acquisition is carried out by the National Land Commission (NLC), the required land should be identified and the relevant requests made to the NLC in a timely fashion to avoid the massive project delays witnessed in other major infrastructural projects arising from land compensation disputes with landowners and their leaders.
The human rights angle to the Government’s proposed water markets will affect the pricing of the water sold to the targeted water users. In a free market, the supplier of water would want to factor into his selling price all the costs for delivering the water to the customer. These costs could be relatively high for the proposed water projects given the infrastructure build required to deliver water to the Northern regions in addition to the finite nature of the water asset.
Higher costs would ordinarily translate to higher prices to enable the seller to recoup their investment. However, noting that the target areas in Northern Kenya are still mostly rural, users may be unwilling or unable to pay high water bills.
Nonetheless, the private party in the proposed PPPs would ideally require more predictable sell terms such as those applied by independent power producers in Kenya, in order to recoup their investment. The private parties can either supply the water to existing licensed water service providers such as the public water service companies or they can apply to the Water Services Regulatory Board (WASREB) for their own licensees as water service providers. Under the Water Act, 2016, water tariffs are proposed by county water services providers upon WASREB’s recommendation.
They are then subjected to public participation inviting views from all and sundry following which, they must be approved by WASREB before they can be effected. Since the PPP agreement would most likely be entered into by WRA, it would be important to ensure pre-contract involvement of WASREB and the relevant County water service providers who hold the statutory mandate of tariff setting, to ensure alignment on the water tariffs upon completion of the project.
Further, through the conduct of the requisite environmental, social and economic impact studies, the parties must manage the consequential impact of the water projects beyond the direct participants. Water quantities may be affected because of diversion of water or change of points of diversion of water, and similarly, the quality of water may change due to diversion of water, thereby affecting the livelihoods and ecological systems of neighboring Counties.
This may require imposition of limits to the volume of water that can be used in specific water sources and specific rules on ecosystem and recreational uses of water. However, given the uncertainty of the water asset, this will require meaningful public participation, expert studies and contractual negotiations with the private parties.
Overall, the proposed water projects could be viable with potential life-changing impact on the Northern communities if managed properly.