investments the private operators largely failed to expand the water system to connect the poor. therefore, in 2005 the international finance corporation and the global partnership on output-based aid (gpoba) designed a pilot project to provide performance-based subsidies to private operators to expand access to the poor. under the uganda water small towns and rural growth centers project, private operators are eligible for output-based aid (oba). up to 55% of the output-based aid subsidies are paid to the private operators during construction, a second payment is made after successful completion and a last payment after successful operation, all verified by an independent technical auditor. the project expands the management contract approach, addressing some of its flaws. under the project local governments bid out so-called design-build-operate contracts that include investments and have a duration of 5–10 years. it is carried out in eastern uganda in 6 small towns with existing piped water systems (kamuli, nawanyago, palisa, tirinyi, nankoma and busembatia) and 4 so-called rural growth centers that do not have piped water systems yet. new household yard taps and public standpoints for about 45,000 poor beneficiaries are planned. gpoba approved the project in february 2007 and provided a us$3.28 million grant. the project was initially expected to end in february 2010. as of 2010, competitively awarded contracts had been signed in all ten localities. four hundred fifty yard taps have been completed and verified so far, serving 8,100 people, with more under construction. the grant financing per capita is lower than under traditional approaches, and in three towns the winning bidder did not even request any subsidy, relying entirely on the expected tariff revenues to recover its investment and operating costs. in one case, a commercial ugandan bank provided a loan of $100,000 to the winning bidder to finance the construction works. local governments in two towns in the northern region, devastated by decades of civil war, tried to apply this approach in 2009. in kitgum, a town with 55,000 inhabitants, four bids were received and a contract was awarded in the summer of 2009 with a target to more than double the number of connections and water production, and to triple revenues collected without increasing tariffs in three years. in the much smaller town of pader with 8,500 inhabitants, four bids were received, but none was responsive so that the town council continued to operate the system. rural areas in rural areas, local governments at district levels are responsible for the adequate operation and maintenance of water systems. responsibility for sanitation promotion and hygiene education in communities and schools is vested in the mwe, the ministry of health, and the ministry of education and sports.: page 7 other functions besides the mwe, several other national ministries play a role in the sector. the ministry of finance, planning and economic development coordinates funding and donor support. the ministry of local government is expected to support decentralized government systems, which manage their own water facilities. the ministry of gender, labour and social development is responsible for the promotion of gender-responsive development and community mobilization. the ministry of agriculture, animal industries and fisheries oversees water use for irrigation. concerning sanitation, the environmental health division under the ministry of health is in charge of an integrated sanitation strategy for the country, and the ministry of education and sports is responsible for health, sanitation, and hygiene in schools. all the abovementioned ministries, together with the ministry of public service, development partners, and civil society, form the water and sanitation sector working group, which meets quarterly. economic efficiency as described above, the nwsc has substantially improved its operational and financial performance since it was reformed. indicators show that economic efficiency is also improving in small towns, where the systems are owned by local governments. however, it is difficult to find data on the issue in rural areas. non-revenue water according to the nwsc, the average share of non-revenue water (nrw) in all operating areas of nwsc was 33 percent in 2010/11. while in kampala, it was 39 percent, and in the other 21 towns, it averaged 17 percent. these values are about the same as in 2006/07. nwsc blamed the high share of nrw in kampala on the poor condition of the existing infrastructure. to improve the network and thus reduce nrw in kampala, the kampala network rehabilitation project was launched in 2002. in 2002–2003, nrw had been 45 percent in kampala and 27 percent in the remaining areas. concerning small towns, the mwe in its 2006 sector performance report indicates that nrw decreased slightly from 24 percent in june 2004 to 22 percent in june 2006.: page 23 there is no agreement on appropriate levels of nrw among professionals. tynan and kingdom, however, have proposed a best practice target of 23 percent in developing countries. except for kampala, the nrw in large and small ugandan towns, according to the available figures, were better than the target. labor productivity in 2011, nwsc had 6 employees per 1,000 connections. back in 1998, there were 36 employees per 1,000 connections. it was significantly reduced to 11 employees in 2003 and 7 in 2007. the mwe indicates an improvement of labor productivity in small towns from 47 employees per 1,000 connections in june 2004 to 28 in june 2006.: page 23 tynan and kingdom propose a best practice target of 5 employees per 1,000 connections in developing countries. financial aspects tariffs and cost recovery although uganda's official policy is to promote tariffs that cover all costs, the nwsc tariff actually covers only operation and maintenance costs. according to a 2003 published report, the second performance contract between the government of uganda and nwsc provided for a tariff policy that in the long term covered operation, maintenance, and a part of the future investments. although the current tariff structure does recover operation and maintenance costs, the tariffs are not high enough to finance system expansion, leaving system improvement and extension investments to the national government and international donors. according to un-water, full cost recovery tariffs including investments would require a significant rise of tariffs.: pages 82–8 william t. muhairwe in 2006 asserted that full cost recovery in least developed countries is a myth. according to him, tariffs would have to increase by 90 percent to provide full cost recovery. in fiscal year 2006–2007, the nwsc tariff for domestic use was us$0.64 per cubic metre. taken from a public standpipe, the tariff was us$0.42 per cubic metre or less than us$0.01 per jerrycan. the average commercial tariff was us$1.00 per cubic metre. for commercial users, a rising block tariff structure was used. a customer who was connected to the sewerage system would pay an additional charge of 75-100 percent. although water is cheapest at standpipes, un-water reports that in this case users usually have to pay the costs of operating a stand tap and thus in the end pay more. a cross subsidy arrangement enables nwsc to keep in operation systems that do not cover operation and maintenance costs. investment and financing the amount of investment needed to reach 95 percent access to water supply in 2015 were estimated at us$100 million per year, only slightly more than the estimated actual investment of $85 million in 2006. about 75 percent of investments were financed through external assistance in 2000. 2006/07 investments according to the mwe, the total budget for ugandan water supply and sanitation was ush 149 billion in fiscal year 2006–2007, of which us$73 million were actually spent. this corresponds to us$2.37 per inhabitant. the nwsc received a budget of us$56 million. out of the remaining funding of us$34 million, 54 percent was allocated to rural water and 29 percent to urban water. in addition, ngos and community-based organizations (cbo)s reported investments of us$5 million in 2006, and ngo and cbo members of the unicef-supported water, sanitation and hygiene (wash) cluster, which provide emergency water supply and sanitation in the northern region, and, reported investments of us$15 million from january 2005 to august 2006. total sector investments in 2006 thus can be estimated at us$85 million. investment needs because water supply and sanitation are recognized as key elements of the peap, the plan provides for long-term investments in the sector with priority to rural areas. the document indicates that in order to reach 95 percent coverage by 2015, from 2001 to 2015 investments of about us$956 million and us$417 million were needed for rural and urban areas, respectively, corresponding to a total of about us$1.008 billion per year or only us$15 million more than current investment levels. financing according to un-water, around the year 2000, donor financing accounted for up to 75 percent of the total sector funding. the sector benefited significantly from the poverty action fund under the framework of the peap.: pages 26–28 uganda became the first country to qualify for debt relief under the heavily indebted poor countries initiative. according to a 2005 report, debt relief contributed about us$80 million per year to the paf. financing conditions differ between urban and rural areas. in the case of the nwsc, concessional debt contracted from international financial institutions had been passed on by the government to the utility in the form of debt. in february 2008, however, the government agreed to convert the nwsc's ush 153.5 billion debt into equity. this was done to increase the nwsc's ability to borrow from the local capital market. a week later, the nwsc announced that it intended to borrow ush 30 billion more on the bond market to finance mitigation of the impact of lake victoria's receding levels on water supply. the nwsc expected to be able to borrow in local currency at lower interest rates and for longer maturities compared to borrowing from commercial banks. the world bank assisted in structuring the bond issue. the ugandan ministry of finance, however, stopped the bond issue from going ahead, citing the need to first use conventional concessional financing sources. concerning rural areas, investments are financed primarily by grants. according to the 2000–2015 rural water and sanitation strategy and investment plan, uganda's principal investment document for rural water supply and sanitation, financing for the rural sector continued to be provided by external donors, the national government, and ngos. ninety-seven percent of investments in sanitation were funded by external aid. for the period 2010–2015. the government budgeted us$0.4 million for sanitation, corresponding to 0.01 percent of gross domestic product. this compares unfavorably to a commitment by african water ministers made at the africasan conference in 2008 in the ethekwini declaration in which they aspired that budget allocations for sanitation and hygiene "should be a minimum of 0.5% of gdp". overall, funding by the national government was expected to increase from 25 percent in 2000 to 75 percent.: pages 38–57 external cooperation uganda receives external support from several donor agencies. in 2002, a sector-wide approach (swap) was adopted for the water and sanitation sector.: page 5 under the swap most development partners have agreed to channel their financing through the national budget. according to a 2006 report by un-water, the swap has led to the increased confidence of development partners and has proved to be the most appropriate mechanism for resources mobilization and program implementation.: pages 25–27 joint water and sanitation sector programme support the joint water and sanitation sector programme support, which follows a sector-wide approach, is aligned with uganda's 2004 poverty eradication action plan. altogether, us$150 million were to be spent under the program, which started in 2008 and was expected to run for five years. the major development partner involved in the program was the danish international development agency, which alone provided us$66 million. the other partners were the african development bank (us$27 million), the austrian development agency (us$19 million), the swedish international development cooperation agency (us$14 million), the uk's department for international development (us$10 million), the eu (us$9 million), the german deutsche gesellschaft für technische zusammenarbeit, and the germankfw (us$6 million). the program aimed to support the achievement of the sector targets. it intended to serve about 1,410,000 people in rural areas, 373,000 people in rural growth centers (rgcs) (communities with a population between 2,000 and 5,000 people), and 155,000 in small towns directly with water and to give them access to basic sanitation and hygiene facilities. besides the extension