Funds misuse, low skills hamper Nairobi's bid to tap green finance

The inability of the Nairobi Water and Sewerage Company (Nairobi Water) to run a profitable business has been pointed out as one of the financial risks that may affect the county’s implementation of green projects.

The analysis, published by Financial Sector Deepening (FSD) Kenya after being conducted by Agusto and Company, a Pan-African credit rating agency, also lists unpaid water bills by residents and the diversion of funds as the ‘hygiene’ issues associated with the county’s nominated green projects.

The above risks have been cited under water harvesting, management, and distribution - which is one of the projects the Nairobi City County has nominated for possible green financing.

The other projects are an integrated waste management system and recycling centre; road infrastructure maintenance (footpaths, drainage and street lighting); affordable housing schemes in various estates (rent to own sell scheme); energy efficiency across government offices, hospitals, schools, streets, and markets and; development of green spaces.

In all the above projects, except the development of green spaces, the diversion of funds is a recurrent financial risk.

 Governance stability

The publication by FSD Kenya titled, Green Finance Assessment of Nairobi City County, which also analysed Makueni, Laikipia, Kirinyaga, Kisumu, Embu, Nandi, Taita Taveta, Wajir and Vihiga counties, looked at the governance stability and performance of the County Climate Change Fund.

This is a fund through which counties can leverage access to green finance for development projects.

The analysis found that Nairobi City County does not have a legal and regulatory framework for green or climate finance, has no familiarity with green bond frameworks and requirements, the capability of the county in managing green funds is in question, and also it lacks understanding of frameworks for green finance instruments.

However, the county has an understanding of stakeholder engagement in monitoring and the evaluation of projects, can apply county-level financial tools, and has a political commitment to green growth and the use of green finance. “Based on the assessment, there still exists a considerable knowledge gap among the county government staff and residents,” reads the assessment.

 “As the county prepares to participate in the green finance market, the Nairobi City County government should put measures in place to provide capacity building for staff, and stakeholders (Community-Based Organisations, Civil Society Organisations and private sector players) on climate-related issues.”

However, looking at the county’s credit risk assessment, which is one of the sections the analysis has offered recommendations, the report notes that Nairobi City County’s overall revenue profile is satisfactory.

 “However, improvement is required in deepening own-source revenue (OSR) by having a unified business license permit and digitising all county government processes to reduce dependence on the National government’s quarterly distributions. This will also help to address challenges associated with revenue leakages,” says FSD Kenya in the analysis.

To increase the chances of accessing green finance, Nairobi City County must obtain the necessary county and national government approvals. The selected projects should also get the approval of the County Assembly.

 The analysis also adds that the proposed projects should be subjected to green verification standards such as the Climate Bonds Standards.

 “Alternatively, Nairobi County can utilise a special purpose vehicle (SPV) to ring-fence the green assets to raise funds from the green finance market to execute priority infrastructure projects or partner and support private enterprises in the County (with the provision or land, infrastructure and incentives) to access the green finance market to finance identified green projects, especially in the agro-processing and value additions to agricultural produce,” the analysis reads.

Some of the green assets listed in the document are Nairobi River, Ngong River and, Kabuthi River, Jamhuri Dam and Nairobi Dam, and parks and forests - Uhuru Park, Central Park, Jeevanjee Gardens, City Park, Kamkunji Gardens, Karura Forest, Ngong Forest and, Nairobi Arboretum. 

Agusto & Co assigned a “Bbb ken” Shadow Credit Rating to Nairobi County.