1. Financial Sustainability of WASH Services 1 Dominique Senn, seecon international gmbh

2. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Copy it, adapt it, use it – but acknowledge the source! Copyright Included in the SSWM Toolbox are materials from various organisations and sources. Those materials are open source. Following the open- source concept for capacity building and non-profit use, copying and adapting is allowed provided proper acknowledgement of the source is made (see below). The publication of these materials in the SSWM Toolbox does not alter any existing copyrights. Material published in the SSWM Toolbox for the first time follows the same open-source concept, with all rights remaining with the original authors or producing organisations. To view an official copy of the the Creative Commons Attribution Works 3.0 Unported License we build upon, visit http://creativecommons.org/licenses/by/3.0. This agreement officially states that: http://creativecommons.org/licenses/by/3.0 You are free to: Share - to copy, distribute and transmit this document Remix - to adapt this document. We would appreciate receiving a copy of any changes that you have made to improve this document. Under the following conditions: Attribution: You must always give the original authors or publishing agencies credit for the document or picture you are using. Disclaimer The contents of the SSWM Toolbox reflect the opinions of the respective authors and not necessarily the official opinion of the funding or supporting partner organisations. Depending on the initial situations and respective local circumstances, there is no guarantee that single measures described in the toolbox will make the local water and sanitation system more sustainable. The main aim of the SSWM Toolbox is to be a reference tool to provide ideas for improving the local water and sanitation situation in a sustainable manner. Results depend largely on the respective situation and the implementation and combination of the measures described. An in-depth analysis of respective advantages and disadvantages and the suitability of the measure is necessary in every single case. We do not assume any responsibility for and make no warranty with respect to the results that may be obtained from the use of the information provided. Copyright & Disclaimer

3. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Contents 1. Introduction 2. Financial Sustainability Framework 3. Cost Analysis Tools 4. References 3

4. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Recently, much effort has been directed towards the spatial expansion of WASH (Water, Sanitation and Hygiene) services. 4 1. Introduction Source: http://de.slideshare.net/ircuser/costing-sustainable-services-the-lifecycle-cost-approach-12113668 [Accessed: 28.08.2013]http://de.slideshare.net/ircuser/costing-sustainable-services-the-lifecycle-cost-approach-12113668 Investing in WASH Services (1/4)

5. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Spatial expansion = creation of new or up-scaling of existing infrastructure  need for initial capital investment 5 1. Introduction Source: http://tap.waterforpeople.org/usercontent/site_6/s13/1000139565/179/watertaps.jpg?extra=FA [Accessed: 27.08.2013] ; MORGAN (2007)http://tap.waterforpeople.org/usercontent/site_6/s13/1000139565/179/watertaps.jpg?extra=FA Investing in WASH Services (2/4)

6. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Investing in WASH Services (3/4) With elevated coverage rates (>60%), most money should be spent in existing infrastructure in order to maintain the service level. 6 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)http://tap.waterforpeople.org/usercontent/site_6/s13/1000139565/179/watertaps.jpg?extra=FAhttp://etc.usf.edu/clipart/37600/37662/hdstack-07_37662_lg.gif

7. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Investing in WASH Services (4/4)  Spatial coverage  maintenance need for capital  recurrent expenditures, support efforts, capital expenditure 7 1. Introduction Source: MORIARTY (2011) !

8. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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. 8 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]http://www.philippinecollegian.org/wp- content/uploads/2013/07/inside-illus-e1374721492923-900x425.jpg

9. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Importance of Financial Sustainability of WASH Services (2/3)  To keep water and sanitation systems functioning, regular capital maintenance is indispensable. 9 1. Introduction Regular capital maintenance (blue line) is indispensable to avoid a decline of service levels (red line). Source: FRANCEYS & PEZON (2010)

10. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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. 10 1. Introduction Source: AGUASAN (2012)

11. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Cost Components of WASH Services (1/2) 11 1. Introduction CAPITAL EXPENDITURE 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.

12. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 12 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 CAPITALThe 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)

13. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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 13 1. Introduction

14. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Six Key Elements to Financial Sustainability of WASH Services 14 2. Financial Sustainability Framework 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]http://www.skat.ch/publications/prarticle.2005-09-29.5069774463/prarticle.2005-09-29.1875579521/skatpublication.2012-12-19.5550148854/image1

15. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Important Aspects of the Key Elements (1/2) 15 2. Financial Sustainability Framework 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.

16. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Important Aspects of the Key Elements (2/2) 16 2. Financial Sustainability Framework 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.

17. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 17 3. Cost Analysis Tools Life-Cycle Costs Approach Cost-Benefit Analysis Strategic Financial Planning 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]http://www.skat.ch/publications/prarticle.2005-09-29.5069774463/prarticle.2005-09-29.1875579521/skatpublication.2012-12-19.5550148854/image1 Three Tools for Financial Planning

18. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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. 18 3. Cost Analysis Tools Source: AGUASAN (2012)

19. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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. 19 3. Cost Analysis Tools Source: http://www.rollonfriday.com/Portals/0/Images /cost_benefit.jpg [Accessed: 25.08.2013] http://www.rollonfriday.com/Portals/0/Images /cost_benefit.jpg 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

20. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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. 20 3. Cost Analysis Tools Benefit-cost ratios of different sanitation service options. Source: WSP (2011)

21. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info Strategic Financial Planning (STF) Objective: make financing of infrastructure and services more predictable by considering different aspects in a comprehensive long- term analysis. 21 3. Cost Analysis Tools STF: comprehensive long-term analysis Financial needs of the sector and factors affecting them. Main sources of funds and balance between them. How needs can be reconciled with potential resources.

22. Financial Sustainability of WASH Services Find this presentation and more on www.sswm.infowww.sswm.info 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] http://www.aguasan.ch/ws2012/AGUASAN28_briefing_note.pdf 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]http://www.washcost.info/page/866 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] http://www.wsp.org/sites/wsp.org/files/publications/wsp-yunnan-economic-returns.pdf 22 6. References

23. Financial Sustainability of WASH Services 23 “Linking up Sustainable Sanitation, Water Management & Agriculture” SSWM is an initiative supported by: Created by: