Special Challenges of Urban Sanitation Jan G. Janssens World Bank WUP - WBI Water Supply and Sanitation Sector Reform Course Session 8 Special Challenges of Urban Sanitation Jan G. Janssens World Bank Dakar (Senegal), December 6 to 10, 2004  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Dakar, 6 to 10 December Context Sanitation lags behind water supply in coverage, but is mostly dependent on piped water Sanitation lags behind water supply in coverage, but is mostly dependent on piped water Adequate/safe sanitation is not just a private household issue, but a community-wide issue Adequate/safe sanitation is not just a private household issue, but a community-wide issue  World Bank 2004

Dakar, 6 to 10 December Objectives of urban sanitation Improvement/protection of health Improvement/protection of health –Safe removal of waste (liquid & solid) from homes and cities –Safe disposal/reuse to protect downstream users Protection of the environment Protection of the environment –Fish, vegetation, aquatic ecosystems –Water resource conservation – water demand management Urban development Urban development –Urban planning, extension, attraction to industry Optimal use of resources Optimal use of resources –Wastewater reuse for agriculture –Sensible investment/cost recovery issues  World Bank 2004

Dakar, 6 to 10 December Urban sanitation and health High density living in urban areas requires safe sanitation to safeguard community heath (typically requires a sewer network) High density living in urban areas requires safe sanitation to safeguard community heath (typically requires a sewer network) Lower density peri-urban areas can have low cost on-site systems which protect health Lower density peri-urban areas can have low cost on-site systems which protect health A safe facility in itself does not guarantee an absence of health risk  World Bank 2004

Dakar, 6 to 10 December Controlling disease within the city Faeces Future Victim Fluids Fingers Flies Fields/ Floors Food SanitationHygiene  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Ward City River & Environs Peri- domestic (street, school, work- place) Home The urban environment  World Bank 2004

(street,school, workplace) Peri- domestic Street Sewers Home House Connections An “engineer’s” view Central Treatment Works City Collectors Ward  World Bank 2004

Ward Sewer Mains House Connection Home Peri- domestic Street Sewer City Interceptor/ Collector River & Environs Treatment Plant/Outfall  World Bank 2004

Dakar, 6 to 10 December Some questions that arise Wastewater treatment standards  Objectives of standards: health, environment?  What standards can we afford?  Uniform treatment standards or vary with receiving water and its use?  Reuse of wastewater when there is water scarcity (industrial/irrigation) Sanitation and public health  How do we set priorities on sewerage investment?  Which towns?  Which streets?  Where is onsite sanitation (infiltration) acceptable?  World Bank 2004

Dakar, 6 to 10 December Urban sanitation issues Economics, Pricing and Finance  What is a realistic approach to paying for sanitation?  How can we balance investment decisions and priorities against available resources?  Customers are willing to pay for drinking water, but not for wastewater ?  In case of non-payment drinking water can be cut off, wastewater can not …  World Bank 2004

Dakar, 6 to 10 December Urban sanitation issues Institutional arrangements  Who is responsible for what?  Are different arrangements needed in small towns, large cities?  How is this decided/negotiated?  World Bank 2004

Dakar, 6 to 10 December Sanitation, hygiene and water Public health issues of faecal contamination is about more than “protecting water quality” Public health issues of faecal contamination is about more than “protecting water quality” “Groundwater protection” is not an absolute…it depends upon use of groundwater as to whether it is an issue “Groundwater protection” is not an absolute…it depends upon use of groundwater as to whether it is an issue How to target sanitation investments where they will have the biggest impact? How to target sanitation investments where they will have the biggest impact? Industrial wastes are an entire major topic that merits a workshop on its own! Industrial wastes are an entire major topic that merits a workshop on its own!  World Bank 2004

Dakar, 6 to 10 December Who needs to be involved? e.g. Min. of Public Works (finance, capital budget) Min. of Public Works (finance, capital budget) Min. of Economic Affairs and Finance (subsidy issues) Min. of Economic Affairs and Finance (subsidy issues) Min. of Health (health priorities, hygiene) Min. of Health (health priorities, hygiene) Min. of Environment Min. of Environment Municipality Municipality –Health department (priorities, hygiene promotion) –Urban development Utility (service provider, bill collector) Utility (service provider, bill collector) Householder (acceptance, bill payer) Householder (acceptance, bill payer) and Others… and Others…  None of the above can solve on their own!  World Bank 2004

Dakar, 6 to 10 December Understanding the technologies Network systems Network systems –Centralized and decentralized –Standard and condominial On-site systems On-site systems –Conservancy tanks –Septic tanks and variants (pour-flush etc) –“Dry” systems (pits, VIPs) Informal systems Informal systems –The “flying toilet”  World Bank 2004

Dakar, 6 to 10 December What are the lessons? Focus on the household… Focus on the household… –Where most disease transmission occurs –Which are most exposed, most vulnerable? Hardware and software Hardware and software –Hygiene is crucial to achieve health benefits –Hygiene is a challenge everywhere in the world…consistently shown to reduce diarrhoeal disease by up to 50% Many sanitation technologies do the job Many sanitation technologies do the job –…depends on the context…what can best serve the household?  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Institutions, and, regulatory framework  World Bank 2004

Dakar, 6 to 10 December Institutional arrangements Choice of delivery institution affects financing options Choice of delivery institution affects financing options –Water and sewerage/sanitation utility –Sewerage/sanitation utility (rare) –Local government provision (common)  World Bank 2004

Dakar, 6 to 10 December Water and sanitation services Drinking water supply Wastewater collection Wastewater treatment Domestic and industrial clients  World Bank 2004

Dakar, 6 to 10 December Functions in the water sector Drinking water supply Drinking water supply – –Intake – –Production and transmission – –Distribution – –Billing and collection Wastewater collection Wastewater collection –Transport –Billing and collection Wastewater treatment Wastewater treatment –Treatment –Discharge –Billing and collection  World Bank 2004

Dakar, 6 to 10 December Overall Objective The objective is to make the most efficient, effective and equitable use of the investments in sanitation The objective is to make the most efficient, effective and equitable use of the investments in sanitation  World Bank 2004

Dakar, 6 to 10 December Options Integration of all services Integration of all services Specialization of services Specialization of services  World Bank 2004

Dakar, 6 to 10 December Separate functions Specialization –high quality service –high reliability –adequate services but, triple: –billing and collection –laboratories –management –asset planning Drinking water supply Wastewater collection Wastewater treatment  World Bank 2004

Dakar, 6 to 10 December Separate functions allow for other combinations in institutional arrangements River Basin Management plays a role in wastewater collection and treatment River Basin Management plays a role in wastewater collection and treatment Wastewater collection combined with roads (Municipalities) Wastewater collection combined with roads (Municipalities) Separate systems for storm and wastewater Separate systems for storm and wastewater Urban drainage and solid waste disposal Urban drainage and solid waste disposal  World Bank 2004

Dakar, 6 to 10 December Integrate services Drinking water, wastewater collection, wastewater treatment Customer  Closed water cycle  One tariff including all services  Efficiency gains one laboratory billing and collection emergency service management  World Bank 2004

Dakar, 6 to 10 December Option: asset holding integrated; and operations separated (example: France) Asset holding integrated (Municipalities) Operator drinking water Operator waste water collection Operator waste water treatment  World Bank 2004

Dakar, 6 to 10 December Option: asset holding and operations integrated per individual service (example: Netherlands) Drinking water Wastewater collection Wastewater treatment Owner of assets and Operator: Drinking Water Companies Owner of assets and Operator: Municipalities Owner of assets and Operator: Water Boards  World Bank 2004

Dakar, 6 to 10 December Option: integration of all services including electricity (example: Casablanca, Morocco) All water supply, sanitation and electricity services, including investments and operations Municipality, contracted a concession with LYDEC  World Bank 2004

Dakar, 6 to 10 December (example: Tunisia) Option: integration of sanitation, but separated from drinking water (example: Tunisia) SONEDE Drinking water, investment and operations Tariff collection also for ONAS ONAS Wastewater collection and treatment, investments and operation Tariff through SONEDE  World Bank 2004

Dakar, 6 to 10 December (example: UK (private and regulated)) Option: asset holding and operations integrated for all water supply and sanitation services (example: UK (private and regulated)) Asset holding and operations for all water services integrated in one water company  World Bank 2004

Dakar, 6 to 10 December River Basin Authority (RBA) Within a national water strategy, RBA is responsible for the quality of water resources and for allocation RBA is responsible for the quality of water resources and for allocation Responsible for prevention of pollution: options: Responsible for prevention of pollution: options: –Sets standards and monitors –Manages, conserves and protects water resources, and, implements basin strategies –Establishes rules to regulate water use –Plans, designs and constructs treatment facilities (management of means) and operates –Manages the means and contract operations out Tariffs: surcharge on water bill or taxes Tariffs: surcharge on water bill or taxes  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Economics, pricing, financing  World Bank 2004

Dakar, 6 to 10 December Understanding the costs Four cost elements Four cost elements –Health/hygiene awareness and education –Safe disposal (at/from site) –Collection (network cost) –Treatment (environment & health benefit) Full costs include Full costs include –Asset expansion and renewals –Profit or return on asset (if appropriate)  World Bank 2004

Dakar, 6 to 10 December Understanding the incentives Households have incentives to export their waste beyond their immediate area Households have incentives to export their waste beyond their immediate area Local communities have incentives to protect their area from the risks of sanitation- related diseases Local communities have incentives to protect their area from the risks of sanitation- related diseases National government has incentives to improve sanitation related to political profile of sanitation (usually low), however, national government is usually willing to make some resources available to assist National government has incentives to improve sanitation related to political profile of sanitation (usually low), however, national government is usually willing to make some resources available to assist e.g. toilet waste into open storm water channels in street. This is reflected in property and land prices. Experience suggests national governments are seldom willing (and able) to pay the full sustainable costs  World Bank 2004

Dakar, 6 to 10 December The essential financing choice User charges Local tax base Regional / national tax base Money to pay for the costs of urban sanitation must ultimately come from one of these three sources extent of “geographic base” of income  World Bank 2004

Dakar, 6 to 10 December User charges Users who benefit, pay for the service Users who benefit, pay for the service But benefits of services extend beyond the private household But benefits of services extend beyond the private household Where there are significant backlogs in services, then some form of user charge is more equitable than none Where there are significant backlogs in services, then some form of user charge is more equitable than none User charges extent of “geographic base” of income  World Bank 2004

Dakar, 6 to 10 December User charges – sewer network Fixed charge Fixed charge –f(Property area) –f(number of toilets) Water consumption related charge Water consumption related charge Volume and quality related charge (industry) Volume and quality related charge (industry)  World Bank 2004

Dakar, 6 to 10 December Local tax base Property tax captures willingness to pay for community-wide benefits of an adequate sanitation system in the area Property tax captures willingness to pay for community-wide benefits of an adequate sanitation system in the area But valuation roles and local tax systems may be absent, out of date or inefficient But valuation roles and local tax systems may be absent, out of date or inefficient Some (but limited) possibility of cross-subsidy exists Some (but limited) possibility of cross-subsidy exists extent of “geographic base” of income Local tax base  World Bank 2004

Dakar, 6 to 10 December National/regional tax base National tax collection could be more efficient than local tax and also more redistributive National tax collection could be more efficient than local tax and also more redistributive Problem is one of allocation whilst minimizing distortions Problem is one of allocation whilst minimizing distortions Better to use this to promote access (funding capital investments) and not operating costs Better to use this to promote access (funding capital investments) and not operating costs Capital subsidies should be targeted (e.g. service level targeting, or property value targeting) Capital subsidies should be targeted (e.g. service level targeting, or property value targeting) extent of “geographic base” of income National/regional tax base  World Bank 2004

Dakar, 6 to 10 December Getting the balance right User charges Local tax base Regional / national tax base Captures willingness to pay for improved sanitation on part of household. Captures benefits of sewer network and treatment through local property tax Supplements local sources of financing with targeted capital grants to extend coverage  World Bank 2004

Dakar, 6 to 10 December Sources of finance Equity Equity Debt Debt Public (government) – fiscal transfers Public (government) – fiscal transfers  World Bank 2004

Dakar, 6 to 10 December Equity finance Private equity not likely to be a major source of financing for urban sanitation. However, some opportunities do exist: Private equity not likely to be a major source of financing for urban sanitation. However, some opportunities do exist: –BOT type contracts for wastewater treatment –Concession contracts for combined water and wastewater utilities –Enhanced lease contracts with limited investments (for connections, say)  World Bank 2004

Dakar, 6 to 10 December Debt finance Requires a secure income stream Requires a secure income stream –Combination of user charges and taxes Banks seem generally more reluctant to lend for sanitation compared to water because the financial revenue stream is less secure than that for water Banks seem generally more reluctant to lend for sanitation compared to water because the financial revenue stream is less secure than that for water  World Bank 2004

Dakar, 6 to 10 December Public finance Reliance of public financing through local taxes and/or regional/national taxes is much greater in sanitation than is the case in water supply (which can more easily be directly self-financed through user charges) Reliance of public financing through local taxes and/or regional/national taxes is much greater in sanitation than is the case in water supply (which can more easily be directly self-financed through user charges) Disadvantage vis-à-vis income from tariffs, is the dependence each year of the budgetary process (political agenda …) Disadvantage vis-à-vis income from tariffs, is the dependence each year of the budgetary process (political agenda …)  World Bank 2004

Dakar, 6 to 10 December Cape Town (South Africa) 50% of income through property tax 50% of income through property tax –tax exemption for property values less than $ (new comprehensive valuation role) 50% of income linked to volume of water purchase with a volume cap 50% of income linked to volume of water purchase with a volume cap sewer connections for a population of about 3 million  World Bank 2004

Dakar, 6 to 10 December Subsidies for sanitation Important to target the poor Important to target the poor Promoting on-site sanitation Promoting on-site sanitation –Additional cost of improvement –Administration of subsidy an issue Subsidizing domestic sewer connections Subsidizing domestic sewer connections –Requires household contribution –Funded from a levy or local tax base  World Bank 2004

Dakar, 6 to 10 December Output Based Aid (OBA) for sanitation Per domestic sewer connection installed Per domestic sewer connection installed Per cubic meter wastewater treated to standard Per cubic meter wastewater treated to standard  World Bank 2004

Dakar, 6 to 10 December Outline Introduction Introduction Issues in urban sanitation Issues in urban sanitation Institutions and regulatory framework Institutions and regulatory framework Economics, pricing, financing Economics, pricing, financing – –Overview of economics, pricing & financing of urban sanitation – –Principles for design of pricing, funding and subsidy mechanisms (linked to service levels, technologies) Conclusions Conclusions  World Bank 2004

Dakar, 6 to 10 December Conclusions - 1 There is no solution that fits all There is no solution that fits all Urban sanitation involves many issues, many players who need to be involved Urban sanitation involves many issues, many players who need to be involved Strong coordination is required to get the best out of hardware, software, finance, institutions Strong coordination is required to get the best out of hardware, software, finance, institutions  World Bank 2004

Dakar, 6 to 10 December Conclusions - 2 Put the household first Put the household first … –in both public health and financial terms (cost recovery) –provide maximum beneficial gains for customers, particularly the poor, from investments in sewerage and sanitation Make transparent Make arrangements transparent  World Bank 2004

Dakar, 6 to 10 December Thank you  World Bank 2004