Under Sanitation Capacity Platform (SCBP) Regional Faecal Sludge Management Orientation Workshop for Urban Local Bodies Financing and structuring of FSM projects -Concepts and ideas Presented by Sandhya Haribal iDeCK, Bangalore Date: December 23rd & 24th 2016 Place: Lucknow Under Sanitation Capacity Platform (SCBP)

We have sanitation challenges! Sanitation Capacity Building Platform What is it? Collaborative effort by NIUA for Mainstreaming Fecal Sludge Management at the state level and national sanitation agenda. Working with Expert Partner organsiations for FSM solutions, upscaling of capacity building and national level advoacy with the NFSSM group. We can help you! We have sanitation challenges! WASHi ULB

Market for FSM Latrine facility Available within premises Flush/pour flush latrine connected to Other non- sewered Potential Market for FSM Total number of households in lakhs Piped sewer system Number of households in lakhs Septic Other tank system 22.2 2.3 19.9 1.8 19.1 1.3 16.6 1.9 16.0 2.3 15.7 1.0 13.6 1.6 40.0 1.4 24.7 15.9 Particulars In %age 2,467 46.9 12.0 10.4 34.9 861 India Uttar Pradesh 329 35.7 8.1 5.8 27.5 91 Madhya Pradesh 150 28.8 5.8 2.8 23.2 35 56 24.6 2.5 3.6 22.1 12 Chhattisgarh 189 23.1 1.8 3.0 21.3 40 Bihar 62 22.0 3.7 1.7 18.4 11 Jharkhand 97 22.0 2.5 4.4 19.6 19 Odisha 20 65.8 11.8 12.5 53.9 11 Uttarakhand 5 89.3 6.1 42.8 83.4 4 Manipur 1 87.2 11.8 59.8 3.4 12.3 75.5 1 Sikkim

Financing of FSM Projects

Financing options- National Government Source Component Amount allocated Issues/ Concerns Atal Mission for Rejuvenation And Urban Transformation (AMRUT) Fecal Sludge management Based on SLIPS and SAAPS prepared – O & M not covered in project costs though computed for 5 years 80% of annual budgetary allocation as project fund 10% of annual budgetary allocation for reforms Most of SLIPs/SAAPs focussed on centralized sewer systems with Large STPs Lack of understanding on the concepts/planning aspects Swaccha Bharat Mission Construction of toilets Construction of toilets with septic tanks/pits Households toilets-Rs. 4,000 per household. No bar on additional resources to be provided by State Government/ULB 40% Grant/VGF for community toilets and remaining through other resources Beneficiary identification End usage of the toilets due to other issues like continuous water supply, behavioural issues etc. Land availability and viability in case of CTs & PTs Backward Grant fund- CTs & PTs All Components Rs, 250 Crore for Capacity Building and Rs. 5000 Crore for development grant Only about 5.4% of the total development grant used in sanitation Delays in fund allocation from Centre to States National Safai Karamcharis Finance & Development Corporation (NSKFDC) Various soft loans for starting feasible businesses in sanitation – 1% - 6% with 10 yrs repayment Upto 90% of unit cost with max of 15 lakhs, balance 10% from Channelizing Agencies (CA) or promoter Limited to only Safai Karmacharis/Manual Scavengers and their kin & CA

Financing options- Local Government Source Component Amount allocated Issues/ Concerns SFC Grants/any other State specific grants All Components As per discretion and fund availability of the ULB Financial health of ULBs (limited sources of revenues in sanitation) MP Local Area Development Scheme (MLALADS) All Components- Asset creation only Rs, 5 Crore per MP per year Funds are non-lapsable Focus on community or school toilets only MLA Local Area Development Scheme (MLALADS) - CTs & PTs Construction of CTs & PTs - Asset creation only Rs. 4 Crore per MLA per year for asset creation with each project not exceeding Rs. 2 Crores No purchase of equipment/inventory allowed Lack of intensions/importance to sanitation assets Unused funds can be carried over for upto 4 years 22.5% scheme for development of SC/ST Construction of CTs Applicable for slums having more than 90% population of SC/STs Limited to only asset creation 7.5% scheme for development of BPL Construction of HHLs/CTs and cleaning of drains 7.5% of any externally funded scheme to be used for upliftment of BPL families Limited to asset creation and applicable on a small scale

Financing Options- Non-Government Financing Options- Non-Government Source Component Amount allocated Issues/ Concerns Multi-lateral funded programs/ projects- World Bank, ADB, DFID, JICA….etc. Not covered specifically for FSM Depending on the total project outlay worked out as a part of a larger strategy Do not explicitly cover sanitation/septage management More focussed on centralized sewer networks Philanthropists/ International Foundations/ Research bodies All components 100% for creation of assets, with a possibility of inclusion of O & M costs Usually small scale pilots Possible only through continued local support CSR funding All Components- Asset creation only 100% for creation of assets, with a possibility of inclusion of O & M costs Possible only a continued push/interest from both the private corporates as well as local Governments/ULBs Source Component Amount allocated Issues/ Concerns Multi-lateral funded programs/ projects- World Bank, ADB, DFID, JICA….etc. Not covered specifically for FSM Depending on the total project outlay worked out as a part of a larger strategy Do not explicitly cover sanitation/septage management More focussed on centralized sewer networks Philanthropists/ International Foundations/ Research bodies All components 100% for creation of assets, with a possibility of inclusion of O & M costs Usually small scale pilots Possible only through continued local support CSR funding All Components- Asset creation only 100% for creation of assets, with a possibility of inclusion of O & M costs Possible only a continued push/interest from both the private corporates as well as local Governments/ULBs

Financing options- Others User charges Additional/special taxes on property/ sanitation cess Cross subsidization with other revenue generating activities Land bank monetization Out-of-the box ideas!! Impact investments – By Venture funds/Phillanthropist Performance based grant funding- Partnership of multi-lat banks with donor agencies/foundations Micro-finance Crowd funding for defined social causes

Key concerns!! Access Quantity Viability Monitoring • How to tap the available finance resources? Access • Is the new project permissible under existing laws? • Project preparation and approval processes • Extent of financial support available Quantity • Size limitations on the project/s • Probable sources of revenues to set off cost of investments Viability • Eligibility of project proponent for generating revenues • Incentives for good performance • Who will monitor and regulate the project? Monitoring • Penal mechanisms to ensure continued performance

Project Development Process Step-by-Step activities to be undertaken

Project Structuring Key Elements for Consideration Scope Cost Recovery What is the scope of the “overall” project? How can costs be recovered? Should the public sector support the financing? Which tasks/responsibilities can be undertaken by which stakeholder Should the tariff / user charges be regulated? Duration Contract Variants How long should the contract last? How preferred risk allocation impacts the choice of a modal variant? 10

Key activities of project development Identification of best technology option Financial feasibility Assessment Needs Assessment Procurement of suitable service provider Monitoring, reviewing & evaluation Implementation Structure 11

Need Analysis Purpose & Key Elements Enables ULBs to more accurately assess the service needs & define the delivery levels required in line with the government priorities. Define delivery outcomes Need Analysis Template Identify service need Collect information on existing service levels Identify the service need and its scope based on stakeholder consultation and Government priorities Provide explicit but broad description of the service need to be met and its objectives Decision to proceed to the options analysis stage 12 12

Need analysis Assess services required Is there a pressing need for PARAMETERS EXAMPLE Only 20% of households Is there a pressing need for change in service? having getting services septic tank are regular cleaning 100% reach to all What are the desired outputs? Focus on services not assets households Regulated extraction services for Economic benefits to population Sustainable sanitation is ULB‟s top priority What are the expected benefits to stakeholders? Is it in line with Govt priority? 13

Need analysis Identify and analyse service delivery options Service need: Reduce environmental pollution Range of possible delivery options Criteria Description Example Existing asset solutions Existing infrastructure held by institution might be used. This may involve upgrade or refurbishment to bring the infrastructure to required standard. Additional vacuum trucks of varying capacities to be procured Non-asset solutions Service needs may be met creating additional assets, reconfiguring the means of without through service Efficient vacuum optimum the city utilization of trucks through routing through delivery, demand management, etc.. New based asset- New infrastructure may be developed, in case service need cannot be met by above two options. Construction of large sized collection tanks for high density population in the vicinity solutions 14

Option Analysis Purpose & key elements Confirm Need Analysis •Aids identification of a set of preferred technology/delivery options to address service need and enables clear rationale for further evaluation (of these options) •Also supports efficient planning and decision making Confirm Need Analysis Consider options Evaluate Options Option Analysis Template Note: „Option‟ analysis here refers to „service delivery options‟ or possible solutions to address service need, this is different from project implementation options analysis. 15

Key Elements of Option Analysis Confirm Need Analysis Option Analysis Consider options Evaluate Options Template Executive Summary Description of service requirements Project function, objectives and critical success factors Alignment with strategic objectives Stakeholder identification Option analysis Outcomes Project delivery alternatives Preliminary risk assessment Preferred option Actions to progress to the feasibility stage Supporting documents Sign-off 16

Financial feasibility analysis Purpose To quickly establish that the identified project has merit to be taken up by the ULB and then a high level check to verify suitability of the project being developed Key questions: Whether the project is prima facie feasible? Whether the project is suited for development in the city? 17

Key Inputs for Feasibility Assessment Demand Estimation - population/ volume of septage to be extracted & treated, composition and growth estimates – accurate demand estimates – lead to reliable revenue flows from projections Estimates of Base Construction Cost and Total Project Cost – site specific issues, distance from treatment plant/ key inputs, uncertain ground conditions – more detailed the investigations and surveys, more accurate the costs Operations and maintenance costs Key input for assessment of financial viability – impacts structuring decision Often operations and maintenance costs are ignored, which in many projects of the government could be more than the capital investment Sometimes operations and maintenance costs are under-estimated leading to failure of the project structure or over estimated leading to rejection of the project

Identification of Risks Component ULB Service Provider User/Beneficiary Toilets- CT & PT O & M expenses Under-use of asset Faulty design Performance Monitoring Financial sustainability Safety concerns Dynamic market players Viability gap funding Pricing of services Septage extraction & Conveyance Regulation of services Pricing dynamics Timely availability Capital investments Recurring O & M Costs Health & Safety Treatment & disposal Availability of funds Continuous availability of design FS quantity Technology risks Performance monitoring Timely payments from client Continuity of services Availability of land O & M Costs

Key questions to be asked for Project Structuring What should be the time frame for which the project is handed over to the private operator? What is the price (user fee) level for making the project viable? Would users be willing to pay such rates? If the ULB would pay for services – how sustainable are the payment sources? Is there a need for a dedicated source of funds or for ring-fencing Govt. funds for this purpose? Are there any additional sources of income for the project? For instance by commercial utilization of additional unused land, advertisements etc. – if so, to what extent?

Key questions to be asked for Project Structuring In case the project is not financially viable at an acceptable tariff rate, how much of government grant is required? Should the government grant be one-time or spread over the project period? While the pricing/ cost issues that are quantifiable get intensely discussed, other issues may get sidelined – for instance – engaging existing safai karmacharis, handling existing commitments, land acquisition, shifting of utilities – these can become impediments later

parameters for the assets to be created – construction and O&M Final Outputs Compile all the data pre-requisites necessary for bidding This obviates need for multiple investigations by bidders More thorough this effort, more competitive are bids likely to be Define performance parameters – input/ output based parameters for the assets to be created – construction and O&M Finalize user fee arrangements/ payment structures where ULB would make payments Bid documentation Finalization of appropriate evaluation criteria – based on these inputs Incorporate project specific issues

Bid Documentation Expression of Interest / Request for Qualification Document Instructions to Applicants Qualification parameters and methodology for Evaluation Formats for submission of application Request for Proposal Document Instructions to Bidders Formats for submission of proposals Draft agreement Legal provisions Technical specifications Project schedules Project Information projects Memorandum- In case of large/complicated

Project Implementation Detailed Engineering, Designs and Drawings Project Planning - Procurement (fixed price or unit rate), activity scheduling Project Contracting - procurement/ activity plan Land and Site Delivery Financing Arrangements - Financial Close Construction - supervision and monitoring arrangements Testing and Commissioning

Project Operations Operations Maintenance and Maintenance - Routine, Periodical, Major Revenues - Billing and Collection Costs - Operating and Financial Monitoring - Internal Budgets/ regulator, users Quality of Service - Increasing reliability - Customer Interface Pricing/Tariffs Hand back, Refurbish or Scrap External - lenders/ investors; need to deliver to standards;

Options for project implementation Contract for operating services Build-Own-Transfer (PPP) Engineering Procurement Construction model Public-Private-Community partnership Toilets Operating Contracts Invest & Operate Contracts Fixed quantity contracts Extraction & Conveyance Contract for operating services Build-Own-Transfer (PPP) Engineering Procurement Construction model Public-Private-Community Treatment & Disposal partnership

Thank You www.niua.org National Institute of Urban Affairs Core 4B, India Habitat Centre, Lodhi Road New Delhi 110003 011- 24617517 agupta@niua.org, jdash@niua.org

Activity 28 Particulars ULB Private Operator/Service Provider Users/Beneficiaries Immediate Preparation of database Survey and data availability Toilet construction requirement Toilets coverage Convey benefits to people Cleanliness/safe / Priorities Procurement of trucks No. of vehicles required environment Identification and acquisition of based on quantum Good services at low cost land Staff salary Taxes are high/service Finance for project Land requirement- area quality?? Technical Support Timely service Staf/manpower Preparation of DPR Public Consultation Key issues/ Land availability No. of toilets/septic tank Access to high density areas Challenges Availability of finances (market analysis) Undulated/narrow lanes Political will No. of employees for de- where trucks do not reach Availability of technical sludging Services to all segments of consultants Salary society Service delivery Capacity buliding of operators Decentralized mechanism//ward wise Suggestions Grant from Govt. Facility should be easily Tailor made localised Ward level projects provided-performance solutions PPP models may be adopted Training & awareness Universal access User charges may be collected Ward wise planning Service Level benchmarks Convergence of all schemes- Innovative mechanisms for for FSM NULM, fixing of rates/CLC commercial benefits- Norms for new Public consultations shops, nursery, etc. constructions- Guidelines Projects on long term basis on PPP Charter of services framework (integrated contract) Registration of masons Model projects/pilots 28