FINANCE

Financing small towns’

water supply in Ghana
This paper presents an analysis of the current financial state of a sample of water supply systems,
ostensibly ‘community managed’, serving small towns in Ghana. The results show that, notwithstanding
significant external support to new capital expenditure, the small town water supply systems have
difficulties in raising sufficient resources through tariffs for operations, minor maintenance, capital
maintenance and limited expansion. Historically, and when served by the national utility, small towns
did not pay for water supply services until 1986 when Ghana embarked on ‘Economic Recovery and
Structural Adjustment’. This non-payment culture is still fresh in the minds of consumers who can so
easily resort to available alternative sources, thereby leaving the supplier in danger of acting only as
‘back-up provider’ during the dry season. The paper concludes from the evidence available that small
towns in Ghana cannot finance such relatively ‘advanced’ water supply systems without significant and
ongoing external support at this stage of their economic development. Therefore all stakeholders must
begin to think of systematic and strategic support to small towns, beyond a simplistic reliance upon
‘community management’ if the inhabitants are to benefit from improved water supplies in advance of
realistic effective demand. By CLIFFORD A BRAIMAH and RICHARD FRANCEYS.

he definition of small towns, ‘Economic Recovery and Ghana (World Bank, 1994).
T as used in Ghana, ranges
from 2000 to 50,000 people and
Structural Adjustment
Programmes’ in 1986, consumers
In 1994, as part of ongoing reforms,
urban water supply was decoupled
presently represents about 32% in small towns in Ghana did not from rural and small towns’ water
of the more than 20 million total pay anything for their water Figure 1: Supply supplies with a view to allow the
number of people in the country supply services with 50% of the cost/person of reformed public water utility to focus
(World Bank, 2004). Until the operations of the national public water against on the major urban centres which
introduction of the International water utility provider being revenue/person in were presumed to have the potential to
Monetary Fund/World Bank led subsidised by the government of 2005 and 2006 be financially self-sustaining (World
Bank, 1994).As a corollary, it was
believed that enabling rural areas and
small towns to manage their own water
supplies systems would deliver
additional benefits, derived through a
‘community management approach’.
This assertion has yet to be proved and
this paper questions it further. It was
also envisaged that in decoupling small
towns’ water supply from urban water
supply, the District Assemblies would
be motivated to carry out their roles of
leading development, which includes
water provision at the local level (GoG,
1993;World Bank, 1994; Manu, 2001).
In Ghana today, records show that the
poorest groups of the population are
located in small towns and rural
communities (World Bank, 1994;

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 FINANCE

required, but mobilising revenue for CWSA, 2004b).The extent to which

ongoing operations and maintenance small towns are dependent upon
has been a challenge (Fuest, 2006). subsidised finance to support these
The revenue generated from developments raises the question as to
consumers of small towns water whether a level of service is being
supply schemes had been expected to provided in advance of ability to pay.
be the key ingredient in ensuring long- Investment per person for new works,
term sustainability of the systems. based upon these figures, is estimated to
This paper presents the current state be about $84. Gross national income
of the finances of small towns’ water (GNI) per capita (2007) is reported to
supply systems in Ghana.The paper be $590 (World Bank, 2008).
also compares the tariff charged by the With the subsidy provided for capital
conventional urban water utility with expenditure it is expected that the
those charged in the small towns with operators can generate enough revenue
the assumption that urban water systems to cater for all recurrent operation and
which are considered financially viable minor maintenance costs with the
are charging cost-reflective, sustainable potential for money to be set aside
tariffs.The data for this paper was for capital maintenance and future
collected from six purposively sampled expansion. Small towns do not have to
small towns in Ghana during 2007 and service any loans, neither debt servicing
2008 in order to access information nor capital amortization. However this
from the different management models is not the case, as Figure 1 illustrates,
being adopted and also to cater for the and this has been a major challenge
differences that could exist because of faced by all water utilities in low-
geographic and hydrogeological income countries where tariffs are
variations in Ghana. often so far below levels of full cost-
recovery (Baietti and Raymond, 2005)
Capital investment and and not perculiar only to small towns
community contribution in Ghana.
NDPC, 2005). It is also believed that Figure 2: Small The demand oriented approach in
the provision of water supply services towns ‘capital water supply provision in small towns Operating revenue and expenditure
in these rural and small towns will maintenance’ in Ghana, as specified by government The sources of revenue for small towns
ensure economic growth and a through new rather than through any community water supply systems in Ghana (in
reduction of poverty among the construction. TOP: derived agreement, requires that order of importance for operations,
people (NDPC, 2005). But it should Abandoned surface beneficiary communities pay 5% of the maintenance and expansion) are from
not be forgotten that in order for the water treatment capital cost as their commitment to water sales, new connection and
water supply systems to be managed system. BOTTOM: own and operate their basic water reconnection fees. In some cases these
sustainably the towns must have the New borehole supply systems (Manu, 2001; CWSA, are supplemented by subventions from
right economic muscle to meet the supplied system. 2004a; Fuest, 2006; Nyarko et al., the local District Assembly.The main
significant financial implications Credit: Richard 2006).This perhaps was born out sources of expenditure on the other
(UN-HABITAT, 2006), not an Franceys. of the belief that a 5% to 10% hand are staff salaries and allowances,
obvious characteristic in the light of community contribution towards energy, minor maintenance and repairs
the aforementioned poverty. capital cost could ensure sustainability and, particularly in Salaga where
It has been reported that small (World Bank, 1994). However, some surface water is used, purchase of
towns in Ghana are always able to small towns are not even able to raise chemicals for treatment.This makes the
mobilise the community contribution the minimum 5% contribution towards point that in small towns costs are
towards the investment cost as the capital cost of the projects.This is very sensitive to hydrogeology and
especially true in the northern parts of topography, with little opportunity for
Ghana, where the District Assemblies ‘smoothing’ costs over a range of
have to pay for their communities. different conditions as in large conur-
In the northern parts of Ghana, bations. In Atebubu the expenditure on
which are considered the poorest energy was over 25% of total revenue
in the country (GSS, 2000), the for 2005, growing to more than 37% of
demand-driven approach to the revenue for 2006 because the 18km
delivery of water supply is not being distant pumping station is powered by
adhered to, indicating that the approach diesel generators.The continuous
should not be expected to be applied increase in crude oil on the
equally throughout the country.Table 1 international market in these years
shows the recent financing arrange- has affected their operations.
ments for the small towns component In each of the small towns investigated
of the CommunityWater and the cost of water supply outweighs the
Sanitation Programme Phase II revenue collected from consumers as
(CWSP-2) in Ghana. shown in Figure 2.This is an indication
FromTable 1 it can be seen that the that currently the water supply systems
World Bank (IDA) is the majority are unable to generate revenues
financier, contributing over 86% required for sustainable operations.
whilst central and local governments This development has significant
contribute just 6.8% of the total implications for the development
finance.This level of subsidy is in of water supply coverage in Ghana
line with the community water as it suggests that resources which
and sanitation policy (CWSA, 2004a; might otherwise have been directed

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 FINANCE

separated urban from small towns

water supplies in the 1990s were
Table 1: Project financing arrangement for CWSP-2 (2004 – 2009) designed to ensure that large urban
(Adapted from (World Bank, 2004 & 2007)) water supply was managed in a
financially viable manner.This
Population served 500,000 therefore means that the water tariff
CWSP-2 Main financing CWSP-2 Additional financing in urban towns could be assumed to
Sources of funds Amount Contribution Amount Contribution be cost-reflective (sustainable), that is
(US$ million) (%) (US$ million) (%) the revenue generated should be
Government of Ghana 1.40 4.5 0.085 0.80 enough for operations, minor and
Communities 2.20 7.1 0.35 3.25 capital maintenance.
District Assemblies 1.00 3.2 0.35 3.25 As indicated in Figure 5, despite the
GTZ 0.40 1.3 inability of small towns’ water supply
IDA 26.00 83.9 10.00 92.70 systems to generate adequate revenue
Total 31.00 100 10.785 100 to take care of both operation and
maintenance costs and capital
towards extending water supply to capital maintenance and expansion, maintenance, consumers in small
new areas will have to be used to their tariffs are higher than in large towns already pay higher tariffs than
replace existing schemes which are urban towns as shown in Figure 5 their counterparts in larger towns.The
going without capital maintenance below.Any attempt therefore to lower tariff paid by utility serviced
as captured by Figure 2. re-structure tariffs in small towns to urban water users ironically includes a
Figure 3 shows the ‘operating ratios’, achieve some level of ‘cost-reflectivity’ 2% charge which is set aside for the
widely used as an indicator of financial is even more likely to make piped development of rural water supply
viability, for the six small towns. water unaffordable for most (Adombire, 2007) which includes small
Generally, an operating ratio of 60% consumers. Irrespective of affordability, towns by the current arrangement.
or below is considered to be a good it must also be recognised that, relative This levy has been charged since the
indication that operations are viable, to larger urban areas, consumers in inception of community water supply
the balance representing capital small towns have other, readily avail- and sanitation in Ghana but payments
maintenance and capital charges.We able, alternative sources to turn to, such of some money supposed to represent
are using the conventional ratio here as as wells, boreholes and streams as the 2% started in only 2001. However
although the small towns in Ghana do shown inTable 2.These alternative the annual report and financial
not have the burden of capital charges, supplies may also be a neighbour’s statement for the national public
it had been expected that they would household well just a few paces away utility company published in 2001,
be able to self-finance their own with a stream or river suitable for 2002 and 2003 for example (GWCL,
service expansion as well as resources household laundry only a few hundred various) shows that the amounts paid,
for capital maintenance. In this regard, metres away. Small towns, almost by representing the 2% collection, have in
Asiakwa, Bekwai and Damongo as definition, have not yet outgrown their practice been only 28%, 20% and 45%
shown on Figure 3 are the only towns original, readily accessible water sources. of the actual amount collected for this
able to generate revenues above their There is an exception to this analysis purpose in each of those years.
operating expenses but it is only in that there may well be a high Although this cross-subsidy has been
Damongo that is able to generate demand for improved water services, an imaginative means of supporting
revenue to cater for operating expenses with only limited access to alternative small towns financially, the similarly
and have resources left for capital sources, in the dry season. However, challenged financial status of the
maintenance. Salaga,Atebubu and Bole constructing and managing expensive national water utility has precluded
(in 2006) on other hand relied on their $84/person water systems simply to act any effective transfer of resources.
local District Assemblies for resources as a ‘dry season back-up’ is never likely In most of the small towns, as shown
to meet the gap between the operating to be financially viable. in Figure 5, the tariff required to
revenue and expenditure.Atebubu and ensure financial sustainability of the
Bole were given interest free loans The water tariff in small towns systems is not being charged, especially
whilst Salaga was given grants by the compared with utility services in Figure 3: Operating with regard to consumers with
District Assembly equivalent to 33.5% urban areas ratios of small household connections. However,
and 206.8% of their revenues generated The water sector reforms which towns in Ghana tariffs at stand pipes in some towns
in 2005 and 2006 respectively.
The exceptional performance in
Damongo shown in Figure 3 must be
put in context as the performance
cannot wholly be attributed to the
management of the system or the
willingness of consumers to pay.
Damongo water system relies upon
limited, and therefore less costly to
maintain, distribution direct from
mechanised boreholes such as the one
captured in Figure 4.This is another
reminder to resist the temptation, easy
when so much capital expenditure is
apparently received from external
donors, of over-designing schemes in
advance of customers’ ability to pay.
Despite the inability of the tariff
structure in small towns to support

8 • WATER UTILITY MANAGEMENT INTERNATIONAL • SEPTEMBER 2009 IWA CONFERENCE ON ECONOMICS, STATISTICS AND FINANCE
 FINANCE

such as Bekwai and Atebubu are

almost at a sustainable level whilst
Bole is charging standpipe tariffs Table 2: Small towns and their alternative sources
significantly above the level required
for financial sustainability. It is Town Alternatives sources of water readily available (within 1km)
therefore important that operators Asiakwa River, stream and rainfall storage
look to consumers with household Atebubu Boreholes, wells, pond, rainfall and a stream
connections when reviewing tariffs Bekwai River, rainfall, boreholes and wells
because any attempt to increase Bole Stream, wells, boreholes and rainfall storage
further tariffs at standpipes will Damongo Ponds, boreholes, wells and rainfall storage
increase the likelihood of Salaga Wells, ponds, streams
consumers moving to the
available alternative sources. References Development Goals in Small Urban
Adombire M.A. (2007).Water Supply for the Centres,Water and Sanitation in the
Conclusions Consumer:A Concise Practical Guide, 1st ed, World’s Cities 2006, Earthscan, London,
The research has revealed that despite Science Press,Accra, Ghana. UK and Sterling, USA.
the fact that small towns pay a higher Baietti A. and Raymond P. (2005). Financing World Bank (2008).World Development
level of water tariffs relative to the Water Supply and Sanitation Investments: Report 2009,World Bank,Washington
utility serviced urban areas, they are Utilising Risk Mitigation Instruments to Bridge World Bank (2007). Project paper on a
still not able to raise enough resources the Financing Gap, Paper No. 4,Water Supply proposed additional financing credit to the
for capital maintenance of their and Sanitation Sector Board Discussion Paper Government of Ghana for a small towns water
Series,World Bank,Washington DC. supply and sanitation project in support of the
CWSA (2004b). Small towns sector policy second phase of the CommunityWater and
(Operation and Maintenance Guidelines), Sanitation Programme. 39782-GH,World
CommunityWater and Sanitation Agency Bank,Africa Region.
(unpublished),Accra, Ghana. World Bank (2004). Project Appraisal
CWSA (2004a). Small towns sector policy, Document on a proposed credit to the
CommunityWater and Sanitation Agency Government of Ghana for a SmallTownsWater
(unpublished),Accra, Ghana. Supply and Sanitation Project in support of the
FuestV. (2006). Demand - oriented Second Phase of the CommunityWater and
CommunityWater Supply in Ghana. Policies, Sanitation Programme. 39318 - GH,World
Practices and Outcomes, LITVERG, Berlin. Bank,Africa Region.
GoG (1993). Local Government Act,Act World Bank (1994). Ghana Community
462 ed., Republic of Ghana,Accra. Water and Sanitation Project. Staff Appraisal
GSS (2000). Ghana Living Standards report, 12406-GH,World Bank Africa Region,
Survey report (GLSS 3 & 4), Government of unpublished.
Ghana,Accra.
Manu K.S. (2001). PPIAF/CWSA Study Paper presented at the 2nd IWA
systems. It is clear that small towns Figure 4: One of the on Private Sector Participation in SmallTowns International Conference on Water
cannot go it alone in financing their eight, limited Water Supply (Final Report),Volume 1. Economics, Statistics and Finance,
water supply schemes and will distribution, NDPC. (2005). Growth and Poverty Greece 2009.
continue to need external support mechanised Reduction Strategy (GPRSII)
on annual basis, over and above that boreholes in (2006 - 2009) - Ghana.
already provided. Otherwise Damongo. Credit: Nyarko K.B., Oduro-Kwarteng S. and
governments will have to continue to Clifford Abdallah Adama I. (2006). Cost recovery of community-
find higher financial resources to Braimah. managed piped water systems in Ashanti region,
replace systems at the end of the useful Ghana,Water Environ. J.
lives of these systems, following the Nyarko K.B. (2004). Institutional About the authors:
inability to undertake lower cost Challenges for SmallTowns’Water Supply Clifford A. Braimah and Richard
ongoing capital maintenance.With delivery in Ghana. in: Stephenson D., Shemang Franceys, Centre for Water Science,
alternative sources of water so readily E.M. and ChoakaT.R. (eds.),August 3 - 6, Cranfield University, UK.
available in small towns, any increases 2004, Gaborone, Botswana, pp. 217. Email: [email protected];
in tariffs to meet the full cost of supply UN-HABITAT (2006). Meeting [email protected]
will drive consumers away from these
improved systems. Governments,
sector professionals and other stake-
holders must begin to think of small
towns water supply systems in respect
of systematic and strategic support, in
the context of perhaps more limited
quality of water distribution and/or
some level of aggregation of
communities such that they might be
able to access some economies of scale,
as enjoyed by conventional urban
water utilities. Expecting small town Figure 5:
communities to take on the burden of Comparison of
managing their own services without water tariffs in the
adequate support when national small town sample
utilities have previously failed is and utility serviced
not a viable option. ● urban areas

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