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History – Background

The German Development Cooperation is, via its technical and financial cooperation, one of the traditional development partners of the Government of Tanzania in the water sector.

Significant achievements have been made in the Tanzanian Water sector in the past years. Under the Water Sector Development Programme (WSDP Phase I, from 2007 to 2014) about 4.2 Million, people in rural and 2.8 Million people in urban areas gained access to drinking water.

Nevertheless, in 2015 only 77% of the urban population and 56% of the rural population had access to improved drinking water sources (WHO and UNICEF: Progress on sanitation and drinking water – 2015 update and MDG assessment). Therefore, achieving the Sustainable Development Goals (access to water and sanitation for all by 2030) will be a challenge.

Besides the experience from WSDP Phase I has shown a clear gap of service levels among utili-ties in urban areas. This gap is due to rapid increase of population in urban centers as the result of urbanization, which does not match with the low rate of water infrastructure investments. The fact that most of the projects implemented under Phase I involved increase production of water without considering water supply network, was another challenge because most of water supply infrastructure and distribution networks in regional and districts towns are old and require rehabilitation.

To remedy the situation new financing resources like commercial loans are required. Also im-plementation needs to accelerate, which require strengthening and increased autonomy of the water supply and sanitation utilities (WSSAs).

That is why the Ministry of Water (MoW) and the German Development Bank (KfW) agreed in 2014 to establish an Investment Financing Facility (IFF) for WSSAs. The IFF enables Tanzanian WSSAs to finance limited infrastructure investments with a fast impact on revenue genera-tion (i.e. connection of new service areas, exchange of deteriorated network parts or installation of water meters) with commercial loans from local banks.

The IFF is based on the concept of output based aid (OBA), whereby WSSAs will be rewarded by bonus payments out of the established “IFF / OBA‐window” once previously agreed perfor-mance targets will have been achieved. This bonus payment covers up to 50% of the total eligi-ble investment costs for the respective project as a grant up to a maximum of one million Euros. This incentive can be used to pay back the loan and / or cater for other required investments to improve the level of service or increase water supply and sanitation coverage.
From 2014 to 2016, MACS Energy and Water (MACS) was contracted for the piloting phase of the IFF.
Since April 2016 GFA Consulting Group GmbH, in association with JBG Gauff Consultants and NETWAS Tanzania, has been providing consulting services for the implementation of the In-vestment Financing Facility (IFF) - Output Based Aid (OBA) for Tanzanian Urban Water Utilities, as a continuation of the piloting activities. The contract duration is of 42 months (3.5 years). The Consultant is assisting in the implementation of the project with focus on three dimensions:

  • Assisting WSSAs in preparation of adequate investment project proposals and loan ap-plications for commercial borrowing.

  • Assisting the MoW in managing, guiding and overseeing the IFF - OBA Program. This al-so includes assisting the MoW in fulfilling reporting requirements.

  • Soliciting the participating banks in establishing in-house capacities to develop a loan product to target WSSAs and to manage infrastructure loans.