RTTC cost calculation: including capital costs?

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Re: RTTC cost calculation: including capital costs?

Dear Florian,

Thanks a lot for your - as always! - helpful post.
I agree that one cannot give general values that hold true in all cases. But I am referring specifically to the value stipulated by the Bill & Melinda Gates Foundation's Reinvent the Toilet Challenge. Don't you think that if they give a value (0.05 US-cent per user per day), then there should also be agreed values on:
  • Life-time
  • Discount rate
  • Maximum allowable number of users per toilet?
Because maybe otherwise, every grantee can just pick and choose values that make his or her technical solution look good, i.e. very affordable?
Or would it at least be possible to determine typical values on a country basis. E.g. use discount rate x in Bangladesh but discount rate y in Kenya.

Or do I have a view that is too simplistic? (Like you, I am a layman - or rather laywoman - with respect to economics)

Regards,
Elisabeth
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  • Florian
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Re: RTTC cost calculation: including capital costs?

muench wrote: I.e. what values to use for life time (in years) and discount rate (in %) to convert a capital cost into an annualised cost for sanitation infrastructure and services?


Dear Elisabeth,

I don't know all the washcost publications in detail, but I think that there can't be any general valid values of life time and discount rate.

I am rather a layman when it comes to economics, but I understand that capital costs are composed of the two fractions described in the graph above: capital expenditure and cost of capital. If you take a commercial or development bank loan for financing your infrastructure, the annualised capital costs are what you pay back to the bank every year, that is a part to pay back the actual loan (capital expenditure) and the interests (cost of capital). So the annual costs are determined by the loan conditions and the time you choose to pay back the loan (which should ideally be equal or shorter than the designed life-time of the infrastructure).

If the infrastucture is financed by a grant or partly subsidised, I would take the designed life-time of the infrastructure (that is the time until the new investments are needed to replace or rehabilitate the infrastructure) and local market conditions for the interest rates. That is basically what Christoph suggests in his examples.

I don't think standardised values for life-time and interest rates can be used, as this depends much on the technology, local conditions and other aspects. What is important is that the calculations and the values (e.g. life time) are made transparent, so one can assess if they are realistic.

Best, Florian

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Re: RTTC cost calculation: including capital costs?

Dear Florian,

Did you find anywhere in the various publications from the WASHCost project an answer to Christoph's questions above from 6 June? I.e. what values to use for life time (in years) and discount rate (in %) to convert a capital cost into an annualised cost for sanitation infrastructure and services? I haven't found it. It must be in there somewhere. I regularly feel a bit frustrated with those WASTCost publications. They are nice, but somehow not practical enough, for my liking.

So that 1-pager that Jonathan suggested above, is something that I would very much support.

Regards,
Elisabeth
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Re: RTTC cost calculation: including capital costs?

Hi Elisabeth,

good to point to the washcost project, this is very relevant for this discussion here.

Here an excerpt from the washcost material showing what cost elements should actually be considered when talking about full life-cycle costs or operational costs, most of them are actually always never considered in cost data:



Copied from this brochure here: www.washcost.info/content/download/1152/...ASHCost_Brochure.pdf

Regards, Florian

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Re: RTTC cost calculation: including capital costs?

Dear all,

I recently had an interesting conversation on Twitter with Catarina Fonseca (she is a worldclass expert on WASH costs and financing, working at IRC in the Netherlands). I thought I should copy it here in a way of archiving and because not everyone uses Twitter. Excuse the brevity of the questions and answers but that's the nature of Twitter:

Starting question:

Elisabeth von Muench ‏(@Ostella42) on 17 June:
Does 0.5 cent per user per day sound like the right cost for a sanitation service? @GatesFoundation @FonsecaCatarina

Replies:

Catarina Fonseca (‏@FonsecaCatarina) on 17 June
That's $182.5 per person per year, if all life-cycle costs inc. does fit into benchmarks www.washcost.info/page/2439

Elisabeth von Muench:
Thanks. Although isn't this rather on the high side? I found the benchmarks paper a bit confusing.

Catarina Fonseca:
Based on the 4 countries and if you take into account all costs... not really... let me know where I can help..

Plus it really depends on what you are trying to provide - a sanitation service is different from a latrine

Elisabeth von Muench:
Looking at it from the other angle: what cost is affordable (to be < 2.5% of household income)?

Catarina Fonseca:
That's a whole different question. There is no evidence or even %benchmark for what is affordable at HH level

But my PhD will be about that - so in 6 months we might have some answers.

Catarina's Twitter photo:


Regards,
Elisabeth
Dr. Elisabeth von Muench
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Re: RTTC cost calculation: including capital costs?

Dear Gustavo,

Are you able givs us some figures for your systems, expressed in the same way as outlined above? I.e. cost per user per day (capital and O&M costs taken together?).

Regards,
Elisabeth
Dr. Elisabeth von Muench
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  • gustavo
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Re: RTTC cost calculation: including capital costs?

Yes this is a very interesting topic!
we have some interesting data about small scale ( <10,000 people) DEWATS we have built in Bolivia www.aguatuya.org
Gustavo Heredia
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  • chrisully
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Re: RTTC cost calculation: including capital costs?

Excellent initiative.

I think that a simple reference document that steps out a consistent approach to costing is definitely required. Financial/economic costing information are being provided more and more in presentations and papers but the process and assumptions behind the calculations are often not presented.

Chris Sullivan
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Re: RTTC cost calculation: including capital costs?

I think the 1 pager is an excellent idea - that way everyone can be on the same page!
Stephen Sauder, M.Sc., M.A., B.A
Project Manager | Reinvent the Toilet
Centre for Global Engineering, University of Toronto
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  • jonpar
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Re: how to transform investment costs into "cost per use"

p.s. I wasn't serious about the bit about the grant !
Dr. Jonathan Parkinson
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Re: how to transform investment costs into "cost per use"

I was not aware until reading this discussion about the BMGF criteria.

On a positive note, it is good to see a donor is encouraging recipients of grants to consider operational costs as well as capital costs. It is the first time I have seen this articulated as a requirement for receipt of funding. I hope other funding agencies start to take this on board. So, I think we should congratulate BMGF for a step in the right direction.

BUT, evidently it immediately raises a whole host of questions about how to calculate the equivalent annual cost. It is not so difficult as Christoph's email demonstrates. But clearly some guidelines on this for grantees would be valuable.

I expect that the SuSanA Working Group on Finance and Economics could put together a 1 pager on this for BMGF if they would like us to. They can give is a grant to do so if they like!

At the same time we could send a communique to other donors to lobby them to take this on board.

Who's with me on this one ?

best regards,

Jonathan Parkinson

Programme Manager – Urban Sanitation Initiative
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  • gustavo
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Re: how to transform investment costs into "cost per use"

Yes Cristoph - I totally agree. This is the way different options should be compared... also when talking about sewage systems, wastewater treatment plants and water distribution system. You have to convert everything to USD/m3.

+++++++++++++++++
(moderator's comment (EvM): Gustavo: please introduce yourself and fill in your SuSanA profile information. Thanks)
Gustavo Heredia
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