Prepared by D. S. Harder*, A. U. Sajise** and E.M. Galing*** * Resources Environment and Economic Center for Studies (REECS), Quezon City, Philippines (E-mail: [email protected]) ** University of the Philippines at Los Banos (UPLB), Los Banos, Laguna Decentralized Wastewater Treatment Systems (DEWATS) for Urban Environments in Asia, 25-28 May 2011, Crowne Plaza Galleria, manila Philippines.
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1. Willingness to Pay for Sanitation Services in Dagupan City,
Philippines1 D. S. Harder*, A. U. Sajise** and E.M. Galing*** *
Resources Environment and Economic Center for Studies (REECS),
Quezon City, Philippines (E-mail: [email protected]) ** University
of the Philippines at Los Banos (UPLB), Los Banos, Laguna (E-mail:
[email protected]) *** WB-WSP, Ortigas, Metro Manila, Philippines,
UK (E-mail: [email protected]) Abstract Using the Contingent
Valuation Method (CVM), the Study looks at the septage management
and sewerage2 services demand of households with latrines in
Dagupan City, Philippines vis a vis the cost of providing these
services. The survey covers a total of 1200 respondents for the
septage and sewerage demand study. Under the Willingness to Pay
(WTP) Study, certainty corrections and protest vote screening were
applied to WTP responses to control for hypothetical bias. For the
septage and sewerage studies, income was shown to significantly
influence WTP. WTP was also found to increase across income groups,
indicating the plausibility of implementing a socialized pricing
scheme for the septage and sewerage fees. Another important
implication of the results is that increased demand for sanitation
facilities would only take place as general income levels of
Dagupan City improves. Under certain assumptions, the individually
rational and financially viable Septage Fee is around PhP 46.00/ mo
with optimal desludging frequency of three years. This means that a
self-financed Septage Program is possible for the city. However,
the case is different for the Sewerage program since none of the
proposed fees (including the average WTP of Php102/mo for the whole
sample) is sufficient to cover the huge investment costs associated
with a self-financed Sewerage infrastructure. Thus, the LGU has to
source funds elsewhere. Keywords Septage; Sewerage; Willingness to
Pay (WTP); Sanitation1.0 BACKGROUNDThis study on household
sanitation behavior and demand for sanitation services in Dagupan
City ispart of the continuing activity under the Program for
Sustainable Sanitation for South Asia(SuSEA). This is implemented
in six pilot provinces nationwide that include the municipalities
ofBauco, Alabel, Guiuan and Polomolok as well as the cities of
Dagupan and General Santos. Theoverall objective of SuSEA is to
increase the access of poor Filipinos to sustainable
sanitationservices. It is composed of two national components: 1)
Establishment of a national sustainablesanitation program (NSSP);
and 2) Formulation of a national sustainable sanitation
communicationsand hygiene promotion program (NSSCHPP).Among the
objectives of the NSSP is for all provinces and cities and half of
the municipalities tocome up with a sustainable sanitation program,
as well as a 100% increase in sustainable sanitationinvestments by
2016. This links closely with the objectives of the study that aims
to understand thesanitation decisions households make and their
willingness to pay for sanitation services.In particular, using the
contingent valuation method, the study looks at the septage
management andsewerage3 services demand of households with toilets
in Dagupan City vis a vis the cost of1 This study is an initiative
of the SuSEA Program of the World Bank Water and Sanitation Program
(WB-WSP) with Coffey International as theresource agency/contractor
of the Study2 Sewerage demand covers only the Central Business
District3 Sewerage demand covers only the Central Business
District
2. providing these services. It reveals what people say they
would do given the hypothetical scenarioof providing sanitation
services in their area.2.0 THE CONTINGENT VALUATION METHOD (CVM)2.1
The CV DesignContingent valuation, a method used to study household
preference and behavior, directly askspeople in a survey how much
are they willing to pay (or willing to accept) for a good or
service. Itis referred to as contingent because peoples willingness
to pay (WTP) responses is anchored on aspecific hypothetical
scenario and description of the good/service to be provided. The
hypotheticalmarket includes a statement of the proposed change
(i.e. sanitation services) and an institutionalmechanism in which
the proposed change is to be provided and financed (i.e.
waterbill).Since not all goods and services are traded in the
market (i.e. reduction in water pollution),information on market
demand is usually unavailable, thus making Contingent Valuation a
usefuland practical decision-making tool for valuing well-known
goods. Initial applications of contingentvaluation studies in the
Philippines have been on water and sanitation (Choe et. al. 1996;
Lauria et.al. 1999).2.1.1 The Contingent Valuation scenarioThe two
hypothetical CV scenarios presented in the survey includes the
septage and seweragemanagement plans. This is compared to the
existing practice or status quo (Table 1).Table 1. CV Scenario for
Septage and Sewerage Study Status Quo Management Plan Septage Only
V2 (x2 , m2 )) VAn interesting application of this model is a
hypothetical scenario used to analyze and explain thestated
preferences of households for the proposed Sanitation Programs in
Dagupan City (i.e.Septage and Sewerage Management Plans). These
services will be available for a household inexchange for a
reduction in income. Suppose that the household is offered a price
or bid (b) inexchange for the hypothetical service. Agreeing to pay
the bid or price implicitly implies that:
4. where: v0 is the status quo utility v1 is the utility after
the proposed change ti is the bid offered zi is a vector of
demographic variables (e.g. education, age, gender, etc.) yi is
respondent is income level i is a vector of other control variables
(e.g. classification)Assuming a linear utility function we can
restate the earlier probability statements. Specifically, wecan
rewrite the status quo indirect utility and decompose it to its
deterministic and randomcomponents (ij for j=0,1):(2)Similarly the
indirect utility function for the proposed change is expressed
as:(3)Notice that in the previous equation we are subtracting the
bid from the income level. This is howwe capture the trade-off from
reducing income but paying some amount ti. Using equations (2)
and(3), we can alternatively write equation (1) as:(4)orSimplifying
difference terms for the coefficients yields:(5)The next step would
be to estimate the simplified coefficients. This involves assuming
a specificfunctional form for the probability distribution Pr(). A
common assumption is the logistic function.The log likelihood
function is derived through taking the summation the log of the
logistic functionfor each observation or respondent. The usual
estimation procedure for obtaining the estimatedcoefficients is the
Maximum Likelihood Estimation (Greene, 2002). Finally theMean WTP
is calculated using the following formula:(6)2.2.1 Some Econometric
Issues
5. There are two econometric issues associated with the nature
of the data for the study. The first oneinvolves the nature of the
CVM data for the Septage Management Plan. In particular,
differenthypothetical scenarios were offered to households with and
without water connections. Connectedhouseholds were offered the
hypothetical scenario of whether they would be willing to pay
somebid amount for the SMP. Non-connected households, on the other
hand, were offered a hypotheticalscenario of whether they would
want to be connected or not. This was followed by the
samehypothetical scenario offered to connected households.We
conjecture that there is a potentially a larger hypothetical bias
for non-connected householdsbecause they essentially face two
hypothetical scenarios. The likelihood of actually experiencingthe
septage infrastructure is less real for this subgroup of
respondents. A consequence of this is thatthe probability of being
offered a two-staged scenario is conditional on the household
beingconnected at the time of the interview. Since, the choice of
being connected could be linked tocertain household
characteristics, we expect that some will be more predisposed of
having waterconnections. This leads us to the potential problem of
sample selection. Simply pooling connectedand non-connected
households and following the specification outlined above for the
septagesample can lead to inconsistent estimates and hence biased
WTP values. To address this issue wefirst estimate an endogenous
switching regression model where both the selection and
outcomevariables are discrete or dichotomous.Consider first the
selection mechanism. A household chooses to connect to DCWD water
system if: Pr(connection = 1) = Pr(Vconnected (g + connected >
Vnot connected (g + not connected ) ) ) = Pr( > Vnot connected
(g Vconnected (g ) )) where = connected not connectedThe outcome
variable on the other hand, pertains to the households answer to
the CV scenario. Thehousehold agrees to pay the offered bid if:
Pr(yes) = Pr(Vyes (g + yes > Vstatus quo (g + status quo ) ) ) =
Pr( > Vstatus quo (g Vyes (g ) )) where = yes status quoSince,
the error terms of the selection and outcome are hypothesized to be
correlated we canobserve the conditional choice of agreeing to a
bid as: Pr ( > Vstatus quo (g Vyes (g > Vnot connected (g
Vconnected (g ) )),( ) )) Pr(yes | connection = 1) = Pr( > Vnot
connected (g Vconnected (g ) ))Instead of estimating the
conditional probability of observing an agreement to a bid, we can
opt toestimate the joint probability. To do this we can assume that
both error terms are normallydistributed and estimate a bivariate
probit expressed in equation terms as follows: Pr ( > Vstatus
quo (g Vyes (g > Vnot connected (g Vconnected (g = ) )),( ) ))
(, , )d d where is the bivariate normal density functionLooking at
whether rho is significant or not at an assumed confidence level
easily tests the presenceof sample selection. If rho is
statistically different from zero then the decision to connect
is
6. necessarily related to the decision of agreeing to a bid
offer. A simple application of theeconometric model in the previous
section to a pooled sample of connected and non-connectedhouseholds
will lead to biased estimates of WTP.2.2.2 Variables Used in the
Various AnalysisThe covariates used in the implementation of the
empirical strategy are shown in Table 2:Table 2. Variables Used in
the Regression Model Variables Description bid Bid offered to
respondent and assumes the following values: 50, 100, 150,200, 250
know Respondents score on sanitation issue test age Age of
respondent civil Civil Status of respondent: 1 - Divorced/separated
3 - Married 5 - Widowed 2 - Live in 4 - Single educ 1 has value of
1 if respondent finished some elementary; 0 otherwise educ 2 has
value of 1 if respondent has graduated from elementary; 0 otherwise
educ 3 has value of 1 if respondent finished some high school; 0
otherwise educ 4 has value of 1 if respondent graduated from high
school; 0 otherwise educ 5 has value of 1 if respondent finished
some years in College; 0 otherwise educ 6 has value of 1 if
respondent graduated from College; 0 otherwise educ 7 has value of
1 if respondent have post-graduate schooling; 0 otherwise educ 8
has value of 1 if respondent finished Vocational; 0 otherwise
hseown has value of 1 if respondent/ family of respondent fully
owns the house; 0 otherwise agehouse Age in years of respondents
house ageown Interaction term between age of house and house
ownership: agehouse*hseown yrslive Number of years household has
lived in the house yrslive2 Square of the yrslive diarr has a value
of 1 if any household member has had diarrhea in the past three
months; 0 otherwise buss has a value of 1 if a business is being
run in the house; 0 otherwise Income 1 has value of 1 if households
monthly income is PhP 35,001; 0 otherwise hh_all Total number of
household members age_septic Age of septic tank Class 1 has a value
of 1 if baranggay is classified as a Central Business District
baranggay; 0 otherwise Class 2 has a value of 1 if baranggay is
classified as a Coastal/ Inland baranggay; 0 otherwise Class 3 has
a value of 1 if baranggay is classified as a Island baranggay; 0
otherwise Class 4 has a value of 1 if baranggay is classified as a
River baranggay; 0 otherwise2.3 Sampling Frame
7. For the septage and sewerage study, a total of 12004
respondents were sampled, distributed between850 and 350
respondents, respectively. A 12% non-response rate was noted for
the whole sample.The allocation of the sample is based on the
following formula: Ni i ni = N ci Ni i ci k w h ere N is th e total
sam p le size N i is th e total p op ulation in the ith inco m e
strata i is the in com e variance fo r the ith inco m e strata c i
is the cost of ob tain ing a sam p le from the ith inco m e
strataThe above equation provides the least cost allocation for a
fixed sample size given the variability inincome. We assume that
cost differences are insignificant since Dagupans terrain is
homogeneousand its land area (4,446 has) is not that large. Thus,
this variable can be ignored in the computation.Variability in
income5 is based on barangay clusters, which is the only available
disaggregatedinformation from the baseline study6. However, for the
sewerage study, a simple proportionalallocation was used because
barangays under this scenario belong to the same type/cluster.
Thus,the income variability cancels out in the equation.For the
septage study, sample allocation for each barangay was further
categorized into householdsconnected and not connected to the
Dagupan City Water District (DCWD). Considering all this, thesample
size allocation for the septage management and sewerage options are
shown in Tables 3 and4, respectively.Table 3. Sample Size
Allocation, Sewerage Respondents No. of Type of Total surveyName
Households Barangay HouseholdsHerrero Perez 509 CBD 23Lucao 1395
CBD 64Pantal 3087 CBD 142Poblacion Oeste 683 CBD 31Barangay I (T.
Bugallon) 124 CBD 6Pogo Chico 903 CBD 42Tapuac 913 CBD 42TOTAL 7614
350Table 4. Sample Size Allocation, Septage Respondents4 The total
sample takes into account cost and time considerations in doing the
survey5 Incorporating income variability is important since demand
is basically determined by income and prices.6 2007 Baseline Study
Report: Dagupan City. Sustainable Sanitation in East Asia (SuSEA).
It would have been ideal to use the income variability foreach
barangay, but since the raw data from the baseline study was not
available, further disaggregation is not possible.
8. Non- Total No. of ConnectedName Type of Barangay connected
Households Households Households Householdsa (survey)Bacayao Norte
289 River 3 8 11Bacayao Sur 307 River 3 9 12Bolosan 660 River 6 19
25Lasip Chico 166 River 2 5 7Lasip Grande 267 River 3 8
11Mamalingling 230 River 2 7 9Mayombo 1222 River 12 36 48Pogo
Grande 380 River 4 11 15Salisay 336 River 3 10 13Tambac 424 River 4
12 16Bonuan Binloc 1185 Coastal & inland 8 25 33Bonuan Boquig
1978 Coastal & inland 14 42 56Bonuan Gueset 3085 Coastal &
inland 22 65 87Caranglaan 1281 Coastal & inland 9 27 36Maluedb
1567 Coastal & inland 11 33 44Tebeng 463 Coastal & inland 3
10 13Calmay 943 Island 7 21 28Salapingao 418 Island 3 10 13Herrero
Perez 509 CBD 6 19 25Lucao 1395 CBD 17 51 68Pantal 3087 CBD 38 114
152Poblacion Oeste 683 CBD 8 25 33Barangay I 124 CBD 2 5 7Pogo
Chico 903 CBD 11 33 44 bTapuac 913 CBD 11 33 44TOTAL 212 638 850a -
25% of total household coveredb - In the actual survey, the sample
size in Barangay Tapuac was adjusted from 86 to 69 since is was
found out that 78% of the housesin the area are apartments and
excluded from the survey. The remaining respondents were
transferred to Malued with sample sizeincreasing from 44 to 61 (all
hh).
9. 3.0 SURVEY RESULTSThe discussion of survey results is
divided into two parts. First is a qualitative description of
thedata in terms of environmental and health hazards that relate to
the design, construction andmaintenance of existing household
sanitation facilities. The second part outlines the results of
theeconometric strategy discussed in the methodology section.3.1
Overview of Current Sanitation in Dagupan City73.1.1 Environmental
problem/prioritiesBase on household ranking, the more visible
environmental threats that the local government shouldgive priority
to include solid waste (36%) and flooding (30%). It is common
knowledge thatmajority of the barangays in Dagupan are vulnerable
and susceptible to the disturbing effects ofinundation.Poor
sanitation (26%) only ranks third among the top environmental
problems of Dagupan Cityfrom the perspective of households
respondents. This is not only in terns of lack of access to
latrinesbut also by the threat posed by badly designed sanitation
facilities including the lack of propersludge and wastewater
disposal systems. Receiving water bodies often absorb the pollution
loadcoming from households. Thus, it is not surprising that
DENR-EMB included Dagupan River asone of the rivers nationwide that
pose contact risk to public health and the environment. It hasshown
a very high total and fecal coliform level8, about 30 times higher
than the DENR standard.3.1.2 Current sanitation facilities &
the environmentSurvey results show that 43% of households have
single vault septic tanks that do not conform tothe standard design
prescribed under the Sanitation Code of Dagupan City. These vaults
provideonly minimal treatment and limited sludge storage compared
to two or three chambered septictanks. Although most of households
reported that their septic tanks are water sealed (at least for
onechamber), 15% of the remaining septic tanks are bottomless or do
not have concrete flooring. Thiscould lead to wastewater seepage.In
terms of location and access, the Sanitation Code of Dagupan City
further stipulates that septictanks should not be constructed under
any building and shall be located such that desludgingequipment can
have convenient access to the manhole. Nonetheless, almost half of
the respondentsinterviewed had septic tanks located inside the
house, with some directly under their toilets. A thirdfurther
reported that their septic tanks are more than 20 meters away from
the nearest access road.This concern however, can be addressed by
using longer vacuum pumps (i.e. vacuum pumps ofManila waters has a
maximum length of 80 meters). The only constraint is the width of
the accessroad that should be able to accommodate the desludging
truck. This could be a problem particularlyfor the island
barangays.Another disturbing observation is the 13 meters average
distance of the nearest water source to thelatrine, which is lower
than the specified distance of 25 meters and above under the Clean
WaterAct. However, the survey shows that only 6% of the respondents
are familiar with this provisionunder the Act. In general, the
close proximity of toilets and water sources coupled with
poorlyconstructed septic tanks could lead to groundwater
contamination that is hazardous to public health.A faulty septic
tank can also lead to hydraulic overloading9 particularly during
flooding.7 This section uses the original database (n=1200) as
basis for discussion9 Hydraulic overloading can force the waste out
through the septic tank before it receives adequate treatment. It
can lead to anaerobicconditions in the drainfield and might not
give solids time to settle out before being pushed through the
system(http://www.stormwatercenter.net/Assorted%20Fact%20Sheets/
Tool7-Non_Stormwater/SepticSystems.htm; accessed 4/28/2010).
10. Most respondents perceive that water from the septic tank
goes underground (48%) or stays insidethe tank (38%)10. Only 9%
believed that wastewater from septic tanks eventually finds its way
intothe water bodies. More than three fourths of the respondents
still had the misconception that septictanks can provide 100%
treatment for sludge and wastewater, thus controlling for water
pollution.For the septic tanks to function as designed, it has to
undergo regular maintenance through theremoval of built up solids.
However, the survey shows that only 13% of households have
desludgedtheir septic tanks for the past 10 years. This is despite
majority of respondents agreeing to thestatement that septic tanks
should be desludged once every three to five years as required
under theSanitation Code of Dagupan City11. Desludging is done
mainly as a response to emergencysituations such as septic tank
overflow, clogging or damage caused by flooding, earthquakes,
etc.Poor maintenance reduces the effectiveness of septic tanks to
treat waste before it is discharged tothe environment.Also, there
is no existing sludge treatment and disposal facility within
Dagupan. The nearest DENRapproved composting facility is in Sual,
Pangasinan. This resulted to indiscriminate disposal ofuntreated or
poorly treated sewage into the environment. The survey shows that
of those that hadtheir septic tanks emptied, 40% do not know where
the septage is brought while 30% buried theirwaste in a pit (i.e.
manual desludging). The rest disposed of the waste in nearby water
bodies(13%), in a farm (5%), or anywhere (7%). This practice is
prohibited under the Sanitation Code ofDagupan City, which
stipulates that, no discharge of septage or sludge shall be allowed
inmanholes, drainage areas, canals, creeks, rivers or other
receiving bodies of water or land.Unceremonious discharge of
untreated sewage into vacant spaces and receiving water
bodiesprovides a vector for pathogens that could transmit disease
to humans.In terms of health impacts, 10% of the respondents
reported incidences of diarrhea in the past threemonths12.
Meanwhile, occurrences of other waterborne diseases are negligible
and no reportedoutbreaks were observed during the duration of the
study.4.1 Econometric ResultsThis section covers the Willingness to
Pay (WTP) of Dagupan City households for the SeptageManagement
Plan, and WTP of the Central Business District (CBD) households for
the SeweragePlan. The final models used are corrected for both
uncertainty and protest votes (CC/PC model).In particular, the
discussion includes characteristics of the respondents, results of
the CV analysisincluding simulation exercises that helped identify
some important provisions of a potential SeptageManagement Program
and Sewerage Plan. For instance, we determine the most efficient
desludgingfrequency (only for the SMP) and pricing policy.
Efficiency is referred to in the context of anintertemporal
decision wherein discounting or time preference plays an important
role. Likewise italso refers to that which is rational for the
individual household as well as financially feasible to theLocal
Government.4.2.1 Implementing A Septage Management Program in
Dagupan CityAfter screening for protest votes, 790 useable
responses were used for the WTP analysis under theSeptage
Management Plan (7% lower than the original sample). This includes
both householdsconnected and not connected to the Dagupan City
Water District (DCWD).10 These respondents view septic tanks as
simply a storage of sludge and urine rather than a primary
treatment system11 Apparently, this item, despite approval from
respondents, gained the most comments. Those who got it wrong were
respondents whohad larger septic tanks with only few household
users.12 Three percent of respondents also had diarrhea in the past
week of the survey. On average, they spent Php604 for
treatment,including in patients.
11. Respondent Characteristics (pooled sample)Based from the
socio-economic profile of households, those that are willing to pay
for the SeptageManagement Plan are relatively younger. Also, nearly
a third are married with an average of sixmembers per family. In
addition, majority of these respondents are relatively well off in
terms ofasset & income. Nearly a fourth earns monthly income
greater than Php20,000 compared to 16% ofthose who are not willing
to pay. Households who support the Plan are likewise better
educated. Interms of location, a higher percentage of septage
respondents from the Central Business District andisland barangays
are willing to support the SMP while a greater number of refusals
to pay wereobserved from coastal/inland and river
barangays.Likewise, respondents who are willing to pay have older
houses and septic tanks and have livedlonger in their current
residence. In general, septic tanks have a mean age of 16 years for
bothsubgroups. Respondents from the island barangays used to have
hanging latrines, some accesspublic or shared toilets within their
neighborhood while others had to reconstruct their toilets
andseptic tanks after the damages brought by typhoons Ondoy and
Pepeng, including the 1990earthquake.Bid DistributionCursory
evidence shows that in general, percent of respondents saying yes
on willingness to payfor the Septage Management Plan decreases with
the offered bid (Fig 1), thus conforming totheoretical
expectations. 59.28 60 50 36.42 40 % yes response 26.92 30 18.00 20
10.32 10 0 50 100 150 200 250 Bids (Php) Fig 1. Bid Distribution of
Yes Responses, the Septage PlanSimilarly, percentage of those
saying yes to the offered bid increases with income (Table 5).Table
5. Distribution of WTP Responses by Income Bracket, Septage
RespondentsIncome Willingness to Paybracket No % no Yes % yes
AllIncome 1 74 69.81 32 30.19 106Income 2 191 73.75 68 26.25
259Income 3 194 69.53 85 30.47 279Income 4 62 63.27 36 36.73
98Income 5 25 53.19 22 46.81 47Total 546 100 243 100 789aa excludes
one dont know response for income
12. Willingness to Pay for a Septage ProgramAs elaborated
earlier, a bivariate probit model was used to test whether the
error terms in theselection mechanism and the outcome decision (i.e
probability of agreeing to the offered bid) arecorrelated. A simple
likelihood ratio test shows that the correlation parameter () is
not significantlydifferent from zero. Thus, we can run a logit
regression on the pooled sample of connected and non-connected
households.The results of the logit regression for the Septage
study are shown in Table 6. The negative andsignificant coefficient
for the bid offer indicates that respondents are less likely to pay
for higherbids. Younger respondents are also more likely to pay for
the sanitation service. Besides this, onesknowledge on sanitation
issues increases the probability of saying yes to the bid offer. In
particular,knowledge regarding the provisions of the Sanitation
Code of Dagupan City as well as generalknowledge on wastewater
hazards and sanitation can increase the probability of agreeing to
a bidoffer by 13 percentage points. The probability of agreeing to
a bid is also positively related to thelevel of education. This
implies that well-informed households tend to agree more to the
offeredbid, perhaps, because these households can comprehend the
scenario better. We can see this becauseall the categorical
variables for education (educ 2 to educ 8) are significant and
exhibit positivesigns. Another determinant of the probability of
agreeing to an offered bid is the age of the house.The variable is
negatively related with the probability of paying the bid offer.
That is, householdswith older houses have a lower probability of
supporting the Septage Management Plan. This is notsurprising since
old houses are prone to abandonment.The information obtained from
the logit analysis is used to compute for the amount that
householdson average are willing to pay (WTP) for septage service
improvements (Table 7). Calculationsshow that the mean WTP of
Dagupan City residents is around PhP 73. Note that WTP
increaseswith income. For instance, households with monthly income
in excess of 35,000 would be willingto add PhP 121 to their monthly
water bill to avail of the improved septage services.
Whilehouseholds in the lowest monthly income bracket (below PhP
4,999) are willing to pay anadditional PhP 67 per month.
Furthermore, the WTP for each income bracket are
significantlydifferent from each other at 5% level of confidence.
The variability in the WTP across incomebrackets is suggestive that
a socialized pricing scheme can be implemented.However, not all of
the WTP amounts shown in Table 8 would pass a referendum. Estimates
showthat for the whole sample and across income brackets, only 50%
on average would vote for areferendum that will add the septage fee
to the existing water bill. The calculated bid or proposedprice and
the probability of a yes vote are shown in Table 8. From the table,
inorder to have at least60% of households across income brackets
agreeing to a new septage ordinance, the proposedseptage fee should
only be around PhP 46. The discussions to follow will revolve only
on the bidsthat would pass a referendum, i.e. bids PhP 0.50 to PhP
73.00
14. Table 7. Calculated Willingness To Pay for the Septage
Program, by Income Bracket and for theWhole SampleIncome bracket
WTP/mo(N=790)Income 1 67Income 2 55Income 3 73Income 4 102Income 5
121Whole Sample 73Table 8. Probability of Paying/Voting for
Different Proposed FeesProbability of Paying Proposed Fee (PhP/ (%)
mo) 30 133.80 40 101.60 50 73.00 60 46.00 70 23.00 80 7.00 90 0.50
99 0.00The Efficient Price and Desludging FrequencyWe are now left
with the question on the relevant price to charge households and
the optimaldesludging frequency. To answer this, we will use the
Benefit Cost Analysis approach. BCAassumptions are outlined in
Appendix Table 1.The welfare gains households derive from different
fees and desludging frequencies are shown inTable 9. The figures
are welfare gains in present value terms of different pricing
schemes andhousehold desludging frequency. The Status quo
represents the present value of paying the averagecommercial
desludging price of PhP 2,500.The first thing to notice is that the
range of septage fees widens as the desludging frequency
isshortened. For example, if the Dagupan LGU imposes that
households desludge their septic tanksonce in every 10 years, then
households will only rationally participate in that scheme if
Septagefees are between Php 0.50 and PhP 7.00. This is because they
will be better off with the status quoof hiring a commercial
desludger and paying him the average of PhP 2,500 (or PhP 1,060 in
PVterms) every 10 years. On the other hand, if the mandated
desludging is every three years, then theSeptage Program will be
more appealing to households. We expect, given the current
costassumptions that households will participate if the Septage
fees are between PhP 0.50 to PhP 46.00.Fees falling between these
ranges are shown to be superior to the status quo.What drives the
results of the BCA analysis is the discounting or assumptions on
households timepreferences. Increasing the interval between
desludging (i.e. reducing desludging frequency) favorsthe status
quo because they are smaller in present value terms.
15. Table 9. Welfare Gains of Households from Various Proposed
Fee and Desludging Frequencies Bid/ 3 Year Desludging 5 Year
Desludging 10 Year Desludging Price (PhP/ Difference Difference
Difference mo) PV PV PV PV PV PV (Proposed (Status (Proposed
(Status (Proposed (Status Septage) Quo) Septage) Quo) Septage) Quo)
73 2,636 2,066 -570 3,653 1,708 -1,945 5,921 1,060 -4,861 46 1,661
2,066 405 2,302 1,708 -594 3,731 1,060 -2,671 23 831 2,066 1,236
1,151 1,708 557 1,865 1,060 -805 7 253 2,066 1,813 350 1,708 1,357
568 1,060 492 0.5 18 2,066 2,048 25 1,708 1,683 41 1,060 1,020An
attendant question is which of these proposed septage fees would be
feasible to implement?Earlier, we have answered the question on
which fees and desludging frequency is rational for thehousehold.
We found out that the three-year interval will yield the largest
gains for thehouseholds. Given this, we will analyze which of these
Septage fees would be financially viable toimplement along with the
three-year desludging plan. Another BCA was conducted using the
sameassumptions in Appendix Table 1.Given the assumptions, results
show that the financially viable Septage Fees are PhP 46/mo. andPhP
73/mo. By financial viability, we mean that the initial investment
costs are recovered (fullypaid) within 10 years and that yearly
operation and maintenance (O&M) expenses are alsorecovered
within the lifetime of the project, which is set at 25 years. These
are the only SeptageFees that will result to a positive Net Present
Value (NPV). Given this, the only rational andfinancially viable
Septage Fee is PhP 46. Thus, with the current information at hand,
a SeptageFee of PhP 46/ mo. is recommended. Households in turn will
receive regular scheduled desludgingof their septic tanks every
three years.Table 10. Financial Viability of Different Proposed
Septage Fees Bid/ Price NPV (PhP/mo) (3 year Desludging) 73
103,152,095.48 46 28,591,923 23 -34,922,297.86 7 -79,106,103.73 0.5
-97,055,775Comparison of the Proposed Septage Program with Other
Existing ProgramsThe recommended Septage Program would charge PhP
46/ mo. or approximately Php 2/ cu. m. ifthe average household
water consumption were 24 cu. m. per month. These charges are
similar withthe computed price by the LINAW project in Dumaguete
CIty. In terms of monthly water bill, theproposed fee is close to
the partial charges of Manila Water. It roughly constitutes 11% of
theaverage household water bill of PhP 416.20 (Table 11).
16. Table 11. Charges for Septage and Sewerage Programs in the
PhilippinesManila Water Sewerage and sanitation programs are funded
partly by 10% environmental fee charged to all MWSS customers on
the water bill. Households covered by sewerage are also assessed
50% of household water bill. This is not enough to cover O&M of
sewerage (perhaps only 60-70%). There is also some cross-
subsidization from water supply incomeDumaguete City Dumaguete will
cover its O&M costs for its septage treatment facility through
a user fee of PhP 2/m3 on the water bill. This user fee will cover
both capital and operating costs, as well as funding an
environmental feeZamboanga City Metro Zamboanga Water District sets
its sewerage charges at 50% of the water bill, and has a 99%
collection rate, allowing it to fully recover its O&M
costs.Others Other cities charge a flat rate (or zero) tariffs,
collect revenues lower than their O&M costs and, are dependent
on subsidies from the LGU or, where managed by a Water District, on
cross-subsidies from water supply income.Source: USAID (2007)All in
all, the proposed Septage Management Plan is not far from existing
and planned SeptagePrograms in the country. The innovation is that
the numbers obtained came from a more rigorousmethodology.
Furthermore, we are sure that the recommendations are based on
household statedbehavior or preferences.4.2.2 Implementing the
Sewerage Plan13 in Dagupan CityFor the Sewerage Plan, the useable
sample for the analysis is 322 after protest screening (8%
lowerthan the original sample).Respondent CharacteristicsHouseholds
who are willing to pay are relatively more mature in age, have
older houses and septictanks and have lived longer in their current
residences relative to respondents who are not willing tosupport
the Sewerage Plan. Both, however, have almost the same number of
household membersper family, number of families living in the house
and number of houses owned within DagupanCity.For both subgroups,
nearly three fourths are female and married. Respondents who are
willing topay are also more educated as two thirds have reached
college. Thus, they may be more familiarwith sanitation issues and
can better appreciate the Sewerage Plan presented to them.A higher
percentage of WTP respondents also had income under brackets 4
& 5 or income greaterthan Php20,000/month (28%) vis a vis those
who are not willing to pay (16%).Bid DistributionSimilar with the
Septage Plan, the figure below exhibits a negative relationship
between the offeredbid and the percentage of respondents who said
yes to the Sewerage Plan. This observed trend13The CBD area is
estimated to generate 2,772 cubic meters of wastewater per day,
necessitating the need for a maximum designcapacity of 6,00 cubic
meters/day for the wastewater treatment plant. This takes into
account population growth and the correspondingincrease in
wastewater generation. The projected cost of the STF would be
around PhP 250-300 million. Nonetheless with additionalconstruction
of sewer lines/pipe networks, total investment could increase up to
Php500-600 Million to fully address the sanitationproblems of
Dagupan City (SuSEA 2008)
17. conforms to economic theory. 80 71.64 70 60 51.61 % yes
response 50 40 29.23 30 22.73 19.35 20 10 0 50 100 150 200 250 Bids
(Php) Fig 2. Bid Distribution of Yes Responses, Sewerage PlanTable
12 also shows a positive relationship between income and
willingness to pay.Table 12. Willingness to Pay for the Sewerage
Plan by Income BracketsIncome Willingness to Paybracket No % no Yes
% yes AllIncome 1 24 77.42 7 22.58 31Income 2 57 65.52 30 34.48
87Income 3 83 61.03 53 38.97 136Income 4 23 52.27 21 47.73 44Income
5 9 39.13 14 60.87 23Total 196 61.06 125 38.94 321Willingness to
Pay for the Sewerage PlanResults of the logit regression for the
Sewerage Program are shown in Table 13. For the final modelused,
only the bid, knowledge, and Income 4 estimates were found to
significantly differ from zero.The bid variable shows a
theoretically predicted sign. Specifically, the probability of a
yes votedecreases with the increasing bid offer. Income 4 is the
only significant income bracket. This meansthat compared to the
relatively poorest households in the CBD, households with income
betweenPhp20,000 to Php35,000 have higher probability of agreeing
to the bid offer. All other incomebrackets have the same
probability of agreeing to an offered bid relative to income 1.
Theknowledge variable is also significant but it does not have the
predicted sign. This counterintuitiveresult indicates that
households with more knowledge on sanitation issues are less likely
to pay. Oneexplanation would be that these households might have
already been doing actions to improve theirlevel of sanitation.
Hence, they may be reluctant to pay more for a new program. Since,
we have noinformation on the specific sanitation decisions of
households other than what is associated withdecisions affecting
their septic tanks, we were not able to control for this in the
regression model.In terms of the marginal effects of these
variables, income bracket 4 has the largest effect.Households in
this income bracket are 33 percentage points more likely to vote
for an offered bidthan those in other income brackets. On the other
hand, increases in the offered bid by PhP 50reduce the probability
of saying yes by only 0.03 percentage points. The marginal effect
of the
18. knowledge variable is around 28 percentage points. Thus,
the probability of agreeing to a bid formore knowledgeable
households are lower by 28 percentage points compared to less
knowledgeablehouseholds. The caveat in the previous discussion
however, still holds in the analysis of themarginal effects for
this variable.The computed WTP for the Sewerage Program for the
whole sample and for each income bracket isshown in Table 14.
Computed WTP per income bracket are significantly different from
each otherat 5% level. The mean WTP for the whole sample using the
certainty and protest corrected model isPhP 102. What is
interesting to note, is that unlike the trend observed for the WTP
for Septage, theWTP for Sewerage increases with income for the
first four brackets and then declines with furtherrise in income
(bracket 5).Table 13. Results of Logit Regression for the Septage
ProgramVariables Coefficientbid -0.013***know -1.261**age
0.010civil -0.187educ 2 1.222educ 3 0.442educ 4 1.464educ 5
1.504educ 6 1.704educ 8 1.883hh_all -0.073hseown -1.101agehouse
0.106ageown -0.111yrslive 0.026yrslive2 -0.000diarr 0.499buss
-0.288Income 2 0.492Income 3 0.801Income 4 1.391**Income 5
0.970age_septic -0.001class 2 0.223constant 1.254*** significant at
1%; ** significant at 5%, * significant at 10%
19. Table 14. Calculated Willingness To Pay for the Sewerage
Program, by Income Bracket and for theWhole Sample, in Php Income
WTP/mo (Php)Income 1 48Income 2 83Income 3 103Income 4 157Income 5
137Whole Sample 102Going back to Table 14, the mean WTP for the
whole sample has a 50% chance of being voted andis therefore
expected to pass the referendum. Table 15 shows the proposed fee
and thecorresponding probability of payment. If 60% of households
will vote for the Sewerage program,then the proposed legislation
should charge a sewerage fee of PhP 73.00. The sewerage
feeshouseholds would be willing to pay range from PhP2 to PhP102
per month. Note that these valuesare higher than the fees for the
Septage Management Program.Table 15. Probability of Paying for
Different Proposed Fees, Sewerage Program Probability of Proposed
Paying (%) Fee(PhP) 30 164 40 129 50 102 60 73 70 45 80 18 90
2Which of these referendum-passing fees would be financially
viable? Given assumptions inAppendix Table 2, BCA results show that
the prospects for an LGU financed Sewerage Program forDagupan is
less optimistic. Given the huge investment outlay14, none of the
proposed fees arefinancially viable (Table 16).Table 16. NPV of
Different Referendum Passing Fees, Sewerage ProgramAdditional
Price/ cu. NPVFee/ month m.102 4.3 -151,422,43373 3 -187,779,35545
1.9 -222,882,59118 0.8 -256,732,1392 0.1 -276,791,13114 Note that
we have conservative cost and slightly exaggerated revenue
assumptions
20. Comparison of WTP Estimates With Other StudiesThe bleak
scenario for a self-financed Sewerage Program begs the question of
whether the estimatesare indeed far off from other studies. The
only other study on households willingness to pay wasconducted in
199315. Table 17 shows that in general, the WTP for Sewerage is in
the range of thevalues obtained by the study. However, even if we
use the estimates for Dagupan from this 1993study, it would not
still be sufficient to cover the huge investment requirements for
the proposedself-financed Sewerage Program.Table 17. Other WTP
Estimates, Philippines Location Sewer Sewer Connection Connection +
Treatment (PhP/mo/hh) (PhP/mo/hh)Calamba 124 103Davao 62 92Dagupan
169 207Source: Philippine Environment Monitor (2003)4.2.3 Household
Perceptions on the Hypothetical Scenario for the Septage and
Sewerage PlansPayment VehicleRespondents were asked of their
opinion regarding the hypothetical elements contained in the
CVscenario, particularly the payment vehicle. Waterbill was chosen
due to its wider coverage,mandatory nature (i.e. disconnection as
effective sanction against non payment), credibility, andclose link
with sanitation services16. The Dagupan City Water District is also
supportive of the Planand is willing to collect sanitation charges
to its customers. Overall, respondents from the twosubgroups agree
with the idea that they will pay for the septage and sewerage fees
through theirmonthly waterbill. The major reason why some
households did not agree to the current paymentvehicle is the
continuous increase in the water rates. We learned that the DCWD
increased its rateper cubic meter months before the survey thereby
creating a negative impact to respondentsdecision making.An
alternative payment vehicle considered by some respondents includes
a separate bill for septageand sewerage fees that will be handled
by a private collector, so that the computations of thecharges will
be clear to them. Another suggestion would be to add these charges
to the garbage fee(Php30/mo) collected by each barangay.
Respondents find the barangay solid waste managementprogram
successful and the collection of fees efficient. The idea of
collecting the sewerage andseptage fees through community tax
certificates was also forwarded (Table 18).Belief in the success of
the Program/PlanMajority of the respondents believe that the
Septage and Sewerage Management Plans, onceimplemented, will
succeed in attaining the goal of reducing environmental pollution
and healthhazards associated with poor sanitation. In fact, some
are already curious as to the design, locationand actual start of
the Project. Those that remained skeptic on the plausibility of the
Plans gavethree major reasons: a) distrust on the LGU due to
possible corruption of funds; b) impact to otherswho may not be
able to afford the fees and; c) failure of other people to
cooperate (Table 19).15 The date of the original study was cited in
the Philippine Environment Monitor, 2003. However, there were no
citations of the exactstudy in the publication.16 However, the
disadvantage of using this payment mechanism is the timing of
increase in water rates before the survey period.
21. Table 18. Respondents Perception to the Payment Vehicle
& Alternative Schemes Septage Sewerage All N % N % N %Agreement
of using waterbill aspayment vehicleNo 242 30.63 82 25.47 324
29.14Yes 548 69.37 240 74.53 788 70.86Reasons for not agreeingWater
bill is continuously increasing 140 57.85 58 70.73 198 61.11Not all
have water connection 29 11.98 4 4.88 33 10.19Dont like mandatory
payment 39 16.12 15 18.29 54 16.67Prefers annual rather than
monthly 10 4.13 1 1.22 11 3.40collectionDont like DCWD service 1
0.41 - - 1 0.31Other people will not understand how 6 2.48 4 4.88
10 3.09the fee will be computedAll fees should be shouldered by the
6 2.48 - - 6 1.85govtWill migrate soon 2 0.83 - - 2 0.62Separate
bill instead of adding to water 9 3.72 - - 9 2.78billAlternative
payment proposedDont know 14 5.79 3 3.66 17 5.25Monthly electric
bill 5 2.07 2 2.44 7 2.16Community tax 8 3.31 11 13.41 19 5.86Land
tax 1 0.41 3 3.66 4 1.23Barangay collection 35 14.46 15 18.29 50
15.43Garbage fee 20 8.26 11 13.41 31 9.57Government fund 2 0.83 4
4.88 6 1.85None 116 47.93 15 18.29 131 40.43Own separate bill 41
16.94 18 21.95 59 18.21Table 19. Respondents Belief in the Success
of the Septage & Sewerage Plans
22. Septage Sewerage ALL N % N % N %Belief in the success of
the programNo 166 21.01 63 19.57 229 20.59Yes 624 78.99 259 80.43
883 79.41Reasons for no response 1112Money will be used for other
purposes 1 18 7 11.11 8 3.85Lack of trust in the LGU due to
corruption 70 42.17 22 34.92 92 44.23LGU lask technical skill to
operate STF 4 2.41 2 3.17 6 2.88Water district may not agree to
collect 8 4.82 2 3.17 10 4.81paymentProject difficult to implement
10 6.02 8 12.7 18 8.65Other people may not cooperate 19 11.45 12
19.05 31 14.90Others cannot afford addtl fee 32 19.28 11 17.46 43
20.67Effect on Water Connection to DCWDTable 20 shows that 95% and
88% of sewerage and septage respondents respectively would
retaintheir DCWD connection even if majority will vote for the
septage/sewerage fee to be added to thewaterbill. One of the main
reasons for keeping their pipe water connection is the difficulty
offinding alternative water sources in their area. On aggregate, 5%
of those who choose to disconnectto the DCWD opt to get water from
handpumps, neighbors with pipe connection and from watervendors.4.0
CONCLUSIONS AND POLICY DIRECTIONSThis study has looked at the
stated preference for two hypothetical programs namely: a)
SeptageManagement Plan that would affect households in Dagupan
City; and b) Sewerage Program forhouseholds in the CBD area of
Dagupan City. Several quantitative methodologies were employed
toformulate policy recommendation that would be helpful in crafting
a Sanitation Management Planfor the City. The empirical evidence
provided in this study serves as a relevant input into
theregulatory process of establishing fees for septage management
and sewerage services based onconsumer demand.Specifically, the
results point to the following:1. Income plays an important role on
respondents willingness to pay. For the septage and sewerage
studies, the variability of WTP across income groups indicates the
plausibility of implementing a socialized pricing scheme for the
fees. However, actual implementation of these fees would require a
strong public consultation for the target to be met. Another
important implication of the results is that increased demand for
sanitation facilities would only take place as the general income
levels of Dagupan City improves. Similar with the findings in
General Santos City, the success of any sanitation initiative goes
hand in hand with improvements in income levels and
distribution.
23. Table 20. Decision to Stay Connected to DCWD &
Alternative Water Sources Septage Sewerage All N % N % N
%Connection decision if waterbill willincreaseDont know 38 6.42 8
2.48 46 5.03Keep connected 521 88.01 305 94.72 826 90.37Disconnect
33 5.57 9 2.8 42 4.60Sure of keeping connection to DCWDVery unsure
3 0.54 - - 3 0.35Unsure 60 10.83 41 13.06 101 11.64Sure 373 67.33
189 60.19 562 64.75Very sure 118 21.3 84 26.75 202 23.27If
disconnected where to obtain water?Neighbor with pipe connection 7
21.21 1 11.11 8 19.05Public tap 1 3.03 1 11.11 2 4.76Water vendor -
- 7 77.78 7 16.67Handpump 23 69.7 - - 23 54.76River 1 3.03 - - 1
2.38Deep well 1 3.03 - - 1 2.382. The individually rational and
financially viable Septage Service Fee, given the assumptions
outlined in Appendix Table 1, is around PhP 46.00/ mo. This
corresponds to the optimal desludging frequency of three years. The
septage fees are found to be similar to existing arrangements
elsewhere in the country. This Septage fee further allows recovery
of investment costs within 10 years as well as cover operating and
maintenance (O & M) expenses of the Septage Program within a
project lifetime of 25 years. This means that a self-financed
Septage Program is possible for the city.3. The story for the
Sewerage Program, however, is not as optimistic. There is a range
of bids or prices that households would agree to pay (with average
of Php102/month for the whole sample). These bids are slightly
higher than that of the WTP for the Septage Program. However, none
of these can cover the huge investment costs associated with a
self-financed Sewerage infrastructure based on BCA assumptions
outlined in Appendix Table 2. Thus, it would be prudent for the LGU
to look for other funds.4. To implement the septage management and
sewerage plan, waterbill can be used as a payment vehicle since its
mandatory nature allows more efficient collection of fees unlike
voluntary payment schemes such as community tax certificate and
garbage fees. However, the computation of fees must be made
transparent on the bill to allay the fear of customers of any
hidden charges. If a private contractor will make a separate
collection of septage and sewerage fees from the water bill, this
needs to be studied carefully for cost implications.
24. ReferencesADB. 2007. Asian Water Development Outlook:
Country Paper- Philippines. Manila: Philippines.Choe, K., D.
Whittington and D. T. Lauria. 1996. The Economic Benefits of
Surface WaterQuality Improvements in Developing Countries: A Case
Study of Davao, Philippines. LandEconomics 72(4):51937. Cochran, W.
G. 1977. Sampling Techniques. 3rd ed. New York: JohnWiley.Lauria,
D. T., D. Whittington, K. A. Choe, C. Turingan, and V. Abiad. 1999.
Household Demandfor Improved Sanitation Services: A Case Study of
Calamba, the Philippines. In Bateman, I. andK. Willies, eds.,
Valuing Environmental Preferences: Theory and Practice of the
ContingentValuation Method in the US, EU, and Developing Countries.
Oxford: Oxford University Press.SUSEA. 2008. Draft Report of the
Local Sustainable Plan of Dagupan City.USAID. 2007. Septage
Management in the Philippines: Current Practices and Lessons
Learned.World Bank. 2003. Philippine Environment Monitor: Water
Quality
25. Appendix Table 1. BCA Assumptions for Septage Management
Plan Assumed Value Source RemarksInitial Investment PhP 60 M SUSEA
Baseline Study Report for Dagupan City, 2008Financing Costs 10
years to pay with 3 year grace period; Interest rate set at 10% per
yearDesludging and Php 350/ cu. m. ADB, 2007 These figures are
based onTreatment Costs desludging costs; PhP 55/ calculation of
Manila Water cu. m. treatment costs operations. Note that we have
excluded the Bioapplication Costs which amounts to PhP 644/ cu.
m.Annual Operating Salaries 960,000 USAID 2007 These estimates were
basedand Maintenance Repairs 300,000 on the LINAW project in(O and
M) Supplies 300,000 Dumaguete. The project isExpenses Analysis
30,000 expected to serve 22,000 households and 2,500 Monitoring
120,000 business establishments in Dumaguete City. Since Dagupan is
much larger these figures were increased by 39% for the
analysisRevenue Base 75% of households have SUSEA Baseline water
connection; This Study Report for comprises the paying Dagupan
City, 2008 populationServiceable 97% of households have SUSEA
BaselineHouseholds septic tanks will be Study Report for eligible
for the program Dagupan City, 2008Frequency of 1/3 of
eligibleService households will be serviced every year within the
three year intervalAverage Size of 10.8 cu. m. SUSEA Baseline
Corresponds to a septic tankSeptic Tank Study Report for with a
2x3x1.8 dimension; Dagupan City, 2008 Only 1/3 of this amount (i.e.
3.2 cu. m.) will be left undesludged as per Sanitation Code of the
PhilippinesOther assumptions:1. Planning Horizon of 25 years2.
Discount rate of 10%3. Annual Household Growth rate of 1.2%
26. Appendix Table 2. BCA Assumptions for Sewerage Plan Assumed
Value SourceInitial Investment Php 500 M SUSEA Baseline Study
Report for Dagupan City, 2008Financing Costs 10 years to pay with 3
year grace period; Interest rate set at 10% per yearOther
assumptions:1 Planning Horizon of 25 years2 Discount rate of 10%3
Annual Household Growth rate of 1.2%