Over 70 water firms face shutdown over Sh25bn, losses, debt crisis – PBO

At least 70 water companies scattered across the country are at risk of shutting down after sinking deep into debts and losses amounting to more than Sh25 billion.

The revelation, contained in a report by the Parliamentary Budget Office (PBO), exposes deep financial and governance weaknesses in the water sector.

The report reveals that the utilities are burdened with debts amounting to Sh20.3 billion, leaving the majority of the 87 licensed water companies technically insolvent.

According to the report, 86 per cent of the firms are in financial distress, raising concerns over their ability to sustain operations and deliver services.

The crisis has been worsened by massive revenue leakages.

In the financial year ended June 30, 2024, the water companies lost Sh5.1 billion worth of water that was produced but never billed to customers.

The PBO warns this has pushed the sustainability of most county-owned water providers into a precarious position.

“The prevailing situation points to governance lapses, fiscal indiscipline and operational inefficiencies,” the report states.

Most of the utilities are operating with negative working capital, largely because they are unable to recover Sh15.3 billion owed to them by customers.

This challenge has been compounded by persistently high non-revenue water losses, outdated tariff regimes and rising recurrent costs.

Only 12 water companies recorded positive working capital positions, indicating no immediate signs of financial distress.

Nairobi City Water and Sewerage Company accounts for the largest share of the debt burden at Sh5.3 billion.

It is followed by the Mombasa Water and Sewerage Company with Sh2.2 billion, Malindi Water and Sewerage Company, Tavevo Water and Sewerage Company (Sh965.35 million) and Nakuru Water and Sanitation Services Company (Sh683.6 million).

Other heavily indebted utilities include Kakamega County Water and Sanitation Company (Sh671.9 million), Kwale Water and Sewerage Company (Sh618.6 million) and Kilifi Mariakani Water and Sewerage Company (Sh506 million).

A further 14 companies are grappling with debts exceeding Sh200 million, while another 20 owe more than Sh100 million.

The report also shows that 10 water utilities recorded losses ranging between Sh51 million and Sh98 million, highlighting the fragile financial state of the sector.

Another 16 companies have debts of between Sh21.7 million and Sh45 million, while six more owe over Sh10 million.

Only Cherang’any Marakwet Water and Sanitation Company and Marsabit Water and Sewerage Company reported debts of less than Sh1 million.

“The inability to recover operational costs poses a threat to the continuity of service and undermines the constitutional right to water,” the report warns.

Cash flow constraints have seen many companies fail to meet statutory obligations such as remitting Pay As You Earn (PAYE) and National Social Security Fund (NSSF) deductions, exposing them to penalties and legal risks.

The PBO further reveals water losses average 46 per cent of total production, far above the regulatory benchmark of 25 per cent.

During the period under review, 76 companies produced 440.4 million cubic metres of water, but only 236 million cubic metres were billed.

The unaccounted-for water translates into losses of more than Sh5.1 billion, even at the lowest tariff of Sh25 per cubic metre.

Illegal connections, ageing infrastructure, faulty meters and reliance on flat-rate billing are cited as the main causes of the losses.

Nearly half of the water firms are also operating under obsolete tariffs, limiting revenue growth and worsening their financial instability.

INSTANT ANALYSIS

Many Kenyan water companies are in significant debt, with major players like Nairobi City Water and Sewerage Company (NCWSC) and Mombasa water firm leading the crisis, facing massive arrears, operational shortfalls and inability to pay suppliers or statutory dues, driven by high non-revenue water (NRW), outdated tariffs and governance issues.