T9 by xuyuzhu


Kigali, 19th – 21st of July 2010

Session Title: T9 - Making sanitation last forever: financing sanitation and hygiene behavior change in low
income areas
Date/ Time: 20 July 2011, 10:30-13:00
Convened by: Catarina Fonseca (IRC), Alana Potter (IRC)       Notes taken by: Rajesh Advani (WSP)
Speaker(s) and their presentation title(s):
Session 1 - Financing sanitation and hygiene: global level
      1.    Christophe le Jalle, Ps-Eau - financing the sanitation chain: an overview
      2.    Andreas Holtkotte, KfW - financing sanitation in low income areas: what do we need?
      3.    Guy Norman, WSUP – Progress linked finance: step by step financing concept for urban sanitation

Session 2 – Financing sanitation and hygiene: country perspectives
    4. Catarina Fonseca, IRC – Findings from applying life cycle cost approach methodology to sanitation
         (Burkina Faso, Ghana and Mozambique)
    5. Kwabena Nyarko, KNUST – Sanitation costs in Ghana
    6. Andre Uandela, WASHCost Mozambique – Costs of hygiene interventions in Mozambique

Core Messages and Lessons Learned
Please note most important messages for sanitation stakeholders that can contribute to achieving improved sanitation in
Africa and add the according lessons learned and/or actions required.

 Message and, if applicable, speaker                      Lessons learned/ Actions required

 Christophe le Jalle, Ps-Eau
 Categorize expenditures into broad categories and           Would be better to reimburse investments over a period of
 identify the sources of funding for each:                    time rather than paying for it all up front, so that results can
 1. Studies: Local government (LG), national                  be tracked
     government, donors                                      When transfers are used they should be used with prudence
 2. Investment: Grants, tariffs, taxes, subsidies,            to ensure they go to the right place for which they are
     transfers                                                intended
 3. Operation and Maintenance (O&M): User fees               Access - develop long term mechanism
     and subsidies                                           Small networks may not generate enough business to
 4. Renewals: User fees and subsidies                         warrant private investment
                                                             Treatment: mobilization of investments is a huge barrier +
 Categorize investments into area by value chain              recovery of O&M is also a challenge
 and identify source of funds:
 1. Access: financed by public subsidies or grants           Suggested that most investments are financed by public
     and in some cases by private sector e.g.                 funds and that it is very challenging to attract private
     evacuation of sludge                                     investment into the sector
 2. Network: small network financed by public
     funds, large networks by funds linked to                O&M can be made by: Tax on water bill, payment by the
     government and banks; O&M paid by users                  emptiers for desludging, municipal budget, reuse of the
 3. Treatment: essentially a public cluster. Studies          sludge to meet a portion of the cost
     to be financed by local authorities, national
     government or external support

                                                                 National and local governments tend to focus on water,
 Andreas Holtkotte, KfW                                           so importance of sanitation is low on the priority ladder
 Need adaptive technologies, no need to reinvent                  with the officials. Further need for awareness.
 the toilet – implement the solutions, ensure                    Critical need to harmonize the efforts amongst donors,
 adequate financing, hygiene promotion and
Kigali, 19th – 21st of July 2010

 awareness raising on all levels                               as the current scenario leaves the implementing
                                                               country confused

 Are the efforts to expand sanitation in low income           No, efforts to expand are not enough - Projects are
 areas enough to ensure financial sustainability?              completed and donors move out at max doing a review
                                                               over 2-3 years.
                                                              Limited donor funds should address structural changes
                                                               – changes in national systems, reform these to sustain
                                                               the gains achieved
                                                              Combine investment with awareness campaigns and
                                                               link to other sectors like health.

 Sustainable financing                                        Donor finance is not sustainable, need to include
                                                               domestic resources
                                                              Award finance to the people coming up with the best

 Guy Norman, WSUP
  Outlined Progress-Linked Financing (PLF), a            Stepwise approach towards paying the grant – not to wait
     proposed approach by which large financing            until the project is complete
     institutions such as development banks may           Who will design the conditions, what are they and how
     finance infrastructure in sanitation                  would they be verified? Is the process standard or varied?
  Under PLF, concessionary finance is provided           Link it to national programmatic approaches and identify
     on achievement of certain indicators over a 4-        and start with a pilot
     5 year period with interim disbursements             An interim report of a feasibility study, carried out by ODI
     linked to performance                                 for WSUP, is available from gnorman@wsup.com
  To be implemented at local level and involves
     the development of viable business models
  Should be conditional on pro-poor policy, on
     capacity improvements in e.g. non-revenue
     water reduction and billing, and on
     demonstrated generation of non-subsidy
     revenue streams and inputs
                                                              Services are delivered following huge investments but
 Catarina Fonseca - IRC                                        then they decline owing to low follow up. Need to
  Use of money can be more cost effective                     invest more in capital maintenance and direct support
  40% of total capital expenditure (CAPEX)                    to sustain the services e.g. in sample from financing
     investments go to the garbage                             sanitation in Ghana there was no capital maintenance
 Breakdown of costs involved in sanitation:                    but small local government support, Mozambique had
          o CAPEX                                              almost 25% of expenditure on capital maintenance
          o operations and minor maintenance                   although no local government support
          o capital maintenance                               Sanitation expenditure is almost completely covered by
          o expenditure on direct support (part of             households– no difference in household (HH)
             operating expenses (OPEX) in utilities)           expenditure between HH that received subsidies and
          o expenditure on indirect support                    those that didn’t
             (ministerial level and LG),                      More sophisticated technologies do not result in higher
          o costs of capital - finance costs in the            sanitation service levels – higher investment can move
             case of loans                                     households from no service to basic service but nobody
                                                               moved to a high category of services delivered.
 How are we going from financing and costing
 technologies to costing services? – using the                Main message is need to plan for capital maintenance
 lifecycle cost approach. Examples from large scale            costs and follow up post construction in addition to
 data collection on costs and service levels                   capital investment and O&M.
                                                              The lifecycle approach enables you to cost services
                                                               resulting in more robust financing approaches

                                                       There will be full day training on the lifecycle approach on
                                                       Friday 22 July – enquire from reception
Kigali, 19th – 21st of July 2010

 Ghana and Mozambique country presentations
 Focused on the use of the lifecycle approach to           There is little readily available expenditure data
 determine investment in sanitation at all levels          HH expenditure in hygiene promotion is higher than public
                                                           Study found that major costs involved were the OPEX costs:
                                                            2-3 year O&M cost is more than the CAPEX cost of
                                                           The lumpsum cost of constructing a latrine could be a
                                                            constraint to increasing access in rural areas
                                                           The large expenditure on soap for hygiene was a surprising
                                                           In Ghana, the government has setup a US$35 million
                                                            revolving fund to finance CAPEX in sanitation

Please note core content of relevant discussions among speakers, panel members and from the audience.

Topic of discussion                                     Areas of consensus, disagreement or recommendation

Session 1 Questions
In terms of cost categories, where do you get the       Yes, this has costs but it is not taken into consideration in the
cost for malpractice and corruption, and how do you     modeling, as it would be averse to achieving the objective.
deal with it?

How do you deal with the political economy of low       Structure the projects to pass those responsibilities to the local
income communities in cities (mafia taking control      agency
of toilets)?

O&M – how do you deal with the low income               At HH level O&M is very low and should not be a problem but
earners lack of willingness to pay? Are you expecting   both capital maintenance and investment costs are still a
government to look for the funding?                     challenge. Can find ways to assist but too much subsidy will
                                                        break the private and local government sectors capacity to

                                                        Panelists agreed that the potential is huge
What potential to sanitation projects have to
contribute to economic development to ensure
sustainability? Link to agriculture and energy for

What can local banks offer to finance the sector?          Need to develop mechanisms to encourage private sector
                                                            involvement because local banks have a problem of finding
                                                            good projects to finance
                                                           KfW is piloting a project in Kenya linked to achieving targets
                                                            over a 3-4 year period. Suggests it is enough collateral for a
                                                            commercial bank to lend to the project

Session 2 Questions
What are the costs in relation to income levels?        Difficulty in defining who are the poor within the poor? Used
                                                        local country definition of poor and very poor. In some areas
                                                        there is no cash income, so normal approaches do not apply.

Revolving fund and implication that HH will meet the    Yes, as O&M cost for 2-3 years is more than the CAPEX cost of
entire costs – will they be able to afford it?          construction.
                                                        This comment was a source of controversy, and warrants further
                                                        investigation. The Ghana team (in charge of sanitation) will
Africa is littered with failed revolving fund so how    discuss and analyze further the government approach
Kigali, 19th – 21st of July 2010

will the Ghana fund address this risk?

Has Lifecycle documented the technological costs        Yes documented on website in English et en francais
arrived at in its approach?                             www.washcost.info

Panel discussion

Why are banks reluctant to invest in sanitation?
                                                            For those that think banks are unreasonable, consider that
                                                             they are investing your money, your pension, hence the
                                                             need for them to invest wisely
                                                            Don’t waste grant funds that comes in – plan your
                                                             investments to deliver services. don’t squander it on things
                                                             that people do not value

How do you bring about behavior change at
government and highlight the importance of                  Need to justify to government the need to spend more on
sanitation at government level?                              sanitation? For e.g. we are spending so much on defense,
                                                             but this is justified by insurgencies, rebel activity, need for
                                                             security etc.
                                                            What will be done with the resources is a good starting
                                                            In Nigeria for example, the World Bank finance is small in
                                                             the context of that country, hence the interventions have to
                                                             focus on changing the systems to ensure longevity
                                                            Economics of sanitation – we are looking at the costs rather
                                                             than the benefits of better sanitation – that may be a better
                                                            Subsidy – the word refers to public financing. No HH is going
                                                             to spend money on changing his own behavior, so
                                                             government needs to put resources towards this
                                                            Equity – the poor are paying more – look at creating finance
                                                             mechanisms that address the issue of the very poor
                                                            Also need behavior change of donors as well to soften the
                                                             conditions of support

Summary of Commentators Contribution
Please summarize shortly how the commentator put the session into the wider context of sanitation.

Need to understand what we are looking for to finance. Costs breakdown and disaggregated data provides guidance on where
cost effectiveness can be achieved.

Need to diversify the financial approaches. Mechanisms have to be put in place to resolve the issue locally, and thought has to
be given as to how to make sanitation attractive to the local banks.

This is all dependent on government policies and planning/reporting mechanisms: we need to identify ways of changing the
behaviours and administrative practices not just of individuals, but also of governments and other key institutions.

Additional Information
In this section, you might record any relevant additional information about the session.
Kigali, 19th – 21st of July 2010

The session warrants further discussion on how private sector finance will be attracted into the sanitation sector. In particular,
where public funding continues to finance 100% of the capital costs and does not focus on leveraging private sector financial
resources, how will private sector finance compete with cheap public money? Have revolving funds failed because there is too
much cheap money against which they are competing? What incentives need to be put in place for revolving funds to work?

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