NbS Triple Win Toolkit: Economics and Finance 103 Model F – Water Fund Background In 2017, water coverage delivered by Water Service Providers (WSPs) stood at 55%. Sewage coverage was even lower (16%). The Kenyan population is expected to continue to grow driving further industrialisation, urbanisation and water demand. The Kenyan government is aiming to provide water and sanitisation service to its entire population by 2030. However, WSPs often struggle to finance infrastructure projects since loans are often short term with highinterest rates. By pooling several loans to WSPs into a singlebond transaction, a Pooled Water Fund (PWF) can attract private investment and simultaneously provide loans to WSPs with more attractive terms i.e. longer pay-back periods and lower interest rates. Description of model The Water Finance Facility (WFF) established the Kenya PWF 1 with equity and a first-loss contribution. A Revolving Project Development Fund (RPDF) 2 was set up to assess and finance credit worthy WSPs for project development activities for the WSPs 3, including feasibility studies, project design and tendering works. To facilitate private finance, a Special Purpose Vehicle (SPV) is established to issue a bond 4 which will fund projects by selected WSPs 5 which reduce excess water losses, improve sewage coverage and water access to more of the Kenyan population 6. Financial returns should be generated by the WSPs since they reduce non-revenue generating water flows and increase revenues from tariffs extending to more of the Kenyan population 7. WSPs service the loans from the RPDF and SPV 8,9, with the SPV making payments to investors from the proceeds 10. The SPV also pays a service fee to the Kenyan PWF for its operational costs and coordinating viable WSP projects 11. If relevant, repayments are made to the WFF 12 and the bond placement is de-risked with reserve funds and guarantees 13 if the bond placement doesn’t generate enough funds. Further reading: https://www.oecd.org/water/OECD-GIZ-Conference-Background-Document-Water-Finance-Facility.pdf https://kpwf.co.ke