SNV egroup discussion Topic 2: Can public funding (taxes and transfers) in sanitation contribute to greater equity?

  • Patricia77
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Re: SNV egroup discussion Topic 2: Can public funding (taxes and transfers) in sanitation contribute to greater equity?

Dear All,

My name is Patricia Solórzano, I’m working as SL – WASH – SNV | Honduras – Nicaragua in Central America. My contributions about the topic 2 are:

I want to share some context:

In Honduras, financing mechanisms for the water and sanitation sector are financed through a combination of three sources; The first source of financing comes from the fees charged by service providers based on volume, socioeconomic conditions or a combination of both. The second source of financing is taxes, which contribute to complement the operating costs and some investment costs that are covered by the rates. Tax revenues are generally transferred directly in the form of budget allocations granted by the national or municipal administration to service providers or institutions in the sector and, indirectly, through tax transfers made by the national government to municipal governments. The third source of financing for the sector, mainly for investments, is provided by external transfers, in the form of donations or credits granted by donors in favour of national and local institutions and service providers.

1) Do you consider that the current use of taxes and transfers in sanitation (in your city or country) is contributing to reducing inequality in sanitation services? Why/ Why not?
In the case of Honduras, not, if it is the way it is currently being done, where there is no clarity regarding the allocation of tax and transfer by sectors and regions in the country. There is also an important element and that there is no effective monitoring and follow-up system that records irregularities in the presentation of sanitation services by population strata.

2) Do you think that this is even a realistic and/or desirable expectation?
I consider it realistic if the Law is fulfilled, in the case of Honduras. In my opinion the regulations are defined, unfortunately there is no political will that this is complied with in accordance with the regulations, where the use of taxes and transfers should be oriented by consumption, sector, region, etc.

3) In your view, what would be required to ensure the use of taxes and transfers contributes to reducing inequalities in sanitation services? (or said otherwise: “how?”)
The issue of taxes and subsidies for the operation and maintenance of services must be defined, and the technical capacity of municipal units must be supported with reliable monitoring and follow-up systems that allow monitoring the reduction in the inequality gap. The rates reduced to large companies, lack of willingness or ability to pay by users are the main factors that affect sustainability in the area of sanitation, by achieving equity in services.

At the Government level, it may be possible to adapt the financing of public spending to a decentralized sector, by adopting a sector financing policy to promote the efficiency of service providers, stimulate cost recovery mainly through the tariff, define a scheme of subsidies that allow the poorest citizens to have access to services.
Ensure the strengthening of national institutions so that they can effectively exercise the roles of rectory, regulation, and provision of technical assistance.

Best Regards,

Patricia Solórzano
SNV | Leader Sector WASH, Honduras-Nicaragua
Cel. (504) 31869610
Telf. (504) 2239-6938
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  • Patricia77
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  • I am Economist, with a Master's Degree in Management, Formulation and Evaluation of Development Projects. I have been coordinating programs for more than 10 years and currently with the leading water and sanitation sector in Honduras for SNV.
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Re: RV: [urbansan] Topic 2 Egroup discussion Sustainable cost recovery and equity in urban sanitation

At the Government level, it may be possible to adapt the financing of public spending to a decentralized sector, by adopting a sector financing policy to promote the efficiency of service providers, stimulate cost recovery mainly through the tariff, define a scheme of subsidies that allow the poorest citizens to have access to services.
Ensure the strengthening of national institutions so that they can effectively exercise the roles of rectory, regulation, and provision of technical assistance.

Best Regards,

Patricia Solórzano Leiva
SL WASH | CA
SNV Netherlands Development Organisation

Patricia Solórzano
SNV | Leader Sector WASH, Honduras-Nicaragua
Cel. (504) 31869610
Telf. (504) 2239-6938
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Re: SNV egroup discussion Topic 2: Can public funding (taxes and transfers) in sanitation contribute to greater equity?

My name is Chemisto Satya Ali working with SNV in Uganda. My responses to the questions below.

1. Do you consider that the current use of taxes and transfers in sanitation (in your city or country) is contributing to reducing inequality in sanitation services? Why/ Why not?
The current use of taxes/transfers in sanitation in Uganda is contributing to reduced inequality in sanitation services in Uganda. The urbanization process in Uganda is characterized by uncoordinated planning and development leading to unrestricted sprawling of the major towns. According to National Development Plan II, planned urbanization is still low in most regions of Uganda ranging between 7% and 14.5%. Planned urbanization brings about better “urban systems that enhance productivity, liveability and sustainability”. The establishment of 4 Water and Sanitation Development Facilities (WSDFs) is addressing the inequality across the country. These facilities are heavily dependent on transfers. The question for me is whether the taxes/transfers in sanitation are sufficient to reduce the inequality in services? And the answer is NO.

2. Do you think that this is even a realistic and/or desirable expectation?
In the contemporary perspective in Uganda, this is not realistic. While this is a desirable expectation, it is not realistic to envisage a reduction in inequality of sanitation services. However, the gesture is good. First, Uganda’s proportion of taxes in the sanitation sector is so small (less than 0.1%) to the extent that it borders on insignificancy. So, transfers play a substantial role in sustaining the sub-sector. Secondly, the rate at which the population is growing far outstrips the provided budgets which are met by taxes and transfers. Uganda’s population is growing at just over 3% per annum. And according to the World Bank, Uganda’s rate of urbanization is over 13% and the population growth rates in urban centers is over 4.5% per year.

3. In your view, what would be required to ensure the use of taxes and transfers contributes to reducing inequalities in sanitation services? (or said otherwise: “how?”)
The following consideration are critical:
a. Giving sanitation it’s due share in Uganda is critical, be it in taxes and/or transfers.
b. There is need to match and or incrementally sustaining the percentage of taxes/transfers earmarked for sanitation services to the population growth rates. With an increased proportion of taxes/transfers, investments can then be made at scale and the impact felt across rather than the piecemeal approach that currently prevails.
c. There is need for institutional shifts - Will creating independent entity for sanitation help us in Uganda realize a reduction in sanitation services? I think so. This idea for some time now has been mooted. However, implementing it has not materialized. It ought to be tried. Can Uganda learn from other countries that have made this attempt?

Regards,

Chemisto Satya Ali
Advisor, Rural Sanitation and Behavior Change Communication

SNV Netherlands Development Organisation
Plot 36 | Luthuli Rise Bugolobi | P.O. Box 8339 Kampala- Uganda
www.snv.org/country/uganda
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Re: SNV egroup discussion Topic 2: Can public funding (taxes and transfers) in sanitation contribute to greater equity?

The following contribution to Topic 2 is from Reinilde in Kenya:

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Dear all,

My name is Reinilde Eppinga, WASH Advisor for SNV Kenya and look forward to engage more on sustainable cost recovery in the coming weeks.

Topic 2:
1) Do you consider that the current use of taxes and transfers in sanitation (in your city or country) is contributing to reducing inequality in sanitation services? Why/ Why not?

In different cities in Kenya there are plans to expand sewerage coverage through both government investments as well as input from international organisations (WB etc.). These sewers tend to benefit people living in city centres although there are also cases in which low income areas are included in these systems and there is also inclusion of decentralised treatment systems. In addition there are efforts by government and non-government actors to look at the introduction of a sanitation levy or tax/ amount on top of the water bill by all residents to cater for onsite sanitation services. This tax will then mostly benefit people with low incomes. Only those with a sewer connection will pay a higher tax. Water and sanitation companies in Kenya, for example, have started introducing pro-poor units (slowly changing name to low income consumer units) that look specifically at how those with low incomes can access water and sanitation services. In Kenya, the Water Services Trust Fund also supports water companies in providing sanitation options and decentralised treatment systems for those not connected to the sewer and having improved sanitation facilities. These initiatives often are targeted to the under-reached. The same is true for public toilets in some areas.

2) Do you think that this is even a realistic and/or desirable expectation?

Those making decisions for countries and cities are and, in my opinion, should be able to be sensitive to how investments affect all those living in that specific area. There are often ways in which funds can be used to reach those with low incomes as well. This can be done in different ways through different actors as some of the examples above refer to. A first step is actually knowing the population to be served and having data available to support targeted interventions. Stimulating private sector solutions for different market segments also needs to be considered.

3) In your view, what would be required to ensure the use of taxes and transfers contributes to reducing inequalities in sanitation services? (or said otherwise: “how?”)

There is a need for willingness of government and utility staff to consider and invest in the different and diverse needs of different groups in their service areas. Endorsement of the regulator to enable companies to charge a fee to enable provision of onsite sanitation services in addition to sewerage services by the companies is an example of awareness and willingness required to create a difference. Additionally there is also the need for up to date data of the targeted population and suitable technologies that can serve these different areas (e.g. pre-paid water meters, community water meters, faecal sludge management equipment suitable for low income areas, mobile transfer stations). Involvement of private sector actors can be key in creating sustainable solutions for those living in low income areas.

I am sorry I missed the first topic. Here a summerised input which provides some background to the above answers.

Topic 1:

In Kenya there is often a combination of water and sanitation company/county government owned trucks and privately owned exhauster truck companies that empty septic tanks and some pit latrines. There are often also informal, and increasingly more organised pit emptying groups, that empty pit latrines manually and with improved equipment like the gulper/rammer. These systems generally are financially sustainable as households pay the companies/emptiers for the services which they are able to grow over time. Toilet construction is done by households and organisations and generally not subsidized, individuals are upgrading their containment with time. Treatment plants though are in general poorly managed in Kenya and there are only a few examples of plants that are functional and for which the sewerage tax on top of the water bill is used for and sufficient to operate the plants sustainably.

Kenya is considering pilot of a sanitation levy/tax on top of the water bill to enable water and sanitation companies to work on ensuring faecal sludge from onsite sanitation facilities will also reach the treatment plant where it can then be co-treated, disposed and/or re-used. The tax will be partly used to cater for the transportation cost from mobile transfer stations to the treatment plant.

There is increased focus on the need to revive treatment plants, increase sewer networks and faecal sludge management transportation and collection systems as towns grow. Increased examples of re-use e.g. briquettes is providing a positive pull factor towards rehabilitation of treatment facilities as well as additional opportunity for private sector involvement and investment in the sector. Funds used for upgrading and expansion of large infrastructure are a combination of surplus from the companies, county and national level funding (including loans) as well as international organisations’ initiatives. Operational and maintenance costs paid from those paying for water services.

Kind regards,

Reinilde Eppinga
WASH Advisor
SNV Netherlands Development Organisation

www.snvworld.org/kenya

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Re: SNV egroup discussion Topic 2: Can public funding (taxes and transfers) in sanitation contribute to greater equity?

Please find below the summary document that Antoinette Kome (SNV) prepared for the discussion Topic 2 "Can public funding (taxes and transfers) in sanitation contribute to greater equity?".

The raw text of her pdf file is copied below so that words can be found with searches within this forum:

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AD 1. DO YOU CONSIDER THAT THE CURRENT USE OF TAXES AND TRANSFERS IN SANITATION
(IN YOUR CITY OR COUNTRY) IS CONTRIBUTING TO REDUCING INEQUALITY IN SANITATION
SERVICES? WHY/ WHY NOT?

Of the people responding to this question, 30% said yes taxes and transfers in my country are
helping to reduce inequalities, 25% no, it does not and 40% said yes and no. The latter group
indicated that in some cases taxes and tariff do contribute to reduce inequality, while in other cases
it doesn’t. Or, as Chemisto Ali from Uganda says, it does, but insufficiently.

Yes, the use of taxes and transfers is reducing inequality

The main reason why you consider that the use of taxes and transfers is reducing inequality, is
because there is investment in low income areas. For example, in Bangladesh, Marc Casas writes,
the NUPRP project invests in low income areas in 21 cities, and this includes investment in
sanitation. In Zambia, Emily Banda and Chola Mbilima explain, the sanitation levy is paid by the
connected households. This sanitation levy is ringfenced and then used to provide sanitation
facilities for low-income communities. In Lusaka the sanitation levy started in 2012. Up till now it has
funded 200 on-site sanitation facilities in three low-income areas and is also contributing to the
construction of condominial sewer in another peri-urban area.

In Kenya, Reinilde Eppinga explains, water utilities now have a “Pro-poor unit” which looks
specifically at improving water and sanitation services for low-income areas. Kenya also has the
Water Services Trust Fund at the national level, which provides financing to water utilities to
improve their services – often for those underreached.

In Tanzania, Fred Lyimo shares that the new AfDB investment for sewerage will also include periurban areas, as well as sanitation facilities in public and institutional facilities.

Lena Saptalena explains that in Indonesia, there are several funding streams aimed to improve
services in low-income areas:
 National budget funds large infrastructure and national programmes
 National budget also funds Special Allocation Funds (called DAK) that can be accessed by
local governments to support low-income communities in their area.
 There is funding provided from the provincial level to local governments
 There are taxes raised directly at the local government level.

National and provincial funds are allocated on the basis of eligibility criteria as well as so-called
“readiness criteria”. The latter are conditions that a local government should comply with in order to
receive the funding. However, as Ika Yuniarti from Indonesia and others explain, sanitation tends to
have low priority for local governments. This means that it in practice compliance with readiness
criteria to access funds for sanitation, might not be their highest priority.

Lena writes that allocation to sanitation from local taxes tends to be very low – as there are many
competing needs. Moreover, the definition of sanitation in Indonesia is broad. It includes drainage
and solid waste which often have priority. Finally, in some cases, tax money has to be used for O&M
of the treatment plant, rather than covering that from tariffs. Due to all those factors, the potential
of reducing inequality may not be fully realised in Indonesia.

No, the use of taxes and transfers is not reducing inequality

As mentioned above, 25% of contributions stated that the current use of taxes and transfers not
reduce inequalities and 40% said: “yes and no”. The main argument is that the amounts of
investment going to the wealthier groups are so much higher. For example, the 233m USD AfDB loan
for sewer in Arusha – for 30% of the population. This comes down to 1,450 USD/cap. The 150m USD
loan from ADB going to sewer in Khulna covering about 20%? of the city (if 20% that would be about
500 USD/cap). And the example by Alyse Schrecongost from the USA. She mentions an investment
of 500m going to networked sanitation services, versus 30m going to the 75% of the non-networked
population. This means that the investment per capita in the networked area is about 50 times
higher. Flaviana Kifizi from Shinyanga in Tanzania reflects that the sanitation investments in her city
will be directed at the people who already have with water connections, excluding those who still do
not have water.

Based on these higher amounts of capital investment (benefitting people in formal settlements who
have already services), it is concluded that often the sanitation investments paid by taxes and
transfers do not reduce but increase inequality. Furthermore, Alyse explains that the loan conditions
for networked sanitation investments tends to include long grace periods, while loans for on-site
sanitation investments tend to have much shorter duration.

It should be noted that several contributions do caution not to equate networked areas with high
incomes and non-networked areas with low-income. While this is often the case, it is not a given and
can differ per context. Moreover, there are cases where part of the investments goes to sludge
treatment plants and/or decentralised solutions for lower income areas.

The inequality in the allocation of investments does not only take place within the city, but also
among cities. Dorothee Absalom from Tanzania and Horácio Quembo from Mozambique explain that
such large investments prioritise the capital and biggest cities, while the majority of small cities will
have to wait. Yet the taxes are paid by all.

Aside from inequality in terms of infrastructure investment (type a. and d. costs of the first topic)
several of you point to the use of taxes in covering the costs of ongoing operations. Patricia
Solorzano shares that in Honduras one of the challenges is the transparency of the allocation of
taxes and transfers. This is related to the application of reduced tariffs by large companies and
overall lack of willingness to pay. As a result, the income from tariffs is too low and it is not unusual
that in practice taxes and transfers are also covering ongoing operation and maintenance costs. This
point was also made by Lena above. Yerri Noer Kartiko from Indonesia explains that in his city, the
tariff is unlikely to ensure sustainability of FSM services, and while this may be covered at the
moment by local taxes, it is a vulnerable arrangement. With a change in government, staff and/or
the mayor, the priority for sanitation can shift. Therefore, he suggests an open dialogue with the
public is needed and potentially to introduce a polluter pay arrangement.


AD 2. DO YOU THINK THAT THIS IS EVEN A REALISTIC AND/OR DESIRABLE EXPECTATION?

About half of the contributions states that it is desirable as well as realistic for taxes and transfers to
contribute to great equity. Chola and Alyse say it is desirable, because without greater equity we
cannot reach the SDGs. However, 35% thinks that it may be desirable, but it is not realistic or at least
very challenging in the current context. The challenge lies in the fact that the tax base is small
compared to the needs and urbanisation rates (Chemisto, Fred). Furthermore, there will be
pressures from the formal sector who pays most of the taxes (Marc). In order to make a first step,
Chemisto says, it needs a full overview of costs along the sanitation value chain.

There are also some contributions that wonder whether it is desirable to prioritise investments for
the poorest as opposed to city-wide. The answer is probably that we need a balance, as in theory, a
well-organised, clean city centre (that is with the basic services such as water and sanitation), will
benefit economic development of the city and thus generate jobs for all. That includes jobs for the
people who live outside of the city centre. However, we also all know cities where two parallel
worlds co-exist: a city centre that looks like a luxurious Hollywood/ Bollywood/ Nollywood picture
and low-income areas with appalling conditions.

Overall you are advocating for greater awareness about which investments (both infrastructure
investments as well as subsidizing O&M with tax money) go where. It is important to be sensitive,
Reinilde says, to how investment affects all living in the city, so a first step is to know the population
and have data about the proposed interventions.


AD 3. IN YOUR VIEW, WHAT WOULD BE REQUIRED TO ENSURE THE USE OF TAXES AND
TRANSFERS CONTRIBUTES TO REDUCING INEQUALITIES IN SANITATION SERVICES? (OR SAID
OTHERWISE: “HOW?”)

There were many suggestions on how to ensure better use of taxes and transfers in terms of
reducing inequalities. I’ve grouped these into 5.

First of all, more durable investment and efficient operations, including better tariff setting

Lena makes this point, saying that we need to move away from the “build, neglect and rebuild”
practice in the sector. Alyse also mentions the need for better (financial) management by utilities.
Chola suggests that one of the key solutions is found in a well-structured tariff setting system for
existing (and future) services. Additionally, that would be a tariff, as Patricia writes, that is
transparent and well monitored.

Both Chola and Patricia advocate for a clear policy framework that sets service standards as well as
financing mechanisms for the poorest. Patricia furthermore suggests that there is a need for a
financing policy that rewards the efficiency of service providers, stimulates cost-recovery through
the tariff and defines subsidies for the poorest.

Prioritise investments in low-income and/or underserved areas

Many of you suggested to prioritise investment for low-income areas and slums, including
subsidizing construction of toilets (containment) as well as emptying services for the poorest Marc,
Flaviana, Dorothee, Lena and Fred say. They also highlight the importance of public facilities.
Chemisto suggests targeting investments to the areas with high urbanisation rates and/or urban
population growth.

Increase willingness and capacity to target investments low-income and/or underserved areas

There is still a lot of advocacy needed to increase the willingness of government and utility staff to
consider the different population groups and their differing needs Reinilde says. There should also
be greater clarity about the suitable technologies. Furthermore, it requires capacity strengthening
and improvement of data quality, two things which are also mentioned by Alyse and Patricia.

Work on regulation and accountability of stakeholders

Emily and Ika advocate for strong regulation so that ringfencing happens and pro-poor use is
transparent. Reinilde asks for regulators to allow utilities to charge a fee that can be used for on-site
sanitation service provision.

However, Horácio emphasizes implementation of the regulations. He also wants to see sanitation in
town plans and budgets. Potentially a dedicated sanitation agency makes a difference Chemisto
says.

Enabling environment for private sector to engage

Horácio, Reinilde and Alyse feel that an improved enabling environment for private sector can
potentially contribute to improved services. Alyse states that formalised affordable markets (for
sanitation services such as emptying) would attract both investment and allow for growth.

Head moderator of this discussion forum
(Funded via consultancy contract with Skat Foundation funded by WSSCC)

Dr. Elisabeth von Muench
Independent consultant located in Brisbane, Australia
This email address is being protected from spambots. You need JavaScript enabled to view it. Twitter: @EvMuench
Sanitation Wikipedia project leader: en.wikipedia.org/wiki/Wikipedia:WikiProject_Sanitation
My Wikipedia user profile: en.wikipedia.org/wiki/User:EMsmile

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