financial sustainability of wash services 1 dominique senn, seecon international gmbh

Financial Sustainability of WASH Services


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Dominique Senn, seecon international gmbh


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Contents

1. Introduction

2. Financial Sustainability Framework

3. Cost Analysis Tools

4. References

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• Recently, much effort has been directed towards the spatial expansion of WASH (Water, Sanitation and Hygiene) services.

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1. Introduction

Source: http://de.slideshare.net/ircuser/costing-sustainable-services-the-lifecycle-cost-approach-12113668 [Accessed: 28.08.2013]

Investing in WASH Services (1/4)



• Spatial expansion = creation of new or up-scaling of existing infrastructure need for initial capital investment

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1. Introduction

Source: http://tap.waterforpeople.org/usercontent/site_6/s13/1000139565/179/watertaps.jpg?extra=FA [Accessed: 27.08.2013]; MORGAN (2007)





• With elevated coverage rates (>60%), most money should be spent in existing infrastructure in order to maintain the service level.

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1. Introduction

Source: http://tap.waterforpeople.org/usercontent/site_6/s13/1000139565/179/watertaps.jpg?extra=FA [Accessed: 27.08.2013]; http://etc.usf.edu/clipart/37600/37662/hdstack-07_37662_lg.gif [Accessed 27.08.2013]; MORGAN (2007)




Spatial coverage maintenance need for capital

recurrent expenditures, support efforts, capital expenditure

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1. Introduction

Source: MORIARTY (2011)

!



Importance of Financial Sustainability of WASH Services (1/3)• But, in most cases, donors concentrate exclusively on

initial capital expenditures.

• Accounting for recurrent costs is often forgotten.

Infrastructure decays, resources are wasted, people have no access to water and sanitation services.

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1. Introduction

It is estimated that in rural areas 30-40% of WASH systems do not function or operate significantly below design expectations (AGUASAN 2012).Source: http://www.philippinecollegian.org/wp-content/uploads/2013/07/inside-illus-e1374721492923-900x425.jpg [Accessed: 23.08.2013]



Importance of Financial Sustainability of WASH Services (2/3) To keep water and sanitation systems functioning, regular

capital maintenance is indispensable.

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1. Introduction

Regular capital maintenance (blue line) is indispensable to avoid a decline of service levels (red line).Source: FRANCEYS & PEZON (2010)



Importance of Financial Sustainability of WASH Services (3/3) To ensure regular capital maintenance and financial

sustainability, ALL costs need to be considered when WASH systems are planned!

Cost and finance planning must be an integral part of ensuring sustainability.

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1. Introduction

Source: AGUASAN (2012)



Cost Components of WASH Services (1/2)

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1. Introduction

CAPITALEXPENDITURE

Initial costs of putting new services into place: „hardware“ such as pipes, toilets and pumps and one-off „software such as training and consultations.

OPERATION AND MINOR MAINTENANCE

Routine maintenance and operation costs that are crucial to keep services running, e.g. wages, fuel, or any other regular purchases. Neglect has long-term consequences for service delivery.

CAPITAL MAINTENANCE

Occasional large maintenance costs for the renewal, replacement, and rehabilitation of a system. These essential expenditures are required before failure occurs to maintain a level of service. This is one of the most frequently „forgotten“ costs.



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1. Introduction

EXPENDITURE DIRECT SUPPORT

Pre and post-construction support costs not directly related to implementation, e.g. training for community or private sector operators or user groups. These costs are necessary to achieve long-term functionality and scale.

EXPENDITURE INDIRECT SUPPORT

The costs of planning and policy making at governmental level and capacity building of professionals and technicians. These costs have a direct impact on long-term sustainability.

COST OF CAPITAL

The cost of borrowing money or investing in the service instead of another investment opportunity. It has a direct impact on the ability to maintain a service financially.

Cost Components of WASH Services (2/2)



Tools to Ensure Financial Sustainability of WASH Systems

Cost and finance planning must be an integral part of ensuring sustainability.

• Tools, which can help to ensure that WASH Services are sustainably financed and deliver services long after their implementation are: ◦ Financial sustainability frameworks◦ Cost analysis tools, including:

- Life-cycle costs analysis- Cost-benefit analysis- Strategic financial planning

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1. Introduction



Six Key Elements to Financial Sustainability of WASH Services

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Source: http://www.skat.ch/publications/prarticle.2005-09-29.5069774463/prarticle.2005-09-29.1875579521/skatpublication.2012-12-19.5550148854/image1 [Accessed: 23.08.2013]



Important Aspects of the Key Elements (1/2)

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Conducive legal and policy framework; defined roles and responsibilities of all stakeholders; independent regulatory body; predictable sector financing and planning; monitoring and evaluation; accountability and transparency.

Identification, quantification and monitoring of recurrent costs in their entirety; match costs with revenues; include often forgotten costs; ensure availability of necessary capital maintenance funding.

Equitable bearing of burdens of improved services; mobilize revenues from tariffs, taxes and transfers; assure access to the poor.



Important Aspects of the Key Elements (2/2)

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Integration of the socio-cultural context; responsiveness to institutional and organisational contexts, household-centred problem-solving.

Administrational, managerial, technical and analytical capacity building; institutional development; resources allocation; training activities; institutional support.

Committed leadership; demand-responsiveness and understanding at the local level; advocacy strategies; identify, understand and value economic benefits.



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• Life-Cycle Costs

Approach

• Cost-Benefit Analysis

• Strategic Financial

Planning

Source: http://www.skat.ch/publications/prarticle.2005-09-29.5069774463/prarticle.2005-09-29.1875579521/skatpublication.2012-12-19.5550148854/image1 [Accessed: 23.08.2013]

Three Tools for Financial Planning



Life-Cycle Costs Approach

Objective: to estimate the disaggregated costs of all elements of service provision to ensure delivery of an adequate, equitable and sustainable WASH service level to a population in a specified area.

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Source: AGUASAN (2012)



Cost-Benefit Analysis (1/2)

Objective: to understand the relation between costs and benefits of a water supply or sanitation policy or intervention and compare them in monetary units.

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Source: http://www.rollonfriday.com/Portals/0/Images/cost_benefit.jpg [Accessed: 25.08.2013]

Benefits:•Health benefits•Environmental benefits•Social and private benefits•Broader economic benefits•...

Costs:•Capital expenditure•Cost of capital•Operation and

maintenance expenditure•Capital maintenance

expenditure•Expenditure on direct

support•Expenditure on indirect

support



Cost-Benefit Analysis (2/2)

Compare different policy or intervention options e.g. with regard to their benefit-cost ratio (ratio by which benefits exceed costs), internal rate of return (annual rate of return on an investment) or payback period (period after which the net benefits become positive).

utilise these results for better advocacy and decision-making.

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Benefit-cost ratios of different sanitation service options.Source: WSP (2011)



Strategic Financial Planning (STF)

Objective: make financing of infrastructure and services more predictable by considering different aspects in a comprehensive long-term analysis.

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AGUASAN (Editor) (2012): Briefing Note: Financial Sustainability of WASH Services – About Mindset Change and an Eye for the Future. St. Gallen: SDC, Eawag/Sandec, HELVETAS, Skat. URL: http://www.aguasan.ch/ws2012/AGUASAN28_briefing_note.pdf [Accessed: 23.08.2013]

FRANCEYS, R. ; PEZON, C. (Editor) (2010): Services are forever: The importance of capital maintenance (CapManEx) in ensuring sustainable wash services. Briefing Note 1b. The Hague: IRC International Water and Sanitation Centre. URL: http://www.washcost.info/page/866 [Accessed: 24.08.2013]

MORGAN, P.; EcoSanRes (Editor) (2007): Toilets That Make Compost . Stockholm: Stockholm Environment Institute.

MORIARTY, P. (2011): Life-cycle cost approach policy meeting. Unpublished presentation.

WSP (Editor) (2011): The Economic Returns of Sanitation Interventions in Yunnan Province, People’s Republic of China. Washington DC: Water and Sanitation Programme, Worldbank. URL: http://www.wsp.org/sites/wsp.org/files/publications/wsp-yunnan-economic-returns.pdf [Accessed: 23.08.2013]

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6. References

Financial Sustainability of WASH Services 23

“Linking up Sustainable Sanitation, Water Management & Agriculture”

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financial sustainability of wash services 1 dominique senn, seecon international gmbh

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