SNV egroup Discussion Topic 3: Tools and limitations of tools (sustainable cost recovery and equity in urban sanitation)

  • Antoinette
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Topic 3: Tools and limitations of tools (sustainable cost recovery and equity in urban sanitation)

“SUSTAINABLE COST RECOVERY AND EQUITY IN URBAN SANITATION”
TOPIC 3: TOOLS AND LIMITATIONS OF TOOLS
14th – 20th of November (note by moderator: the dates were for the egroup discussion but you can post in this thread any time)


Dear colleagues,

Though contributions are still coming in on the second topic, time flies and we have already come the third and final topic of our discussion on “Sustainable cost recovery and equity in urban sanitation”. This third topic is about tools for understanding financing and/or equity, and the strengths or limitations that we see. The topic runs from today, 14th of November till next Wednesday 20th of November.

In the first topic many of you explained that it difficult to assess the financial health of sanitation services along the sanitation chain due to:
• Fragmentation of the chain
• Lack of ringfencing of finances
• Lack of reliable data

In the second topic, several people said “yes and no”, indicating that it really depends on the situation whether or not taxes and transfers contribute to reducing inequalities.

Yet there are many tools that aim to address one or more of those issues:
• Costing along the sanitation value chain
• Financial sustainability of services
• Equity of the use of public money
By tools I mean: methodologies, guidelines, but also the interactive calculations in the FSM toolbox.

In this third topic we would like to hear your experience and reflections on the use of these tools. These are the questions:
1. Could you describe the tools that you have used (or know well) for decision making on urban sanitation finance?
2. What did you see as strengths and weaknesses of these tools?
3. How could these tools help (or not help) to make financing decisions that reduce inequalities?


I hope that you will find time to respond to these questions. Please feel free to include links of the tools and also other relevant resources, but please do not include attachments as these get stuck in the Egroup platform. As for the previous topic, you can contribute by replying to this email and please mention your name, organisation and country in your reply. This will help others to understand your message better.

Best,
Ant.

Antoinette Kome
Global Sector Coordinator WASH

SNV Netherlands Development Organisation
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  • paresh
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Re: Topic 3: Tools and limitations of tools (sustainable cost recovery and equity in urban sanitation)

Centre for water and sanitation (C-WAS) at CEPT University has developed a tool called SANIPLAN. It helps consultants to plan improvement actions and assess its implications on service levels (using service level benchmarks) and tariffs for partial/full cost recovery. One can also simulate scenarios and compare. They also have a dashboard that enables easy comparison.

The tool enables comprehensive city-wide planning for drinking water, sanitation, and SWM, it also incorporates the financial needs, both capital and operations expenditures with the local government's budget. The intersectoral links are also taken care of. My experience with using the tool is that it ensures that one doesn't overlook low hanging fruits i.e. no-cost/low-cost actions that can show immediate effects while major infrastructure needed is planned. One can get overwhelmed by the data requirements but any good plan will rely on adequate and good quality data.

The tool is available on their website www.pas.org.in and also a part of FSM toolbox

PS: I was involved in its refining and using it for city sanitation planning in a few towns.

Paresh

Paresh Chhajed-Picha
Doctoral Researcher, IIT-Bombay
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  • muench
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Re: Topic 3: Tools and limitations of tools (sustainable cost recovery and equity in urban sanitation)

This contribution was sent by Yerri from Indonesia for Topic 3:

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It is very important to develop cost equality related to sanitation development. It can not be determined only by the Government, either national or local level.

Unfortunetely, up to this time, the Government has not issued any specific regulation related to sanitation cost and/or budget. There is no national standard can be reffered for calculating and/ determining the retribution tariff, tax and transfer. So, it is very urgent and important for the Government to manage the budget allocation in sanitation through the regulation and standards, acceptance criterias about budget allocation, tariff for tax, transfer and retribution.

In addition to that, the Local government should invite all related stakeholder to discuss about the regulation on sanitation budget scheme, particularly practitioner, expert, universities, consultant, certain concerned people and public representatives as well.

Actually, our local government has issued local government regulation about the tariff for desludging or sludge spetic tank emptying services, but we do not have any spesific and detail calculation yet as a basic consideration.

In the annual budget allocation, the government has not conducted these activities, like I mentioned above. We cannot explain and answer and show detail data and spesific calculation when public ask some question about the tariff and budget allocation.

Besides regulations, standard, spesific and detail calculation, the Government needs some related and suitable verified data, research as well.
++++++++++

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  • Patricia77
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Re: RV: Topic 3: Egroup discussion Sustainable cost recovery and equity in urban sanitation

Dear all,

My name is Patricia Solorzano, I’m the Sector Leader WASH-SNV in Honduras. My contributions to topic 3 are generally::

Honduras since 2005 has the sector financial policy which is the set of objectives, principles, mechanisms, resources, entities and rules that determine and guide the financing structure of the WASH sector, in its sources and applications, to achieve the objectives of the Plan National Water and Sanitation, in particular: (i) Improve the quality and continuity of water supply, (ii) Expand the coverage of drinking water and sanitation services, (iii) Expand and improve water treatment and water treatment infrastructure residual; (iv) Increase the management capacity of service providers and (v) Advance in the institutional development of the sector.

This policy has some specific objectives:

a. Improve the financial self-sustainability of the sector through the adoption of tariffs, taking into account the users' ability to pay and the gaps between the rural sector and the urban sector cover the costs of operation, improvement, rehabilitation and maintenance of the systems and, allow the internal generation of a growing margin for the financing of investments in expanding coverage.

b. Promote the linking of the national, public and private financial sector and the construction sector to the financing and development of drinking water and sanitation infrastructure, reducing vulnerability, promoting adaptation to climate change through credit lines accessible to municipalities and service providers, as well as the realization of Public-Private Partnerships.

c. Promote that the municipalities and providers, as established in the Framework Law of the Drinking Water and Sanitation Sector, apply the total income from the provision of PHC services and that these are fully invested for the performance and improvement of the same benefit, including: Administration, operation, maintenance, expansion, vulnerability reduction, adaptation to climate change, service improvements and protection of water producing sources.

d. Seek that the municipalities allocate a growing portion of the transfers they receive from the Central Government, to finance the investments with the greatest impact on drinking water and sanitation; also, that other financing mechanisms be promoted, for example, the contribution for improvements established in Articles No.139 and No.140 of the Municipalities Law; or, also the use of trusts to support social programs, or other financial instruments. Prioritize the budgetary contributions of the Central Government and harmonize donations, programs and projects of international cooperation, in accordance with the objectives and goals of the National Plan for Drinking Water and Sanitation and the Program for a Better Life.

e. Provide a firm, stable, independent and sustainable financial base to advance technical strengthening, professionalization, use of appropriate technologies and certification for adaptation to climate change of the governing and regulatory sector entities, as well as in a management by results.

Within the uses or applications of the financial resources, two main categories are distinguished within the policy: The own uses of the service and those of institutional strengthening. The service's own uses are broken down into Operating and Maintenance Expenses (OPEX) and Capital Expenses (CAPEX). Institutional strengthening applications include adequate financing of sectoral entities and financing of sectoral modernization processes.

Financing of Operation and Maintenance Expenses (OPEX). This category includes the operation and maintenance expenses which are always covered by the provider's tariff income. The unit costs of providing the services ($$. / M3 and $$. / User) are calculated by the provider based on the methodologies defined by the Regulatory Entity of the Drinking Water and Sanitation Services and will be applied according to tariff structures that allow focusing and making explicit the subsidies granted to the poorest population. The subsidies are financed with differentiated tariff structures, with more surcharge to users with greater payment capacity, with contributions from the municipal budget or with a combination of both sources; In any case, the average rate will be sufficient to cover the average cost of operation and maintenance.

Financing of Capital Expenditures (CAPEX). This category includes the investments required for the rehabilitation of the systems including loss reduction, measurement and those required for coverage expansion. Capital expenditures will be financed with tariff resources, budgetary contributions from municipalities or the Republic, international cooperation resources and contributions from the community in cash or in kind. Temporary sources of financing such as bank credit, municipal bonds and private sector contributions to investments made under public-private partnership schemes may also be used. The budgetary contributions of the municipalities or the Central Government, the resources of the international cooperation and the contributions in cash or in kind of the community, are not included for the purposes of calculating the profitability of the operators; however, the costs required for the maintenance of these infrastructures and for their replacement will be included in the costs of the services.

In 2017 at the local level in Honduras, a costing tool was promoted at the initiative of Water For People in Bolivia, IRC and Aguaconsult through an IDB-MIF fund, pretending to understand what those costs or different financial mechanisms to achieve coverage are. total, forever; and to what extent they are being covered in the municipalities. The main objective of the At What Cost (AQC) (‘’A que Costo’’ in Spanish) tool is to evaluate the balance between costs and income of a rural Water Management Board, in order to analyse adjustments to a financial balance that allows for proper operation and maintenance, and is affordable for users . A second objective of the tool is to establish reference rates. When applying the tool on a certain number of water joints, reference rates can be modelled for different types of joints. The target audience of the tool is the Water and Sanitation Management Boards. It serves to guide them on different aspects of the financial balance of their management.

In general, the application of the tool is done in four steps. 1) Make a projection of expenses of the Water Management Board for a period of 20 years. 2) Project the expected income of the Water Management Board. 3) Calculate a financial balance annually, establishing the amounts that the water board would have in reserve. 4) Scenario Analysis.
The methodology of application of the tool is done by collecting data based on interview and review of accounting data.

I think that to national level there is the regulation that could work well if it will be applied according to the guidelines stipulated, however the issue of tariffs, taxes, disaggregation by sectors does not work properly at present. This is due to the fact that there is no efficient monitoring and follow-up system for compliance with these tools. One of the weaknesses is that these or other tools, methodologies, etc. must be accompanied with effective monitoring, follow-up and evaluation mechanisms, therefore this should be periodically evaluated in a participatory manner, including: civil society, local government, providers, central government, and private sector, it is at this point that the greatest challenge would be. Also, there is a proposal study on financial mechanisms that has not yet been approved by the National Water and Sanitation Council in Honduras.

At the local level, the tool "At What Cost'' has been officially adopted by the water and sanitation regulator (ERSAPS in Spanish) as a support guide for the issue of rate calculation, however this is a general tool for Water and Sanitation in rural areas, there is nothing that is being applied to sanitation at urban and / or rural level.


Best Regards,

Patricia Solórzano Leiva

Patricia Solórzano
SNV | Leader Sector WASH, Honduras-Nicaragua
Cel. (504) 31869610
Telf. (504) 2239-6938
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Re: RV: Topic 3: Egroup discussion Sustainable cost recovery and equity in urban sanitation

The following contribution is from Kumbulani in Zambia for Topic 3. The e-mail contained several tables. Their formatting unfortunately got lost when I copied the text across from Outlook. I hope you can get the gist of it anyhow.

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I am Kumbulani Ndlovu SNV WASH Sector Leader Zambia. I would like to make my contribution from the perspectives on indicators used by SNV in its performance monitoring system.

SNV Indicators
Briefly, SNV has a performance monitoring framework whose “objective is to support stakeholder learning and reflection about the programme and their progress towards sustainable services…... Monitoring at regular intervals helps to improve a programme and ensure efforts are moving in the right direction.” By providing the status say at Baseline in each of the indicators, SNV and its partners are able to have a shared understanding of what is being measured, develop an agenda for action informed by these findings and then periodically able to assess the extent of progress being made in the relevant indicator. The framework measures access and use of safely managed sanitation services and safe hygiene practices through Impact Indicators whilst capacities at individual, organizational and inter organizational are measured through Outcome indicators. It is in the Outcome Indicators where measurement / assessment of financial issues is done through 3 indicators i.e.:

1. Progress on affordable FS emptying and sewer services
Here the cost of a service e.g. emptying is assessed and compared to another service (water bill) or even a monthly HH cash income. These are then rated using 5 levels i.e. 0 – Not affordable; 1 – High priced; 2 – Medium priced; 3 – Moderately accessible and 4 - Affordable
The benefit of this exercise is that it helps to review existing fees/ charges to ensure they make business sense and are also affordable to clients. See below examples extracted from the Zambia WASH SDG Programme Baseline taking into account cost of emptying by town as well as that of connecting to sewer.
Emptying
Kabwe Kasama Mbala Mpulungu Nakonde
Average monthly household cash income of the two lowest wealth quintiles in the town or city
K500 K300 K200 K150 K300
Average monthly water bill
K24 K93 K93 K93 K50
Price of emptying (Manual informal)
K150 Nil K150 K2500 K500
Price of emptying (Mechanical – Vacuum)
K550 K1500 N/A N/A K2500
Comparison costs of the selected service with the total sanitation expense in a month (Manual) 1 : 6 Nil 1 : 1.6 1 : 27 1 : 10
Comparison costs of the selected service with the total sanitation expense in a month (Mechanical) 1 : 23 1 : 16 Nil Nil 1 : 50
Table 6 Comparison cost of emptying (manual and mechanical) against water bill by town

Sewer
Kabwe Kasama Mbala Mpulungu Nakonde
Average monthly household cash income of the two lowest wealth quintiles in the town or city K500 K300 K200 K150 K300
Average monthly water bill K24 K93 K93 K93 K50
Price of sewer tariff and connection fee K40 K18.6 K27.9 N/A N/A
Percentage of monthly income against total sanitation expense in a month 12.5:1 16.7: 1 7:1 N/A N/A
Comparison costs of the selected service with the total sanitation expense in a month 1:1.7 5.1:1 3.4:1 N/A N/A
Table 7 Comparison cost of sewer connection against water bill by town

The above analysis helps to determine affordability levels for Households and this is presented in the table below.

Emptying
Level Kabwe Kasama Mbala Mpulungu Nakonde
0 – Not affordable
1 – High priced
2 – Medium priced
3 – Moderately accessible
4 - Affordable
Table 8 Affordability score for emptying services by town

Sewer
Level Kabwe Kasama Mbala Mpulungu Nakonde
0 – Not affordable

N/A

N/A
1 – High priced
2 – Medium priced
3 – Moderately accessible
4 - Affordable
Table 9 Affordability score for sewer connection by town



2. Progress towards financially sustainable FS emptying service provision (cost-recovery and profit)
Through an expenditure and income statement, the basic level of financial health of the faecal sludge emptying service is measured see table below with fictitious figures.
Town A
Income 800,000
Expenditure 920,000
Profit (80,000)

There is further assessment to determine of the fee includes O&M or not; covers O&M and capex or whether profit is realised after covering O&M and capex. This analysis helps to determine how realistic and cost reflective a tariff is for FS services. Informed by the findings, a Utility for example can then strategise on how to rectify the situation by gradually moving to a situation where tariffs result in profit after covering O&M and capex enabling substance of service provision.

3. Progress towards financially sustainable sewer service
Generally for sewer services, full cost recovery may be unrealistic hence capital costs tend to be subsidized. Here the major issue is to establish if the operating revenues are sufficient to cover the operating expenses. If so, whether there is money generated to cover debts or investments. For countries where there may be no national benchmarks (for Zambia NWASCO has provided these), the following IB net indicators can be used:
- Collection ratio (actual cash income vs. billed revenue): 85% benchmark
- Operating cost coverage >=1 (total annual operational revenues/total annual operating costs)

Below are the areas assessed under this indicator
Does the service provider have:
1. A defined, approved, tariff and connection fee based on a transparent calculation?
2. A functioning billing and collection system?
3. An up-to-date customer database?
4. A process for handling defaulters (of payment)?
5. A procedure to support alternative payment arrangements?
6. Regular indexation of tariff? (Annual= full-fledged)
7. An understanding and records of full costs and revenues related to sewer services?
8. Has targets and objectives for improved efficiency in tariff collection and covering operating costs
9. An acceptable collection ratio? (paid versus billed income)
10. Positive operating cost coverage (1= basic)

The analysis / assessment helps to provide an understanding and records of full costs and revenues related to sewer services. It is noted that in many countries this is only developed for water supply.

Regards

Kumbulani Ndlovu
WASH Sector Leader, Zambia

SNV Netherlands Development Organisation
7 Nkanchibaya Road | Rhodes Park | Lusaka | Zambia
www.snv.org

++++++++++++

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