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Water and Sanitation Services That Last Tamale April 2012 Training session Costing sustainable services The life-cycle cost approach.

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Presentation on theme: "Water and Sanitation Services That Last Tamale April 2012 Training session Costing sustainable services The life-cycle cost approach."— Presentation transcript:

1 Water and Sanitation Services That Last Tamale April 2012 Training session Costing sustainable services The life-cycle cost approach

2 Water and Sanitation Services That Last March 2012 Mod 1 Introduction Welcome Introductions Expectations Agenda for the day

3 Water and Sanitation Services That Last March 2012 Mod 1 Introduction Expectations

4 Water and Sanitation Services That Last March 2012 Mod 1 Training agenda for Tamale Tuesday 1.Identifying and grouping costs - morning 2.Comparing costs: the methodology -afternoon Purpose of collecting costs (theories of change) 4.Step by step for applying LCCA 5.Tools for data collection 6.Lessons learnt from data collection 7.Introduction to data analysis Wednesday 1.Excercise to plan and budget for direct support cost 2.Action plan for LCCA in DSA in the districts

5 Water and Sanitation Services That Last March 2012 Mod 1 Disclaimer -Where are we in WASHCost? -Methodology tested and written up but… - Very difficult to fit everything into a one day training -Training package growing to a week long training

6 Water and Sanitation Services That Last March 2012 Mod 1

7 Part 1: Identifying and grouping costs Water and Sanitation Services That Last

8 March 2012 Mod 1 Please form district based groups 2 water groups 1 sanitation group In each of the sub-groups, imagine…. You are planning or budgeting or monitoring for a water or sanitation service to last for the next 20 years… What costs will you need to plan for, budget, monitor? Write and paste it on the wall Try and organise costs in the white board

9 Financial costs Capital investments in fixed assets The amount invested in constructing fixed assets such as concrete structures, pumps and pipes. Investments in fixed assets are occasional and therefore lumpy. Best addressed through conventional accrual or fixed asset accounting to distribute costs over the lifetime of the assets and fairly (so as not to disadvantage any particular consumer group). Operating and minor maintenance expenditures (OPEX) Expenditure on labour, fuel, chemicals, materials, bulk water. Most costs estimates assume OPEX 5-20% of capital investments. In practice, maintenance is skimped everywhere (even UK and USA). Capital maintenance expenditure (CAPManEX) Expenditure on asset renewal and replacement, based upon serviceability and risk criteria. Accounting rules may guide what is included and the extent to which broad equivalence is achieved between charges for depreciation and expenditure on capital maintenance. Capital maintenance expenditures (CapManEX) and potential revenue streams to pay those costs are critical to avoid the failures represented by haphazard system rehabilitation. Sources: Franceys, Perry and Fonseca. 2006; Cardone and Fonseca

10 Financial costs Support costs (direct and indirect) Utility management support costs such as overheads usually included in opex, but rarely included in rural water and sanitation cost estimates. Costs of ensuring that local government staff have capacities and resources to help communities when systems break down or to monitor private sector performance are usually overlooked. Direct support costs include environmental and economic regulation, customer involvement costs, etc. Indirect support costs include government macro-level planning and policy-making, developing and maintaining frameworks and institutional arrangements, capacity-building for professionals and technicians. Costs of running the sector. Cost of capitalExpenditure on the weighted average cost of capital representing interest payments on debt and dividend payments to the equity providers. Very context specific but an indicative 5% on current costs fixed assets has been used. However, many non-networked services are provided based on grants or soft loans. Sources: Franceys, Perry and Fonseca. 2006; Cardone and Fonseca

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18 Water and Sanitation Services That Last March 2012 Mod 1 Coverage rates Sector effort and costs 25% 50%75% 100% Capital expenditure dominates Management / recurrent expenditure dominates Danger zone: as basic infrastructure is provided, coverage risks stagnating at around 60 – 80% Capital maintenance exp. dominates Effort and costs change with increased coverage

19 Water and Sanitation Services That Last March 2012 Mod 1 Life-cycle costs (LCC): The costs of ensuring adequate water, sanitation and hygiene (WASH) services to a specific population in a determined geographical area - not just for a few years but indefinitely.

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23 Data Collection in Practice Water and Sanitation Services That Last

24 March 2012 Mod 1 Any experiences with cost data collection? Plenary discussion Lessons learned from data collection

25 Water and Sanitation Services That Last March 2012 Mod 1 Collecting data at household and community level is relatively easy, but collecting cost data at national level can be very difficult and may require involvement of senior figures in the research team. Finding data older than three years is a problem. In one specific country, everyone mentions a box with data, but the team cannot find it. Some NGOs that installed water points no longer exist and the data has disappeared with them Some Data is hard to collect

26 Water and Sanitation Services That Last March 2012 Mod 1 Cost data is found at different governance levels and from different sources – construction contracts, programme budgets, local regional and district government. It is important in each case to know the population targeted by this expenditure. eg. Most sanitation costs are found at the household level, but how are investments community toilets and drainage, Getting hold of good quality completed project reports is difficult. Even if they are available, they simply give lump- sum (rather than disaggregated) costs, especially for water point sources Boundary Issues

27 Water and Sanitation Services That Last March 2012 Mod 1 Data is especially limited for sanitation. In rural areas traditional toilets are hardly said to have costs, while in urban areas, emptying toilets is irregular. Try and capture unpaid construction work undertaken by the household. Costs from different sources: Problems arose reconciling data collected at village level with official government figures. There is a tendency with some data collectors to rapidly deny that the data from villages was valid if it did not match the official figures. Lessons learned from data collection

28 Water and Sanitation Services That Last March 2012 Mod 1 There are several gaps in the data sets. Once the first large scale data collection is finalised ideal costs can be modelled. Specific Research on hard to reach data - For OpEx we can bring together people experienced in running systems to brainstorm how many operators and how many staff are needed to build up an idealised costs framework with minimum salaries and costs of chemicals. Lessons learned from data collection

29 Introduction to data analysis Water and Sanitation Services That Last March, 2012

30 Water and Sanitation Services That Last March 2012 Mod 1 Jumping a few steps ahead... Examples of data analysis possible

31 Water and Sanitation Services That Last March 2012 Mod 1 Mozambique: Hygiene interventions life-cycle cost components per capita per year (2008 US$ current prices) per implementation approach Source: Maarten van de Reep, 2010

32 Water and Sanitation Services That Last March 2012 Mod 1 Mozambique: Hygiene interventions, relative magnitude of life-cycle cost components (2008 US$ current prices) per implementation approach Source: Maarten van de Reep, 2010

33 Water and Sanitation Services That Last March 2012 Mod 1 Mozambique: Household expenditure on soap per month (2008 US$ current prices) Source: Maarten van de Reep, 2010

34 Water and Sanitation Services That Last March 2012 Mod 1 Costs of what? Make sure that the cost (and not price) of different components is clearly stated. Mention which components are included in the costs and which are not Differences between budgeted expenditure and found expenditure Units of costs Make clear the unit in which costs are reported: annual costs, per capita, per household, per volume Whats really important to know BEFORE comparing costs

35 Water and Sanitation Services That Last March 2012 Mod 1 Compiling and Calculating Costs For the population served distinguish between real and design figures. For calculation based on volume (m³) mentioned if it is real or by designed and provided or received Refer to the source of the costs or the methodology used for collecting them Whats really important to know BEFORE comparing costs

36 Water and Sanitation Services That Last March 2012 Mod 1 Whats really important to know BEFORE comparing costs

37 Water and Sanitation Services That Last March 2012 Mod 1 The building blocks approach comparing found costs with expected/ideal costs

38 Water and Sanitation Services That Last March 2012 Mod 1 Using Observed Age of a system Source: Naafs et al, 2011 (preliminary analysis – not yet to be quoted) What is the typical lifespan of a system? The time it takes for a traditional latrine fill up and be resited or the time it takes for a septic tank to needs emptying.

39 Water and Sanitation Services That Last March 2012 Mod 1 Costs US $ 2009

40 Water and Sanitation Services That Last March 2012 Mod 1 Comparing cost over time Choose a reference year and adjust all costs to account for changes over time in the value of money – (all ours are in US $2009 but we can update for different years) Choose the market inflation or another index such as the GDP deflator whichever is most sensible given the situation GDP deflator is in most ways a more accurate, and more ideal measure of pure price changes in the overall economy. But inflation might explain large cost increases Whats really important to know BEFORE comparing costs

41 Water and Sanitation Services That Last March 2012 Mod 1 Inflation rate is based on price index (consumer price index) GDP deflator is not based on a fixed basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. (Specifically, for GDP, the basket in each year is the set of all goods that were produced domestically and weighted by the market value of the total consumption of each good.) Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices. The advantage of this approach is that the GDP deflator measures changes in both prices and the composition of the basket - i.e. as prices and consumer preferences change, the GDP deflator accurately tracks both automatically. For this reason, the GDP deflator is in most ways a more accurate, and more ideal measure of pure price changes in the overall economy. Whats really important to know BEFORE comparing costs

42 Water and Sanitation Services That Last March 2012 Mod 1 Comparing cost over time Water and Sanitation Services That Last May Whats really important to know BEFORE comparing costs OpEx in Ghana Cedi in 2002 =32 Ghana GDP deflator multiplier to convert past costs to current (2009) prices = 5.25 Calculation:32 x 5.25 OpEx in Ghana Cedi in 2009 =168

43 Water and Sanitation Services That Last March 2012 Mod 1 Financial Analysis Nominal costs The cost of an apple in 2009 was $1 Current costs In 2010, the cost of an apple in 2009 was $ Economic Analysis Present costs We values the price of an apple to be brought in 2020 at $5 in Water and Sanitation Services That Last May Whats really important to know BEFORE comparing costs

44 Water and Sanitation Services That Last March 2012 Mod 1 Comparing costs from country to country Convert all figures into a single currency (usually US dollars) because the most complete database which contains comparable financial data around the world uses it as a base for all calculations). Choose the market (US$) or the purchasing power parity exchange rate (PPP US$) whichever is most sensible given the situation. Water and Sanitation Services That Last May Whats really important to know BEFORE comparing costs

45 Water and Sanitation Services That Last March 2012 Mod 1 The PPP between two countries is the rate at which the currency of one country needs to be converted into that of a second country to represent the same volume of goods and services in both countries. PPP is used because exchange rates can be misleading. Since market exchange rates are based on short-term factors and are subject to substantial distortions from speculative movements and government interventions, comparisons based on exchange rates, even when averaged over a period of time such as a year, yield and mislead results. Example: the imbalance in apparent water implementation costs between many African countries and India is partly explained by the undervaluation of the rupee, perhaps by a factor of almost three. Water and Sanitation Services That Last May Whats really important to know BEFORE comparing costs

46 Water and Sanitation Services That Last March 2012 Mod 1 Comparing costs from country to country Water and Sanitation Services That Last May Whats really important to know BEFORE comparing costs CapEx in India Rupee in 2009 =2000 INR The PPP conversion factor for India for 2009 =16.5 Calculation2000/ 16.5 CapEx PPP US$ =121.2 US$ * Compares to a 2009 market exchange rate in rupees of The PPP value of a rupee to US $ is 2.9 times higher than the market exchange rate.

47 Water and Sanitation Services That Last March 2012 Mod 1 Further reading: - Making sense of life-cycle cost data: a framework for analysis - Making costs comparable

48 Closing session Water and Sanitation Services That Last

49 March 2012 Mod 1 What next? Any ideas on how to take LCCA forward in your work? Whats the first thing you will do with all this information? Any expectations from the WASHCost team? Evaluation form

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51 Sanitation Technology Capital Investment (in US $ 2009) Cost per facility per year Cost per capita per year Rural VIP 113 Water Closet, WC 214 Small towns VIP 84 Traditional Pit Latrine 173 Sanitation cost in US $ (2009)

52 Capital Maintenance and HH Hygiene Cost Median Household expenditure on soap is US $ 17 per capita per year (N = 1060). Capital Maintenance expenditure – No expenditure was recorded on desludging or other forms of capital maintenance

53 Water and Sanitation Services That Last March 2012 Mod 1 53 Findings on sanitation costs: international comparison 4 countries

54 Water and Sanitation Services That Last March 2012 Mod 1 54 The research sample Country Detailed HH surveys undertaken Number with a latrine Number with valid cost data Mozambique Ghana Burkina Faso Andhra Pradesh (India)

55 Water and Sanitation Services That Last March 2012 Mod 1 55 Technologies costedDefinition Traditional Pit Latrine (TPL) A hand dug latrine without an impermeable slab Traditional Improved Pit Latrine (TIPL) A hand dug latrine with an impermeable slab made from local materials Slab Latrine A hand dug latrine with a concrete impermeable slab Pour Flush Latrine A single or double pit with a safe (often concrete) super structure sitting below a sealed impermeable slab. This is typically a pour flush toilet with no ventilation pipe. Single Pit with Septic Tank A pour or fully flush toilet connected to an underground septic tank. With liquid outlet to a soakaway. Ventilated Improved Latrine (VIP) A single or double pit with a safe (often concrete) super structure sitting below impermeable slab. A ventilation pipe and screen are standard to reduced odours and flies. The sanitation technologies

56 Water and Sanitation Services That Last March 2012 Mod 1 56 Capital expenditure: findings Distinction between rural and peri-urban/small town areas: cash expenditure by households on latrines is higher in more densely populated areas

57 Water and Sanitation Services That Last March 2012 Mod 1 57 Total capital expenditure in US $ (2009) TPLTraditional Pit LatrineITPL Improved Traditional Pit Latrine Slab Traditional latrine with Impermeable Slab VIP Ventilated Improved Pit Latrine

58 Water and Sanitation Services That Last March 2012 Mod 1 58 Poverty considerations Sanitation expenditure is almost completely covered by households (except for demand creation and hygiene awareness campaigns) Lump sum capital expenditure for some of the latrines may not be affordable to the poorest in rural areas. No difference in expenditure by households that received a subsidy for sanitation hardware and those who did not

59 Water and Sanitation Services That Last March 2012 Mod 1 59 Post construction costs: findings Operation and maintenance, capital maintenance and expenditure on direct support for sanitation is at present very low. Majority of households not spending on capital maintenance.

60 Water and Sanitation Services That Last March 2012 Mod 1 60 Post construction - when it occurs - per person per year in US $ (2009)

61 Water and Sanitation Services That Last March 2012 Mod 1 The term life-cycle does not mean cradle-to-grave. In a sustainable system, the costs follow a cycle from capital costs to operation and minor maintenance, to capital maintenance and finally to the replacement of infrastructure that has come to the end of its useful life. This may then be extended with more capital maintenance or renewed with additional capital expenditure. The life-cycle can refer to the individual system components and the overall costs required within a context of maintaining sustainable services which are (ideally) eternal. Life Cycle of what?

62 Water and Sanitation Services That Last March 2012 Mod 1 Module 1 handouts: What are the life-cycle cost (LCC) components? What is the life-cycle cost approach (LCCA)? Briefing Note 1 – all cost components disaggregated (www.washcost.info) Further reading

63 Part 2: Comparing costs Water and Sanitation Services That Last

64 March 2012 Mod 1 What is a service? Discussion in buzz groups and plenary discussion

65 Water and Sanitation Services That Last March 2012 Mod 1 Service levels AccessibilityUse Reliability (O&M) Environmental protection (pollution and density) Improved service Each family dwelling has one or more toilets in the compound Facilities used by all members of HH Regular or routine O&M (inc. pit emptying) requiring minimal user effort Non problematic environmental impact disposal and re-use of safe-by products Basic service Latrine with impermeable slab (hh or shared) at national norm distance from hh Facilities used by some members of HH Unreliable O&M (inc. pit emptying) and requiring high user effort Non problematic environmental impact and safe disposal Limited service Platform without (impermeable) slab separated faeces from users No or insufficient use No O&M (pit emptying) taking place and any extremely dirty toilet Significant environmental pollution, increasing with increased population density No serviceNo separation between user and faeces, e.g. open defecation Source: Revised from Potter et al., 2010 Costing sanitation service levels

66 Water and Sanitation Services That Last March 2012 Mod 1 Service level Quantity (lpcd) Quality Accessibility (mcd = distance and crowding) Reliability Status (JMP) High>= 60Good<= 10Very reliable Improved Intermediate>= 40 Acceptable<=30Reliable/secure Basic (normative) >= 20 Sub-standard>=5Problematic<=60Problematic Unimproved No service<5Unacceptable> 60Unreliable/insecure Source: Moriarty et al., 2010 Water service levels

67 Water and Sanitation Services That Last March 2012 Mod 1 Source: Moriarty et al., 2010 Water service levels(details) Service level Quantity (lpcd) Quality Accessibility distance and crowding (mpcd) Reliability High>= 60 Litres per capita per day Meets or exceeds national norms based on regular testing Less than 10 minutes (Water available in the compound or HH) Very reliable = works all the time Intermedi ate >= 40 Litres per capita per dayAcceptable user perception and meets/exceeds national norms based on occasional testing Between 10 and 30 minutes. (Less than 500m AND <= normative population per functioning water point) Reliable/secure = works most of the time Basic (normativ e) >= 20 Litres per capita per day Sub- standard >=5 Litres per capita per day Negative user perception and/or no testing Between 30 and 60 minutes. (Between 500m and 1000 meters AND/OR more than normative population per functioning water point) Problematic =Suffers significant breakdowns and slow repairs No service<5 Litres per capita per day Fails to meet national norms More than 60min (More than 1000m) Unreliable/insec ure = completely broken down

68 Water and Sanitation Services That Last March 2012 Mod 1 Water service ladder High service: people access a minimum of 60l/c/d of high quality water on demand Intermediate service: people access a minimum of 40l/c/d of acceptable quality water from an improved source spending no more that 30 minutes per day Basic service: people access a minimum of 20l/c/d of acceptable quality water from an improved source spending no more that 30 minutes per day Sub-standard service: people access a service that is an improvement on having no service at all, but fails to meet the basic standard on one or more criteria No service: people access water from insecure or unimproved sources, or sources that are too distant, time consuming or are of poor quality

69 Water and Sanitation Services That Last March 2012 Mod 1 69 Recurrent costs costs per person per year in US$ (2009)

70 Water and Sanitation Services That Last March 2012 Mod 1 70 Recurrent costs costs per person per year in US$ (2009)

71 Water and Sanitation Services That Last March 2012 Mod 1 71 Recurrent costs costs per person per year in US$ (2009)

72 Water and Sanitation Services That Last March 2012 Mod 1 72 Low level of services have a cost Median expenditure per person per year $2 Median expenditure per person per year $1

73 Sophisticated sanitation technologies do not necessarily result in higher sanitation service levels

74 Water and Sanitation Services That Last March 2012 Mod 1 Service levels AccessibilityUse Reliability (O&M) Environmental protection (pollution and density) Improved service Each family dwelling has one or more toilets in the compound Facilities used by all members of HH Regular or routine O&M (inc. pit emptying) requiring minimal user effort Non problematic environmental impact disposal and re-use of safe-by products Basic service Latrine with impermeable slab (hh or shared) at national norm distance from hh Facilities used by some members of HH Unreliable O&M (inc. pit emptying) and requiring high user effort Non problematic environmental impact and safe disposal Limited service Platform without (impermeable) slab separated faeces from users No or insufficient use No O&M (pit emptying) taking place and any extremely dirty toilet Significant environmental pollution, increasing with increased population density No serviceNo separation between user and faeces, e.g. open defecation Sanitation service levels: reliability and use are important indicators of actual services received

75 Water and Sanitation Services That Last March 2012 Mod 1 Using GIS and service levels for analysis

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77 Water and Sanitation Services That Last March 2012 Mod 1 Distinct gradient in HH one- off investment in water supply Only a hint of a gradient in HH one-off investment in sanitation One-off HH expenditure on water supply and sanitation relative to distance from centre of village

78 Water and Sanitation Services That Last March 2012 Mod 1 78 Final messages 1.Life cycle cost approach enables a comparison of different service delivery models internalising country norms, lifespans, number of users and poverty analysis 2.Service level analysis provides a more nuanced understanding for each type of intervention of where underlying problems of sustaining coverage may lie 3.A firm grasp of costs and services to be delivered, leads to more cost-effective financing strategies reducing slippage

79 Water and Sanitation Services That Last March 2012 Mod 1 Module 1 handouts: -What is a water service level -What is a sanitation service level -Hygiene promotion Further reading: Potter, A. et al., Assessing sanitation service levels. (WASHCost Working Paper 3 - revised) Moriarty, P. et al., Ladders for assessing and costing water service delivery. (WASHCost Working Paper 2 - revised) Further reading

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81 Water and Sanitation Services That Last March 2012 Mod 1 Budget Exx Salaries Administrative – Office supplies, PC, printer, photocopiers Communication – Phone, internet, Equipment – Vehicles Monitoring Cost – Fuel, DSA, Capacity building training

82 Water and Sanitation Services That Last March 2012 Mod 1 Budget Exx Salaries Administrative – Office supplies, PC, printer, photocopiers Communication – Phone, internet, Equipment – Vehicles Monitoring Cost – Fuel, DSA, Capacity building training

83 Water and Sanitation Services That Last March 2012 Mod 1 Salaries Administrative Communication Phone, internet Equipment Vehicles Monitoring Cost Fuel, DSA, Capacity building training


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