UGANDA: Technical and Financial Review of the National Water and Sewerage Corporation (NWSC)

PPIAFs support for National Water and Sewerage Company (NWSC) dates back to 2018, when the World Bank’s Water Global Practice, with significant PPIAF and USAID support, embarked on a round of technical support to NWSC to explore entering the domestic capital finance market to complement ongoing government and donors support to meet their future infrastructure needs. The review examined the company’s revenue stream, operating expenses, and capital expenditure plan, as well as detailed financial and potential structuring questions such as the need for guarantees, the legal and regulatory framework for possible borrowing, indicative pricing and terms, and options in regard to possible financing instruments. The effort looked at their demand for money and regulatory framework, as well as conducted market testing to determine creditworthiness and market interest in debt for NWSC. The findings in the PPIAF study informed the AA+ financial creditworthiness rating of the utility by a South African credit ranking company in the same year.

Soon after, NWSC concluded a loan with Equity Bank for 50 billion Ugandan shillings (U Sh), US$ 13.3M equivalent, based on the findings of the 2018 financial analysis.

In 2019, NWSC expressed interest in updating the 2018 study to assess the utility’s capacity to raise additional financing. This last phase of PPIAF support was focused on helping the utility undertake a financial analysis study assisting the utility in its intent to explore possible additional debt options.

The study updated the financial information provided in the 2018 review and conducted a financial analysis of the NWSC’s key indicators and capital investment program for FY19–21. Debt capacity was assessed, and the possible next steps in accessing the domestic debt market were explored. Different financial instruments were also examined, and suggestions were given to develop a preliminary funding plan. The study indicates that over the past five years, the NWSC’s revenue and profitability have steadily risen at an average of 20 percent per year, considerably higher than the inflation rate, indicating strong but managed financial growth. Expenses were kept under control, and the operating margin remained at around 20 percent p.a. on average. Turnover increased from U Sh 276 billion to U Sh 461 billion from 2015–20 (2021 U Sh 363 billion).

Following the completion of the financial assessment and in a bid to implement key recommendations of the financial assessment exercise, NWSC reviewed its capital investment plan, developed other modes of post-COVID recovery, and developed plans, which included adopting delegated management models of some infrastructure that was constructed during pandemic emergencies.

The financial assessment supported by PPIAF helped to secure an additional U Sh 45 billion from Equity Bank, bringing the total commercial financed amount to U Sh 95 billion. It also helped leverage additional funding for the development of the country’s water sector: A €130 million grant from Denmark for developing Western Kampala, a €70 million grant and loan from the Netherlands for a new water intake at Victoria Lake, a €45 million grant from the French Development Agency to connect Kampala residents to the newly constructed water pipelines in Katosi, and a grant from the European Union for transitioning water delivery systems in the Nakivale refugee settlement from the United Nations High Commissioner for Refugees to NWSC.