AfricaSan3 Kigali, 19th – 21st of July 2010 General 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 infrastructure 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 AfricaSan3 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 initiatives 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 firstname.lastname@example.org 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 AfricaSan3 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 expenditure Study found that major costs involved were the OPEX costs: 2-3 year O&M cost is more than the CAPEX cost of construction 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 finding In Ghana, the government has setup a US$35 million revolving fund to finance CAPEX in sanitation Discussions 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 intervene 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 example? 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 AfricaSan3 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 point! 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 approach. 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. AfricaSan3 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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