SuSanA - Forum Kunena Site Syndication Mon, 24 Nov 2014 16:13:38 +0000 Kunena 1.6 SuSanA - Forum en-gb UK water sector's move to totex cannot address potential financeability concerns - by: jonpar
UK water sector's move to totex cannot address potential financeability concerns

Global Credit Research - 16 May 2013

UK water sector regulator Ofwat's proposal to introduce total expenditure (totex) benchmarking, performance incentives and cost recovery mechanisms of water companies' cost submissions is not designed to address potential financeability concerns, says Moody's Investors Service in a report on the sector published today.

The new report, entitled "UK Water Sector: Speed of Money Cannot Address Potential Financeability Concerns", is now available on Moody's subscribers can access this report via the link provided at the end of this press release.

Ofwat published its draft methodology on the framework and approach for setting price limits for the next five-year regulatory period commencing 1 April 2015 (AMP6). The regulator is proposing to use a totex approach in place of conducting a separate analysis of operating expenditure (opex) and capital expenditure (capex). For further details on the draft methodology, please refer to 'UK Water Sector: Ofwat's Methodology for PR14 Likely to be Credit Neutral', published in February 2013.

Moody's notes that companies or the regulator could seek to modify the speed of cost recovery under the totex approach in a manner that may offset the negative cash flow impact of lower returns following a likely reduction in the allowed weighted average cost of capital (WACC) -- in itself a result of the decline in interest rates and required return on equity since the last price review in 2009.

"Whilst any resulting increase in a company's cash flows could reduce external funding pressures, which would be credit positive from a liquidity perspective, that company may also use the resulting financial flexibility to enhance shareholder distributions at the expense of the economic value of the regulated business and future cash flow generation," says Stefanie Voelz, an Assistant Vice President - Analyst in Moody's Infrastructure Finance Group and author of the report. "If that was the case, that company's leverage could increase, notwithstanding the appearance of healthy cash flow-based credit metrics, and this development could have negative credit implications, if sustained over a period of time," Ms Voelz continues.

The adoption of totex will increase the potential misalignment between cost incurrence as reported in a company's financial statements and cost recovery as allowed under the regulatory model. Moody's believes that a faster pace of expenditure recovery may not necessarily correspond to a fundamental improvement in financial strength. The rating agency will reflect this view in its evaluation of the credit metrics it uses to assess companies' financial performance.

As a result of Ofwat's adoption of the more sophisticated but also more complex totex methodology additional disclosure by the companies and/or the regulator will be needed to enable the reconciliation of the accounting and regulatory perspectives on the treatment of expenditure for the purpose of determining whether a regulated business is out-performing or under-performing its expenditure allowances as set by Ofwat.

Details on how the totex approach for UK water companies will be implemented are still unclear, and hence its overall impact remains uncertain. However, Moody's expects more clarity in further publications over the coming 12 to 18 months, including (1) the regulator's final methodology for setting AMP6 price limits in summer 2013; (2) companies business plans in December 2013; and (3) Ofwat's draft price determination in summer 2014.]]>
WG 2 (finance, economics) Tue, 07 Oct 2014 17:49:34 +0000
Re: Request for literature on demand for investment in water services infrastructure - by: jonpar
Thankyou for your posting to SuSanA forum. I am the lead of Working Group 2 on Finance and Economics. There is a fair amount of literature (published and grey) on this topic that is available. Please see (this filters the library by WG 2 as a theme). The most comprehensive work is being done by WSP led by Guy Hutton. Please see Guy and colleagues are currently working on an ESI Toolkit which they are planning to pilot in October.

best regards,

WG 2 (finance, economics) Tue, 16 Sep 2014 13:40:37 +0000
Re: Dgroup discussion on municipal financing for urban sanitation infrastructure investment - something similar on SuSanA? - by: neilpw
You wrote: "I learned from the HIFA2015 Dgroup that Dgroups rely on good moderation, as the messages are pre-filtered before sent to the group."

I would just like to clarify that there are many different types of Dgroups, according to users needs - some of these groups are moderated (ie pre-filtered) whereas others are not. Some (most) are open, others are invitation-only. Dgroups is an alliance of international development organisations (eg DFID, FAO, SDC) that supports over 700 active communities of practice in international health and development. More info here:

Neil Pakenham-Walsh
Coordinator, HIFA2015
Current chair, Dgroups Foundation]]>
WG 2 (finance, economics) Thu, 11 Sep 2014 12:58:42 +0000
Re: Dgroup discussion on municipal financing for urban sanitation infrastructure investment - something similar on SuSanA? - by: jonpar
I am a member of the group. It's been set up by SNV and Antoinette is the moderator. I am a member of the group but not an active one. It is my understand that it has been established primarily for practitioners in the South to encourage them to interact and communicate with eachother rather than an international platform like SuSanA.

There may be opportunity for transfer some key points being raised in the Dgroup discussion to SuSanA to see what additional discussion this may stimulate, but I am keener of a separate "time-bound structured discussion" rather than "spontaneous" threads and discussion. I was mentioning this to someone who I am hopeful can take on a role in supporting the WG and for this structured discussion.

I'd like to ask some of the more active WG members and also some other people such as Guy Hutton and Sophie Tremolet to see if they would be willing to lead on the discussion on some key issues for a week and then summarize key points before handing over to the next moderator.

I remember when I started work in this sector quite some time ago now, WEDC and GHK organised an e-conference on Strategic Sanitation Planning and it was very interesting and informative. I can't find any reference to it when I did a quick search but I have the files somewhere. As the contributions are written, it makes it relatively easy to produce a e-conference report such as this one

best regards,

WG 2 (finance, economics) Wed, 10 Sep 2014 21:29:42 +0000
Re: Dgroup discussion on municipal financing for urban sanitation infrastructure investment - something similar on SuSanA? - by: muench
Thanks for bringing this to our attention. I didn't know about this particular Dgroup yet. The e-mail that you copied said:

Currently there are 130 people from 23 countries in the urban sanitation Dgroup. Note that the urban sanitation Dgroup is a subgroup from the WASH Asia group which has 360 people.

Is Antoinette from SNV the moderator for both of these Dgroups? I learned from the HIFA2015 Dgroup that Dgroups rely on good moderation, as the messages are pre-filtered before sent to the group.

I take it you are a member of that group? What are your experiences with it?

You wrote:

I would be keen to see something similar on SuSanA.

Can you please explain what you mean with this? Do you mean time-bound structured discussions which are more strongly moderated than our "spontaneous" threads and discussions?

Do you see any potential in feeding content from the Dgroup discussion to this forum and vice versa? I suppose one difference is that theirs is a closed group whereas this is an open group so perhaps the type of communications are somewhat different (?).

WG 2 (finance, economics) Wed, 10 Sep 2014 15:47:05 +0000
Re: Results based financing - by: christoph correctly "Faecal Sludge Management
Systems Approach for Implementation and Operation"
treates this subject as well in
Chapter 13 pp. 273
Financial Transfers and Responsibility in Faecal Sludge Management Chains
Elizabeth Tilley and Pierre-Henri Dodane

WG 2 (finance, economics) Thu, 04 Sep 2014 10:34:27 +0000
Re: Results based financing - by: JKMakowka WG 2 (finance, economics) Thu, 04 Sep 2014 09:10:13 +0000 Re: Results based financing - by: F H Mughal
Sophie Trémolet's publication is interesting. RBF is a relatively new approach. Here, we do have contract-based performance approach (mainly initiated by the donor agencies in their projects). Though microfinancing is fairly common in urban areas here, it is yet to find its place in rural areas in the sanitation field. Purely local and community-based, small-scale financing approach (called "committee" in local jargon - pooling of financial resources among few houses) is common in rural areas.

I would love to see the RBF approach experiences in other countries, and the case studies. I see, you have also desired for that.

I have one question to ask: Assuming there are no significant experiences and case studies in the field of RBF, will it be safe to assume that RBF is still in its infancy stage?


F H Mughal]]>
WG 2 (finance, economics) Thu, 04 Sep 2014 09:03:53 +0000
Dgroup discussion on municipal financing for urban sanitation infrastructure investment (led by SNV, Sept. 2014) - by: jonpar
Please note that this discussion is not on SuSanA but on
If you want to participate, you need to register to be a member of the "Urban Sanitation and Hygiene" group.

I would be keen to see something similar on SuSanA.

Explanation of the Dgroup discussion:


Dear colleagues,

Last year we conducted a learning activity around “Urban Sanitation Planning and Finance”. As part of that activity, we conducted a Dgroup discussion on the same topic of “Urban Sanitation Planning and Finance”. After this several of you participated in the Learning Event in Indonesia in November 2013.

During our discussions, we realised that it is important to deepen our understanding of sanitation financing, basically in two aspects:

1. How do municipalities finance their upfront investment in treatment works

2. How to make such services financially viable (be it by the municipality or by others)

Therefore we asked the Institute for Sustainable Futures at the University of Technology Sydney (ISF) to do a literature review on the first point, which is also the basis for this upcoming discussion.

At a later stage we will be organising a separate Dgroup discussion on the second point, as this links to our upcoming learning event in December.

“Municipal finance of sanitation infrastructure investment” is quite a complex topic. We feel that a Dgroup discussion may help to make it more accessible to all of us. We also hope that the discussion will add quality and practical insights to the paper written by ISF. Your contributions will be integrated by in this paper.

For whom is the Dgroup discussion?

The discussion is for all people interested in urban sanitation and hygiene, though our focus has been mostly on Asia. Currently there are 130 people from 23 countries in the urban sanitation Dgroup. Note that the urban sanitation Dgroup is a subgroup from the WASH Asia group which has 360 people.

What will we discuss?

There will be 3 topics and each topic will run for a week to 10 days. The first topic will start next Tuesday. Below are the three topics.

Week 1 (2 Sept – 15 Sept) Principles for financing water and sanitation infrastructure in developing countries

Week 2 (16 Sept – 25 Sept) Accessing repayable finance for sanitation - mechanisms and examples

Week 3 (26 Sept – 3 Oct) Other finance mechanisms and summary of insights on financing sanitation

How does it work?

On the first day of the discussion, you will find the content of a Topic and some questions in your inbox. Everybody is invited to share their ideas, comments and examples, responding to the Dgroup message. All experiences and opinions are welcome and please don’t be shy to contribute.

As this is quite a technical topic, some of our countries are planning to organise informal discussions within their own programme around the topics, and then post the outcomes of those discussions. I would like to reiterate that all ideas and opinions are welcome. Only if we reflect and discuss, we can get a better grip on the topic.

Please write your message in the main email text and not in an attachment, because some participants are based in remote locations with limited internet speed. Dgroup automatically stores attachments on the website, so people would need to go there to read your attachment.

Looking forward to hearing from all of you over the coming weeks!


Antoinette Kome
Global Sector Coordinator WASH
SNV Netherlands Development Organisation
WG 2 (finance, economics) Tue, 02 Sep 2014 09:00:33 +0000
Re: Results based financing - by: JKMakowka
Another point often overlooked are the very different credit access conditions, with a government or other large organisation being able to pre-finance very cheaply, while a local organisation in a developing country might have to pay a huge interest rate (or not get any credit at all). This is also a question of cost efficiency by the way.

I wouldn't claim to be an expert on the topic, but I recently looked into it for a project here in Uganda. My impression is that can make a lot of sense for direct bilateral government support on paper, but usually the administrative budget structures have a hard time adjusting to it.

When it comes to local NGOs, the above limits in credit apply, but more in general one also have to acknowledge that a shift in risk should also come with a shift in benefits. This is still a big taboo in development circles, but if one talks about RBF one also needs to talk about potential profits and employee bonuses (also because as mentioned in the article they are often the ones that go without pay for months).

In regards to international NGOs it doesn't seem to make a big difference unless the donors would give them more leeway in designing their own approaches instead of just applying to pre-determined calls as it is usually the case. However here again I see issues in conflicting spending with individual earmarked donations which do not allow easy shifting.

Overall I am a bit sceptical when it comes to RBF outside of what it seems to have been originally invented for (bilateral government support and large utility parastatals contracts).
If implemented at NGO level it will result in a further commercialisation of those, just like many already operate on a quasi consultancy level. This has certainly some good aspects to it, but I think the sector as a whole is not really willing to go down that road. This is especially because people employed in development aid largely fall into the charity / social worker or alternatively government like administrator categories, plus some technicians... however all of these are not business minded people for the most case. Thus a top down donor driven RBF approach is doomed to fail.

A bit outside of the typical RBF debates, a community fund piloted here in Uganda is a nice example of creative thinking though. Instead of funding typical "software" activities directly, the target communities are invited to apply for a financial support to a self administrated "village bank" under the precondition that certain criteria are met. This is what I would call a "soft RBF" as from a community perspective the donor intended results are only a side effect and the resulting "profits" can be used as they see fit.
In addition it lowers the efforts and costs of monitoring by the donor agency, as it is in the interest of the communities to provide the "proof" of the met criteria themselves (and that at a much lower opportunity cost than the donor agency could do it).
Edit: however lessons need to be learned from unintended negative effects of "ODF awards" in government run CLTS programmes, which is ultimately not that different.]]>
WG 2 (finance, economics) Mon, 01 Sep 2014 07:15:11 +0000
Re: Results based financing - by: jonpar
I'd be interested to read about people's opinions/experience of results based financing as applied to sanitation. I've been involved on the preparation of the proposal to BMBF for Freetown (the different cities are listed in Roshan's posting on the link in your message).

I too think that there is a lot of potential and can be used at various points in the sanitation chain. One example of results based financing (not a non-sewer based solution) that I think has great potential is the River Basin Clean-Up Program (PRODES) in Brazil. I think the programme stopped for a while and then recommenced but I've only read brief documentation. I'd be really keen to read a more detailed evaluation of PRODES because to date. Could India adopt a similar approach for the Ganges Action Plan which seems to have already failed twice ?

What other examples are there where RBF has been applied ? What are the experiences ? How successful have the projects been - can we conclude that they RBF does achieve greater cost efficiency? Or is it too early to say?

WG 2 (finance, economics) Mon, 01 Sep 2014 06:46:16 +0000
Re: Results based financing - by: christoph
thanks for posting and interesting reading indeed.... but... what comments do you expect?

This is an extremely broad field. I will concentrate in my answer to the aspect of non sewer sanitation.

I think/hope the Results-Based Financing for Sanitation approach "City Partnerships for Urban Sanitation Service Delivery (BMGF and DfID funded)" will show interesting results.

My very strong belief is that mass movement can only be achieved when the countries see in practical examples that integral non sewer santiation solutions are possible. And hopefully they start using their own (and let them be limited) funds to promote Results-Based Financing for Sanitation approaches for the sanitation utilities.
Let’s see what happens.


WG 2 (finance, economics) Sun, 31 Aug 2014 23:39:27 +0000
Results based financing - by: jonpar
Please take a few minutes to read the short article by Antoinette Kome (Global Sector Coordinator for Water, Sanitation and Hygiene, SNV) entitled "The promise of results based finance in WASH" at:

A very pragmatic perspective of results based financing which I concur with.

It would be interesting you opinions/experience of results based financing as applied to sanitation.

For further information about results based financing, I encourage you to read
"Identifying the Potential for Results-Based Financing for Sanitation" by Sophie Trémolet (November 2011)

best regards,

Jonathan Parkinson]]>
WG 2 (finance, economics) Sun, 31 Aug 2014 21:49:35 +0000
Equipment leasing as a financing mechanism for sustainable solid waste and sanitation services in Kampala, Uganda Master - by: jonpar

"Equipment Leasing as a Financing Mechanism for Sustainable Solid Waste and Sanitation
Services in Kampala" by Ivan Katongole,Uganda

(October 2006 – September 2007)

"The motivation for the study was the challenge in the delivery of solid waste and
sanitation services in Kampala city due lack of appropriate equipment by formal and
informal service providers who use very old vehicles for transportation of solid and
liquid wastes to secondary collection points and/or to disposal sites. The main objective of this study was therefore to assess the potential of leasing
equipment as an innovative financing mechanism for sustainable solid waste and
sanitation services in Kampala."

Section 5.5.3 (The potential of leasing according to leasing companies and
equipment suppliers) sums up the focus of the dissertation...

"All respondents from leasing companies and equipment suppliers intimated that
leasing is a financial product with commercial viability and that leasing is
increasingly becoming an attractive financing option in Uganda because it facilitates
SMEs to acquire expensive equipment which they cannot acquire by making cash
down payments. The respondents revealed that one of the best ways to promote the
use of leasing is through unlocking the potential of the solid waste and sanitation
market in Kampala as this would increase the confidence of service providers,
financial institutions and equipment suppliers in the solid waste and sanitation sector
as a commercially viable and worth their investment plans. "

It would be interesting to hear from anyone who has experience of public authorities purchasing sludge trucks (with IFI finance to lease to private operators on a lease contract arrangement.

best regards,

WG 2 (finance, economics) Thu, 07 Aug 2014 14:53:27 +0000
WERF Decentralized Systems Planning Tool including Spreadsheet for costing options - by: jonpar
Decentralized Systems Performance and Costs Fact Sheets

Small community leaders and planners have a critical need for information and tools to help make good decisions concerning local wastewater management.

The spreadsheet tool provides planning level cost estimations of different decentralized wastewater management scenarios commonly used in small communities. Initial capital costs as well as long-term maintenance and energy costs are included. Users can take advantage of the default unit cost values provided based on national data or use better, local information when available.

The information on this page is not intended to serve as a design manual, but rather to provide small community decision-makers the information necessary to work with engineers, soils professionals, construction managers and financial personnel to get the best wastewater solution for their community.]]>
WG 2 (finance, economics) Thu, 31 Jul 2014 17:42:18 +0000