The National Treasury is considering restructuring government loans to water-sector firms after obligations crossed Sh140 billion in June 2025, hurting prospects of offsetting the debts.
Treasury officials warned that mounting arrears are undermining the financial sustainability of water institutions, and called for tougher loan recovery measures, closer monitoring and changes to how the sector’s obligations are financed.
“The continued accumulation of arrears in the sector constrains the debt-servicing capacity of the affected entities and may further weaken the financial sustainability of water sector institutions,” the Treasury said in a brief.
The officials say the response should include “appropriate debt restructuring or recovery measures” to align repayment obligations with the revenues available to water institutions, signalling that existing arrangements may not be working for some water utilities.
Debt restructuring could involve changing repayment schedules or other loan terms to make obligations more manageable, while recovery measures could include closer monitoring and more forceful follow-up on overdue payments.
The Treasury has not disclosed which options it intends to pursue or whether any principal or interest would be written off.
The warning comes as outstanding loans owed by 16 water-sector firms rose Sh6.6 billion, or 4.9 percent, to about Sh142.1 billion at the end of June 2026 from Sh135.5 billion a year earlier.
Several firms have recorded no repayments over the years, pointing to a growing cash flow challenge.
Athi Water Works Development Agency accounts for the largest share of balances, with Sh61.96 billion in loans as of June 2026. This represents about 44 percent of the combined balances of the 16 institutions.
Athi Water plans, develops and manages public water and sewerage infrastructure in Nairobi, Kiambu and Murang’a counties.
Coast Water and Lake Victoria North Water Works Development Agency follow Athi Water, with outstanding balances of Sh18.89 billion and Sh16.49 billion, respectively.
Coast Water is tasked with developing and managing bulk water and sanitation infrastructure across six counties, including Mombasa, Kilifi and Kwale, following its transition from the former Coast Water Services Board.
Lake Victoria North oversees bulk water infrastructure in counties including Bungoma, Kakamega, Busia and Trans-Nzoia, while Lake Victoria South serves Kisumu, Siaya, Homa Bay, Migori and other counties in the western region.
The report shows outstanding balances for most institutions in the sector increased during the review year, with a handful of the 16 firms making repayments.
Kwale Water and Sewerage Company’s loan balance nearly doubled to Sh2.77 billion from Sh1.39 billion, while Kilifi Mariakani Water and Sewerage Company’s balance rose to Sh1.69 billion from Sh1.26 billion.
Mombasa Water and Sanitation Company’s outstanding loans increased to Sh1.85 billion from Sh1.30 billion.
Malindi Water, Sewerage and Sanitation Company’s balance rose to Sh1.86 billion from Sh1.58 billion, while Tavevo Water and Sewerage Company’s outstanding loans climbed to Sh1.56 billion from Sh964 million.
Northern Water Works Development Agency owed Sh4.73 billion, up from Sh4.23 billion, while Tanathi Water Works Development Agency’s balance remained unchanged at Sh5.38 billion.
The repayment records suggest that recovering the loans may require more than routine follow-ups, particularly where institutions lack sufficient revenue to meet their obligations. The report does not specify how much of the increase reflects new disbursements, accrued interest, or other adjustments.
It shows that water institutions in Nyeri and Eldoret have made substantial repayments of the loans the Treasury borrowed on their behalf.
The scale of the debts puts pressure on the Treasury to balance loan recovery with the financial viability of utilities tasked with delivering and managing water infrastructure.
The Treasury officials have called for “stronger enforcement of remittance obligations, clearer intergovernmental financing arrangements and appropriate restructuring of sector debt”.
Nyeri Water and Sewerage Company cut its outstanding balance to Sh303 million from Sh353 million during the review period after repaying Sh857 million over the years, while Eldoret Water and Sanitation Company’s balance fell to Sh187 million from Sh210 million after cumulative repayments of Sh872 million.
Lake Victoria North, Lake Victoria South and Central Rift Valley have recorded repayments of Sh97 million, Sh5 million and Sh302 million, respectively. Athi Water has repaid Sh657 million, although its reported outstanding balance remained unchanged at Sh61.96 billion.
The emphasis on intergovernmental financing arrangements points to the need to clarify repayment responsibilities and funding flows between the national government, counties and water-sector institutions. The Treasury brief, however, does not identify specific institutions for restructuring or spell out the terms under consideration.
