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

Water and Sanitation Services That Last Tamale April 2012

Training session

Costing sustainable servicesThe life-cycle cost approach

Water and Sanitation Services That Last March 2012Mod 1

Introduction

• Welcome• Introductions• Expectations• Agenda for the day


Introduction

• Expectations


Training agenda for TamaleTuesday1. Identifying and grouping costs - morning2. Comparing costs: the methodology -afternoon

----------------------------------------------3. Purpose of collecting costs (theories of change)

4. Step by step for applying LCCA5. Tools for data collection6. Lessons learnt from data collection7. Introduction to data analysis

Wednesday1. Excercise to plan and budget for direct support cost 2. Action plan for LCCA in DSA in the districts


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


Part 1: Identifying and grouping costs

Water and Sanitation Services That Last


Please form district based groups 2 ‘water’ groups1 ‘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 wallTry and organise costs in the white board

Financial costsCapital

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. 2003.

Financial costsSupport 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 capital Expenditure 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. 2003.









Coverage rates

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%

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


‘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.’

Data Collection in Practice



• Any experiences with cost data collection? • Plenary discussion

Lessons learned from data collection


• 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


• 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


• 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.



• 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.


Introduction to data analysis

Water and Sanitation Services That Last March , 2012


Jumping a few steps ahead...

Examples of data analysis possible


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 expenditureUnits of costs

• Make clear the unit in which costs are reported: annual costs, per capita, per household, per volume

What’s really important to know BEFORE comparing costs


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





The building blocks approach comparing found costs with expected/ideal costs


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.


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



Comparing cost over time

Water and Sanitation Services That Last May 20111


OpEx in Ghana Cedi in 2002 = 32Ghana GDP deflator multiplier to convert past costs to current (2009) prices =

5.25

Calculation: 32 x 5.25OpEx in Ghana Cedi in 2009 = 168


Financial AnalysisNominal costs

•The cost of an apple in 2009 was $1Current costs

•In 2010, the cost of an apple in 2009 was $1.4---------------------------------------------------Economic Analysis

Present costs•We values the price of an apple to be brought in 2020 at $5 in 2010.




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.




Comparing costs from country to country



CapEx in India Rupee in 2009 = 2000 INR

The PPP conversion factor for India for 2009 = 16.5

Calculation 2000/ 16.5CapEx PPP US$ = 121.2 US$

* Compares to a 2009 market exchange rate in rupees of 48.4. The PPP value of a rupee to US $ is 2.9 times higher than the market exchange rate.


Further reading: - “Making sense of life-cycle cost data: a framework for analysis”- “Making costs comparable”

Closing session



What next?

Any ideas on how to take LCCA forward in your work?What’s the first thing you will do with all this information? Any expectations from the WASHCost team?

Evaluation form

Sanitation Technology Capital Investment (in US $ 2009)

Cost per facility per year

Cost per capita per year

Rural VIP 11 3Water Closet, WC 21 4Small towns VIP 8 4Traditional Pit Latrine 17 3

Sanitation cost in US $ (2009)

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


Findings on sanitation costs: international comparison 4 countries


The research sample

CountryDetailed HH

surveys undertaken

Number with a latrine

Number with valid cost data

Mozambique 1710 1101 1087

Ghana 1273 343 65

Burkina Faso 700 340 340

Andhra Pradesh (India)

5182 1861 1861


Technologies costed DefinitionTraditional 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 LatrineA 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


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


Total capital expenditure in US $ (2009)

TPL Traditional Pit Latrine ITPL Improved Traditional Pit Latrine

Slab Traditional latrine with Impermeable Slab VIP Ventilated Improved Pit

Latrine


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


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.


Post construction - when it occurs - per person per year in US $ (2009)


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

Part 2: Comparing costs



What is a service?

• Discussion in buzz groups and plenary discussion


Service levels

Accessibility UseReliability

(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 service No separation between user and faeces, e.g. open defecation

Source: Revised from Potter et al., 2010

Costing sanitation service levels


Service levelQuantity

(lpcd)Quality

Accessibility(mcd = distance and crowding)

ReliabilityStatus (JMP)

High >= 60 Good <= 10 Very reliable

ImprovedIntermediate >= 40 Acceptable <=30 Reliable/secure

Basic (normative) >= 20

Sub-standard >=5 Problematic <=60 Problematic

Unimproved

No service <5 Unacceptable > 60 Unreliable/insecure

Source: Moriarty et al., 2010

Water service levels


Source: Moriarty et al., 2010

Water service levels(details)Service

level

Quantity(lpcd)

Quality Accessibilitydistance 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

Intermediate

>= 40 Litres per capita per day Acceptable 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 (normative)

>= 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/insecure = completely broken down


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


Recurrent costs costs per person per year in US$ (2009)






Low level of services have a cost

Median expenditure per person per year $2

Median expenditure per person per year $1

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


Service levels

Accessibility UseReliability

(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 service No separation between user and faeces, e.g. open defecation

Sanitation service levels: reliability and use are important indicators of actual services received


Using GIS and service levels for analysis



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


Final messages1. 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


Module 1 handouts:-What is a water service level-What is a sanitation service level-Hygiene promotion

Further reading:•Potter, A. et al., 2011. Assessing sanitation service levels. (WASHCost Working Paper 3 - revised) •Moriarty, P. et al., 2011. Ladders for assessing and costing water service delivery. (WASHCost Working Paper 2 - revised)

Further reading


Budget Exx• Salaries• Administrative

– Office supplies, PC, printer, photocopiers

• Communication– Phone, internet,

• Equipment– Vehicles

• Monitoring Cost– Fuel, DSA,

• Capacity building training


Budget Exx• Salaries• Administrative

– Office supplies, PC, printer, photocopiers

• Communication– Phone, internet,

• Equipment– Vehicles

• Monitoring Cost– Fuel, DSA,

• Capacity building training


Salaries

Administrative

Communication Phone, internet

Equipment Vehicles

Monitoring Cost Fuel, DSA,

Capacity building training

Documents

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