WATER And SAniTATiOn PROGRAm: TEChniCAl PAPER 56943 WSP Sanitation Global Practice Team Financing On-Site Sanitation for the Poor A Six Country Comparative Review and Analysis Sophie Trémolet with Pete Kolsky and Eddy Perez January 2010 The Water and Sanitation Program is a multi-donor partnership administered by the World Bank to support poor people in obtaining affordable, safe, and sustainable access to water and sanitation services. The findings, interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its affiliated organizations, or to members of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to wsp@worldbank.org . WSP encourages the dissemination of its work and will normally grant permission promptly. For more information, please visit www.wsp.org . © Water and Sanitation Program WSP Sanitation Global Practice Team Financing On-Site Sanitation for the Poor A Six Country Comparative Review and Analysis Sophie Trémolet with Pete Kolsky and Eddy Perez January 2010 Financing On-Site Sanitation Acknowledgments By Sophie Trémolet with Pete Kolsky and Eddy Perez Thuy and Mai Van Huyen (Vietnam). Peer review of the case studies were contributed by WSP The study was written by Sophie Trémolet (indepen- staff and World Bank task managers, including: Craig dent consultant) under the leadership and guidance of Kullman (WSP) on early versions of all case studies, Andrew Eddy Perez (Water and Sanitation Program - WSP) and Robinson (independent consultant), Rokeya Ahmed (WSP) Pete Kolsky (World Bank), who also provided in-depth and Santanu Lahiri (WSP) on Bangladesh; Maria-Angelica comments on the methodological approach, case studies Sotomayor (World Bank) on Ecuador; Peter Hawkins (WSP) and main report. on Mozambique; Ajith Kumar (WSP) on Maharashtra; Yogita Mumssem (World Bank), Pierre Boulenger (WSP), The following people peer reviewed the methodological Ousseynou Diop (WSP) and Sylvie Debomy (World Bank) approach underlying the report and formulated suggestions on Senegal; Bill Kingdom (World Bank), Alan Coulthart for the choice of case studies: Jonathan Halpern (World (World Bank), Joseph Gadek (WSP), Hoang Thi Hoa Bank), Guy Hutton (WSP), David Schaub-Jones (Building (WSP) and Le Duy Hung (WSP) on Vietnam. Partnerships for Development), Vivien Foster (World Bank), Andreas Knapp (WSP), Brian Stewart Smith (World Bank), Overall peer review of the final report was provided by Guy Barbara Evans (independent consultant), Peter Hawkins Hutton (WSP), Isabel Blackett (WSP), Caroline Van den (WSP), Isabel Blackett (WSP). Gabriela Prunier (inde- Berg (World Bank) and Oscar Alvarado (World Bank). pendent consultant) and Steve Sugden (London School of Almud Weitz (WSP), Jan-Willem Rosenboom (WSP) Hygiene and Tropical Medicine) also provided initial input and Barbara Evans (independent) also provided additional into the methodological note. comments. Research and writing for the country case studies were This document is dedicated to the memory of Ousseynou contributed by the following authors: Shafiul Azam Ahmed Diop who was the chair of the WSP Sanitation GPT when (Bangladesh), Patricio Arrata, ICA Consultores (Ecuador), this research was conceptualized and initiated. Rajiv Raman (Maharashtra), Alan Malina (Mozambique), Chimère Diop and Ousseynou Guène (Senegal) and Cu iv Water and Sanitation Program Financing On-Site Sanitation Foreword Promotion of household investment in sanitation is a cost- The present study offers evidence on alternative financ- effective public health intervention, in terms of the ratio ing approaches for on-site household sanitation from of public cost to estimated health benefits.1 Good sanita- case studies in six countries: Bangladesh, Ecuador, India, tion confers on its users other important benefits: dignity, Mozambique, Senegal, and Vietnam. This evidence can privacy, and time savings. For these reasons, the World help identify the best-performing approaches and the rele- Summit on Sustainable Development in 2002 included vant factors and issues to consider in designing a sanita- sanitation as part of the Millennium Development Goals tion financing strategy. The study systematically compares (MDGs). Target 10 of Goal 7 includes a commitment to alternative financing approaches based on a set of common halve the fraction of the world's population without access indicators, including in terms of the effectiveness in the use to improved sanitation relative to that in 1990. of public funds and targeting. The team chose to focus on those projects recognized as successes to obtain a reason- Progress towards the sanitation target has been uneven. While able representation of the better practices in sanitation some countries, including Bangladesh and Vietnam, are well programs. The study identified a number of useful examples positioned to meet the target, others, such as India and most and tentative lessons about finance which should help to countries in Sub-Saharan Africa, are unlikely to do so by advance the design of sanitation finance at the outset of a 2015. Despite the benefits, sanitation specialists have been project. Replicating such experiences will require a better unable to mobilize sufficient funding, attention, and politi- understanding of what drives household investment and cal will at the local, national, and global levels to achieve the what the key constraints limiting such investment are, in sanitation target. Even where investments are made, they are both financial and non-financial terms. often relatively ineffective or do not reach the rural and urban poor who have the least access to sanitation and are thus most The sanitation challenge continues to grow with popula- at risk. The financial crisis and its associated impact on the tion, as does the cost of failing to meet it. We believe this global economy are putting governments' budgets under study is a worthwhile contribution to addressing the chal- stress, in developed and developing countries alike. lenge of how to pay for sanitation. Three crucial questions in all development activities financed by the World Bank are "How much will it cost?" "How will it be paid for?" and "Who pays what?" To help answer these questions, the World Bank undertook a study of utility subsidies in water supply and electricity.2 Although sanita- tion was supposed to be included, the authors quickly found an almost complete lack of data on the topic. As a result, the Water and Sanitation Program (WSP) and the Water Anchor of the World Bank have collaborated in managing this study as a first step to painting a full picture of finance and costs in sanitation. 1 Jamison et al. 2006. 2 Komives et al. 2005. www.wsp.org v Financing On-Site Sanitation Executive summary 1 The problem: Sanitation, large fraction of the cost. In addition, economists and sector economics, and finance professionals are generally skeptical of subsidy schemes, Forty percent of the world's people do not have access to having seen how inefficient and counter-productive some a basic level of sanitation; one in five of us practices open poorly designed programs can be. defecation.3 This crisis in sanitation has clear consequences. Diarrhea kills over 1.5 million children each year, and 88 The challenges of finance ­ the practical decisions about percent of these deaths are attributed to fecal contamination who pays how much for what, when, and how ­ thus lie at from inadequate sanitation, hygiene, and water supply.4 The the heart of the world's efforts to promote health, dignity, lack of sanitation spreads many other diseases, pollutes both and a cleaner environment through sanitation. Yet despite water and land, and robs the poor of basic dignity. The cost the importance of the topic, past efforts to gather meaning- of these problems is high in economic as well as human ful data on sanitation finance have largely failed. A land- terms. In a series of studies, the Water and Sanitation mark report on subsidies in water and power7 was originally Program (WSP) estimated that inadequate sanitation costs intended to include sanitation but could not do so because the economies of four Southeast Asian countries the equiva- of the lack of readily available data. At the start of this lent of approximately 2 percent of their GDP5; these results study, few if any credible data were available to describe the echo similar findings elsewhere about both the costs and numbers and experience of sanitation finance. benefits of sanitation.6 Given this human and economic toll, why is progress still so slow? 2 Objectives and some key questions of this study Sanitation solutions are not cheap for the poor, who make up This study aims to improve understanding of the finance the vast majority of those without sanitation. In the six coun- of on-site household sanitation through careful analysis of tries described in this study, the capital cost of household practical field experience in a wide range of projects. The sanitation varied between US$17 and US$568, costs which Sanitation and Hygiene Global Practice Team of the World often exceeded half the annual household income of the poor Bank Water and Sanitation Program (WSP) initially concep- in the respective project areas. Like housing, on-site sanita- tualized this study to offer better guidance to sector profes- tion is often viewed as a private good and the basic responsi- sionals developing on-site sanitation projects and programs. bility of the beneficiaries themselves. Yet sector professionals have long argued that some public finance of sanitation can Most of those without sanitation live in rural areas or on the be justified by its inherent externalities; construction and fringes of cities beyond the reach of sewerage networks. The first use of a family latrine protects others at least as much as it step up "the sanitation ladder" for those without access will be reduces disease transmission within the family. However, the on-site sanitation. The institutional and financial structures of large number of poor households without sanitation makes sewerage and on-site sanitation are so different that it was decided it difficult for strained government budgets to contribute a to focus this first study on the issue of basic on-site sanitation. 3 UNICEF/WHO JMP 2008. 4 Lopez et al. 2006. 5 Hutton et al. 2007. 6 Hutton and Haller 2004. Additional background information is derived from roughly 30 country reports, both published and unpublished, completed between 2004 and 2007 and made available to the authors by Bjorn Larsen. 7 Komives et al. 2005. www.wsp.org vii Financing On-Site Sanitation The study addresses such basic questions as: · Costs: Are the costs of the resulting sanitation facili- · How much does provision of access to on-site sanita- ties reasonable and affordable to the beneficiaries? tion cost, that is, once all costs (hardware and soft- · Effectivenessintheuseofpublicfunds: Were public ware) are taken into account? funds used in a way that maximized impact? · Do the type and scale of sanitation subsidy affect · Povertytargeting: Did the program seek to target the provision and uptake? How? poor and was the program effective at doing so? · How can the public sector most effectively support · Financialsustainability:Could the financial approach household investment in on-site sanitation? be sustained over time without external support? · Should it be via investment in demand stimulation, · Scalability: Could the financial approach be scaled subsidies to households or suppliers, by support to up to cover those who are not yet covered in the credit schemes, or by other means? country at a reasonable cost? · Should hardware subsidies be provided or should public spending be focused on promoting demand The case studies were selected to reflect a range of household or supporting the supply side of the market? Where sanitation financing approaches and contexts; the chosen hardware subsidies are adopted, what is the best way projects were located in Bangladesh, Ecuador, Maharashtra to ensure that they reach their intended recipients (India), Mozambique, Senegal and Vietnam. and are sustainable and scalable? · What innovative mechanisms (such as credit or These projects and their financing approaches are presented revolving funds) can be used to promote household below in Table A in the increasing percentage of the total sanitation financing? costs of sanitation adoption coming from public funds. At one end of the public finance spectrum, some projects 3 The approach of the study (such as in Bangladesh and India) only offered subsidies for This study reviews on-site sanitation financing in six care- software activities and for limited and targeted hardware fully selected case studies by examining: subsidies for poor households. Limited amounts of public · The financing sources (who pays) and funding were also used for the Sanitation Revolving Fund · The financing approaches: in Vietnam, an innovative approach to using microfinance ­ What share is paid by each source, and how? for increased access to sanitation that yielded very high ­ What public funding mechanisms are used, leverage of user contributions. At the other end of the spec- including hardware subsidies, software support, trum, projects in Sénégal and Ecuador adopted a relatively or facilitated access to credit? high hardware subsidy. In addition to summarizing the mechanics of each approach, all case studies were reviewed in terms of common evalua- Table A presents a summary of the evaluation based on the tion criteria: six criteria described above. · Impactonsustainableaccesstoservices: Did the proj- ect contribute to increasing access to sanitation? viii Water and Sanitation Program Financing On-Site Sanitation TABlE A. CASE STudiES OF hOuSEhOld SAniTATiOn And FinAnCinG APPROAChES Project context level of service, population that adopted sanitation during the project, study period Financing approach Vietnam · Software support for sanitation promotion and hygiene education Sanitation Revolving Fund (SRF) - urban areas · Facilitated access to credit via sanitation revolving funds · Mostly bathrooms and septic tanks · Subsidized interest rates on loans for hardware construction · 194,000 people (accounting for about 3% of hardware costs) · 2001 to 2008 · Public funds = 7% of total costs of sanitation adoption maharashtra (india) · Software support for community mobilization, including outcome-based Total Sanitation Campaign financial rewards to villages reaching Open defecation Free (OdF) status to (TSC) using ClTS approaches -rural areas be spent on sanitation investments · Improved latrines · Outcome-based hardware subsidies for below-poverty-line households · 21,200,000 people (covering about 22% of hardware costs for beneficiaries) · July 2000 to November 2008 · Access to credit in some districts only · Public funds = 9% of total costs of sanitation adoption Bangladesh · Software support for community mobilization, sanitation promotion, and diShARi (based on Community led Total Sanitation) - local government strengthening, including outcome-based financial rewards rural areas to villages that are 100% sanitized. Rewards come with no strings attached · Basic latrines and do not necessarily need to be spent on sanitation. · 1,631,000 people · up-front in-kind hardware subsidies targeted to the poorest (covering · 2004 to 2008 about 42% of hardware costs for beneficiaries) · Public funds = 31% of total costs of sanitation adoption mozambique · Software support for sanitation promotion and establishment of local work- improved latrines Program (Plm) - urban areas shops building slabs and latrines · Improved latrines · Output-based subsidies to local sanitation providers for each slab or latrine · 1,888,000 people sold (intended to cover 40% to 60% of hardware costs) · 1980 to 2007 · Public funds = 58 % of total costs of sanitation adoption (estimated) Ecuador · Software support to strengthen municipalities to work in sanitation, for PRAGuAS - rural areas technical designs and monitoring · Sanitation units (toilet, septic tank, sink, shower) · Up-front fixed hardware subsidies (covering about 60% of hardware costs) · 143,000 people provided to communities · 2001 to 2006 · Public funds = 85% of total costs of sanitation adoption Senegal · Software support for sanitation promotion, including hygiene promotion PAQPud - urban areas and education, community organization, technical support · Range of options: improved latrines to septic tanks · · Output-based hardware subsidies to local sanitation providers for each 411,000 people sanitation solution built (covering about 75% of hardware costs) · 2002 to 2005 (not including extensions via GPOBA) · limited schemes to facilitate access to credit · Public funds = 89% of total costs of sanitation adoption www.wsp.org ix Financing On-Site Sanitation TABlE B. CASE STudiES: SummARy EVAluATiOn Bangladesh Ecuador maharashtra mozambique Senegal Vietnam impact on Substantial and Substantial Very rapid Rapid increases Speed of cover- Rapid extension sustainable rapid increase in increases in increases in in coverage only age increased of coverage access coverage, mostly coverage with coverage (with when software when required sustained good evidence some cases of support was also household of use relapse) provided contribution was reduced Costs Basic sanitation Comprehensive improved sanita- Affordable basic Comprehensive Costs moderate costs reasonable sanitation solu- tion, households sanitation solu- sanitation compared to when compared tions: costly but invest based on tions, reduced solutions but other programs to household meet existing what they can demand when expensive by but high when income demand afford incomes grow both national compared to (3% to 4%) and international household standards incomes Effectiveness high leverage low leverage high leverage medium low leverage Very high in use of public leverage leverage funds Poverty Effective target- Geographical means-tested Self-selection via Geographical Effective target- targeting ing through targeting targeting effec- level of service, targeting ing, although community reached intended tive although with limited reached intended lowest income involvement recipients some are inclusion error recipients excluded excluded Financial sustain- Sustainable as highly depen- low demands on dependent highly depen- Financially ability long as public dent on external external public on external dent on external sustainable: sector financing funds financing (with a financing initial public continues to marked decline funds have contribute when subsidies revolved many drop) times Scalability Scale-up achiev- Scale-up could has been scaled Was scaled up Too expensive to Scale-up has able at a reason- be achieved up at federal in major urban scale up nation- been achieved in able cost given relatively level (coverage centers but wide country high national still needs to further scale-up income improve) unlikely Summary evalu- Efficient use of Only useful for Efficient use of Efficient use of limited use: Very efficient use ation public funds for countries willing public funds, public funds high demand on of limited public rural settings and able to fund which are with simple and public funds and funds but may be with strong high levels of provided on an effective limited leverage hard to replicate demand for low- service outcome basis targeting cost solutions x Water and Sanitation Program Financing On-Site Sanitation 4 Key findings indicators, by itself cannot tell the whole story, because Taken together, the case studies make a compelling case that both the levels of service offered and the costs varied partial public funding can trigger significantly increased between projects. Nevertheless, it is revealing that in rural access to household sanitation. The six case studies show Bangladesh US$1,000 of public finance yielded sanitation that public investments of varying forms enabled an abso- for 135 households, while in urban Senegal the same public lute increase in the fraction of the target population gaining funding could only serve 1.6 households. access to sanitation, which varied between 20 percent and 70 percent. Each of the six sanitation programs enabled signifi- Households are key investors in on-site sanitation, and care- cant numbers of people to improve their sanitation; from ful project design and implementation can maximize their the largest (over 21 million gained access in the Maharashtra involvement, satisfaction, and financial investment. All of project alone) to the smallest (over 140,000 in Ecuador). the reviewed projects assumed that the poor can contribute While sanitation projects have earned a reputation as difficult to their own sanitation facilities, and in several cases they paid and often ineffective, these projects show that government the bulk of the hardware costs. Poor households can make investment can yield results. substantial sanitation investments (up to 25 or 30 percent of annual income, as in Vietnam) if they can see the need The studies show that the most relevant question is not and potential benefits from it. Leverage of household invest- "Are subsidies good or bad?" but rather "How best can we ment also varied; in Vietnam, the household contribution to invest public funds?" The case studies reveal a wide range of sanitation was 20 times greater than the public investment; sanitation finance options and approaches. While there has while in three other cases public investment exceeded the been much written on the dangers of "sanitation subsidies,"8 household investment. The Vietnam case study shows that it is hard to imagine a sanitation program that does not limited access to credit (and thus the opportunity to spread involve some public or external investment, if only to share investment over time) can be a more severe problem than information or stimulate demand. (While early adopters in basic affordability for many, if not for all. all countries have invested in sanitation without the need for public interventions, they are usually a small minority.) Hardware subsidies of some form played a critical role The case studies reveal a wide spectrum of options: from in all six case studies. These subsidies varied from a subsi- a minimal investment in start-up of a revolving fund, to dized interest rate yielding US$6 per septic tank in Vietnam significant community mobilization and demand stimula- to subsidies between US$200 and US$1,000 in Senegal, tion, all the way to hardware subsidies of up to 75 percent depending upon the technical options selected. On the one of capital costs in addition to community mobilization. hand, subsidies targeted within communities to the very The choice is thus not "Subsidy or no subsidy?" but rather, poorest have enabled the achievement of Open Defecation "What form and level of public funding makes sense in a Free (ODF) Status by communities in the DISHARI project specific context?" in Bangladesh; on the other hand, when a high proportion of substantial hardware costs are subsidized, as in Senegal and The different financing strategies adopted had a profound Ecuador, this may limit the potential scale of interventions to influence, for better or for worse, on equity, scale, sustain- a relatively limited set of people given a restricted budget. ability, levels of service, and costs. No single case study represented a "silver bullet" approach that can be repli- Subsidy targeting methods need to be tailored to country cated globally, but different models will be more appropri- circumstances. The study found a range of targeting meth- ate with differing project objectives. One indicator of the ods for hardware subsidies, including geographic targeting, effectiveness of public finance use is the number of house- means-tested targeting, community-based targeting, and holds gaining basic access per US$1,000 of public fund- self-selection. Community-based targeting (in which the ing. This "increased access/ public funding ratio," like most community itself manages the identification and support of 8 See, for example, Kar 2003. www.wsp.org xi Financing On-Site Sanitation its poorest members) and self-selection (in which only in-kind decentralization. Limited cost and monitoring data did not support for the most basic sanitation is offered, leading to allow conclusions to be drawn about the relative effective- self-selection among potential subsidy applicants) appear to ness of different types of software support. be more effective than means-tested systems, which can be costly and generate perverse incentives. Community-based 4.1 Operational implications selection appears to be a more flexible, better targeted, and Early planning and careful design of financial arrange- probably less costly way to identify poor households, but it ments for sanitation at the start can go a long way toward requires the right type of community mobilization and soli- promoting project realism and sustainability. Financial darity. Although no precise data were available to confirm arrangements probably shape the success or failure of sani- whether self-selection is an effective targeting approach, this tation projects more than any other factor. Answers to the method appeared to be the cheapest and easiest to imple- basic questions of finance--"Who pays for what, when and ment. This would seem most appropriate for those countries how?"--determine the extent to which projects can repli- that have limited means to introduce either means-tested or cate, expand sanitation, and meet household needs. Projects community-based targeting approaches but seek to reach a with financial designs that match local needs and capacities large population through a basic sanitation program; such as can take off, while projects with poor or unrealistic financial in Mozambique where improved latrines are subsidized. designs will stall at the end of the project cycle. Sanitation finance is thus a key element of project design, yet one that The provision of hardware subsidies on an output basis often lags because of the paucity of information, options, rather than an input basis can be effective at stimulating and sound analysis rooted in local conditions. In most demand and leveraging private investment. Several of the urban WSS projects, for example, there has inevitably been cases used an output-based method to deliver subsidies some experience with water tariffs, and often some expe- (such as Mozambique and the Total Sanitation Campaign rience with sewer connection charges. With some impor- in Maharashtra.) Providing a subsidy on an output basis can tant exceptions, utility or government policies promoting ensure that the activity that is subsidized is actually deliv- or financing on-site sanitation are often non-existent or, at ered. It can also give incentives to producers to reduce costs best, ad hoc. In rural areas, the lack of documented exam- and to serve areas which they might otherwise not consider. ples and options has until now often limited the scope to From a donor perspective, output-based subsidies can miti- "what we've always done." gate some of the risk of low uptake of a subsidy program: If there is no demand (if the product is not appropriate or In addition to designing promising financial approaches, if it is incorrectly priced, etc.) then there is no output and World Bank staff need to monitor them. We need good therefore no payment. The provision of financial rewards data to help our clients improve their sanitation programs based on outcomes acted as a strong motivator for villages and financing approaches and to learn from experience in Bangladesh and Maharashtra and helped mobilize ener- across the Bank. This means collecting basic data on the gies around the achievement of clear goals. costs of promotion, the costs of hardware subsidies, the contributions made by the household, and so on. Building All of the case studies included a significant publicly in such data collection and analysis from the outset will not funded software component (promotion and community only serve the long-term goals of allowing comparison of mobilization). The Maharashtra and Bangladesh case stud- approaches across countries, but will also improve project ies invested heavily in software (with targeted hardware monitoring and the supervision of these crucial elements of subsidies for the poorest) and had some of the highest implementation during the project's lifetime. leverage and basic-access-to-investment ratios of all the case studies. The Mozambique project was most effective when Operational staff must look beyond the semantics of the government also financed community animators for simplistic "subsidy vs. no subsidy" debates to define an demand promotion; the decline of the program was closely appropriate level and form of public investment in sani- linked to the withdrawal of such software support following tation. Many sector specialists are frustrated after decades xii Water and Sanitation Program Financing On-Site Sanitation of unrealistic, poorly designed and administered subsidy world usually involves a large subsidy for the relatively programs. They have noted that such programs are unsus- affluent). The specifics of sewerage finance for the tainable, and have the perverse effect of stifling the devel- urban poor (including condominial systems) are not opment of real sanitation markets for the poor, as both well documented or understood globally. suppliers and consumers waited for the next round of · The potential and constraints of credit (microcre- subsidy before investing. This frustration has recently been dit) schemes for sanitation. The Vietnam experience expressed by some who have taken a simplistic "no subsidy" marks a great success. What are the conditions under position, arguing from the correct observation that hard- which credit support is viable and useful? Are there ware subsidies can sometimes limit sustainability to the examples of failure, and if so, where and why? invalid conclusion that hardware subsidies are always unjus- · OBA (Output-Based Aid) for sanitation. This tified and counterproductive. approach is conceptually attractive to donors, and with good design may be attractive to the private sector, but As these case studies show, a wide spectrum of finance its practice in sanitation is poorly documented. arrangements has been used with varying degrees of success. · Development of better monitoring and evaluation Experience teaches that sanitation, like other goods with (M&E) for sanitation. All development activities significant externalities, does not "take care of itself," espe- need better M&E, but the need is particularly acute cially among the poor. The case studies make a strong argu- in sanitation. Financial M&E to reflect the history ment for the benefits of appropriate public investment in of costs, cost sharing, and long-term sustainability is sanitation. The challenge is to define appropriate approach- particularly important. es, shares, and mechanisms to finance sanitation for the · Basic sanitation cost data and its determinants. poor that match the specific local context. The documented Despite decades of field experience, reliable estimates results from the six case studies in this report, and the meth- for the hardware and software costs of sanitation odology developed for their preparation and analysis, are a access are still scarce. Operation and maintenance useful first step. costs need special attention, as they are recurrent and are often neglected to the detriment of sustain- 5 Gaps and further work ability. This study is only a first step. There are a large number of · The impact of finance mechanism on cost. Do hard- important areas where additional work is needed to provide ware subsidies increase the capital cost of "low cost" clients and operational staff with more options and more sanitation? Do subsidies mean that more get the same evidence on options for public investment in sanitation. sanitation, or only that basic sanitation becomes more Sanitation is still at the stage where every project should be expensive? How can this be effectively managed? considered a "learning project" so that the benefits of expe- · Other elements of the "value chain" of sanitation rience are not lost to the future. Areas where work appears (pit emptying/desludging services, waste reuse, and particularly urgent include these: so on). How are these financed? How can they be · Financing urban and collective sanitation for the financed? How can appropriate disposal/reuse of poor. This study has focused on the most basic forms waste be ensured? of sanitation, the first step up the sanitation ladder for most of those currently without access. Urban popu- lation growth and continued migration from rural areas nevertheless mean that more of the poor will live in urban settings, the density of which may prohibit on-site options. "Conventional" sewerage finance is relatively well documented9 (and in the developing 9 Water and Environment Federation 2004. www.wsp.org xiii Financing On-Site Sanitation Contents Acknowledgments ....................................................................................................................................ii Foreword .................................................................................................................................................... iii Executive Summary ..................................................................................................................................v Table of Contents ..................................................................................................................................... 1 list of Acronyms ....................................................................................................................................... 3 1 introduction ......................................................................................................................................... 5 1.1 methodology .......................................................................................................................... 7 1.2 Report structure ..................................................................................................................13 2 Overview of case study financing approaches .....................................................................15 2.1 Case studies' country contexts .......................................................................................15 2.2 Summary of financing approaches ..............................................................................16 2.2.1 Bangladesh ............................................................................................................16 2.2.2 Ecuador ...................................................................................................................18 2.2.3 maharashtra (india).............................................................................................18 2.2.4 Mozambique .........................................................................................................19 2.2.5 Senegal....................................................................................................................19 2.2.6 Vietnam ...................................................................................................................20 2.3 hardware subsidy design .................................................................................................20 2.4 Software support ................................................................................................................22 3 Evaluating the performance of financing approaches.......................................................25 3.1 impact on sustainable access to services ...................................................................25 3.2 Costs ....................................................................................................................................27 3.3 Effectiveness in the use of public funds .....................................................................32 3.4 Poverty targeting ................................................................................................................34 3.5 Financial sustainability ......................................................................................................36 3.6 Scalability ...............................................................................................................................37 3.7 Summary evaluation..........................................................................................................39 4 Summary of findings ......................................................................................................................41 4.1 What have we learned?.....................................................................................................41 4.2 Where next? ..........................................................................................................................47 Annex A - Bangladesh case study.....................................................................................................51 Annex B - Ecuador case study ............................................................................................................67 Annex C - maharashtra case study ...................................................................................................79 Annex d - mozambique Case Study ................................................................................................97 Annex E - Senegal case study.......................................................................................................... 113 Annex F - Vietnam case study ......................................................................................................... 129 Annex G ­ On-site sanitation at household level: a primer.................................................. 143 Annex h ­ Standard terms of reference for case studies ...................................................... 149 Annex i ­ indicative bibliography.................................................................................................. 153 www.wsp.org 1 Financing On-Site Sanitation list of Tables Table A Case studies of household sanitation and financing approaches ......................................................................................................................v Table B Case studies; summary evaluation........................................................................ vi Table 1.1. Potential financing approaches for on-site sanitation ................................... 8 Table 1.2 Case studies of household sanitation and financing approaches ..................................................................................................................... 9 Table 1.3 Case studies evaluation criteria.............................................................................11 Table 2.1 Key case study country indicators........................................................................15 Table 2.2 Overview of case studies financing approaches.............................................17 Table 2.3 design of hardware subsidies in the case studies ..........................................21 Table 2.4 Provision of software support in the case studies ..........................................23 Table 3.1 number of people served during each project's life and facilities built per year ......................................................................................25 Table 3.2 initial costs and operations and maintenance costs (uS$) ..................................27 Table 3.3 levels of service and financing approaches (uS$ actual exchange rates) ...................................................................................29 Table 3.4 Costs of on-site sanitation and effectiveness of public funds.............................................................................................................33 Table 3.5 Targeting mechanisms and observed outcomes ...........................................35 Table 3.6 Case studies summary evaluation........................................................................40 list of Figures Figure 2.1 Characterizing financing approaches to on-site household sanitation ................................................................................................16 Figure 2.2 hardware subsidy design ........................................................................................20 Figure 3.1 Total initial costs per household (actual uS$ exchange rates) ...................................................................................27 Figure 3.2 Total initial costs per household (PPP uS$ exchange rates) ........................................................................................28 Figure 3.3 Allocated initial costs per household ..................................................................31 Figure 3.4 Hardware costs and household investment as percentage of household annual income .........................................................31 Figure 3.5 Operations and maintenance costs per sanitation solution per year (uS$) .............................................................................................32 Figure 3.6 Initial cost recovery....................................................................................................37 list of Boxes Box 1.1 Key definitions ............................................................................................................... 6 Box 1.2 Examples of other studies gathering data on household sanitation ..........................................................................................12 Box 3.1. using purchasing power parity (PPP) indicators for comparing prices across countries ...............................................................28 2 Water and Sanitation Program Financing On-Site Sanitation list of Acronyms APL Above poverty line BDT Bangladeshi taka BPL Below poverty line Capex Capital expenditure CBO Community-based organization CLTS Community Led Total Sanitation DISHARI Decentralized Integrated Sanitation, Hygiene and Reform Initiative FCFA Franc Communauté Financière Africaine GDP Gross Domestic Product GPOBA Global Partnership for Output-Based Aid IEC Information, education, and communication IFIs International Finance Institutions JMP Joint Monitoring Programme M&E Monitoring and evaluation MDG Millennium Development Goals MTn Mozambican metical NGO Non-governmental organization NGP Nirmal Gram Puraskar O&M Operations and maintenance ODF Open Defecation Free Opex Operating expenditure PAQPUD Programme d'Assainissement Autonome des Quartiers Peri-Urbains de Dakar PLM Programa de Latrinas Melhoradas PNSBC Programa Nacional de Saneamento a Baixo Custo PPP Purchasing Power Parity PRAGUAS Programa de Agua y Saneamiento para Comunidades Rurales y Pequeños Municipios Rs Indian rupees SGBSA Sant Gadge Baba Gram Swachayata Abhiyan SHG Self-help group SRF Sanitation Revolving Fund TSC Total Sanitation Campaign UBS Unidad Basica de Saneamiento US$ U.S. dollar VIP Ventilated improved pit VND Vietnamese dong WHO World Health Organization WSP Water and Sanitation Program www.wsp.org 3 Financing On-Site Sanitation introduction I. Introduction The world is unlikely to meet the challenge of the sanitation When building such facilities, households face relatively high target of the Millennium Development Goals (MDGs): To up-front investment costs, depending on the level of service halve by 2015 the fraction of the world's population without they choose. Associated operating and maintenance costs access to basic sanitation. The problem is particularly acute vary depending on the type of facilities, but are usually in Sub-Saharan Africa and South Asia. There has been much fairly low. Operating and maintenance costs mostly consist debate on what is needed to accelerate the pace of sanita- of direct household expenses (rather than charges paid to tion coverage expansion. Most agree that additional funds cover the costs of a service provider) and periodic charges for need to be mobilized to close the sanitation gap, but there is emptying the facility when it becomes full (although house- much debate about what to spend the money on, how to raise holds can also elect to do this themselves, as a way of keeping the money, and from whom to raise it. Additional evidence is costs down). Utilities providing sewerage services are seldom needed about what makes sanitation strategies effective and involved in the provision of on-site sanitation services (with how best to finance them so as to inform policy and program some notable exceptions, such as in Burkina Faso, where development in the sanitation field. on-site sanitation is financed via the proceeds of a sanita- tion tax levied on customers receiving sewerage services). As On-site sanitation (pit latrines, septic tanks, and other house- a result, tariffs to recover the costs of providing a service are hold level technologies that do not involve sewerage) must not relevant for on-site sanitation in the way they would be play a key role in increasing access. This is particularly true in for water or sewerage services. rural and peri-urban areas where space availability and popu- lation density are not constraining factors on its adoption Traditionally, governments have either ignored on-site sani- and where on-site sanitation can be substantially cheaper and tation altogether (leaving households to build their own easier to promote than extending sewerage networks. The latrines and pay for their maintenance) or gone to the other majority of the population without access to any sanitation extreme of supporting heavily subsidized latrine-build- lives in precisely such areas. Financing on-site sanitation at ing programs. Such top-down subsidized programs have the household level is a complex and under-researched area, increasingly been discredited, for a number of reasons. On however, one seldom dealt with in its own right, separately the one hand, they have often built facilities that people did from the financing of water or sewerage services. not want and therefore did not use. In addition, subsidies have often been captured by the wrong people; many such On-site sanitation has its own characteristics that make its schemes were heavily dependent on external funding and financing different from that of networked water or sewerage were not sustainable when external funding stopped. services. Despite evidence of positive externalities (on public health, the environment, and general economic develop- Despite this apparent lack of success, a growing body of ment), the construction of domestic on-site sanitation facili- evidence makes the case for public support to improve sani- ties is usually considered to be a household responsibility. tation for all, including the poor.1 1 For example, in Sub-Saharan Africa, where there has been limited investment from governments and donors in on-site sanitation, the Africa Infrastructure Country Diagnostic (AICD) showed that, on average, 50% of the population use unimproved traditional latrines while 34% resort to open defecation. Only the families in the top three income quintiles are likely to have improved sanitation facilities, and the majority of cases of household investment in improved sanitation were in the higher-income households. www.wsp.org 5 Financing On-Site Sanitation introduction A key objective of the present study is therefore to evaluate alternative financial approaches for governments, interna- BOx 1.2 ­ KEy dEFiniTiOnS tional donors, or NGOS to support on-site sanitation. A defining on-site sanitation. The word sanitation has critical question from a public financing point of view is a wide range of meanings in different contexts and whether households should face the full cost of investing languages. in conformity with the Joint monitoring in on-site sanitation or whether such costs should be borne Programme (JmP) for drinking Water Supply and in part by the public sector. "Public support" can include Sanitation (the official monitor of the mdG sanitation taxes or international transfers intended to reflect the exter- target), this study defines sanitation as the methods nal benefits derived from sanitation for society as a whole. for the safe and sustainable management of human excreta, including the collection, storage, treatment, A number of basic but relevant questions remain unan- and disposal/reuse of feces and urine. There are two swered, such as these: main types of sanitation: on-site systems (such as · How much does providing access via on-site sanita- latrines, cesspits, septic tanks) and off-site systems, tion really cost, that is, once all cost components are principally sewerage networks. This study focuses taken into consideration, including hardware and exclusively on on-site sanitation systems, which are software? often the most cost-effective solution to meet the · Should the public sector support household invest- mdGs in many contexts, especially in rural and peri- ment in on-site sanitation? If so, should it be via urban areas.2 more specifically, the study focuses on subsidies or by facilitating access to finance via the on-site sanitation facilities at the household level and establishment of credit schemes? does not cover communal or school facilities, since · Should hardware subsidies be provided to house- financing approaches for the latter are different. holds, or should public spending be focused on promoting demand and/or supporting the supply defining finance. The study examines how increased side of the market? access to sanitation infrastructure at the household · If hardware subsidies are provided, what is the best level can be financed from a mix of household invest- way to design them to ensure that they reach their ments and public subsidies. This includes the financ- intended recipients and are sustainable and scalable? ing of initial access via capital expenditure as well as · What innovative mechanisms (such as credit or the financing of operations and maintenance costs revolving funds) can be used to promote household to ensure the ongoing use of the facilities.3 Software sanitation financing? costs, which are the costs of "soft" activities for creat- ing demand or mobilizing communities, are includ- To start addressing these questions, the Sanitation and ed in the total estimated costs. The study examines Hygiene Global Practice Team of the Water and Sanitation both the financing sources (where the funds come Program (WSP) and the Water Anchor of the World Bank from) and the financing approaches (how the financ- conceptualized, designed and commissioned this global ing sources are combined to cover costs and what study to gain deeper understanding of current financing mechanisms are used to provide public support, approaches for on-site sanitation and their effectiveness including hardware subsidies, software support, or in reaching the poor. Such understanding can help sector facilitated access to credit). professionals develop better, more realistic, and more sustainable on-site sanitation projects and programs. 2 Some projects reviewed as part of this study also offered network-based solutions. Where it was the case, this has been noted, but the network-based components were not analyzed. A potential second phase of the study may examine network-based sanitation solutions, including community toilets (connected to a network), small-bore sewers, or traditional sewers. 3 The financing of treatment activities is not considered here, as such. While treatment activities may confer environmental benefits, they do not directly contribute to meeting the Millennium Development Goals. 6 Water and Sanitation Program Financing On-Site Sanitation introduction 1.1 methodology such as sanitation.4 The diversity in financing approaches The findings of this report rest primarily on six case stud- is also reflected in different approaches to program design, ies illustrating a range of approaches to financing on-site with programs ranging from community-led programs sanitation. Case studies were selected in regions where WSP for investment in basic sanitation (as in Bangladesh) to and the World Bank work and where meeting the sanita- programs providing a well-defined set of improved sanita- tion MDGs is a challenge. (See Annex G for more details tion solutions (as in Senegal).5 on the methodological framework.) Given the emphasis placed on evaluating the best strate- mEThOdOlOGy FOR CASE STudy SElECTiOn gies for public support, the choice was made not to review The first step of the study consisted of identifying the range cases where household investments take place spontane- of financing approaches that can be used to cover the costs ously without public involvement. Although unsupported of on-site sanitation investments, that is, how the different household investments often account for the majority of potential sources of finance (including household invest- investments in on-site sanitation (as reported by the UK ment and public support) can be combined. These financ- Department for International Development in India for ing approaches were classified according to the mix of public example), such investments are often unaffordable for the and private funds used (ranging from full private financing poorest or may lead to sub-standard latrines that do not to full public financing) and the type of mechanisms used yield the health benefits associated with improved latrines to provide public funds. The results of this initial analysis (as per the Joint Monitoring Programme's definition). At are shown in Table 1.1 below, together with the case studies the other extreme, approaches that involved only public selected to illustrate these approaches. funds without household contributions were also ruled out from the start, since they could only be contemplated in The six case studies were selected to represent a range of a limited set of countries that could afford them (such as approaches to financing on-site sanitation at the house- South Africa). hold level. Approaches ranged from those that combined subsidies for software activities with limited targeted hard- Additional criteria for case study selection included these: ware subsidies for poor households (such as in Bangladesh · The projects needed to be perceived as successes and and India) to approaches with a relatively high hardware to be well implemented; subsidy (such as in Senegal or Ecuador). Some approach- · The case studies had to consist of relatively large es, such as the Sanitation Revolving Fund in Vietnam, are projects or programs in terms of size of investment relatively innovative and therefore less widespread; they are and number of beneficiaries, with a sufficiently long nevertheless representative of growing efforts to use micro- track record (about four to five years) and readily finance instruments to increase access to essential services, available financial information; and · Apart from donor-supported projects, long-term government programs developed without substan- tial donor assistance and NGO-led projects were to be included.6 4 See Mehta 2008. 5 In the rest of this report, each case is referred to by the country name (or the state name in the case of Maharashtra). 6 Although the case studies include both projects and programs, they are all referred to as "projects" for ease or reference. www.wsp.org 7 Financing On-Site Sanitation introduction TABlE 1.1. POTEnTiAl FinAnCinG APPROAChES FOR On-SiTE SAniTATiOn Financing approach Potential advantages Potential risks Case studies Financing sources: Purely private (households) Self-financing: households · majority of latrines are currently · Risk of poor quality infrastructure · not included since the invest in their own facilities financed privately this way · does not fully consider environmen- research is focused on and pay for sludge-empty- · Reflects existing demand tal impact external support ing services ­ no subsidy · no use of public funds · Suppliers may not exist · unaffordable for the very poor Sanitation surcharge: Cross- · use of cross-subsidies · Available funds may be limited due · limited experiences subsidy to finance on-site to affordability constraints (e.g. Burkina Faso) sanitation Financing sources: Combination of private (household) and public funds (taxpayer monies and external sources) loans to households, · Particularly useful in cohesive · demand for sanitation needs to be · Vietnam (Sanitation including microcre- communities aiming at 100% stimulated Revolving Fund) dit for sanitation or home sanitation · Requires a solid institution to improvement (e.g., revolv- · limits initial outlay of public funds manage funds ing funds) · Subsidy linked to outcome · may be unaffordable for the very poor Software support, with low/ · Focuses subsidies on creating · Sustainability at risk once the initial · india (TSC in no subsidy for hardware demand attention / champion or other moti- maharashtra) · Relies on community cohesion/ vating factor disappears · Bangladesh (diShARi) solidarity loans to private-sector · lift constraints for small scale · Services may not reach the very poor · Few cases currently in providers independent providers (SSiPs) to · not sufficient demand to keep the existence ­ no specific expand their services business running if not combined with case study hygiene & sanitation promotion non-financial support to · Boosts private-sector develop- · Services may not reach the very poor · Elements of this providers (training, demand ment so that supply can meet approach reviewed in creation) demand for sanitation facilities several cases Output-based aid: Grants to · Subsidy linked to actual outputs · Requires private sector prefinancing, · mozambique: households or SSiPs based delivered which may not be forthcoming improved latrines on outputs or outcomes Program · india (TSC in maharashtra) Partial hardware subsidy: · Enhances ownership of facility · may be unaffordable for the very · Ecuador (PRAGuAS) users contribute in kind or · improves affordability poor · Senegal (PAQPud) in cash · may be an unsustainable drain on resources Financing source: Purely public (taxpayer monies and external sources) Full subsidy: households · Removes affordability constraint · Can crowd out household resources · not included because receive facilities as a gift for the very poor (if they capture · no demand test, so facilities often not deemed sustain- the subsidy) not used able 8 Water and Sanitation Program Financing On-Site Sanitation introduction Table 1.2 shows key characteristics of the selected cases, presented in increasing order of public financing as a percentage of total initial costs (both hardware and software). TABlE 1.2. CASE STudiES OF hOuSEhOld SAniTATiOn And FinAnCinG APPROAChES Country, project, areas, level of service, population that Financing approach adopted sanitation, study period Vietnam: Sanitation Revolving Fund (SRF) - urban areas · Software support for sanitation promotion and hygiene education · Mostly bathrooms and septic tanks · Facilitated access to credit via sanitation revolving funds · 194,000 people · Subsidized interest rates on loans for hardware construction (accounting · 2001 to 2008 for about 3% of hardware costs) · Public funds = 7% of total costs of sanitation adoption maharashtra (india): Total Sanitation Campaign (TSC) · Software support for community mobilization, including outcome-based - rural areas financial rewards to villages reaching Open defecation Free (OdF) status · Improved latrines to be spent on sanitation investments · 21,200,000 people · Outcome-based hardware subsidies for below-poverty households · July 2000 to November 2008 (covering about 22% of hardware costs for beneficiaries) · Access to credit in some districts only · Public funds = 9% of total costs of sanitation adoption Bangladesh: dishari (based on Community led Total · Software support for community mobilization, sanitation promotion, Sanitation) - rural areas local government strengthening, including outcome-based financial · Basic latrines rewards to villages which are 100% sanitized. Rewards come with no · 1,631,000 people strings attached and do not necessarily need to be spent on sanitation · 2004 to 2008 · up-front in-kind hardware subsidies targeted on the poorest (covering about 42% of hardware costs for beneficiaries) · Public funds = 31% of total costs of sanitation adoption mozambique: improved latrines Program (Plm) - urban · Software support for sanitation promotion and establishment of local areas workshops building slabs and latrines · Improved latrines · Output-based subsidies to local sanitation providers for each slab or · 1,888,000 people latrine sold (intended to cover 40% to 60% of hardware costs) · 1980 to 2007 · Public funds = 58 % of total costs of sanitation adoption (estimated) Ecuador: PRAGuAS - rural areas · Software support to strengthen municipalities to work in sanitation, for · Sanitation units (toilet, septic tank, sink, shower) technical designs and monitoring · 143,000 people · Up-front fixed hardware subsidies (covering about 60% of hardware · 2001 to 2006 costs) provided to communities · Public funds = 85% of total costs of sanitation adoption Senegal: PAQPud - urban areas · Software support for sanitation promotion, including hygiene promotion · Range of options: improved latrines to septic tanks and education, community organization, technical support · 411,000 people · Output-based hardware subsidies to local sanitation providers for each · 2002 to 2005 (not including extensions via GPOBA) sanitation solution built (covering about 75% of hardware costs) · limited schemes to facilitate access to credit · Public funds = 89% of total costs of sanitation adoption www.wsp.org 9 Financing On-Site Sanitation introduction APPROACh TO dATA COllECTiOn Each case study was conducted by local and international The principal investigator provided overall guidance and consultants familiar with the country context. Information supervision for the preparation of the case studies based on for the case studies was collected via interviews with proj- a common methodological framework (see Annex G for ect staff, sector specialists, field visits, and, where possible, more details). The methodology was based on the following focus group discussions with project beneficiaries. In-country two principles: consultants had three to eight weeks to gather and analyze the data, depending on information availability and on the size Countingallthecosts. To assess the true cost of access provi- of the program under review. This process ensured that the sion, all the costs associated with the sanitation interven- data were compiled and interpreted as consistently as possible, tions were counted, including hardware and software costs. given the constraints imposed by the limited data. All numeri- For hardware, both the initial capital expenditure and an cal information was computed in a comparable spreadsheet estimation of the ongoing operations and maintenance format to ensure consistency in the way the indicators were costs were included. Software costs include those of such estimated (these spreadsheets are available on request). activities as demand promotion or media campaigns, as well as project management costs and the sums provided as The availability of reliable information varied substantially financial rewards to villages, wherever that was applicable from one case study to another. Available data were particular- (Bangladesh and Maharashtra). This also required separa- ly limited for Mozambique and Ecuador, requiring additional tion of the household on-site sanitation costs from those of assumptions for some calculations. Such assumptions are set other project components. In several cases, the on-site sani- out clearly in the body of the case studies, so that the method- tation component for households represented only a small ology used for deriving key indicators can be followed. portion of the overall project (as little as 3 percent of total project costs in Vietnam, which also included the renova- Case studies' evaluation criteria tion and expansion of sewerage networks and improvement The case studies were evaluated by a common set of indica- of the overall management of the utilities). tors, grouped under six main headings, as shown in Table 1.3 below. This review has tried to maintain, as much as Includingallsourcesoffunds. On-site sanitation investments possible, a distinction between evaluating the success of the can be financed from three main sources: the households overall approach to sanitation provision and evaluating the themselves, government funds, or international transfers financing elements. Thus the first group of indicators evalu- (from IFIs, donors, or NGOs). Households are often the ates the overall impact the projects and programs had on main source of funds, and yet few projects or studies track extending sustainable access, while the remaining indicators their contributions to the initial investment. When actual focus on the costs, the effectiveness in use of public funds, data on household investment was not available, estimates the ability to target poor customers via financial support, were based on the investment costs and the public sector and the potential to sustain and scale up the program based contribution. on financial considerations. 10 Water and Sanitation Program Financing On-Site Sanitation introduction TABlE 1.3. CASE STudiES EVAluATiOn CRiTERiA Criteria indicators 1. impact on sustainable access to services: did the project contrib- · number of households acquiring sanitation ute to increasing access to sanitation? · Corresponding increase in coverage ratio · number of communities reaching OdF status · Percentage of latrines used and maintained five years later 2. Costs: Are the costs of the resulting sanitation facilities reason- · Total unit costs per sanitation solution7 (including a breakdown able and affordable to the beneficiaries? between hardware and software costs) · hardware costs as percentage of household income (for average and poor households) · Operating costs per sanitation solution · Operating costs as percentage of household income (for average and poor households) 3. Effectiveness in the use of public funds: Were public funds used · number of sanitation solutions built for uS$1,000 of public fund- in a way that maximized impact? ing ("increased access / public funding ratio") · Ratio of household investments over public funds provided ("leverage ratio") 4. Poverty targeting: Did the program deliberately seek to target · Available evidence on whether the program deliberately targeted the poor, and was the program effective at doing so? the poor or not · Errors of exclusion (when the poor do not receive a subsidy) and inclusion (when "nonpoor" get a subsidy) 5. Financial sustainability: Could the approach be sustained over · Percentage of initial costs covered by public funds time without the need for external support? · Percentage of operating costs covered by public funds 6. Scalability: Could the approach be scaled up to cover those who · Costs of scaling up approach to cover remaining uncovered are not yet covered in the country at reasonable cost? households (either in rural or urban areas) compared to sanita- tion budget and overall state budget 7 Note: a sanitation solution in this document refers to the package of hardware furnished to a household by a sanitation program, and may include a number of hardware facilities, for example it might consist only of a latrine, or it might be a latrine and washstand with soakaway. In a number of programs, the household has some say in the level or content of the sanitation solution. www.wsp.org 11 Financing On-Site Sanitation introduction ThE STudy WAS dEVElOPEd AS PART OF A sanitation facilities that could be used for benchmarking GROWinG BOdy OF RESEARCh in ThE AREA purposes. Instead, for each of the six case studies reviewed, Although the effectiveness of subsidies has been systemati- point estimates have been provided that reflect service levels, cally evaluated in other sectors, such as water supply or elec- geographical location, and the dates of each project. Other tricity, this has not yet been done for sanitation. The present parallel studies have been developing evidence on the costs of study was therefore designed to be a first step towards a household sanitation (among other things) as shown in Box better understanding and comparison of alternative house- 1.2 below. hold sanitation financing approaches. The combination of all these studies should help develop a The study has its limitations. For example, within the much better understanding of the costs of providing on-site limited scope of the study it was not possible to carry out sanitation and optimal financing approaches in the next a comprehensive survey of sanitation investments in a large few years. number of locations. Accordingly, we were unable to derive robust and representative data on the costs of household BOx 1.2. ExAmPlES OF OThER STudiES GAThERinG dATA india). This action research project started in February On hOuSEhOld SAniTATiOn 2008 and aims to present findings by 2012. · The Economics of Sanitation Initiative (ESI), under- · A study for Plan International on the costs of Plan's taken by WSP. This initiative started in 2006 in the East sanitation programs was initiated in order to further Asia Pacific region, has since been extended to South enhance the organization's policies in this area. The Asia, and will soon be extended to Africa. in Phase 2 of objectives of the study included evaluating the unit the study, which began in 2008, a cost-benefit analy- costs, cost-sharing schemes, and expenditure patterns sis of a range of sanitation options is being conducted associated with Plan's programs and comparing Plan's for both rural and urban areas in the East Asia Pacific program costs and cost-sharing schemes with those of region as well as the yunnan Province in the South other agencies operating in the same areas. of China, and later in 2009 in India. Costs of on- and · A study for the French Ministry of Foreign Affairs evalu- off-site sanitation options are being estimated using ated sanitation financing approaches based on case surveys of households, projects, and private and studies in urban areas of Senegal, Burkina Faso, mali, and municipal providers. The results will be available for all niger. A practical guide to help local authorities organize East Asia Pacific countries in early 2010. the financing of sanitation within their jurisdictions will · The WashCosts study, undertaken by IRC (www.irc.nl) be a direct output of this study. with support from the Gates Foundation, researches the life-cycle costs of water, sanitation, and hygiene (WASh) services in rural and peri-urban areas in four countries (Burkina Faso, mozambique, Ghana, and 12 Water and Sanitation Program Financing On-Site Sanitation introduction 1.2 Report structure The rest of this report is structured as follows: · Section2 introduces the main characteristics of the financing approaches used in the case studies; · Section3 presents the main results of the compara- tive analysis of the financing approaches; · Section4 identifies key findings based on the analysis and charts the way forward to improve the design of projects and programs to finance on-site sanitation at the household level. A series of Annexes provides additional information on the case study results and the methodology used to compile them: · Annexes A to F contain summary case studies presented in a common format to facilitate compari- sons, including an evaluation of what seems to have worked and what has not worked; · Annex G gives background information concern- ing on-site sanitation service levels, types of costs, and sources of funds, intended for those not familiar with the sector; · AnnexH contains standard Terms of Reference used for preparing the case studies; and · AnnexI contains an indicative bibliography. www.wsp.org 13 Financing On-Site Sanitation Overview of case study financing approaches II. Overview of case study financing approaches This section places the case studies in their country context Indiaarebothlower-middle-incomecountries. Bangladesh (Section 2.1) and provides a summary description of the and Mozambique are the two poorest countries in the set. At project and financing approaches used in the six cases the other end of the spectrum, Ecuador is the richest coun- (Section 2.2). This is followed by a summary analysis of try, thanks to substantial natural resources (oil in particular), how external financial support has been provided in each although this wealth is unequally distributed and 40 percent case, mainly through hardware subsidies (Section 2.3) and of the population is estimated to be below the poverty line, software support (Section 2.4), with facilitated access to with a heavy incidence of poverty in rural areas in particu- credit provided only in certain cases (included as a hardware lar. Vietnam, Senegal and India are all in the middle range, subsidy in the Vietnam case).8 but their relative wealth per capita varies substantially when compared on a purchasing-power-parity (PPP) basis. 2.1 Case studies' country contexts Sanitationcoveragevariedsubstantiallyfromonecountry The financing approaches we reviewed developed in signifi- tothenext,especiallywhencomparingareaswheretheproj- cantly different contexts, which must be considered when ectsandprogramsunderreviewhavebeendeveloped. comparing the relative achievements and limitations of these approaches. Key data on the case study countries are Sanitation coverage, in Table 2.1, is for either urban or shown in Table 2.1 below. rural areas, depending on the project service areas of the case studies. Specifically, it is shown for rural areas in In terms of macroeconomic indicators, four of the coun- Bangladesh, Ecuador and Maharashtra and for urban areas tries are classified as low-income countries (Bangladesh, in Mozambique, Senegal, and Vietnam. Mozambique, Senegal, and Vietnam) while Ecuador and TABlE 2.1. KEy CASE STudy COunTRy indiCATORS Bangladesh Ecuador maharashtra mozambique Senegal Vietnam Population (millions) 159 13.7 96.7 20.3 12.2 85.6 GdP per capita (uS$) $463 $3,335 $941* $396 $914 $828 GdP per capita (PPP uS$) 9 $1,311 $7,242 $2,563 $842 $1,692 $2,589 Sanitation access, urban 44% 64% ** 88% Sanitation access, rural 88% 70% 27% Source for population and GDP: International Monetary Fund ­ World Economic Outlook ­ latest data available (2007) Source for sanitation coverage: Latest available data in each of the countries for the types of areas where the case studies are taking place. See case studies in Annexes for more details on the nature and sources of the coverage data. * The GDP figure is for India as a whole. Note that Maharashtra is one of the richest states in the country. ** Urban coverage data for Dakar region only, as this is the project's area. Coverage in small towns is only 39% 8 The term software support is used rather than software subsidies to reflect the fact that most practitioners in the sanitation field usually refer to hardware subsidies when talking about subsidies in general. 9 PPP (Purchasing Power Parity) exchange rates equalize the purchasing power of different currencies in their home countries for a given basket of goods. www.wsp.org 15 Financing On-Site Sanitation Overview of case study financing approaches 2.2 Summary of financing approaches 2.2.1 Bangladesh Key features of the financing approaches used in the case The Dishari project was initiated in 2004 by a group of donors studies are represented in Figure 2.1 below. The horizontal , and NGOs (including WSP WaterAid, Plan International, and axis shows the level of public sector finance as a propor- the Dhaka Ahsania Mission). Its main objectives were to scale up tion of the initial hardware and software costs of sanitation, the Community Led Total Sanitation approach (CLTS). CLTS, while the vertical axis reflects the percentage of such public originally developed in Bangladesh and now being adopted support that was spent on hardware subsidies. Although more widely, emphasizes community mobilization for the eradi- there are important differences, the financing approaches cation of open defecation. The project aimed to strengthen local broadly fit into three groups: governments to become the main implementers of the approach · At one end of the spectrum, Vietnam, Bangladesh, instead of NGOs. This ongoing project has been working in and Maharashtra primarily relied on households five districts over four years to complement the government's to invest in their own facilities. Public support was national sanitation program, and it has contributed to sanitation provided to promote and create demand for sanita- adoption by 1.6 million people. The average hardware cost of tion. Hardware subsidies were fairly limited overall, the latrines built through the program was US$17. although targeted subsidies were given to poor house- holds to address affordability issues in Bangladesh The Dishari project's financial approach relies mainly on and Maharashtra; software support for community mobilization activities and · At the other end of the spectrum, Senegal and sanitation promotion, with about US$7 spent on software Ecuador provided substantial public support, support per household (or 28 percent of the total costs of primarily in the form of hardware subsidies; sanitation adoption). The households are responsible for · Mozambique was somewhere in the middle, as it investing in latrine construction. They use locally avail- relied on partial hardware subsidies provided to local able materials and simple designs to build relatively cheap suppliers to build improved latrines. hygienic latrines that they can afford and which meet their needs (although they do not necessarily comply with JMP's FiGuRE 2.1 ChARACTERizinG FinAnCinG APPROAChES TO definition of improved sanitation). On-SiTE hOuSEhOld SAniTATiOn The government provides monetary rewards to unions and subdistricts that are 100 percent sanitized (about US$2,900 100% per union and US$7,250 per subdistrict). These rewards come with no strings attached and can be spent on any type of local Ecuador development project. Combined with the prestige they bestow Senegal and other nonmonetary benefits, these rewards have served as a Mozambique strong motivator for local leaders and have introduced a compet- Hardware itive drive between villages to improve access to sanitation. subsidies as % of public investment In addition, to lift the affordability constraint for very poor Vietnam Maharashtra households, the government has introduced an in-kind up-front hardware subsidy (equivalent to about US$7 per Bangladesh subsidized household). This scheme provides construction 100% Public investment as % of total materials to households identified on the basis of strict criteria investment in HH sanitation and community meetings. (Eligible households have an esti- mated income of less than US$290 per household per year). Note: Data for Mozambique were estimated for the situation in the late 1990s (the About 7 percent of households in the project area benefited "heyday" of the program), given that actual data were not available and could no longer be collected for that period. from this subsidy, which covered approximately 42 percent of the hardware costs associated with sanitation adoption. 16 Water and Sanitation Program Financing On-Site Sanitation Overview of case study financing approaches Table 2.2 below provides key figures to summarize the financing approaches in each case study. Each of the case study projects and programs is summarized in sections 2.2.1 to 2.2.6. The case study annexes contain more detailed summaries of each case. TABlE 2.2. OVERViEW OF CASE STudiES FinAnCinG APPROAChES Case Country Bangladesh Ecuador maharashtra mozambique Senegal Vietnam Project name diShARi PRAGuAS Total Sanitation Programa PAQPud Sanitation Campaign (TSC) de latrinas Revolving Fund melhoradas (Plm) Sources of public finance WSP, Govt. of Govt. of india Govt. of Govt. of World Bank, WaterAid, Ecuador, & Govt. of mozambique, Senegal, Govts. of Plan World Bank maharashtra donors (undP) World Bank Australia, international, denmark and local nGO Finland household on-site sanitation 84% 20% 71% 100% 60% 3% component as % of total project costs Project Size: People reached with 1,631,000 141,000 21,200,000 1,888,000 411,000 194,000 sanitation via the project Average hardware cost of sanita- $17 $355 $208 $70 $568 $197 tion solution (uS$) hardware subsidy amount (only $7 $210 $24 n.a. $200 to $6 when provided) (uS$) $1,000 Total hardware subsidies as 42% 59% 22% 50% 75% 3% percentage of total hardware costs Percent of households in proj- 7% 100% 20-69% 100% 100% 100% ect area that received hardware subsidy Software support/household $7 $46 $15 n.a. $144 $21 reached with sanitation (uS$) Software support as percent- 28% 12% 7% n.a. 20% 10% age of total sanitation costs (per household) Software support as percentage 92% 14% 78% 30% 23% 70% of total public funds for on-site sanitation indicative annual household $290 $1,652 $400 $741 $897 $574 income for below-poverty and/ or bottom 40% income in project area (US$) * GdP per capita (uS$) $463 $3,335 $941 $396 $914 $828 * This is income per household, based on 5 people per household. This had to be normalized for households in Senegal, where average household size is 9 persons. www.wsp.org 17 Financing On-Site Sanitation Overview of case study financing approaches 2.2.2 Ecuador 2.2.3 maharashtra (india) The PRAGUAS project (Programa de Agua y Saneamiento The Total Sanitation Campaign (TSC) is a nationwide para Comunidades Rurales y Pequeños Municipios) aimed at program, primarily funded by the Government of India, improving water and sanitation services in small towns and whose implementation varies from state to state. The case rural areas as well as the capacity of their service providers. study focuses on how the TSC has been implemented The project was financed by the central government (with the in the State of Maharashtra. The approach is based on a support of a World Bank loan) together with municipalities CLTS approach to promoting sanitation, combined with and the beneficiary communities. The focus of the first phase small hardware subsidies for the poorest households and of the project (2001-2006) was on small municipalities, those monetary rewards for villages that achieve overall cleanli- with cantonal capitals of fewer than 10,000 inhabitants (152 ness objectives. Since being introduced in Maharashtra in out of a total of 219 municipalities were eligible). It enabled 2000, the approach has incentivized more than 21 million about 140,000 people to gain access to improved sanitation people to adopt improved sanitation. On average, the hard- over the course of 4.5 years. The average hardware cost of the ware cost per sanitation solution built was US$208. solutions built was US$355, although costs could be much higher depending on the level of service chosen and the loca- Under the TSC program, software activities are conduct- tion (as transport costs can represent a substantial portion of ed to generate demand and village-level mobilization. total investment). Separately from the TSC, monetary rewards are provided to villages that reach ODF status. The Nirmal Gram Puraskar The PRAGUAS project had a strong up-front component (NGP) is a national program which provides one-off to mobilize and organize communities to adopt sanitation monetary rewards from the central government to qualify- (US$46 was spent on software support per household, ing gram panchayats (village-level governments). Payments which represented 12 percent of the total costs of sanitation are based on a set of criteria that include, among others, adoption). 100 percent sanitation coverage of individual households and being totally free from open defecation. The payments The project provided an up-front fixed hardware subsidy to are made following a thorough verification process. These households for the construction of on-site sanitation solu- rewards can be anywhere from US$1,250 to US$12,500 tions. The subsidy provided by the Government through the per gram panchayat, depending on the population. Gram project was capped at US$210 in Phase 1. This increased panchayats can use the cash incentive to improve and main- to US$315 in Phase 2 to reflect increases in the cost of a tain sanitation facilities in their respective areas with a focus basic improved latrine. The level of subsidy was set to cover on solid and liquid waste disposal and maintenance of 70 percent of hardware costs for a basic improved sanita- sanitation standards. In addition, the State of Maharashtra tion solution, so as to ensure that poor families could afford has introduced a number of state-based campaigns, such improved sanitation. The remainder was to be financed by as the Clean Village campaign (Sant Gadge Baba Gram the communities in the form of labor, material, and cash. Swachayata Abhiyan or SGBSA) which takes place annually Households were free to choose a more expensive solution and encourages maintaining overall cleanliness in the villag- but had to finance all additional costs over and above this es. In total, approximately US$15 was spent on software fixed subsidy. Households could choose the level of service support per household (including the costs of the finan- based on a broad catalog of technical solutions, ranging from cial reward schemes), which represented about 7 percent of improved traditional latrines to a basic sanitation unit (or total sanitation adoption costs. UBS, for unidad básica de saneamiento) which integrates a shower, a sink, a flush toilet, and a septic tank. A majority of Hardware subsidies are provided to below-poverty-line (BPL) households chose this higher level of service, which means households after the village has been declared ODF. Since that the subsidy they received covered a smaller portion of they are outcome-based, they are referred to as "incentives" their investment (about 60 percent on average). in the TSC guidelines, provided to households "in recogni- tion of their achievements." The initial level of subsidy was Rs 18 Water and Sanitation Program Financing On-Site Sanitation Overview of case study financing approaches 500 (US$10) per BPL household, although this was raised such, the program can be seen as an early form of providing to Rs 1,200 (US$24) in March 2006 to reflect cost infla- output-based subsidies. The subsidies were intended to cover tion. The subsidy was initially intended to cover 80 percent 40 to 60 percent of production costs, depending on the region, of the hardware costs of a basic sanitation solution for BPL to reflect differences in input costs and poverty levels and to households, but in practice it covers only about 20 percent of reduce the sale price to households. Beginning in 1994, the hardware costs since most BPL households chose to invest in government (with external donor support) also financed the a higher level of service than the basic minimum. costs of "community animators" to carry out social market- ing and sanitation promotion campaigns. It is not possible to Finally, in some areas access to credit has been provided estimate the value of such software support, however, since this in order to speed up the process of adopting sanitation. In system was dismantled following decentralization.10 those districts where it was systematically introduced, it has supported stronger demand for sanitation. However, these 2.2.5 Senegal financial products tended to be more widely available in PAQPUD (Programme d'Assainissement Autonome des comparatively richer districts and largely benefited APL Quartiers Périurbains de Dakar) is a program initiated in (above-poverty-line) households in those districts. the framework of a World Bank loan, to provide sanitation services in poor peri-urban areas around Dakar, Senegal's 2.2.4 Mozambique capital. The program, which was developed between 2002 The Improved Latrines Program (Programa de Latrinas and 2008, offered a wide range of sanitation solutions, Melhoradas, or PLM) was initiated in Mozambique in the mostly on-site facilities as well as small-bore sewers in areas early 1980s in difficult circumstances, including civil war and where on-site sanitation could not be considered for techni- extreme poverty. Initially funded by external donors (includ- cal reasons. Over that period, the program benefited more ing UNDP) and later transferred to the Government of than 400,000 people, although a large proportion of the Mozambique, the program aimed to provide low-cost sani- facilities built were for the management of gray water rather tation solutions to households in peri-urban areas through than human excreta. The hardware costs of the sanitation a network of latrine and slab producers in all main cities. solutions built through the program varied substantially These producers, referred to by the program as "PLM work- depending on the solution retained, with an average of shops," are neither purely public nor private. The approach about US$568 per household covered; bearing in mind that to the program has evolved substantially over the years. Over each household received 1.56 sanitation facilities on average the last 17 years, the program has benefited almost 2 million as they could apply for a subsidy for several facilities, rang- people in the peri-urban areas of all the major towns. The ing from latrines and septic tanks to washing facilities.11 average hardware cost of the sanitation solution built under the program (the improved latrine) was around US$70. Software support was provided to develop a catalog of services, promote sanitation and hygiene, and organize The program initially helped to set up these production community mobilization. On average, software support workshops through a combination of software support (such represented US$144 per sanitation solution built, or 20 as training activities) and subsidies. In many cases, the land percent of the total costs of sanitation adoption. The entre- on which the workshops operated was provided for free by preneurs building the sanitation facilities were paid directly the government. In 1992, the government started providing through the project for each one built based on a price sched- production subsidies to the workshops based on their sales. As ule/facility. This is equivalent to an output-based subsidy, 10 The "community animators" were transferred to municipalities but effectively stopped promoting sanitation, which resulted in decreased interest in the product. Responsibility for paying production subsidies was transferred to the provincial governments. Some provinces stopped giving the subsidies, and others kept their level unchanged since 2000, even while production costs have increased significantly. As a result, the workshops have had to carry out other income-generating activities in order to cross-subsidize slab and latrine production costs. 11 Investments almost always included a washing facility and soakaway (Bac à Laver Puisard), which contributes to the overall cleanliness of the yard and can reduce the incidence of diseases but is not a sanitation solution by our definition (or that of the JMP) since it does not contribute to safe excreta management. www.wsp.org 19 Financing On-Site Sanitation Overview of case study financing approaches something which was later formalized through an extension The program also included significant software support for of the project via the Global Partnership for Output Based sanitation promotion, the creation of Savings and Loan Aid (GPOBA) which was ongoing as of mid-2009. The groups, and hygiene promotion. Software support per beneficiary households were required to make an up-front household was about US$21 and represented about 10 contribution in order to obtain access. Based on a willing- percent of the total costs of sanitation adoption. ness-to-pay survey, households were initially required to contribute 50 percent of hardware costs, but the hardware 2.3 hardware subsidy design subsidy was subsequently increased to cover 75 percent of Hardware subsidies are defined as public funds provided hardware costs given limited demand for the facilities and to alter the price or costs of a particular good or service to initially low uptake. The hardware subsidy provided by the encourage the output, supply, or use of these items. With program ranged from US$200 to US$1,000 per sanitation respect to sanitation, hardware subsidies may be provided solution, depending on the costs of each solution. Access to to encourage investment beyond the level that would be credit was provided in the second phase in order to spread carried out based solely on private benefits and to reduce or the burden of this contribution over time. eliminate the affordability constraint for poor households. Subsidies toward the costs of hardware were provided in all 2.2.6 Vietnam of the six cases reviewed; the delivery and targeting methods A Sanitation Revolving Fund (SRF) component to provide for these subsidies, however, varied significantly from one loans to low-income households for building on-site sani- case to the next, as shown in Table 2.3 see page 21. tation facilities was incorporated into the broader World Bank-financed Three Cities Sanitation Project. Working Figure 2.2 shows the extent to which the hardware subsidy capital for the revolving funds was provided by the World covered the hardware costs as well as the amounts of hard- Bank, the Governments of Australia, Finland and Denmark ware subsidy provided for those who received it. for three sub-projects in Danang City, Haiphong City, and Quang Ninh Province (Halong City and Campha Town). FiGuRE 2.2. hARdWARE SuBSidy dESiGn The local utilities initiated the revolving funds and placed them under the management of the Women's Union, a pervasive organization throughout the country with 80% 450 long experience in managing microfinance schemes. The 70% 400 Hardware subsidy amount (US) program benefited almost 200,000 people over the course Hardware subsidy rate (%) 350 60% of seven years. The average hardware cost of the sanitation 50% 300 250 facilities built through the program was US$197. These 40% 200 facilities included mostly septic tanks but also urine divert- 30% 150 ing / composting latrines and sewer connections. 20% 100 10% 50 The SRF provided small loans (US$145) over two years at 0% Senegal Ecuador Maharashtra Mozambique Bangladesh Vietnam 0 partially subsidized rates to low-income and poor households Hardware subsidy as % hardware costs Hardware subsidy amount for each to build a septic tank or, in fewer cases, a urine divert- ing / composting latrine or a sewer connection. The subsidized Note: For Bangladesh and Maharashtra, the figure shows the hardware subsidy for the households who qualified as poor and received a hardware subsidy. All other households interest rate was equivalent to providing a US$6 subsidy on received no hardware subsidy at all. As a result, the share of hardware subsidies as a percentage of public funds (as shown in Figure 2.2) is lower than the rate of hardware each loan. The loans covered approximately 65 percent of the subsidy per eligible household. average costs of a septic tank (US$225) and enabled the house- holds to spread these costs over two years. The loans acted as a catalyst for household investment, but households needed to find other sources of finance to cover total investment costs, such as borrowing from friends and family. 20 Water and Sanitation Program Financing On-Site Sanitation Overview of case study financing approaches TABlE 2.3. dESiGn OF hARdWARE SuBSidiES in ThE CASE STudiES What is How is the subsidy provided? How much is subsidized? How is the subsidy targeted? subsidized? Bangladesh Costs of latrine in-kind to households. The hardware subsidy for the poorest is means-tested and community- construction for village provides latrine equivalent to about uS$7 per latrine led targeting: lists of eligible poor house- construction materials to poor (42% of hardware costs). hardcore poor are prepared by holds. households free of charge. villages. Ecuador Costs of a basic in cash to the community. maximum subsidy is uS$210 per Geographic targeting: All sanitation Paid up-front to the commu- sanitation solution (59% of hard- households in the project area solution for all nity organization, provided the ware costs), independently of the (which is predominantly poor) households in community and municipality level of service chosen and actual can receive the subsidy. project area. have paid their contribution. costs of adopted solution. maharashtra Costs of basic in cash to BPl (below-poverty- Maximum subsidy is US$ 24 per means-tested targeting: lists latrine construc- line) households, after the toilet (about 22% of hardware of BPl households drawn up tion for poor village has reached OdF status costs) from the Federal govern- based on periodic surveys. households. (requires prefinancing). ment (additional support from State possible). mozambique SanPlats and Through transfers to Plm Subsidy amounts fixed in 2000 at Self-selection: All customers latrines for all workshops (local producers of about uS$20 per latrine (about can benefit from the subsidy households in slabs and latrines) based on 19% of hardware costs). Amount but the relatively low level of project area. sales numbers. not updated so public subsidy as service serves as a self-selec- percentage of costs has decreased tion criterion. with inflation. Senegal Costs of a range in-kind to local entrepre- Subsidy fixed as 70% to 75% of Geographic and community- of sanitation neurs. The program finances hardware costs. Amount varies led targeting: Project operates solutions for all construction of the sanitation between uS$200 and uS$1,000 in poor areas and CBOs assist households in facility following payment of depending on the sanitation to select potential beneficia- project area. the household contribution. solution. These costs are set by a ries. catalog of technical solutions. Vietnam interest rate households benefit from a interest rate is half the market Geographic and community-led on loans for subsidized interest rate on interest rate (with a six-month targeting: Project operates in sanitation for all 2-year sanitation loans as well grace period). This gives an poor areas not connected to the households in as a 6-month grace period on equivalent subsidy of US$ 6 per sewers. loan applicants must project area. repayments. loan (or 3% of hardware costs). request to join a local Savings and Credit group. The leader of this group assesses their ability to repay. www.wsp.org 21 Financing On-Site Sanitation Overview of case study financing approaches Senegalhadthehighestrateofhardwaresubsidy(the subsi- was partly because actual costs tend to be higher than origi- dy accounted for 75 percent of hardware costs on average), nally estimated, particularly in hilly areas and rocky terrain, as can be seen from the figure above, and it also had the but also because BPL households were willing and able to highest subsidy amount per household. In Ecuador, the invest more than original estimates. Prefinancing support subsidy amount was fixed at US$210 per sanitation solu- provided at the village level together with microcredit in tion. This amount was set so that it would be equivalent certain districts helped make such levels of investment by to 70 percent of the costs of a basic sanitation solution. BPL households possible. As the beneficiaries usually selected a higher service level, the actual construction costs were higher and the subsidy In Mozambique, hardware subsidies were originally set represented no more than 59 percent of construction costs between42and57percent,dependingonthecityandthe (and in some cases less, although comprehensive informa- relativeratesofpoverty,whichyieldedanaveragesubsidy tion was not available). of 50 percent. These subsidy levels later went down as a proportion of the actual costs, since subsidy amounts have InBangladesh,hardwaresubsidiesaccountedforabout43 been capped since 2000 and have thus not kept up with percentofinvestmentcostsforthehouseholdsthatactually significant inflation. In the Maputo workshop in 2008, for received the subsidy. The number of households benefit- example, public hardware subsidies covered approximately ing from such financial support was kept deliberately low 19 percent of actual hardware costs, although cross-subsi- (7 percent of households), consistent with the underlying dies from other workshop activities helped keep the price philosophy of the CLTS approach to trigger a community to households down. response through mobilization (software activities) with no or only limited hardware subsidies. In the project area, InVietnam, households benefited from subsidized interest hardware subsidies were provided by the government from rates,whichwereabouthalfofmarketinterestratescoupled the Annual Development Program (ADP) funds, which are withasix-monthgraceperiod (this translated into an annu- funds transferred directly from the Ministry of Finance to al interest rate of about 6.26 percent to be compared to local governments in the form of annual grants, 20 percent about 12.87 percent based on market rates). In monetary of which are earmarked for sanitation. Most of these funds terms, this built-in subsidy is equivalent to about US$6 are used to finance sanitation hardware subsidies for the for a two-year loan or 3 percent of the hardware costs for poorest, on the assumption that a segment of the popula- customers. From the point of view of the public sector, tion needs financial assistance in order for the village as a it is more difficult to estimate the "cost" in public funds whole to reach ODF status. this subsidy represents, as such a calculation would require estimating the public opportunity cost of capital. The InMaharashtra,hardwaresubsidiesforBPL(BelowPoverty seed funds were provided as a grant from donors and were Line)householdsaccountforabout22percentofhardware revolved rather than "used up" (given the high repayment costsforthosehouseholds and were provided to between 20 rates of the program, these initial funds could be revolved percent and 59 percent of households, depending on the several times). This means that even though each house- district (there are no hardware subsidies for above-poverty- hold received a small subsidy, the grant to the program as a line households). According to the TSC guidelines, BPL whole must be taken into account. households were supposed to fund only 20 percent of the latrine cost, as the federal government was supposed to 2.4 Software support cover 60 percent and the state government 20 percent of Software support is defined in a broad way, to include both the latrine cost, respectively. However, as the subsidy was what are traditionally referred to as software activities (that capped at Rs 1,200 (US$24) and the average investment is, training, community mobilization, sanitation promo- costs to BPL households in the study districts was Rs 5,500 tion, and hygiene promotion, where any or all of these are (US$110), the actual subsidy rate was much lower. This provided) and overall program management costs, such as 22 Water and Sanitation Program Financing On-Site Sanitation Overview of case study financing approaches TABlE 2.4. PROVISION OF SOFTWARE SUPPORT IN THE CASE STUDIES What software support is provided? How is software support financed? Bangladesh · Support to local governments to scale up the ClTS · dishari project funds (75%) coming from a mix of approach nGOs · Sanitation promotion activities (rallies, campaigns, · Government funds: financial rewards to villages for events, etc.) achievement of OdF status, percentage of funds trans- · hygiene promotion ferred from central government to local governments, · Project management, monitoring, and evaluation local government staff costs Ecuador · institutional strengthening of small towns · local project teams financed by the project support · Support for investment design implementation. For example, they sign agreements · Project management, monitoring, and evaluation with municipalities for transferring hardware invest- ment funds. maharashtra · iEC (information, education and communication) · Total Sanitation Campaign financed and managed at · Training and capacity building of TSC staff, motivators, the central level and stakeholders · Financial rewards (nGP) paid from central government · Support to microcredit institutions to OdF districts · Start-up costs to rural sanitary marts / production · State-level campaigns and clean village competitions centers transfer additional reward funds · Financial rewards, campaigns, prizes · Program management, monitoring and evaluation mozambique · Originally: Training of masons, support to set up · Software support was originally provided to establish production workshops and demand promotion and develop Plm workshops and to finance commu- · All software activities have virtually ceased following nity animators or sales people for the workshops in withdrawal of donor support and decentralization charge of sanitation promotion · Such software support was heavily financed by exter- nal donors until decentralization (2002) Senegal · hygiene promotion and communication · All software support transferred by Project · Community organization and supervision management unit, which organizes sanitation promo- · Site supervision tion activities via CBOs · Project management, monitoring, and evaluation Vietnam · Sanitation promotion · Portion of the grant funds were set aside to cover · hygiene education operating costs of the SRF, on top of interest revenues · loan management and supervision · loan management done on a voluntary basis by · loan management, monitoring, and evaluation Savings and Credit group leaders www.wsp.org 23 Financing On-Site Sanitation Overview of case study financing approaches staff, procurement, monitoring and evaluation, general project. overhead, and financial rewards where provided.12 Software AparticularfeatureoftheMaharashtraandtheBangladesh support may be provided to generate demand for sanitation cases is that in both cases, the central governments provide and strengthen the supply chain to sell sanitation products financial rewards to the villages that have achieved ODF to households. This broad definition of software was used to statusorare100percentsanitized (depending on the defini- ensure that all costs were included, not only capacity build- tion used, the first one being more focused on outcome and ing and promotional activities but also management costs. the second one on latrine construction). The use of such a broad definition was also driven by the fact that it was not always possible to obtain a detailed breakdown In Bangladesh, the reward money comes with no strings of how software costs were allocated between these different attached and may be used for any kind of development activities or to separate out management costs. Table 2.4 work in the village, such as road construction. An associated, below shows how software support was provided. non-monetary, incentive comes in the form of a certificate granted by the Local Government minister to the chairman Table 2.4 illustrates the wide range of software support of each village that achieves ODF in a ceremony that seems activities that were funded. Most focused on community to act as a strong motivator for local politicians. mobilization and sanitation promotion to generate demand for sanitation, and a few included a hygiene education InMaharashtra,bycontrast,NGP(NirmalGramPuraskar) component as well. Exact details of the software activities awardsarecashincentives,paidbythecentralgovernment financed were not available, however, so it was not possible tothequalifyingdistricts,thatmustbeutilizedforimprov- to disaggregate costs by software activity in order to compare ingandmaintainingsanitationfacilitiesinthedistricts. The the cost-effectiveness of different software strategies. monitoring process is much more rigorous with independent reviews to guarantee that the villages have met all qualifying Approaches to financing software activities also varied. criteria (including 100 percent sanitation coverage of indi- Some cases pulled in support from a variety of different vidual households and 100 percent school sanitation cover- sources (such as in Bangladesh, where donors, both inter- age, totally free from open defecation, and maintenance of national and local NGOs as well as the central government, an overall clean environment, including solid waste manage- were financing different activities). Others adopted a more ment). In addition, yearly campaigns, such as the Clean centralized approach, such as in Senegal, where all soft- Village campaign (SGBSA), define yearly activities that help ware activities were financed via the World Bank-funded maintain cleanliness standards. 12 See Annex G for a list of all potential software activities. In the case of Maharashtra, software support financial rewards provided to villages as a whole were included in software support rather than hardware, as they are used for general sanitation improvements (and do not benefit the households directly). 24 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches III. Evaluating the performance of financing approaches This section compares the performance of the financing rates in the project areas. Table 3.1 shows the ability of the approaches in the six case studies using common evaluation projects to increase coverage overall and on a yearly basis. criteria (see Table 1.2).13 Only the most relevant points are highlighted in the text. For further detail and analysis, refer Allprojectstriggeredsignificantinvestmentwhenplacedin to Annexes A to F containing the summary country case theirrespectivecountrycontexts. studies. Each country annex contains a summary evalua- tion identifying those aspects of the financing approach Comparisons in terms of the number of people served are that seem to have worked and those that seem not to have biased by the fact that the TSC program in the State of worked for each of the cases under review. Maharashtra is a massive campaign in a densely populated state. Over the course of four years, the TSC managed to 3.1 impact on sustainable access to services motivate more than 20 million people to gain access to The first set of indicators seeks to evaluate the relative sanitation throughout rural Maharashtra, which is equiv- impactoftheprojectsonsustainableaccesstoservices,based alent to incentivizing the construction of more than one onwhetheraccesstosanitationincreasedandwassustained million sanitation facilities per year. This led to a 38 percent overtime increase in coverage throughout the State (and more than a 60 percent increase in some of the districts reviewed). This series of indicators seeks to evaluate whether, overall, the projects have made a substantial contribution to increas- The second best performing approach in terms of number of ing sustainable access to sanitation. This evaluation is broader facilities built per year was the Dishari project in Bangladesh, than that of the financing approach per se, although it indicates where 81 percent of the villages in the project area achieved Open whether or not the financing approach was successful at trig- Defecation Free (ODF) status over the course of four years. This gering investments. The impact of the projects on access to resulted in a 70 percent increase in coverage (measured by the services was first evaluated in terms of the number of sanitation Government of Bangladesh definition, which does not always solutions built (the total number over the length of each proj- qualify as access to improved sanitation as per the JMP defi- ect and the number per year, in order to adjust for differences nition). Given that some of these latrines are shared, the total in program lengths) and the attributable increases in coverage population benefiting from improved access is likely to represent TABlE 3.1. numBER OF PEOPlE SERVEd duRinG EACh PROJECT'S liFE And FACiliTiES BuilT PER yEAR maharashtra mozambique Bangladesh Senegal Vietnam Ecuador Population in project area 55,780,000 8,300,000 2,361,000 1,695,000 1,303,000 515,000 People served by project 21,200,000 1,888,000 1,631,000 366,000 194,000 141,000 Facilities built / year 1,050,000 13,447 90,596 21,183 6,615 6,281 Attributable coverage increase 38% 29% 70% 22% 15% 27% 13 Such comparisons are difficult to carry out conclusively, as many factors may determine the relative success of a project or program aside from its financing approach. For example, when software subsidies are used to generate demand for the service, the quality and the impact of such demand-promotion activities may vary widely from program to program even if the costs are the same. www.wsp.org 25 Financing On-Site Sanitation Evaluating the performance of financing approaches an even higher percentage, while hygiene education activities Unfortunately, few of the projects had precise data with which reached all of the population in the project area. to monitor the operation, maintenance, and use of sanitation facilities built through the projects a few years after construc- In Mozambique, the PLM led to the construction of just tion, yet such data are essential to assess the sustainability of under 365,000 improved latrines since the inception of the these initial investments. In addition, it was not possible to program in the early 1980s, which means that all people investigate all the factors affecting sustainability, so any analysis served through an improved latrine in urban Mozambique of sustainability would be unable to control for such factors. obtained access through the PLM. This represents about 1.8 million people or about 29 percent of the urban population. Anecdotal evidence gathered in the case studies indicated On a yearly basis, the speed of program implementation that, for the most part, the latrines were put to good use, was much slower than for other programs, however, and well-kept and, in some cases, upgraded over the years. the results varied widely over time depending on changes In Bangladesh, a WSP study concluded that 82 percent in program design (see Annex D). The interruption of soft- of latrines in Bangladesh (including in the Dishari proj- ware support to finance community animators in charge of ect area) showed physical evidence of maintenance.14 In promoting the latrines led to a sharp reduction in uptake. Maharasthra, initially temporary superstructures have been upgraded to more permanent structures over time. Since In Vietnam, the SRF helped almost 200,000 households build the financing approach in Maharashtra only subsidizes a sanitation facilities over the course of 7 years, which resulted basic latrine for the poorest households, any subsequent in increases in coverage of between 13 percent and 21 percent improvements reflect a true demand from their owners to depending on the town compared to the baseline popula- upgrade their facilities as their economic condition allows. tion. Achievements have also been significant in Senegal and Ecuador. In Senegal, the program covered approximately In Vietnam, several streams of observation concurred that all 22 percent of the population in the project area, with the facilities built with revolving fund financing were still operat- construction of about 63,000 sanitation solutions benefiting ing five years after construction, reflecting strong ownership of about 40,000 households in about three years, two years ahead the scheme. Even in Ecuador, research showed much greater of schedule. In Ecuador, the project was successful at deliver- willingness by the communities to maintain the projects when ing attractive sanitation solutions to about 30 percent of the they had been required to contribute their own resources population in its project area, with the construction of about compared to projects that had been fully financed through 29,000 sanitation solutions over 4.5 years. grants. This seems to support the first assumption stated above, that a higher share of household participation in covering the Overall,sanitationfacilitiesbuiltthroughtheprojectsappeared initial costs leads to good sustainability. In Senegal, however, tobeusedandwell-maintained.Numerous factors influence high rates of maintenance were also observed, despite having the long-term sustainability of household sanitation invest- the highest rate of hardware subsidy (70 percent to 75 percent). ments, including as the extent to which software was main- In Senegal's case, the fact that the household's contribution still tained over time, the acceptability of the types of latrines represented a substantial portion of income meant that owner- built, overall macroeconomic conditions. While the financing ship of the facilities was also strong. approach is only one such factor, it may influence sustainabil- ity in two main ways. On the one hand, facilities built with Finally, latrines built through the projects were, on the substantial household investment may be more sustainable, whole, observed to bewell maintained. This indicates that since households care to maintain what they see as their own operating costs were sufficiently low that households could property. On the other hand, facilities can only be adequately afford them without external subsidies (see Section 3.2 for maintained if the associated operating and maintenance costs information on operating costs). are not too expensive with respect to household incomes. 14 WSP 2006. 26 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches Inalmostallcases,therewasnoreliableinformationasto 3.2 Costs whetherthelatrines,oncefull,hadbeenemptiedormoved. Thesecondsetofindicatorsexamineswhetherthefinancing For all projects, it was not possible to assess whether the approachtriggeredinvestmentatareasonablecost,especial- households that had benefited from public financial support lyatacostthatisaffordablewhencomparedtohousehold to build a latrines were then able and willing to pay for the incomes costs of moving the latrines several years later when they become full. In some cases, the investments were relatively The average costs of providing household sanitation were recent, so the need to empty the latrines had not yet mate- computed by taking account of all the costs (including soft- rialized. ware) and all the sources of finance.15 Results are summa- rized in Table 3.2 below. In Mozambique, a study was carried out where the program had been running for the previous 17 years. The study found Figure 3.1 shows the average initial costs of the sanitation that more than 70 percent of improved latrines were still in "package" that households accessed in each of the case stud- use and that a significant number of slabs had been moved ies and breaks down the initial hardware costs between the to replacement pits or that the pits had been adapted to hardware subsidy component and the household investment water-flushed systems. component. This figure shows substantial differences in the initial costs of accessing sanitation, reflecting a number of Overall, the dearth of data on sustainability indicates that factors as discussed below. insufficient monitoring is carried out to ensure that the latrines, once built, can be emptied or moved so as to ensure FiGuRE 3.1. TOTAl iniTiAl COSTS PER hOuSEhOld (ACTuAl uS$ sustainable sanitation. ExChAnGE RATES) Concerns were expressed related to the sustainability of 800 the investments triggered by the financing approaches in 700 Maharashtra and Bangladesh, which both use financial 600 rewardsforincentivizingcommunitiesandvillagestoinstall 500 US$ 400 latrines and eliminate open defecation. In Bangladesh, it Software support 300 appears that some villages were declared sanitized when in Hardware subsidy 200 Household investment fact not all households had installed a latrine. The absence of a 100 third-party verification system and the financial rewards asso- 0 ciated with meeting the objectives means that over-reporting ue ra am h r l ga do es ht q tn bi ad ne ua as is a risk. In Maharashtra, this risk was minimized through e am l Se Ec ar Vi ng ah oz Ba M M the introduction of yearly cleanliness campaigns, which have acted as an ongoing monitoring mechanism beyond the one- Note: For Senegal, the average costs were calculated by dividing the total costs of off NGP assessment. providing on-site sanitation facilities by the number of households reached, to reflect the fact that households served received 1.56 facilities on average. TABlE 3.2. iniTiAl COSTS And OPERATiOnS And mAinTEnAnCE COSTS (uS$) Senegal Ecuador maharashtra Vietnam mozambique Bangladesh hardware costs / solution $568 $355 $208 $197 $70 $17 Software support / solution 144 46 15 21 n.a. 7 Opex / solution / year 138 73 4 31 n.a. 5 Note: Country case study annexes include more detail on the exchange rates used. 15 Note that the initial development costs, i.e. the costs of designing and preparing the projects, are not included. www.wsp.org 27 Financing On-Site Sanitation Evaluating the performance of financing approaches Carryingoutinternationalcostcomparisonsiscomplicated bytheneedtochooseacommoncurrencytoexpresscosts.On BOx 3.1. uSinG PuRChASinG POWER PARiTy (PPP) indi- the one hand, the costs being compared have been incurred CATORS FOR COmPARinG PRiCES ACROSS COunTRiES at different points in time, in countries where inflation is PPP exchange rates equalize the purchasing power often significant. This was the case for Vietnam, where costs of different currencies in their home countries for incurred in earlier periods were adjusted for inflation. In the a given basket of goods. Basing cost comparisons case of Mozambique, although the program was examined on a PPP exchange rate rather than on a market over its entire life (since the late 1980s), cost information rate is arguably more useful as it allows taking was only obtained for 2007, which means that required into account the relative cost of living and the inflation adjustments were minimal. inflation rates of different countries, rather than just a nominal comparison. However, estimation Differencesincostsduetoexchangerateconversionscanbe of purchasing power parity is complicated by the controlledforusingPPPexchangerates.16 Actual exchange fact that prices from country to country do not rates can give a distorted picture, as currencies may be over- differ in a uniform way. Rather, the difference valued or under-valued against the US dollar. This issue can in food prices may be greater than the differ- be partially overcome through using purchasing power pari- ence in housing prices while also being less than ty (PPP) exchange rates to compare costs and prices across the difference in entertainment prices. People in countries, as shown in Figure 3.2. different countries typically consume different baskets of goods, purchasing patterns are differ- FiGuRE 3.2. TOTAl iniTiAl COSTS PER hOuSEhOld (PPP uS$ ent, and even the goods available to purchase ExChAnGE RATES) differ across countries. Sources: Krugman and Obstfeld 1994; http://en.wikipedia.org/wiki/ 1600 Purchasing_power_parity 1400 1200 1000 Software support These substantial cost variations largely reflect the differ- US$ 800 Hardware subsidy 600 Household investment ent levels of service provided by different projects. Table 400 3.3 shows the levels of service that households obtained 200 through each project, from highest to lowest. Ecuador is at 0 the top of the list, as it provided the highest level of service l tra m e or h ga qu s na d with a basic sanitation unit comprising a toilet connected de sh ne ua bi et la a Se am Ec ar Vi ng ah oz Ba to a septic tank, a sink and a shower. Similarly, in Senegal, M M households received a comprehensive service (and usually more than one sanitation facility, including washing facili- Using PPP exchange rates does not alter the ranking of the cost ties). At the other extreme, only basic latrines were built in comparisons, however. In PPP terms, Senegal still has the high- the Dishari project area of Bangladesh, some of which did est costs in the set of case studies, reflecting the fact that the not comply with JMP standards).17 local currency, the CFAF, is pegged to the Euro and tends to be overvalued compared to other local currencies in countries with Although the primary driver of cost differences is service similar incomes. Costs for Ecuador, Maharashtra, and Vietnam level,thechoiceoffinancingapproachalsoappearstohave are brought closer together, while those in Mozambique and a substantial impact on cost. As shown in Table 3.3, costs Bangladesh remain much lower than for the other cases. appear to be primarily driven by service levels. The choice 16 There are issues with using PPP exchange rates, which can introduce other types of distortion (as discussed in Box 3.1). For this reason, cost information in the rest of the report is presented using actual exchange rates. 17 See Annex G for more information on alternative levels of service for on-site sanitation 28 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches TABlE 3.3. lEVElS OF SERViCE And FinAnCinG APPROAChES (uS$ ACTuAl ExChAnGE RATES) Average hard- Percent invest- Percent hardware ware costs per ments from the subsidies out of Case studies levels of Service household (uS$) public sector public funds Ecuador mostly basic sanitation units (uBSs), consisting of a shower, $355 85% 86% a sink, and a toilet connected to a septic tank. Senegal Range of technical options. On-site sanitation ranges 568 89 77 from dry solutions (ViP latrines) to wet solutions (septic tanks or pour-flush toilets). Average costs include 1.56 facilities (which may include a latrine and a washing facility). Vietnam mostly latrines with septic tanks. 197 7% 30% india improved latrine (with no required standard) ­ Particular $208 9% 71% emphasis on twin-pit leach pit with pour-flush design. mozambique improved latrines with a domed slab and concrete 70 58 22 blocks lining the pit. Bangladesh Basic latrines, no model specified, but typically 17 31 8 pour-flush pit latrines with up to three concrete rings. Note: In most cases, households were given the choice in terms of what to invest in, which means that service levels could also vary considerably within each case study. Due to a lack of data, it was not possible to disaggregate the hardware costs to compare the costs of a basic sanitation solution across the different case studies. of service level is integral to the overall program design. It is In Senegal, the average hardware costs per household were driven by a number of factors that are usually independent of estimatedatUS$568,whichismorethan1.5timesthecosts the financing approach, including cultural factors, expecta- inEcuadorandmorethanthreetimesthecostseverywhere tions, acceptability, and affordability. The choice of sanitation else. Comparatively higher costs in Senegal may be due to service level is particularly dependent on the type of water a number of factors, including technical ones, as well as the services provided. In Ecuador, for instance, the expected level choice of financing approach. These costs per household are of service for water is a piped connection, which means that high because, on average, each household targeted by the dry latrines would not be satisfactory, nor would they be project received 1.56 sanitation solutions, some of which were accepted given that there are high expectations in terms of washing facilities, although this was also the case in Ecuador service level, including in poor rural areas. with the UBS which represents, on the whole, a higher level of service. On the technical side, the water table in the Dakar As a result, it is not possible to establish a direct causality area is high, which means that soil conditions are unstable between the financing approach and the choice of service and it can be more expensive to build latrines, as substan- level. On the whole, the higher the level of service, the high- tially more building material is required as a lining for the pit er public subsidies are as a percentage of the total costs of and a foundation for the latrine. This cannot explain all cost sanitation adoption. There are important exceptions to that differences, however; other countries have other factors driv- observation, however. In both Vietnam and Maharashtra, ing up costs. In Ecuador, for example, the costs of transport- the service levels retained are relatively high, although ing building material are significant as the program reaches public funds represent a small percentage of total costs (7 remote rural areas. percent and 9 percent respectively). This may be because the financing approaches in both cases were particularly These higher costs in Senegal may also be due to the choice effective at leveraging household investments (see Section of financing approach. The program in Senegal is highly 3.3 for more details). subsidized, with 89 percent of the total initial costs of www.wsp.org 29 Financing On-Site Sanitation Evaluating the performance of financing approaches adopting sanitation coming from the public sector. This is At the other end of the spectrum, the initial hardware costs still a reduction in subsidy from previous sanitation schemes in Bangladesh were the lowest, at US$17, to which must in the country, where costs of other NGO-led programs are be added US$7 (or 28 percent of the latrine cost) for the usually 100 percent subsidized. High subsidy levels are like- software component. In this case, the households decided ly to have created some perverse incentives. Local entrepre- on the type of latrine, depending on what they could afford. neurs, used to generous subsidies, are less willing to bring Most of the latrines built in that way were simple pour-flush prices down to increase their market share. Potential recip- latrines with three or more concrete rings to line the pit and ients are unlikely to invest themselves if they know large a basic superstructure made of locally available material. subsidies are available, and therefore do not apply pressure One potential drawback of this approach is that latrines for price reductions. built cheaply may be more expensive to maintain. The focus on capital costs may encourage a false economy of building The project proposes a catalog of prespecified technical "a cheap latrine" that is more affordable to build. For exam- solutions. The beneficiaries choose among those solutions ple, if the pit is relatively shallow, it would inevitably fill (and they usually chose the cheapest options), but for each up more quickly, necessitating either more frequent empty- choice they have to accept the technical standard set by the ing or earlier relocation of the latrine. This risk is partly project. While this may improve the robustness and dura- confirmed by comparing Bangladesh with Maharashtra. bility of the installations, it does not allow households to In the latter, households, including a substantial number save on costs, for example by using recycled materials, or of above-poverty-line (APL) households, built improved to negotiate prices with entrepreneurs. Conscious of this latrines at a much higher initial cost than in Bangladesh risk, program designers sought to negotiate prices of the but with comparable or even lower operating costs. Indeed, catalog of services down in several instances, as the initial operating costs represented 29 percent of the initial costs costs received from local entrepreneurs were even higher. in Bangladesh, which was the highest percentage in the set, A subsequent extension, financed with GPOBA subsi- as opposed to 2 percent in Maharashtra and 16 percent in dies, sought to reduce the prices even further by applying Vietnam. These perverse incentives for households can be competitive pressure between entrepreneurs. Despite these reduced through the use of microfinance, as was done in attempts, costs have remained high, showing the limitations some districts of Maharashtra, which allows the costs of a of centrally procured, highly subsidized sanitation schemes. more expensive latrine to be spread over time, instead of Given that subsidies are defined as a percentage of the hard- building a cheap one that would not last or would be more ware costs, this approach has been expensive for the public expensive to maintain. sector (see Section 3.3 for more details). The "software support" premium per household varies Initial costs were also relatively high in Ecuador, where considerably.Wedidnothavesufficientdatatodrawfirm most households elected to invest in a UBS, with a latrine conclusions about the effectiveness of software support. connected to a septic tank, a sink, and a shower to meet Software support costs represented a varying proportion of all of the household's hygiene needs. The estimated aver- total initial costs. Figure 3.3 shows how these costs were age hardware cost of these investments was approximately allocated between household investment, hardware subsidy US$355 (plus US$46 for software costs), which was consid- and software support for those households that received a erably higher than the fixed hardware subsidy provided by hardware subsidy. the project (US$210). In this case, households were will- ing to invest in a higher level of service that clearly met a real demand. Placing a cap on the subsidy thus helped limit the impact on the public purse while allowing the level of service to vary to meet differing local demands, which households were willing to pay for. 30 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches FiGuRE 3.3. AllOCATEd iniTiAl COSTS PER hOuSEhOld When compared to household incomes, hardware costs represented anything from 2.7 percent of average income 100% in Bangladesh to just over 30 percent of income for BPL 90% 80% householdsinVietnam.Both the initial costs (the hardware 70% and software support costs) and the ongoing operations and 60% 50% Software support maintenance costs were estimated as a percentage of house- 40% Hardware subsidy hold income, for average households and poor households, 30% 20% Average household investment based on the national poverty line in each country. Figure 10% 3.4 shows hardware costs as a percentage of income for aver- 0% age and BPL households in each of the project areas. This m ra h r l ga e do es na qu ht is a more reliable way to compare financing approaches and ne ua d as et bi la Se Ec am Vi ar ng ah Ba oz M evaluate whether the resulting costs are "reasonable" in each M Note: these percentages apply to those households that did receive a hardware subsidy. country, that is, whether they are affordable to the popula- tion, as it avoids differences due to exchange rate factors. Variations in software costs are difficult to explain because it was not possible to disaggregate the software costs into their FIGURE 3.4. HARDWARE COSTS AND HOUSEHOlD INVESTMENT AS different components. In particular, it was not possible with PERCEnTAGE OF hOuSEhOld AnnuAl inCOmE existing project documentation to distinguish between soft- ware activities (such as demand promotion and sanitation 35% marketing) and project management costs. 30% Hardware costs 25% as % average Software costs as a percentage of total initial costs may give 20% hh income Hh investment some indication of the relative effectiveness of the differ- 15% as % average hh income ent schemes, however. Figure 3.3 shows that the "software 10% Hardware costs support" premium ranged from 29 percent in Bangladesh as % below 5% poverty line hh (the highest figure, as a percentage of total initial costs) down income 0% to 7 percent in Maharashtra, even though in US$ terms, e sh ra r am l qu do ga ht de bi ua as tn ne software support costs were twice as high per household la am e Ec ar Se ng Vi ah oz Ba M M in Maharashtra relative to those in Bangladesh. Software programs entail some fixed costs, which do not vary with the type of investments being promoted, particularly when Contrary to what is commonly accepted, data from the case international donors and NGOs are involved. For example, studies suggests there is a significant demand for sanitation, in Bangladesh, the Dishari project (funded by international with people willing to invest a significant percentage of their donors and NGOs) supports the implementation of the income into on-site sanitation facilities, as was the case in Government of Bangladesh's policy, and aims to build local Maharashtra, Vietnam, Ecuador and Bangladesh. government capacity to lead the promotion of CLTS. As a result, in the short term, direct project costs come on top In Vietnam, for households below poverty line (who were of indirect governmental capacity-building costs, on the the target group for the project), investment in a septic tank assumption that once trained, the local government offi- could account for up to 30 percent of their annual income. cials can maintain ODF achievements. By contrast, the Spreading this cost over two years via the loan enabled them TSC in Maharashtra is run directly by the Government of to make such a sizeable investment, as the loan catalyzed India and the State of Maharashtra, at a much lower cost in other forms of finance, such as loans from relatives. The total proportion to the total investment costs. cash outlays for these households were slightly higher than the hardware costs, as they had to pay interest on the loan. www.wsp.org 31 Financing On-Site Sanitation Evaluating the performance of financing approaches In Bangladesh and Mozambique, hard- FiGuRE 3.5. OPERATiOnS And mAinTEnAnCE COSTS PER ware costs represented a much lower SAniTATiOn SOluTiOn PER yEAR (uS$) percentage of household incomes, 30% 160 Opex as % household income which partly reflects the fairly low 140 25% levels of service deliberately set to Opex Costs - US$ 120 enhance affordability. The subsidy 20% 100 Opex as % average provided to BPL households substan- hh income 15% 80 60 tially reduced the impact on house- Opex as % below poverty line 10% hh income 40 hold incomes of building a latrine. 5% Annualized O&M costs per year 20 As shown in Figure 3.3, the subsidy (US$) 0% 0 reduced household investment from m ra sh r l e ga do qu a ht de tn ne ua as bi e 15 percent to 6 percent of income for la Se am Ec Vi ar ng ah oz Ba M those households. M In Senegaland Ecuador, hardware costs represented more than 20 percent of income for BPL house- In all countries, operating costs were kept below the 5 holds, i.e. for those targeted by the programs. When taking into percent mark (including for the hardcore poor), which tends account the substantial subsidy, however, the investment cost to indicate that the service provided was affordable to the to the poorest household (their cash contribution) dropped to local population. For example, latrines in Maharashtra 3.4 percent and 3.7 percent respectively, which partly explains and Bangladesh share the common characteristic that they why there was such a high demand for relatively expensive and are cheap to operate and therefore eminently affordable for tightly defined investments. However, data from the other case households (although, in the case of Bangladesh, operating study countries indicate that household investments would be costs account for 30 percent of initial costs for poor house- possible with a lower level of subsidy, as households appear able holds, which indicates that savings may be achieved by build- to invest a higher percentage of their income. ing more solid latrines in the first place, as discussed above). Therearesubstantialdifferencesinoperatingcostspersanita- 3.3 Effectiveness in the use of public funds tionsolutionperyear,withSenegalbeingthemostexpensive Theuseofpublicfundswasevaluatedtoexaminehoweffec- andBangladeshthecheapest. Operations and maintenance tivelyitmaximizedimpact. costs per sanitation solution per year were estimated by taking account of the costs required to maintain the latrine The evaluation of the effectiveness in the use of public funds is clean, access it in a hygienic manner (incorporating the based on two main indicators: the number of households that cost of sandals and cleansing material) and empty it every obtained access to sanitation per US$1,000 of public funds three to four years.18 These estimated costs, shown in Figure spent, referred to as the increased access/public funding ratio, 3.5 were based on the assumption of adequate operations and the amount of private funds invested (in US$) for each and maintenance. There may of course be circumstances dollar of public funds used, referred to as the leverage ratio. in which households would save on such expenditures to preserve cash and thereby run the risk of deterioration of Table 3.4 shows the estimated total costs of on-site sanita- the latrine. However, evidence of good latrine maintenance tion adoption at the household level in the project areas, as (see Section 3.1) seems to indicate that households are will- well as the breakdown between public funds and household ing and able to pay for such expenses, or that they carried investment. The table also shows the increased access/public out some of the basic maintenance activities themselves as a funding ratio, the leverage ratio, and potential explanatory way of economizing. factors for these two indicators. 18 The present study did not have the means to carry out an extensive survey of operating costs. 32 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches The increased access /public funding ratio showed great funds. It is therefore important to improve our understand- variations,asUS$1,000couldhelpserve135householdsin ing of which financing approaches can be successful at lever- Bangladeshbutonly1.6inSenegal.19 aging household investment. In the programs under review, a number of low hardware subsidy programs appeared The increased access/public funding ratio, as shown in Table capable of leveraging substantial household investments to 3.4, captures a number of parameters, including the initial achieve large gains in coverage. costs of the facilities, the size of the hardware subsidy and the level of software support. Given the way this indicator is esti- Other important aspects include the effectiveness of the mated, the lower the costs (and usually the service level) of the demand-creation component, financed through software facilities, the higher the ratio. A comparatively rich country support, which can influence willingness to invest in sanita- such as Ecuador could afford a relatively expensive approach tion. Household income may also influence the willingness to expanding coverage with high levels of service, and given to pay. For this reason, the amount of software support and the population's expectations, a lower level of service would average household incomes for BPL households are shown not be acceptable and would be doomed to fail. Yet, given in Table 3.4. It was difficult to identify clear relationships that most countries have funding limitations, it is useful to between those factors, however. track this indicator in order to measure the effectiveness of public interventions in the sector. For example, the approach In Vietnam, the leverage ratio varied from one city to another adopted in Senegal, which is barely above Bangladesh in terms and also from one type of investment to another investments of PPP-adjusted GDP per capita appears to be too expensive included septic tanks, urine diverting/composting latrines when considered with regard to households' financial means. and sewer connections. The leverage ratio was particularly high with this financing approach, because public funds were Theabilitytoleveragehouseholdinvestmentvariedsubstan- provided mostly in the form of seed money for the revolv- tially, ranging from a leverage ratio below 1 in Ecuador, ing funds, which were revolved about twice during the first Mozambique,andSenegaltoaratioofalmost20inthecase phase of the project (2001 to 2004) and further in later phases. ofVietnam. The ability to leverage private investment can Between each phase, the funds were transferred with minimum be critical to maximize results from limited available public reduction in the original capital pool, thanks to low operating TABlE 3.4. COSTS OF ON-SITE SANITATION AND EFFECTIVENESS OF PUBlIC FUNDS Bangladesh Ecuador maharashtra mozambique Senegal Vietnam Total estimated costs (public and private) of $8.8 $11.3 $940.7 n.a. $28.9 $5.4 providing household sanitation (uS$ million) Total public funds spent on household on-site $2.7 $9.6 $83.2 n.a. $25.7 $0.3 sanitation (uS$ million) Total household investments in sanitation $6.0 $1.7 $857.5 n.a. $3.2 $5.0 (uS$ million) Increased access/public funding ratio* 135.1 2.9 50.5 n.a. 1.6 116.8 leverage ratio** 2.27 0.18 10.30 0.87 0.13 19.92 hardware subsidy as % of hardware costs 42% 59% 22% 50% 75% 3% Software costs as % costs per solution 28% 12% 7% n.a. 20% 10% Average income for BPl households (uS$/year) $290 $1,652 $400 $741 $897 $574 * Number of sanitation solutions per US$1,000 of public funds invested. ** Household investment/Public investment. A high ratio indicates the ability to leverage private funds. Note: In Vietnam, donors initially allocated US$3 million to the revolving fund as seed money. As these funds were revolved several times with minimal reduction, Table 3.4. shows only the amounts of public funds that were "used up." 19 If the analysis was done in terms of number of facilities built, the ratio went up to 2.5 in Senegal per US$1,000 given that households received more than one facility on average. www.wsp.org 33 Financing On-Site Sanitation Evaluating the performance of financing approaches costs (some of which were covered by interest proceeds) and may partly be a reflection of the Mozambique program's extremely high repayment rates (virtually 100 percent through- relatively long history, since it started during the civil war out). The sanitation component also benefited from being part when the country as a whole was extremely poor and the of a larger sanitation project with substantial awareness-raising administrative system was not sufficiently developed to and demand-generation activities. The costs of these activities implement a targeting system. carried out through the broader project have not been taken into account as it was not possible to allocate them reliably to Theprogramsusedarangeoftargetingmechanismstoachieve the Sanitation Revolving Fund component. their pro-poor objectives, including geographical targeting (identifying poor areas where all households are considered In Maharashtra, the TSC was able to leverage substantial to be poor), means-based targeting (where poor households private investment, particularly from APL households, are identified based on a number of criteria), self-selection which did not receive any hardware subsidy and invested (where the project offers a service level that would only appeal up to almost 40 times the amount of public funds that had to poor customers), and community-led targeting (where been spent on the campaign in their area. The study district members of the communities agree between themselves on that had the highest leverage ratio overall (27.7) was also who can receive a subsidy).21 On the whole, it appears that the only district where there had been an organized initia- the programs were effective at reaching their target recipients, tive to link households with credit institutions. In that case, although there was significant subsidy leakage in some cases. credit provision seems to have accelerated the take-up rate Table 3.5 summarizes this evaluation. and leveraged additional household investment. Geographic targeting consists of offering the subsidy only Leverage ratios were lowest in the two programs with high incertainareas, where the project or program was active. hardware subsidies provided to all households, namely Ecuador This approach was used in all of the donor-financed proj- and Senegal. In Senegal, difficulties in mobilizing household ects, that is in Senegal, Ecuador, and Vietnam, as well as in investment can be attributed to a number of factors, includ- Bangladesh to some extent (the Dishari project was mostly ing the relatively high cost of the sanitation solutions on active in extremely poor areas as well as in one relatively offer, which represented a high share of the local population's affluent district, used as a comparator). income, the lack of credit facilities, and a history of highly subsidized schemes, which created expectations about receiv- In Senegal, several targeting methods were evaluated at the ing a subsidy. design stage for water as well as sanitation services, and it was deemed that regional targeting would be most cost-effective 3.4 Poverty targeting given the costs of alternative methods. Regional targeting Theeffectivenessoftheprogramsattargetingthepoorwas meant the subsidy was available to everyone within the project evaluatedbasedonthetargetingcriteriausedattheprogram area, as long as they were willing and able to pay their up-front design stage and available evidence on actual targeting contributions. Errors of inclusion with such methods can be results. Whereas the approach to targeting was usually clear, minimized when the selected areas are poor in a homogeneous evaluating the effectiveness of these approaches proved to manner, such as urban slums with no sewer connections (as in be very difficult given that the necessary data were usually Senegal) or remote rural areas (as in Ecuador). not available at the project level.20 Means-tested targeting consists of identifying poor house- Alltheprogramssoughttotargetpoorhouseholds,exceptthe holdsbasedonaseriesofpovertyindicators. Such a targeting PLMinMozambique,whichdidnotdosoexplicitly.This method was used in government subsidy programs, such as in 20 Common ways of measuring the effectiveness of poverty targeting consist of evaluating errors of inclusion (when relatively well-off people find themselves benefiting from subsidies) and errors of exclusion (when members of the target group are not captured by the eligibility criteria) associated with the targeting mechanism. See for example: Komives et al. 2005. 21 The costs of alternative targeting mechanisms are an important factor to take into account when designing the financial approach. In the case of Senegal, the costs and benefits of alternative targeting mechanisms for subsidized water connections have been extensively reviewed. In that case, it was concluded that regional targeting was the most cost-effective solution. 34 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches TABlE 3.5. TARGETinG mEChAniSmS And OBSERVEd OuTCOmES Approach to targeting Targeting results Bangladesh · Project areas were among the poorest in the country · many nonpoor benefited from the Government hard- (except Gazipur district, selected as a "control" district). ware subsidy outside of the dishari project area (20% · Government hardware subsidies were targeted to poor to 50% in some cases, although based on a limited households, based on strict eligibility and exclusion sample). criteria. · in the dishari project area, community involvement · Community-level mechanisms in dishari project area improved targeting significantly. Government hard- were used to improve targeting, with communities ware subsidies reached about 7% of households in the deciding who could receive subsidy. project area. Ecuador · Targeted small towns (below 10,000 inhabitants) in poor · Poor areas were served through the project. areas around the country. · no evaluation of errors of inclusion and exclusion was · All households were deemed eligible for hardware available. subsidy within the target area. maharashtra · TSC was active in all rural districts, not only poor ones. · About 5% to 10% of people who received the subsidy · Targeted hardware subsidies to BPl households were were not genuinely eligible. identified through national surveys. · About 10% to 20% of poor families did not receive the subsidy, due to problems with the methodology for identifying the poor. Some local governments alleviated exclusion errors by providing direct support to poor families. mozambique · no explicit poverty targeting. · no explicit analysis of the impact of the program on · implicit targeting as the Plm workshops produced a poor households. simple latrine, which did not appeal to comparatively · All improved latrines were deemed to have been built richer households. via the program, whereas richer households built septic tanks. Senegal · Targeted the poorest areas of dakar and its surround- · limited error of inclusion: Few comparatively richer ings, households benefited from the program during the pilot · CBOs helped with identifying poor households most in phase. need. Vietnam · Targeted poor households in areas not connected to the · All beneficiaries were in the bottom 20% in income level. sewers. · Those who were not deemed able to repay were · Savings and loans group leaders selected loan recipients, excluded (mostly indigent people). based on needs, reputation, and ability to repay. www.wsp.org 35 Financing On-Site Sanitation Evaluating the performance of financing approaches Bangladesh and Maharashtra, where poverty is widespread rath- In Vietnam, the program targeted poor households with no er than contained in specific areas. In the case of Maharashtra, access to sewers. Such regional targeting was combined with for example, poor households were identified through regular selection by the Savings and Loans group leader, who identi- central government surveys for the purposes of broader poverty fied which households could receive a loan based on whether targeting programs. There are well-known problems with the they were deemed able to repay. This worked to some extent, methodology used for identifying poor households, however. as all households that obtained a loan were in the bottom 20 In 2003, the Government of India introduced a new methodol- percent in terms of income level, but it excluded the most ogy for poverty classification which has been heavily criticized; indigent. To avoid sending confusing messages, it was deemed some felt that it introduced too stringent exclusion criteria (for preferable to roll out the microcredit scheme first, before using example, ownership of a ceiling fan is enough to exclude the the remaining seed capital to provide subsidies to the most household from subsidy eligibility), that the criteria did not indigent. One drawback of this method is that it gives a lot of allow for any regional variations, and that the categorization did power to the group leader and is not easily replicable. not reflect how people move in and out of poverty and migrate between areas in search of work. The State of Maharashtra, Self-selection, whereby the project offers a basic level of service among others, has rejected this new methodology and contin- that only appeals to poor households, is effectively taking place ues to use the 1997 survey data, which are bound to be some- in Mozambique now that income levels have risen slightly. what out of date. As a result, it was estimated that about 10 The improved latrines provided by the project mostly appeal to 20 percent of poor households did not receive the subsidy to poor customers because they are affordable, whereas slightly despite being poor. Local governments tried to compensate by richer households would rather build septic tanks. providing additional subsidies to excluded households, even though such local systems are also prone to manipulation. 3.5 Financial sustainability This set of indicators examined whether the finan- Community-based targeting consists of identifying poor cial approach could be sustained over time, based on the households through community organizations (as was done percentage of cost recovery for operating costs and initial in the Dishari project in Bangladesh) or viacommunitylead- costs(hardwareandsoftware). Rather than examining the ers (as was done by the Savings and Loans group leaders in physical sustainability of the initial investments (which is Vietnam). This appears to be a more flexible, better targeted reviewed under Section 3.1), this set of indicators evalu- and probably less costly way to identify poor households. ates whether the sanitation solutions that have been built It requires the right type of community mobilization and a under the program could be replaced (if they were to fall spirit of solidarity between community members, so that they into disrepair or become full) with a minimum need for agree to see the subsidy paid to the poorest or even to transfer external financial inputs. This is equivalent to computing some of their own funds. In Bangladesh, community-based capital and operating-cost recovery ratios when examining selection was introduced in the Dishari project to improve the performance of water-sector financial support policies. on the targeting of the hardware subsidy scheme run by the Government of Bangladesh, which had a high inclusion error Recoveryofinitialcostsvariesgreatlyfromoneapproachto (20 to 50 percent of subsidy recipients were not deemed eligi- another,whichcanhaveasignificantimpactonthefinan- ble according to an ex-post evaluation). This was facilitated cialsustainabilityoftheprograms. Figure 3.6 below shows because all village residents were working together towards that whereas households covered 93 percent of initial costs the achievement of a common goal, and they viewed helping in Vietnam, they only paid for about 11 percent of initial the poorest get access to the subsidy as helping themselves to costs in Senegal. reach a collective goal (with financial rewards attached). 36 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches FIGURE 3.6 INITIAl COST RECOVERy Mozambique, where the program lost its community anima- tors when donor funds were withdrawn; the program slowed 100% down substantially as a result. 90% 80% 70% Operating costs are funded by the households themselves, 60% withadequatelevelsofmaintenance.In all projects, house- 50% Initial cost 40% recovery holds are fully responsible for meeting operations and main- 30% (hardware tenance costs, and there are no ongoing subsidies to cover 20% and software) those. Nevertheless, there may be some ongoing support 10% 0% from local NGOs or CBOs to keep the project running, as appears to be the case in many areas in Bangladesh accord- am ra l r sh e ga do qu ht de tn ne ua as bi ing to a recent WaterAid report.23 la e Se Ec ar Vi am ng ah Ba oz M M Anecdotal or survey evidence in most programs seemed to InVietnam,theseedfundsinitiallyprovidedtotherevolving indicate that the latrines were kept clean and in good working fundhavebeenrevolvedseveraltimeswithminimumreduction order, even a few years after construction (see Section 3.1 for intheoverallseedcapitalprovided.After donors' involvement more details), which means that households are operating the stopped, the seed capital was transferred to the municipali- latrines effectively. However, data on pit-emptying are diffi- ties, which have been running the scheme successfully since cult to obtain reliably. In some cases, such as in Maharashtra, through the Women's Unions. The scheme could continue to the latrines had been built relatively recently and there were operate until demand for the loans was exhausted, and there- no reported cases of latrines filling up. fore appears highly sustainable. High financial sustainability is also found in the Maharashtra TSC campaign, which has It is often assumed that households will access pit-emptying achieved substantial results using public funds in the form of services when needed, but this is typically an area where output-based incentives rather than up-front subsidies. households may save or postpone expenditure during tough economic times, thereby jeopardizing the long-term viability By contrast, in Senegal the program is highly dependent of the latrines. In Vietnam, the utility billing mechanism actu- onexternalfinancing.Funding allocated at the start of the ally promotes regular maintenance. All households connected program was used up within two years, well ahead of target, to the water supply network have to pay a wastewater charge, as demand for the sanitation facilities was high particularly irrespective of whether or not they are connected to the sewer- after the subsidy was increased from 50 percent to 75 percent. age system. If they are not connected (and have invested in a Construction of on-site facilities had to stop for lack of funds, septic tank, for example, as they did under the project), they leaving 70,400 demands unmet as of late 2008. The program can get their pits emptied at no extra cost once every four years was later extended with additional funding from the World by private operators under contract with the utility. Bank and then from GPOBA. However, take-up has been slow for a number of reasons, including a deterioration in 3.6 Scalability economic conditions that has reduced household willingness Thelastcriterionexaminesthescalabilityofthecasestudy to make an up-front contribution. In addition, investments approaches,thatis,whetherscalinguptocoverthepopula- in demand promotion may have been partially wasted during tionnotalreadycoveredcouldbedoneatareasonablecost. the interim period between the end of the PAQPUD project Scalability is a critical element of project design. Several and the start of the GPOBA-funded follow-up.22 Dependence factors affect the scalability of a sanitation project, includ- on external funding was also a significant issue in the case of ing the availability of trained personnel for community 22 The GPOBA-funded program was not reviewed in detail as part of the case study, which was focused on the first phase of the PAQPUD project. The GPOBA program had not been running long enough to allow assessing its impact. 23 Ross and Cumming 2009. www.wsp.org 37 Financing On-Site Sanitation Evaluating the performance of financing approaches mobilization, training, management, supervision, or moni- built for an average of US$60, of which about US$25 would toring activities and the existence of an adequate institu- be for latrine promotion and health and hygiene education. tional and policy framework. The present analysis is focused Without a major re-evaluation of the type of financial and on whether the projects are scalable from a financial point software support needed to keep existing workshops going of view, that is, whether the country as a whole can afford to and create new ones, the existing approach is unlikely to be scale up a project given overall financial constraints. This is scaled up. essential when evaluating whether subsidy levels are suitable to a particular country. InSenegal,theapproachdoesnotappeartobescalable,given itshighcostsanddependencyonexternalfunding.Extending To estimate the degree to which scaling-up can be afforded the approach to cover only the 70,400 outstanding demands by the different countries, the initial costs per household were would require an additional US$54.5 million, which is more multiplied by the number of households to be covered in simi- than five times the annual sanitation budget for the entire lar areas throughout the country. For example, if the program country and 1.42 percent of the national budget. is active in rural areas, this consisted in estimating how much it would cost to cover the entire rural population not currently InEcuador,theapproachcouldbescaledup,especiallysince covered. These costs were then compared to the existing sanita- thecountryiscomparativelyrichandcanaffordtodoso. tion budget (to the extent that it could be estimated) and to the Extending the PRAGUAS approach to cover the remainder national budget. Such calculations provide a broad estimate of of the rural population lacking access to improved sanita- whether the approach would be affordable or not to the coun- tion (3.4 million people, or 70 percent of the rural popula- try, particularly in the context of limited donor funds. This tion) would cost approximately US$231 million. Ecuador is evaluation was then combined with a review of other factors by far the richest country in the set of case studies. Its GDP influencing the approach's scalability, such as the robustness of per capita in 2007 was US$3,335 at current exchange rates the existing institutional set-up for scaling up. and US$7,242 at PPP exchange rates, since the purchasing power is much higher than its dollar-based economy would InMozambique,thePLMworkshopsthatarestillfunction- indicate. In such a context, this funding requirement does ingaremoribund,andtheoverallapproachappearsunlike- not appear out of reach and is roughly in line with budgets ly to be scaled up.24 Although the case study examined the allocated to water and sanitation investments in secondary performance of the PLM over a long period, almost 30 years, towns, for example. it is important to distinguish different phases in the life of the program. From 1985 to 1992, the program received substan- In Bangladesh and Maharashtra, a scale-up of the financ- tial donor support and was successfully scaled up, leading to ingapproachesiswithinreach. In Bangladesh, scaling up the the creation of PLM workshops in 16 cities throughout the approach to the remaining 1,800 unions that have not been national territory. The withdrawal of donor support together 100 percent sanitized appears to be financially feasible with- with a poorly managed decentralization process left many of in two years. All communities have already been "ignited" these workshops stranded for cash and scrambling for survival (to use a CLTS word), throughout the country, but the key by relying on other income-generating activities. At present, question is how to roll out support to those communities. A existing workshops cannot scale up their activities because more significant constraint than finance is the availability of the market in their immediate surroundings is saturated and good quality facilitators, since these are critical to ensure the they cannot afford to invest to serve markets further afield. approach's success. In Maharashtra, the program has already Setting up new workshops would require both initial invest- been extended to all districts in the state, and because the ment in software activities, especially training, and substantial budget for these activities represents a tiny portion of the government or donor funding. For planning purposes, the state's total budget the program appears fully scalable. government has estimated that improved latrines could be 24 Due to a lack of national data in Mozambique following decentralization, we could not estimate the costs of scaling up the approach and compare such costs to the national budget. 38 Water and Sanitation Program Financing On-Site Sanitation Evaluating the performance of financing approaches In Vietnam, scaling up the financing approach appears and are encouraged to invest in higher service levels if they eminentlyfeasibleforthosewhocanaffordtheloan. If the so wish, could potentially be adapted to circumstances where remaining 12 percent of Vietnam's urban population with- service expectations are high. The mechanisms for target- out access to improved sanitation were to gain access via ing subsidies in Maharashtra could probably be improved, this approach, the financial cost would be about US$16 however, as they suffer from a relatively high exclusion error million. This is 1.8 times the government's estimated annu- due to disputed criteria for poverty targeting. al budget for sanitation and therefore seems affordable if spread over several years. In fact, the approach has already The sanitation revolving fund approach in Vietnam was very been scaled up through a number of donor-funded proj- effective at leveraging household investments and proved ects (including World Bank projects25) and through the highly sustainable and scalable. A potential drawback is that Vietnam Bank for Social Policies, a national development the most indigent are excluded, so they may need to receive bank. A change in approach, possibly using a higher rate of direct support, as was done through a number of benefit subsidy through a revolving fund program or direct subsi- schemes in Vietnam. This approach, based on microcre- dies, may be warranted for the most indigent, who cannot dit, could be replicated in densely populated urban areas afford a loan at current terms. on the condition that a strong microfinance institution can be identified and that the credit scheme does not compete 3.7 Summary evaluation with high subsidies available to all. Table 3.6 provides a summary evaluation of how the differ- ent case studies performed with respect to the six criteria: By contrast, the financing approach in Senegal does not impact on sustainable access to services; costs; effective- fare well when measured against these criteria, even though ness in the use of public funds; poverty targeting; financial the project as a whole has been successful at putting on-site sustainability; and scalability. sanitation on the map in Senegal and in neighboring coun- tries. The adopted approach has led to high costs that are Some approaches, such as in Maharashtra and Bangladesh, not affordable to the local population without substantial have done very well on all parameters and appear highly repli- external support. As a result, the financial sustainability cable. They are applicable in certain settings, such as rural of the scheme is very fragile. Scaling up such an approach settings in South Asia and probably on other continents as to reach the country's MDGs would simply be beyond well, but may be less successful in areas with less community Senegal's means. Elements of this approach could never- cohesion and higher expectations in terms of service levels. theless be adopted in other settings, such as the provision In rural Ecuador, for example, the rural population expects of output-based subsidies to local producers, which was a piped water connection and a flushing toilet and would practiced in Mozambique as well. Finally, the approach in not settle for a lower -level of service such as a dry latrine. Ecuadorworked well, but given the relative wealth of the Nevertheless, the approach used in Maharashtra, where country it may prove too expensive to replicate in other households receive a subsidy to cover a basic level of service countries with more limited public funds. 25 The total working capital for sanitation microcredit in World Bank projects in Vietnam is estimated to be about US$25 million as of March 2009. www.wsp.org 39 Financing On-Site Sanitation Evaluating the performance of financing approaches TABlE 3.6. CASE STUDIES: SUMMARy EVAlUATION Bangladesh Ecuador maharashtra mozambique Senegal Vietnam impact on Substantial and Substantial Very rapid Rapid increases Speed of cover- Rapid extension sustainable rapid increase in increases in increases in in coverage only age increased of coverage access coverage, mostly coverage with coverage (with when software when required sustained good evidence some cases of support was also household of use relapse) provided contribution was reduced Costs Basic sanitation Comprehensive improved sanita- Affordable basic Comprehensive Costs moderate costs reasonable sanitation solu- tion, households sanitation solu- sanitation compared to when compared tions: costly but invest based on tions, reduced solutions but other programs to household meet existing what they can demand when expensive by but high when income (3% to demand afford incomes grow both national compared to 4%) and international household standards incomes Effectiveness high leverage low leverage high leverage medium low leverage Very high in use of public leverage leverage funds Poverty Effective target- Geographical means-tested Self-selection via Geographical Effective target- targeting ing through targeting targeting effec- level of service, targeting ing, although community reached intended tive although with limited reached intended lowest income involvement recipients some are inclusion error recipients excluded excluded Financial Sustainable as highly depen- low demands on dependent highly depen- Financially sustainability long as public dent on external external public on external dent on external sustainable: sector continues financing funds financing (with a financing initial public to contribute marked decline funds have when subsidies revolved many drop) times Scalability Scale-up achiev- Scale-up could has been scaled Was scaled up Too expensive to Scale-up has able at a reason- be achieved up at federal in major urban scale up nation- been achieved in able cost given relatively level (coverage centers but wide country high national still needs to further scale-up income improve) unlikely Summary Efficient use of Only useful for Efficient use of Efficient use of limited use: Very efficient use evaluation public funds for countries willing public funds, public funds with high demand on of limited public rural settings and able to fund which are simple public funds and funds but may be with strong high levels of provided on an and effective limited leverage hard to replicate demand for low- service outcome basis targeting cost solutions 40 Water and Sanitation Program Financing On-Site Sanitation Summary of findings IV. Summary of findings This section summarizes the study's main findings, drawing constraint that many poor households face in developing implications for policy and program design wherever possi- countries, a constraint that is likely to grow even more acute ble. The study also identified key data limitations in the proj- in the context of the global economic crisis. ects' monitoring and evaluation frameworks; such gaps are characteristic of the sector and result in inadequate data on Theuseofscarcepublicfundsneedstobeoptimizedinorder which to base policy. The last subsection therefore identifies toachievemaximumresults. Care is essential in the design areas where information and knowledge need to be strength- of the financing approach at the outset of on-site sanita- ened to improve the design of future sanitation projects and tion programs, which are too often treated as small isolated programs. Further research and innovation in finance will be components in broader water and sewerage projects. Only essential as financial resources become more constrained in financially sustainable approaches have the potential to be the context of the global financial and economic crisis. scaled up to make a significant contribution to meeting the MDGs. 4.1 What have we learned? Financingapproachescanhaveasignificantimpactonthe Householdsarecriticalinvestorsinon-sitesanitationatthe cost-effectiveness,equity,impact,andscalabilityofsanita- householdlevel. tionprojects. The study confirmed that households are key investors in Public support has a significant role to play in creating household sanitation facilities, except in highly subsidized demand for sanitation, supporting the development of sani- schemes. None of the projects reviewed in the study started tation entrepreneurs and alleviating affordability constraints. from the premise that the poor are too poor to pay anything This study has shown that the way such public support is for access to sanitation. financed can have a significant impact on the performance of sanitation projects and on their scalability. Poor households can allocate a substantial portion of their income to sanitation investments (up to 25 or 30 percent of Inallcasesreviewed,publicsupportforsanitationtriggereda annual income in some cases, as in Vietnam) if they can see significantincreaseinhouseholdsanitation, with an increase the need and potential benefits from it and are given access to in coverage of at least 20 percent and sometimes as high as 70 credit in order to spread the investment over a longer period. percent. Providing public support for household sanitation Indeed, in the majority of cases, except for the poorest, poor can take many forms, as the diversity of approaches docu- households seemed to face a liquidity constraint rather than mented in this study shows. Software support can finance an insurmountable affordability constraint, which is why activities such as community mobilization and awareness rais- access to credit appears to have a significant role to play in ing that are critical to unlock demand for sanitation services. triggering household sanitation investments. As a result, it is Hardware subsidies can be used to encourage investment important both to stimulate households' demand for sanita- beyond the level that would be carried out based solely on tion products and to leverage their capacity to invest. private benefits and can help lift the affordability constraints for poor people. Facilitating access to finance and provid- Hardwaresubsidiesplayanimportantroleinmakingsani- ing seed financing for revolving funds can lift the liquidity tationaccessibletoall. www.wsp.org 41 Financing On-Site Sanitation Summary of findings Someformofhardwaresubsidyforatleastsomeuserswas High levels of hardware subsidies can dampen financial presentinalloftheapproachesreviewed,albeitindifferent sustainabilityandcanbesignificanthurdlesforscalingup forms. While the Sanitation Revolving Fund in Vietnam sanitationprograms. provided a subsidized interest rate on all its loans, the Dishari project in Bangladesh provided in-kind subsidies to the poor- Projects with high levels of hardware subsidies can achieve est households, which were carefully selected by the commu- substantial results in a short time frame and make a signifi- nity as needing the subsidy (see Table 3.2 for a summary of cant difference to the lives of poor households. However, the design of hardware subsidies in the case studies). While highly subsidized hardware subsidy schemes weigh heavily some heavily subsidized schemes covered up to 75 percent on public finances and can rarely be scaled up on a suffi- of hardware costs (as in Senegal), the Vietnam project only cient scale to meet national coverage targets (as in Senegal), provided relief of about US$6 per septic tank, which was except in comparatively rich countries where high subsidies otherwise financed by the households themselves. can be afforded (such as Ecuador). Whether or not a coun- try can finance scaling up of a certain approach to cover the Choosingtheappropriateservicelevelanddeterminingthe population lacking access should indeed be at the center of appropriaterateofsubsidyareessentialtoensuringthatthe decision making about subsidies. schememeetsdemandandisaffordable, from the point of view both of the households themselves and of the sanita- For example, Senegal's program achieved substantial results tion sector as a whole. This "affordability threshold" will in a short time frame but had to stop for lack of funds, wast- vary depending on the relative income levels at the house- ing investments in demand promotion until the program hold and country level. In Vietnam, for example, BPL was extended with additional financing, some of which households were willing to invest up to 30 percent of their came from GPOBA. In Ecuador, community contributions, annual income to build a septic tank, especially when those both in cash and in-kind, and an attractive technical solu- costs were spread over two years via a loan. This may be due tion (UBS) enhanced buy-in from the local populations. to the success of the demand promotion activities and the However, the subsidy cost (US$210) per sanitation facility demonstrated benefits of investing in sanitation. was relatively high, both as a percentage of the total cost: (60 percent) and in absolute terms, when compared to hardware Thechoiceofserviceleveliscriticalforthefinancialsustainabil- subsidy schemes in the other case study countries (although ityofasanitationscheme.The study has shown that the choice Ecuador has the highest per capita GDP in the dataset). of service level is critical not only for the social acceptability and marketing success of the approach but also, through its impact Such schemes may also generate negative impacts beyond the on cost, for its financial sustainability. The choice of service level project. If projects have a high percentage of subsidies and itself depends on many factors, such as expectations, technical become quite well known nationally, they can create expecta- constraints, and availability of materials and skilled masons. For tions that then affect the ability to successfully implement example, Bangladesh has been successful because its approach sanitation programs with lower sanitation subsidies. This was consists of stimulating households to invest in a basic latrine at the case in Senegal, where NGO-led sanitation programs a cost they can afford. On the other hand, relatively high levels typically had 100 percent subsidies. As a result, people may of service were seen as a key determinant for demand for the become less willing to invest themselves as they wait for the UBS in Ecuador. The crucial difference is that Ecuador is about subsidized latrines. This would be true of schemes where seven times richer than Bangladesh in PPP-adjusted terms and the subsidy accounts for a very high percentage of the cost the country as a whole may be able to afford a relatively high of investment and is available to all in specified areas. By level of subsidy. In the case of Senegal, however, high cost of contrast, where the hardware subsidy is well targeted and service meant that the approach was highly dependent on exter- represents a small percentage of the investment costs, as in nal financial support and is unlikely to be scaled up to the rest Vietnam and India, it does not appear to dampen demand. of the country for lack of resources. 42 Water and Sanitation Program Financing On-Site Sanitation Summary of findings guarantee a minimum level of relief to households. The Hardwaresubsidies,whenwelltargeted,canbecriticalasa latter approach leaves households the ability to invest in safetynetforthepoor. different service levels according to their means, as was done in Maharashtra, Ecuador, and Mozambique, as well as Findings from the case studies indicate that hardware subsidies indirectly in Vietnam, through interest rate subsidies. should not be used as a substitute for hardware investments by households but rather as a safety net for those who face a From a policy perspective, the approach of providing a hard affordability constraint. To achieve those aims, subsidies fixed amount of subsidy to cover a basic standard of service need to be well designed and targeted. Findings from the case appears to be the right one, because it gives incentives study research suggest how this can be achieved. to producers to keep costs down and to be responsive to demand. By contrast, in Senegal the definition of the cata- Targeted hardware subsidies made a positive contribution log of sanitation solutions (and their respective prices) was toreachingthepoorestinBangladeshandMaharashtra, in a fairly long and detailed exercise that went through several programs that otherwise relied mostly on software support. iterations. The prices that program designers obtained at This enabled lifting the affordability constraint and, conse- first were deemed high and technical specifications were quently, reaching the goals of becoming ODF (as in the modified to reduce the prices. However, once the catalog of Maharashtra case) or becoming 100 percent sanitized (as services had been set, the local producers had limited incen- in the Bangladesh case) for entire communities, rather than tives to reduce the costs of production since they knew that leaving out a fringe of the population. Such subsidies may the subsidy and the household contribution would be suffi- need to be combined with microfinance schemes, however, cient to cover the existing production costs. to ensure that households can build latrines that meet mini- mum standards and are cheaper to maintain over time or Another advantage of fixed-amount subsidies is that they are need to be emptied / moved less frequently. easier to control from an administrative point of view, since there is no uncertainty over the amount of subsidy need- By contrast, leaving out the poorest was a potential limitation ed as a factor in the demand for different options. Finally, of the Sanitation Revolving Fund scheme in Vietnam, as the fixed-amount subsidies are more equitable: if households poorest were not deemed able to repay the loans. In that case, want to obtain a higher level of service, they can get it, but the possibility of offering several types of loans with differ- they also need to pay for it. ent rates of subsidies in order to meet the needs of different income groups was dismissed out of hand by the Women's Fixed-amount subsidies need to be managed actively, Union during the project design stage; the union advised however, so as to keep up with inflation and other cost that such an offer would risk dampening demand for the factors. For example, in Maharashtra,theTSCguidelines main loan program. Alternatively, it was envisaged that once setamaximumamountofsubsidyatRs1,500(US$24)for all households who could afford it had built a latrine, the BPL households when the study was conducted in 2008. remaining seed money could be used as a source of subsidy Although this subsidy was intended to cover approximately for the poorest households. This has yet to be implemented, 80 percent of the hardware costs, in practice the subsidy is as all households eligible for a loan are not yet covered. covering only 22 percent of the costs of the latrines. This might reflect several factors: input prices have increased Fixed-amountsubsidiesratherthanpercentage-basedsubsi- significantly since the subsidy level was fixed, and there diesseemtobemosteffectiveatleveraginghouseholdinvest- are important cost differences from one village to another, mentwhileguaranteeingaminimumservicelevel. which means that the same level of subsidy does not provide the same amount of relief to different households in differ- The rate of subsidy can be set in different ways: It can either ent locations. For example, households in hilly areas or be a percentage of the cost of the facility, as in Senegal and rocky terrains would need to invest much more than those Bangladesh to some extent, or it can be a fixed amount to www.wsp.org 43 Financing On-Site Sanitation Summary of findings in areas where digging is easier. classification, such surveys can be expensive and unwieldy Transport costs can also have a significant impact. In the and cannot be conducted at frequent enough intervals to PRAGUAS project in Ecuador, the subsidy provided to keep up with households moving in and out of poverty. householdswasafixedamountofUS$210. Households were free to choose the service level that best met their needs, and Regional targeting can be an effective way of reaching poor the majority of them selected a relatively high level of service, households in circumstances where poverty is concentrated the UBS, with substantially higher costs partly due to the in certain areas, such as slums or remote rural areas, but it costs of transporting material to remote mountain areas. The can raise issues of fairness when used for heavily subsidized analysis carried out for the design of the second phase of the approaches that are too expensive to scale up. PRAGUAS project in Ecuador investigated the possibility of setting different subsidy levels for different geographical areas, Community-based selection appears to be a more flexible, such as coast versus sierra, to reflect the substantial impact of better targeted, and probably less costly way to identify transport costs on the price of materials. poor households. It would usually need to be combined with regional targeting, so that such mechanisms are estab- In Mozambique, subsidies were given directly to the local lished in preselected areas. This approach requires the right providers supported by the program. These were based on type of community mobilization and a spirit of solidar- thenumberofslabsandlatrinessoldandwerefixedoncein ity between community members, so that the better-off 2000, following a detailed study that ensured that differen- members accept that the subsidy is to be paid only to the tiated levels of subsidy in each town reflected variations in poorest or may even transfer some of their own funds to economic conditions and poverty levels. This, coupled with make the scheme work. demand promotion activities, enabled strong take-up of the improved latrines. However, these subsidies were never Finally, no precise data were available to confirm whether updated, even for inflation, and in some cases they have or not self-selection is an effective targeting approach. This been discontinued following decentralization. As a result, method appears to be the cheapest and easiest to implement current levels of subsidies are grossly inadequate to cover for countries that have limited means to introduce either costs, and the surviving PLM workshops have to engage in means-tested or community-based targeting approaches but other income-generating activities to cover the deficit. seek to reach a large population through a basic sanitation program, such as Mozambique, where improved latrines Subsidy-targetingmethodsneedtobetailoredtothecountry were subsidized. This is consistent with subsidizing only circumstances. a basic level of service, leaving the choice to households to invest over and above this level of service (that is, the The study has encountered alternative targeting methods for approach used in Maharashtra and Ecuador, where subsi- providing hardware subsidies, including geographic target- dies were capped at a level to cover a basic service). ing, means-tested targeting, community-based targeting, and self-selection. Community-basedtargetingandself-selection Providing hardware subsidies on an output basis rather appeartobemoreeffectivethanmeans-testedsystems,which thananinputbasiscanbeeffectiveatstimulatingdemand canbecostlyandgenerateperverseincentives. andleveragingprivateinvestment. Means-tested systems, as practiced in Maharashtra and Several of the cases used an output-based method to deliv- Bangladesh, can generate substantial inclusion or exclu- er subsidies.26 Providing a subsidy on an output-basis can sion errors if not combined with additional subsidy-de- ensure that the subsidized activity is actually delivered. It can livering mechanisms. When based on surveys for poverty also give incentives to producers to reduce costs and to serve 26 In Senegal, the PAQPUD project was expanded via a GPOBA program, but this phase of the project was not included in the case study as it did not have a sufficiently long track- record at the time of writing. 44 Water and Sanitation Program Financing On-Site Sanitation Summary of findings areas where they would not necessarily go otherwise. From a component through the Three Cities Sanitation project was donor perspective, output-based subsidies can mitigate some also significant). In Mozambique, the PLM was most effec- of the risk of low uptake in a subsidy program: if there is tive when community animators could be active in demand no demand, for example if the product is not appropriate promotion, and the decline of the program was closely or incorrectly priced, then there is no output and therefore linked to the withdrawal of such software support following no payment. However, this would not guarantee that latrines decentralization. Lack of information on the relative costs built with such subsidies would actually be used. of different software activities meant that it was not possible to draw inferences concerning the types of software support In Mozambique, for example, subsidies were provided to that were most effective, however. PLMworkshopsbasedontheirsalesfigures, which helped consolidate the network of workshops during the heyday The software component represented a variable portion of the program between 1994 and the late 1990s. These of the costs of each facility, ranging from 28 percent in output-based subsidies are interesting as they were paid Bangladeshtoamere7percentinMaharashtra. Those soft- to the service providers themselves rather than to house- ware costs are important to include in an estimation of the holds. This system was established when the civil war was total costs of providing sanitation, as it is critical to evaluate still raging in Mozambique, which meant that transferring software cost financing requirements in order to preserve subsidies to service providers was much easier than transfer- the financial sustainability and scalability of the approach ring them to households directly. Combined with software going forward. Software costs can be valuable investments, support to build the capacity of the workshops, this allowed as demonstrated in Bangladesh where demand promotion, strengthening the supply chain for improved latrines and community mobilization, and capacity development were generated a sharp increase in coverage. the main levers of public support and where the approach had the highest increased access/public funding ratio, so In Maharashtra,themethodforprovidinghardwaresubsidies that US$1,000 was enough to help 135 households gain toBPLhouseholdswasmodifiedin2004, when the subsidies access to sanitation. (Note that the standard of these latrines became payable only after the village as a whole had reached was comparatively low, with relatively high operating and ODF status. As such, the government has preferred to refer maintenance costs). The approach in Bangladesh had to them as "incentives" given to households after they have comparatively high software costs, however, partly because already invested in a latrine, "in recognition of their achieve- it supported the training of local governments rather than ment." Since that change was introduced, the TSC campaign implementing the project directly. in Maharashtra has gathered pace, with more than one million latrines built every year in rural areas of the state. The The provision of financial rewards based on outcomes change in the subsidy delivery method has led to a paradigm actedasastrongmotivator for villages in Bangladesh and shift in the way the project is managed, as program officers Maharashtra and helped mobilize energies around the have become much more focused on creating demand and achievement of clear goals. These are formally counted as organizing community mobilization rather than on running part of the software costs, as distinct from the hardware a construction program for BPL households. subsidies, since these rewards were not provided to fund specific investments. The potential risk with such approach- Softwaresupportcanbeeffectiveattriggeringdemandand es, however, is that the mobilization and motivation will leveragingprivateinvestment. decrease after the objectives have been achieved and the financial reward paid, and villagers will go back to open Approaches that rested primarily on software support, such defecation or stop using the latrines. This risk is present in as in Maharashtra and Bangladesh (with targeted hardware Bangladesh, since the evaluation is only carried out once subsidies for the poorest), had among the highest levels of and there appears to be a tendency to over-report results. In leverage and most increased ratios of access/public fund- India as a whole, a national study commissioned by WSP ing in the study set (following Vietnam, where the software reported that 35 percent of households resorted to open www.wsp.org 45 Financing On-Site Sanitation Summary of findings defecation in panchayats that had been declared NGP the into the sanitation market, possibly by setting up subsidized year before (that is, they had been declared free of open lending schemes as in Vietnam. Once these microfinance defecation and had also reached a number of other environ- institutions have realized the potential of the sanitation mental objectives). In Maharashtra, this risk was minimized market through this type of subsidized scheme, they could through the introduction of yearly cleanliness campaigns, become more active in the market for all income brackets, which have acted as an ongoing monitoring mechanism including those that do not need (or are not recipients of ) beyond the one-off NGP assessment. a subsidy.27 Embedding the microfinance element into the design of the financing approach, with the provision of seed Facilitatingaccesstofinancecanbeeffectiveatliftingliquidity money to a private lending institution for subsidized loans, constraints,particularlywhenhouseholdsarewillingtoinvest was critical to success, since it minimized interference with substantialamountsinhouseholdsanitation. the scheme and gave clear incentives to the microfinance institution to provide loans for sanitation. Financial mechanisms such as subsidies or credit can be useful to strengthen the ability to pay and, in particular, to pay more In Maharashtra, the performance of the districts that had for a higher level of service. Contrary to what is commonly organized access to credit as part of the program was greatly accepted, data from the case studies show that there seems to enhanced, as credit accelerated household adoption of sani- be a significant demand for sanitation, with people willing tation and increased the leverage ratio from public funds. to invest a significant percentage of their income in on-site However, insufficient information was available to evaluate sanitation facilities, as was the case in Maharashtra, Vietnam, the precise impact of those microfinance products on sani- Ecuador, and Bangladesh. In a number of cases, households tation investment. have a liquidity constraint rather than an insurmountable affordability constraint. Facilitating access to finance can help Channelingcreditforinvestmentinhouseholdsanitationis overcome such constraints by spreading investment costs over notstraightforward,however,anditisnotclearatthisstage a number of years. whether the revolving fund approach could be replicated successfullyinothercountries. In Senegal, the provision of Revolving funds, as practiced inVietnam, appear to have credit to help households pay their up-front contributions remarkable potential for leveraging household investment was tried both via formal institutions and via traditional andmaximizingtheeffectivenessofpublicfunds. Vietnam's ones, such as the tontines, particularly during the second Sanitation Revolving Fund leveraged substantial private phase of the program. This has met with limited success, investment and has proved to be a highly sustainable scheme. partly because local microfinance institutions were more In this case, the public sector contributed seed financing familiar with making loans for income-generation activi- and the funds were revolved several times, resulting in a ties rather than for sanitation investments. In addition, the very high leveraging of limited public funds. Building the scheme came after previous NGO-supported on-site sanita- microfinance component into the design at the outset, rath- tion projects that had offered 95 percent subsidies, which er than as an add-on or an after-thought, appears to be a meant that the local population was not used to having to critical feature of the approach in Vietnam. As a result, the invest in improved facilities. microfinance institution (the Women's Union) had a strong interest in managing the scheme successfully. Potential success factors for replicating similar microfinance schemes include the presence of strong microfinance insti- It therefore seems important to incentivize microcredit insti- tutions and traditions and the incorporation of microfi- tutions, which are well developed throughout the world but nance at the core of the financing approach rather than as usually more focused on income-generation projects, to get an add-on or an after-thought. 27 A report by Meera Mehta (2008) for the Gates Foundation explores the current extent of microfinance in water and sanitation and potential for development. Available on the Gates Foundation website at http://www.gatesfoundation.org/learning/Pages/microfinance-for-water-and-sanitation.aspx. 46 Water and Sanitation Program Financing On-Site Sanitation Summary of findings 4.2 Where next? Thestudyconfirmedthatitisdifficulttodefineglobalbench- This study has sought to define a framework for analyzing the markindicatorsforhouseholdsanitationcosts.The research performance of alternative financing approaches to on-site has provided some point estimates for given programs sanitation at the household level. Although the set of case with different levels of service, but it is difficult to general- studies reviewed is somewhat limited, it is hoped that a simi- ize from these point estimates to inform program design at lar methodology can be used in order to expand the range of the country level. For example, hardware costs were much financing approaches under review to strengthen the evidence higher in Senegal than in other countries, due to a number base for policy making. In the process, the study has helped of local factors such as the high costs of labor and materials identify gaps in our understanding of financing approaches in Senegal's capital, the strength of the local currency, and to sanitation solutions. Going forward, it will be important site-specific factors such as the high water table which made to fill these gaps in order to improve the design of sanitation latrine construction more expensive. Each program needs to projects and programs, as described below. assess the feasibility of the service levels it is aiming for based on local factors. Point estimates derived in this study can Monitoringandevaluation(M&E)systemswillneedtobe provide a useful basis for comparison, but it would be inap- further developed to provide ways of evaluating the effec- propriate to use such estimates as benchmarks. tivenessofpublicsupportforon-sitesanitation. Detailed benchmark costs can only be obtained from a ImprovedM&Eframeworkswillneedtobedefinedtoinform comprehensive exercise to gather cost information from a thedevelopmentofpolicy. Sound evidence for policy develop- large sample of projects, as well as information on potential ment requires accumulating meaningful and reliable indica- explanatory factors for hardware costs. This exercise would tors, which should be incorporated into the original M&E inform potential econometric studies to evaluate whether frameworks of projects and programs rather than as a late add- such costs could be reduced through efficiency gains, as the on for specific studies. Below are some of the key areas where result of different financing approaches or other factors, so additional information is needed to help the development as to minimize overall costs. Alternatively, such an analy- of future policies and projects, including cost information, sis could also be done within a particular country where financing data and information on impact and outcomes. several financing approaches have been tested, to evaluate Rather than developing such efforts in isolation, the improve- the impact of these financing approaches on actual costs. ment of M&E frameworks for sanitation projects should be This could also be interesting for evaluating software costs. linked to the ongoing Global Framework for Action (GF4A) Since software is usually provided by public-sector agen- Initiative, which places heavy emphasis on defining a common cies, efficiency incentives are relatively low and it is diffi- reporting framework for the water and sanitation sectors, as cult to compare the relative efficiency of these alternative demonstrated by the pilot GLAAS report.28 approaches to software provision except through an appro- priate benchmarking exercise. COST inFORmATiOn Informationontheinitialcostsofprogramorprojectdevel- Spendingonsoftwaresupportiscurrentlypoorlyunderstood, opmentshouldbecomputedinamoresystematicmanner.At andbetterrecordsarerequiredtotrackitsperformance. At present, this information could only be pieced together from present, proper accounting of software costs is rare, which various sources, so such a task proved too time-consuming creates the risk that they will be under-estimated in budgets to undertake in the limited time available for the case stud- for scaling up a given approach. In most sanitation programs, ies. As a result, information on the initial costs of developing it is also difficult to assess what software costs have been spent a program has not been incorporated in the analysis, even on and for which results, thus making it impossible to assess though there are likely to be broad variations. the efficiency of different software approaches. It would be 28 WHO 2008. www.wsp.org 47 Financing On-Site Sanitation Summary of findings important not only to track total software costs, which are difficult to evaluate, but also to keep track of the unit costs of We need more information on how much households are typical software interventions, such as a "causerie PHAST" investing in on-site sanitation outside of publicly funded (as referred to in Senegal) or media campaign. programs in order to have a counter-factual and better understanding of which groups are investing (and which Inputsarenotoftenrecordedorvalued,currently. Such missing ones are not), the costs of their investment (whether they inputs include the time that local government officials spend are more or less expensive than with public support), the on implementing sanitation programs, possibly at the expense key factors determining their demand, and so on. of other programs. Numerous stakeholders, such as govern- ment officials, NGOs, and community leaders simply donate inFORmATiOn On imPACTS And OuTCOmES their time for the achievement of a greater good. In Vietnam, Information on impacts and outcomes is currently very for example, Savings and Loans Group leaders fulfilled criti- difficult to obtain, especially if no M&E framework is in cal functions for the success of the scheme on a purely volun- place. This study deliberately avoided selecting health indi- tary basis, drawn by the local prestige it can bestow and the cators as impact indicators, since reliable data of this sort desire to drive improvements for the community as a whole. would be too difficult, time-consuming, and expensive to Although this time is donated, it has an opportunity cost that obtain.. Nevertheless, developing and using reliable and may need to be valued for a comprehensive estimate of the meaningful outcome indicators is the best way to evaluate costs of household sanitation adoption. whether a project and its underlying financing approach is effectively delivering the expected results and whether this FinAnCinG dATA is being done in a cost-effective manner. Such cost-effec- Financing data should be tracked as a key indicator in tiveness evaluations are routinely carried out in the health M&Eframeworks.All too often, data collection at the level sector, at least in developed countries. If carried out in the of water and sanitation projects is carried out in a disjointed sanitation sector, they could help build the case for sanita- manner, with project performance indicators recorded in tion promotion and its effectiveness in combating critical the M&E framework while financial and accounting infor- diseases such as diarrhea.29 mation is recorded separately. As a result, financial informa- tion is seldom used and analyzed in order to inform project Thepotentialroleofmicrocreditproductsshouldbeexplored design. This is especially true for the choice of the most further,throughpilotprojectsandthescale-upofsuccessful appropriate financing approach. approaches. A better understanding of all sources of finance, and house- Given the success of the Sanitation Revolving Fund in holdfinanceinparticular,iscriticaltothedesignofprograms, Vietnam, it will be important to better understand what the with maximum leverage ratios and maximum effectiveness in critical factors for developing successful microfinance prod- increasing access. Assessing the potential role for microcredit ucts for sanitation are in different socioeconomic environ- relative to other funding sources such as commercial finance ments. There are few equivalents of the Vietnamese Women's and family loans will require evaluating how much households Union in other countries, given that this is a highly effec- currently invest and how they access the funds. Incorporating tive and motivated organization that has a national pres- such information into the M&E frameworks of projects and ence. Common stumbling blocks encountered in other, less programs would help estimate critical indicators, such as the successful microcredit schemes for sanitation include diffi- leverage ratio, on a routine basis as part of program manage- culties in finding a credible institution able to handle a high ment rather than as a one-off, ex-post activity. volume of small loans; lack of effective enforcement and 28 See Ross and Cumming 2009. 48 Water and Sanitation Program Financing On-Site Sanitation Summary of findings follow-up procedures; high transaction costs; prohibitive interest rates; inconvenient local repayment mechanisms; and lack of transparency and governance. Similar efforts to run microcredit programs in Indonesia have failed, due to cultural and societal circumstances. Replicating Vietnam's approach beyond its borders will therefore require identify- ing those success factors that could be replicated abroad. Operationalguidanceshouldbepreparedonthefinancial aspectsofon-sitesanitationprojects. Based on the growing body of research on the topic, opera- tional guidance should be prepared to assist policy makers and project designers with the design of the optimal financing approach suited to their country or project circumstances. This study has shown that there is no one-size-fits-all financ- ing approach that would work in all circumstances. Rather, principles from experience are emerging on how financing approaches can best be tailored to meet the needs of the local situation. Key factors that need to be taken into account when designing a financing approach include the latent and expressed demand of potential recipients for different levels of service, technical factors and market conditions driving the costs of provision, poverty levels and geography (that is, whether the poor live in well identified areas or are more spread out), the state of local credit markets, the institu- tional set-up of the sanitation sector, and existing financing practices for on-site sanitation. Rather than prescribing set solutions, such guidance should set out options to navigate through these key factors and choices, so as to maximize the impact of public funds and accelerate progress towards the Millennium Development Goals. www.wsp.org 49 Financing On-Site Sanitation Annex A Bangladesh case study Annex A - Bangladesh case study Case study written by Shafiul Azam Ahmed and Sophie Trémolet OVERViEW OF BAnGlAdESh CASE STudy (diShARi PROJECT) Key facts Project name dishari: decentralized integrated Sanitation, hygiene and Reform initiative Project objectives Scale up the Community led Total Sanitation (ClTS) approach and strengthen local governments so that they can become main implementers of the approach. Public financiers Government of Bangladesh and a consortium of donors and nGOs: Water and Sanitation Program, WaterAid, Plan Bangladesh, dhaka Ahsania mission (local nGO) Scale 1,631,000 people reached in 5 rural districts with high incidence of poverty Time frame Program years: 2004 to present / Study period: March 2004 to June 2008 level of service Basic latrines (below JmP standards in some cases) Summary of financing approach Software support · Software support for community mobilization, sanitation promotion, local government strengthening · Outcome-based financial rewards to villages which are 100% sanitized, provided with no strings attached (do not necessarily need to be spent on sanitation) · Software mark-up = 28% of total costs of sanitation solution hardware · up-front in-kind hardware subsidies targeted to the poorest subsidies · Hardware subsidy: US$7 per household (42% of hardware costs) · Hardware subsidies = 8% of public funds Access to credit · not specifically included Summary evaluation impact on sustain- · Contributed to 70% of population in project area gaining access to sanitation (equivalent to a 16% percentage able access point increase per year in coverage) · Observed high levels of maintenance and user satisfaction although high pressure on delivering fast results may negatively affect long-term sustainability Costs · Average hardware costs: uS$17 (15% of lowest quintile income) · Operating costs: US$5 per year (4.5% of lowest quintile income): Effectiveness in the · moderate leverage ratio: 2.27 use of public funds · Very high "increased access / public funding" ratio: 135 latrines built / uS$1,000 public funds Poverty targeting · 7% households in project area received a hardware subsidy · Community involvement in selection of recipients reduced exclusion errors Financial · Public funds = 31% of total costs of sanitation adoption (moderate sustainability) sustainability Scalability · Ending open defecation in 1,800 remaining unions is achievable in 2 years www.wsp.org 51 Financing On-Site Sanitation Annex A Bangladesh case study OVERViEW OF BAnGlAdESh CASE STudy (diShARi PROJECT) COnTinuEd Some lessons learned What worked? · households were mobilized to build low-cost latrines through community action, which reduced dependency on subsidies while meeting households' demands. · Partial hardware subsidies helped the poorest to participate in overall community effort. The dishari approach based on community involvement radically improved the targeting of subsidies provided by the central govern- ment. What did not work · monitoring and evaluation systems remain weak. They are based on self-reporting, with a tendency to over- so well? report and no independent verification. · levels of service provided are very basic. Alternative financing approach may be needed to help households "climb the sanitation ladder", potentially with recourse to microcredit to help them prefinance investment in higher levels of service. A.1 Overview of the financing approach with no strings attached and can be spent on any type of The Dishari project was initiated in 2004 by a group of local development project. Combined with the prestige donors and NGOs, including WSP, WaterAid, Plan they bestow and other nonmonetary benefits, these rewards Bangladesh, and the Dhaka Ahsania Mission. Dishari have served as a strong motivator for local leaders and have stands for Decentralized Integrated Sanitation, Hygiene introduced a competitive drive among villages to improve and Reform Initiative and also means "beacon" in Bangla. access to sanitation. Its main objectives were to scale up the Community Led In adoption, to lift the affordability constraint for very poor Total Sanitation (CLTS) approach, originally developed in households, the government has introduced an in-kind Bangladesh, which emphasizes community mobilization up-front hardware subsidy (equivalent to about US$7 per for the eradication of open defecation. The project aimed to subsidized household), which provides construction mate- strengthen local governments so that they could become the rials to households identified on the basis of strict criteria main implementers of the approach instead of NGOs. This and community meetings (these households had an esti- project (which is still ongoing) has been working in five districts mated income of less than US$290 per household per year). to complement the government's national sanitation program About 7% of households in the project area benefited from and contributed to sanitation adoption by 1.6 million people this subsidy, which covered approximately 42% of their over the course of four years. The average hardware cost of the hardware costs. latrines built through the program was US$17. This case study first presents the country and sanitation The Dishari project's financial approach relies mainly on sector context in Bangladesh as the background. It then software support for community mobilization activities and examines the Dishari project in detail, including the proj- sanitation promotion, with about US$7 spent on software ect's approach and institutional set-up. In section A.3, proj- support per household (or 28% of the total costs of sanita- ect costs, sources of finance for household sanitation and tion adoption). The households are responsible for investing subsidy design issues are discussed in detail. Section A.4 in latrine construction. They use locally available materials analyses the project's performance in terms of impact on and simple designs to build relatively cheap hygienic latrines sustainable access to services, efficiency, effectiveness in the that they can afford and meet their needs use of public funds, poverty targeting, financial sustainabil- ity and scalability. A summary evaluation of the financing The government provides monetary rewards to unions and approach is presented in the last section. sub-districts that are 100% sanitized (about US$2,900 per union and US$7,250 per sub-district). These rewards come 52 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study A.2 Country and sanitation sector context the fact that there is a monetary reward for achievement, has rendered the official numbers somewhat vulnerable to infla- A.2.1 Country context tion. Although data from the Joint Monitoring Programme Bangladesh is a small country located in South Asia. With a (JMP) were originally showing much lower figures (with population of 150 million, it is one of the mostly densely popu- improved sanitation coverage at about 30% in 2008), these lated countries in the world. The country is also one of the poor- data have subsequently been revised and appear to be much est in Asia, with a GDP per capita of US$463 or US$1,311 in closer to government's figures. Purchasing Power Parity (PPP) adjusted terms in 2007. Whatever figures are used, it is clear that open defecation has A.2.2 initiatives taken to increase sanitation coverage been reduced greatly in Bangladesh and it is estimated that Up to the 1970s, a large majority of people defecated in more than 90 million people have gained access to sanitation the open in rural areas of Bangladesh and there was little within the household in the last five years. However sustain- demand for sanitation. A number of government programs ability is a major challenge. In a flood-prone and poverty- were introduced to change these practices (with donor stricken country like Bangladesh, permanently eradicating assistance), which relied on relatively high-cost subsidized open defecation does not stop at constructing a sanitation latrines. These projects failed to achieve substantial results latrine but also requires its proper use and maintenance. as they did not include the critical component of social mobilization. A.2.4 Institutional set-up for sanitation Government organization at the national level. The In the late 1990s, the international NGO WaterAid test- Ministry of Local Government, Rural Development and ed a new approach based on community mobilization, Cooperatives (MLGRD&C) is the line ministry in charge which would later be referred to as Community Led Total of providing safe water and sanitation in Bangladesh. As Sanitation. This approach was initiated by Dr. Kamal Kar such, it is at the helm of the national sanitation program. working with a local NGO, the Village Education Resource The Department of Public Health Engineering (DPHE) is Centre (VERC). The approach met with immediate success, the line agency that works under this ministry to imple- as community leaders quickly emerged and villages adopted ment water supply and sanitation projects. collective actions to stop the practice of open defecation. The villagers built simple and cheap latrines themselves DPHE is responsible for planning, designing, implementing with locally available materials and without any external and monitoring water supply and sanitation in both rural and subsidies, apart from occasional and voluntary cross-sup- urban areas of the country except Dhaka, Chittagong, Khulna port from richer households to poorer ones. and Narayanganj cities. In rural areas, DPHE provides tech- nical advice to local government institutions (e.g., upazila or A.2.3 Access to sanitation in rural areas sub-district councils and union councils) and helps in install- Thanks to the spread of the CLTS approach, Bangladesh has ing, operating, and maintaining public water and sanitation witnessed a most remarkable change in sanitation coverage facilities. DPHE is the focal agency for initiating national in the last few years. In late 2003, the government estimated policy frameworks and development plans in the water and sanitation coverage (i.e., the percentage of households with sanitation sector under the guidance of the MLGRD&C and hygienic latrines) to be 29% and 60% in rural and urban the Planning Commission of the Government of Bangladesh. areas, respectively. By the end of 2008, these figures had shot DPHE has a network of offices down to the upazila level. up to 88% for both urban and rural areas. These figures are not universally accepted, however. They are compiled by the Governmentorganizationatthelocallevel. Administratively, Bangladesh National Sanitation Secretariat based on self-re- the country is divided into six divisions, 64 districts, 508 sub- porting by field staff and local government and with no inde- districts (upazilas), and 4,466 unions. The lowest tier of local pendent verification. They define a "hygienic" latrine as one government in rural areas is the union council. Each union that breaks the disease transmission route. This, coupled with council has a directly elected chairman. Each union is divided www.wsp.org 53 Financing On-Site Sanitation Annex A Bangladesh case study into nine wards represented by an elected ward member. There the observation that CLTS had been implemented by NGOs are 40,194 wards with an average population of 3,088. Below via pilot projects with little potential for scaling-up. Involving the ward, there are clusters of households commonly known as local governments was seen as a good way to strengthen the paras. There are about 10 paras in each ward with an average approach's scalability and sustainability as they are a perma- population of about 300 per para. nent institution whereas NGOs may come and go. The project was formally launched by the Local Government Minister in The union parishads (UPs), the lowest tier of local govern- 2004. Funding from WSP ended in June 2007. Some activities ment in Bangladesh, have been entrusted with the task of were scheduled to continue with WaterAid Bangladesh fund- latrine distribution and promotion. Resources from the ing up to March 2009 in Jamalpur district. Plan Bangladesh center are channeled through the UPs for this purpose. The will support Dishari up to June 2009 in four other districts UPs are contributing to the national sanitation program (Dinajpur, Gazipur, Lalmonirhat and Nilphamari). by organizing public awareness campaigns at the local level through public meetings and rallies. They prepare the list of The purpose of the project was to develop a decentralized poor families eligible to receive sanitary latrine components implementation process and strategy for an upazila-based (rings and slabs with pan) and ensure their distribution. They sustainablemodeloftotalsanitationsteeredbyunionpari- also monitor and keep record of progress. However, the UPs shad. have limited staff to carry out such tasks. This is compensated by assistance from DPHE and NGOs working in their area. The main aim of the Dishari project was to build the capac- ity of local governments to enable them to take the leadership Sanitationtaskforces. Sanitation task forces were created from for promoting CLTS. The Dishari project personnel only the national level down to the ward level. These task forces provided facilitating support to local governments, which were are quite broad-based: they include not only government offi- placed in a leadership role. The focus of the Dishari project is cials but also members of civil society. The members of the task on the upazila level, with coordination and planning activities forces at various levels are generally nominated by the elected organized at that level. In addition, capacity building activi- representatives or bureaucrats. They are finally selected by ties are done at the union level. Actual promotional activities consensus during local meetings. The members do not receive and community capacity building take place at the village and any remuneration. The main function of the task forces is to hamlet level. The existing government-led set-up of sanita- produce work plans to achieve the national sanitation targets at tion task forces at various levels was used and complemented their level. They are also in charge of monitoring and evaluat- by adding activities at the para level (the lowest level of local ing progress, overseeing the distribution of funds, helping to government) as it was felt that intensive social mobilization is mobilize local resources and building public awareness. These best done at the grassroots level. At that level, CLTS activi- task forces have played a very important role in getting all play- ties, such as social mapping, feces counting, and the "walk of ers on board in order to achieve the sanitation target. shame," were quite similar to those in the early model. A.3 dishari project design TheDishariprojectworksinfivedistricts(Dinajpur,Gazipur, Jamalpur, Lalmonirhat and Nilphamari) most of which are A.3.1 dishari project overview districtswithcomparativelyhighlevelsofpoverty TheDishariprojectwasdesignedwiththeobjectivesofscal- ing-upCLTSapproachesthroughtheinvolvementoflocal These districts were selected based on the existing field proj- governments. ects of the sponsor agencies (Plan Bangladesh, Dhaka Ahsania Mission, and WaterAid Bangladesh). This was done partly to The Dishari project was initiated in 2003 by three partner avoid the costs of setting up new facilities and so that, when organizations, including WSP, Plan Bangladesh, and Dhaka the project ends, the work could continue through the other Ahsania Mission, with WaterAid Bangladesh joining as the programs of the sponsoring agencies, as sanitation was seen fourth partner in April 2005. The project was designed based on as an entry point for greater local development. 54 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study The districts selected for implementation were in highly line the pit. There is either a concrete slab with a plastic pan poverty-prone areas. It was deemed that if significant impacts or simply an earthen floor with a plastic pan. Vent pipes are could be demonstrated in such areas, it would be easier to made of plastic or bamboo. People are encouraged to install convince the Government of Bangladesh of the model's effec- plastic water-seal devices. In most cases, the superstructure tiveness. The selected areas are all in the north of the country, is built of simple household materials such as bamboo poles where famine-like crises often strike. Jamalpur is one of the and gunny cloth, depending on the household's financial poorest regions in Bangladesh which also suffers from regular means. More affluent people use corrugated iron sheets (tin floods. A relatively affluent area in Gazipur district was also sheets). selected to give a balance and show that the model also works in places that are richer and closer to the capital city. CAPiTAl COSTS OF hyGiEniC lATRinES The average cost of materials for a latrine in rural Bangladesh A.3.2 dishari project institutional set-up is about BDT 600 (US$8.70) based on the retail price in The project is jointly funded by WSP, Plan Bangladesh, and the field. This includes three concrete rings to line the pit, WaterAid Bangladesh. Dhaka Ahsania Mission is the imple- one concrete platform with a plastic pan, plastic water seal menting agency. A project management team comprised of gooseneck, and a vent pipe. Labor cost is generally not senior staff from each agency is the overall guiding authority. calculated because most families dig the pit and install the The project is managed by a central team located in Dhaka. latrine themselves. However, for calculation purpose, the It is headed by a project manager. Different units such as labor cost can be estimated at BDT 200 (US$2.90). In program support, advocacy and research, and administra- addition, there are some transport costs to carry the materi- tion and finance are included in the central team. als from the production center or shop to the home. This cost depends on the distance and accessibility of the local- At the field level, Dishari has a small footprint. There is ity. Sometimes the materials are transported by boat, but an upazila coordinator stationed at the upazila level. S/He more often by rickshaw (tricycle) vans. This cost may be is assisted by a few supporting staff. At each union, there estimated to be about BDT 100 (US$1.45). is a union facilitator. The union facilitator has become a technical arm of the union parishad in many areas. In the The superstructure costs can vary greatly, depending on the Jamalpur area, there were two associate union facilitators to construction materials used. It can be just a gunny sheet supervise activities in relation to water supply and commu- thrown over a few bamboo poles, or it can be made of CI nity toilets in schools and public places. sheet (tin sheet) or even brick and mortar. The superstructure is usually built with materials available to the household. For A.3.3 levels of service estimation purposes, we may assume that the superstructure TheDishariprojectdoesnotrecommendanyparticulartype cost is about BDT 300 (US$4.35) based on a typical model oflatrinebutitpromotestheconstructionoflatrinesthat made of bamboo poles, walls and roof. Therefore, the total havethebasiccharacteristicsofahygieniclatrine cost for installing one pour-flush sanitary latrine would be about BDT 1200 (US$17.40). This is a general estimate. Latrine components such as concrete rings, slabs, plastic Interviews with villagers in the Dishari project area showed pans, pipes, and water-seal are generally available in rural that the total cost of installation varied from BDT 414 to Bangladesh thanks to established private-sector businesses. BDT 2,180 (from US$6 to US$32). Some high-quality In addition, the Dishari project trains rural sanitation engi- latrines can cost up to BDT 10,000 (US$145) and very low- neers in the proper latrine construction techniques, includ- cost latrines can cost only BDT 70 (US$1.00). ing assembly of the water-seal, vent pipe, and so on, in order to ensure a basic level of quality. OPERATinG COSTS OF hyGiEniC lATRinES The operating costs of a hygienic latrine include pit emptying The latrines that have been built in the project area are mainly or shifting the latrine to a new pit when the existing pit fills pour-flush pit latrines with three or more concrete rings to up. It is estimated that a pit may fill up in three years. It costs www.wsp.org 55 Financing On-Site Sanitation Annex A Bangladesh case study about BDT 180 to de-sludge or shift a latrine. This work is (84%) was spent on software, which includes staff sala- done manually and can even be done by householders them- ries, research, training, exposure visits, publication, travel, selves, by simply transferring the slab/pan and reusable rings public awareness, communication (telephone/fax/email), and digging a new pit. Converting this to a monthly cost it office rent, equipment rent, and overhead.1 amounts to BDT 5 per month. Other costs include buying soap for hand washing, a broom to clean the latrine, a water A main thrust of the project was to try and keep project pot for cleansing, and sandals to wear while using the latrine. staff levels down to a minimum so as to strengthen the In total, the costs for consumables and shifting the pit (on an union parishads and upazila administration. There was annual basis) are estimated at US$5 per year. about 3 project staff in each union in the project area and 4 at the upazila level, plus 15 at the central level in Dhaka, A.3.4 Dishari project costs which meant about 178 staff in total worked for 80 Unions. The total expenditure of the Dishari project over 4.33 years Although this may appear to be a large number, this is (March 2004 to June 2008) was about BDT 152,940,085 equivalent to 1 staff per almost 9,161 people served in the (US$2.2 million). The vast majority of project expenditure project area, which is a rather modest number. TABlE A.1. DISTRIBUTION OF ExPENDITURE By THE DISHARI PROJECT (MARCH 2004-JUNE 2008) BdT uS$ % of total costs hardware institutional sanitation 4,808,000 70,000 3 Water supply 20,043,000 290,000 13 Software Staff salaries and 128,090,000 1,856,000 84 management Total 152,941,000 2,216,000 100 A breakdown of the software costs for the Dishari project is shown in Table A.2 below. TABlE A.2. BREAKDOWN OF SOFTWARE ExPENDITURE By THE DISHARI PROJECT (MARCH 2004-JUNE 2008) item BdT uS$ % hygiene promotion (meetings, 2,959,000 42,881 2.31 sessions) Project management including 2,659,000 38,540 2.08 supervision and monitoring Technical assistance (capacity 24,973,000 361,924 19.50 building, research and publica- tion) including travel Promotional activities (rallies, 7,261,000 105,237 5.67 campaign, events on WSP and advocacy) Salary of staff, overhead and 90,238,000 1,308,000 70.45 recurrent costs Total 128,090,000 1,856,582 100 1 Some hardware support was provided for water supply (handpumps) in certain areas from WaterAid (mainly for the renovation of handpump platforms). In addition, hardware support was provided for institutional sanitation, which allowed building 91 school latrines and 29 public toilets. 56 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study A.3.5 Sources of Finance for household Sanitation TheDishariprojectfundscovered75%ofthesoftwarecosts. The adoption of sanitary latrines at household level was For the purpose of this estimate, only the software costs of supported by multiple sources of finance, as presented in the Dishari project were included. For lack of a cost alloca- Table A.3 below. tion method between the different components of the proj- ect, all software costs have been included in this estimate The largest source of finance was from the households them- of household sanitation adoption. However, this is likely selves, who provided almost 70% of total costs, followed by to be a slight overestimate given that other activities were the Dishari project (21%) and Government funds (10%). financed by the project, such as institutional sanitation and Below we provide additional information on these sources of some hardware support for water supply. finance. Government funds came from several sources and covered Householdswerethemainsourceoffinanceforbuildingthe bothhardwareandsoftware. actuallatrines. Given that the Dishari project assisted government efforts Detailed information on household financing was not avail- to promote sanitation, it is important to take account of the able as part of the standard information collected by the costs of government support in order to derive the total costs project. It was therefore necessary to formulate assumptions of sanitation promotion in the project area. Government based on the average cost of a latrine to derive estimates of support is provided through several sources: total household financing. Given that the average cost of a · 20% of the Annual Development Program (ADP) latrine was estimated at BDT 1,200 (US$17.39) and that funds, which local governments receive every year, 362,385 new latrines were installed during the life of the are earmarked for sanitation. This allocation is from project, the total costs of latrine installation was estimated at the Ministry of Finance for national development US$6,302,348. However, part of these costs was covered by and is provided as a grant to all local governments; a government subsidy (the ADP grant), which means that · RewardsforachievementofODFstatus are given to the estimated household contribution was US$6,093,452. unions and upazilas; This represented 96.7% of total investment costs (hardware · A portion of the general block allocation that is component). In addition, households invested in rehabili- transferred from the Ministry of Local Government tating and upgrading existing latrines, although it was not is spent on sanitation; and possible to obtain cost information on such efforts. · A percentage of localgovernmentstaff costs is spent on sanitation. TABlE A.3. TOTAl COSTS OF hyGiEniC lATRinE PROmOTiOn And AdOPTiOn AT THE HOUSEHOlD lEVEl (US$) (MARCH 2004 ­ JUNE 2008) hardware Software Total % of total dishari project 1,856,373 1,856,373 21% Government funds AdP grant 208,896 69,632 278,528 3% Rewards unions 231,884 231,884 3% upazilas 57,971 57,971 1% Block allocation 115,942 115,942 1% Government staff costs 142,350 142,350 2% household finance 6,093,452 6,093,452 69% Total 6,302,348 2,474,152 8,776,500 100% www.wsp.org 57 Financing On-Site Sanitation Annex A Bangladesh case study ADP funds mostly covered the costs of hardware subsidies forthepoorestfamilies,aswellassomesanitationpromo- BOx A.1 ­ ExAmPlE OF GOVERnmEnT SuBSidy tionactivities. SChEmE AllOCATiOn laxmirchar union in Jamalpur Sadar district (in the Since 2004, the government has been allocating 20% of the dishari project area) received a total AdP allocation ADP fund to upazilas for improving sanitation coverage. of BDT 240,641 (US$3488) in fiscal year 2005-2006. According to the government policy, 90% of this allocation was Twenty percent of this amount was earmarked for to be used to give hardware subsidies to the poorest people. The sanitation, which amounted to BDT 48,128 (US$698). government's thinking was that although it is possible to achieve Seventy-five percent of these funds, or BDT 36,096 nearly universal sanitation through social mobilization, a section (uS$523), were spent to procure sanitary latrines of the population is too poor to afford a sanitary latrine. for hardcore poor households. The remaining 25 percent or BdT 12,032 (uS$175) was used for soft- The remaining 10% of the ADP funds for sanitation were to ware or promotional activities. be used for promotional activities such as public meetings and rallies. In January 2005, the fund for promotional activ- This shows that the hardware subsidy component ities was increased from 10% to 25% following demands is not very large in comparison with the number of from the field (see Box A.1 for an example). When all poor villages in each union. in the above example, the households are covered, the money assigned to hardware hardware subsidy for one year in a union was BdT subsidies is to be used for hygiene promotion and installa- 36,096 (US$523). As there are about 10 villages in a tion of latrines in public places. union, each village on average received about BdT 3,600 (US$52), which makes it possible to procure Under the government reward scheme, unions that achieve only about seven sets of latrines. There are typically 100%householdsanitationaregivenacashrewardofBDT 600 households in a village. Therefore, just about 200,000 (US$2,900) and each upazila that achieves this one percent of the households received the subsidy objectivereceivesBDT500,000(US$7,250) in a year. Considering the big jump in the number of sanitary latrines installed, the main force behind The reward money comes with no strings attached and this has been the successful motivational campaign may be used for any kind of development work, such as rather than the hardware subsidies provided. road construction. Some unions have used a portion of the money for public latrines while many others have used it for other types of development work, such as road construc- hygiene practices. The government target is to reach "100% tion. Another nonmonetary incentive comes in the form household sanitation" and not a behavioral outcome, such of a certificate. The chairman of each union council that as ending open defecation. The Dishari project sought to achieves 100 percent household sanitation receives a certifi- complement the government program by ensuring that the cate given by the local government minister. The ceremony ODF objective was also met in the project area. has provided strong motivation for local politicians. Government staff costs at the local level need to be taken There are a number of problems with this incentive scheme, intoaccountbutaredifficulttocost. however. Some unions have been declared sanitized when in reality not all households have actually installed latrines. The On average, union council members and other government absence of a system for third-party verification of the claims staff work intensively for about 4.5 months over a total peri- has encouraged this kind of practice. The other problem with od of one year to achieve 100% household sanitation in their the government incentive scheme is its emphasis on count- community.2 Costing their time is difficult, as they perform ing latrines, which is the only aspect of performance that is many other functions at the same time. For the purpose of the rewarded, rather than their sustained use or the adoption of study, we have estimated the time allocated by UP officials to 58 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study achieve the target multiplied by their salaries. These estimates poorest families, which are given to them free of charge. The are summarized in Table A.4 below. Total UP staff costs were cost of these materials is about BDT 500 (US$7.24) out of estimated by multiplying this unit cost by 65, the number of a total estimated cost for an average hygienic latrine of BDT UPs that achieved the target during the period. 1200 (US$17.4), which means that the hardware subsidy amounts to about 43% of total hardware costs. The subsidy TABlE A.4. ESTIMATED GOVERNMENT STAFF COSTS FOR recipients still have to transport the items, install them at AChiEVinG 100% SAniTATiOn AT ThE uP lEVEl their own costs, and build the superstructure (they are also uP Officials Person BdT/ month Amount (BdT) responsible for the O&M costs). month Chairman 1 3,000 4.40 13,200 Criteriaforidentifyingpotentialsubsidyrecipientsinclude eligibility criteria and exclusion criteria, as defined in members 12 1,500 4.40 79,200 the government's Pro-Poor Strategy for the Water Supply Secretary 1 5,000 4.40 22,000 and Sanitation Sector (2005) and its National Sanitation Village police 10 1,000 3.67 36,700 Strategy (2005) (see Box A.2 below). Total 151,100 In addition, many other people ­ school teachers, imams, BOx A.2 - EliGiBiliTy And ExCluSiOn CRiTERiA FOR women's groups, students, and elders ­ supported sanita- GOVERnmEnT SuBSidiES tion at the local level by attending and organizing numer- Eligibility criteria ous community meetings, but it is hard to put a monetary 1. landless households value on such efforts. 2. Pavement dwellers/homeless 3. main earning person or the head of family is day Some NGOs and voluntary organizations provided addi- laborer, owning less than 50 decimal of agriculture tionalsupport. land or residing in a rented premise lesser than 200 square feet and having no fixed source of income. Some NGOs and voluntary organizations also provided 4. Households headed by disabled or females or old limited assistance. For example, NGOs operating microfi- aged (65+ years) persons. nance programs cooperated with union parishad, and made the installation of sanitary latrines an integral part of their if the answer to any of the above criteria is `yes', the home improvement loan. NGO staff and beneficiaries also household will get priority for subsidized water and participated in campaigns against open defecation. The sanitation services, unless it is excluded by the exclu- contribution from NGOs was relatively high to start with sion criteria: but recent information from the Dishari project shows that 1. households that own more than one acre of land the percentage of latrines that received financial support from (cultivable and homestead) are excluded from the list. NGOs was only 0.8%. As the amounts are almost insignifi- 2. households with income level greater than the cant, they are not shown separately in the calculations and income corresponding to the `poverty line.' As per the are included in the household financing component. recent estimates of Bangladesh Bureau of Statistics (BBS), poverty line is defined as income level below A.3.6 Subsidy design BDT 622 per person per month for urban areas and Thegovernmentprovidesin-kindhardwaresubsidiestothe BdT 551 per person per month for rural areas, on poorest.The union councils procure latrine materials (usually the basis of the `household income and Expenditure each set consists of three rings and one slab with pan) for the Survey.' 2 Although they spend some time after that on sanitation to sustain the achievement, the concentrated effort takes place during this initial period and time commitments from government staff rapidly drop off afterwards. www.wsp.org 59 Financing On-Site Sanitation Annex A Bangladesh case study Inpractice,listsofthepoorestpeoplearepreparedattheupazi- in the project area according to the Dishari project docu- laandunionlevel. The poor households are easily identified ments, this indicates that over 90% households in the proj- by the villagers and the common practice is that the union ect area now have a sanitary latrine.4 If circumstances where council prepares the list by discussing with the people in local latrines are shared between poor households are included, meetings. Support is given on a case by case basis, depending this coverage figure could be even higher. on what the households can afford. It is always emphasized that the subsidy is a cost sharing mechanism and not a hand- 65 unions achieved 100% sanitation as of June 2008, or out. Therefore, a fair share from the household is expected to 81%oftheunionsintheprojectarea. cover both the capital costs and operational costs. In addition, the Dishari project touched the lives of all 2.36 A.4 Evaluation of the project's performance million people in the project area. When the project worked In this last section, we seek to evaluate the project's perfor- in a community or union, all people were reached in one mance at extending household sanitation based on criteria way or another, either through public awareness campaigns, set out in the common methodology for the project. Given school children's cultural programs, public meetings, rallies that the Dishari project supported the national policy, we or house-to-house visits by para committee members. But consider the overall performance of sanitation promotion not all households responded by installing latrines. in the project area rather than being solely focused on the project itself. Highlevelsofmaintenanceandsatisfactionwereobserved throughoutthecountryandintheprojectarea. A.4.1 Impact on sustainable access to services The first evaluation criterion is project impact, i.e. whether A WSP study reported high usage and maintenance of theprojectledtoanincreaseinsanitationaccesswhichwas latrines in Bangladesh including in the Dishari project sustained over time. The key finding is that a substantial areas (WSP, 2006). About 82% of latrines showed physical increase in access to sanitation took place in the project area evidence of maintenance. There is generally good satisfac- over the last 4.5 years. tion with the latrines as indicated by high maintenance of the facilities. Even though this evaluation was carried out TheDishariprojectcontributedtoanincreaseincoverage shortly after the latrines were installed, experience in other from20%to90%in4.5years,uptoJune2008. areas of Bangladesh shows that households usually take care of their latrines once they have built them. They would also The Dishari project does not build household level sanitary invest to go up the sanitation ladder as their economic situ- latrines, as this is mainly done by the households them- ation would permit. selves. Therefore, it is difficult to identify how many sani- tary latrines were installed in the project area as a direct A.4.2 Costs result of the project. Thetotalcostofbuildingahouseholdlatrineisjustabove US$24,includingthesoftwarecomponent. However, there is no doubt that the project (and the related government program that it sought to complement) has led The cost of building a latrine was estimated, based on the to substantial investment by households in hygienic latrines. various cost components, at US$17 for an average design. It is estimated that about 362,385 new household hygienic To this hardware cost, an additional US$7 must be added for latrines have been installed in the Dishari project area,3 software support, amounting to approximately 28% of the between the launching of the project in March 2004 and total latrine cost. The Dishari project costs alone accounted June 2008. As there are an estimated 525,000 households for US$5 per household latrine, or 21% of the total latrine 3 In addition, the Dishari project constructed or repaired 91 latrines at schools and markets in Jamalpur district. The Dishari project also installed or repaired some number of handpumps. 4 The 51,539 households (9.82%) non-adopting households are in Jamalpur district where the project started later after receiving funding from WaterAid. 60 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study cost. If software costs are spread across all the households in the One dollar of public investment (from the project and project area, they represent about US$4.7 per household. government funds) triggered at least US$2.3 of private investmentfromhouseholds. For each poor household, the cost of building a latrine amountstobetween3and4%ofitsyearlyincome... If we estimate the ratio of public versus private investment, we find that public expenditure led to a relatively high The average annual income of households in the project area ratio of private investment from households. One dollar of is assumed to be BDT 45,000 (US$650). The cost of install- public funds triggered at least US$2.3 of private investment ing a sanitary latrine (BDT 1200) is about 2.66% of the aver- from households building their latrine. This is likely to be age annual income of a typical household in the project area. an underestimate, as household investment in upgrading In the case of the poorest households, the annual income is existing latrines has not been included (and there is no reli- about BDT 30,000. Therefore, the same cost represents 4% able data on this issue). of the yearly income of a poor household. A.4.4 Poverty targeting ... although it can go up to 15% for the poorest house- The Dishari project deliberately targeted poor areas, in holds. ordertodemonstratetheeffectivenessofitsapproachinthe mostdifficulttoserveareas. If we take the poorest households in some of the poorest districts of the project (such as Nilphamari), with an annual The average household income in rural Bangladesh is esti- income estimated at just under BDT 8,000 (US$115), the mated to be about BDT 6,095 (US$90) per month or BDT cost of a latrine can represent up to 15% of their annual 73,140 per year. The Dishari project area is especially prone to income. The government subsidy brings down their contri- poverty, except the district of Gazipur. The average monthly bution to BDT 500 (plus labor costs), although this still income of the households in the northern districts is far below represents about 6.3% of their annual income. the national average. In Dinajpur, Nilphamari and Jamalpur, the average monthly household income is only BDT 3,474 Operatingcostsofthelatrinesarelow,ataboutUS$5per (US$50), 3,370 (US$49) and 4,474 (US$65) respectively. The householdperyear,andrepresentafairlymarginalportion poorest households earn much less. For example, the annual ofhouseholdincomes. income of a very poor household in Nilphamari district was just under US$10 per month. The Dishari project targets all Given that manual labor is very cheap in Bangladesh, the people in its project area, including the poor. operating costs of the latrines are low, including the costs of emptying the pit or moving it every three years. Operating Only a small percentage of households have received a costs of running the latrine were estimated at about BDT governmenthardwaresubsidy. 30 per month or US$5 per year. The O&M costs, therefore, account for 0.8% and 1.8% of the yearly income of an aver- Some households, identified as the poorest, have received age and a poor household in the project area, respectively. specific assistance from the government program in the form of in-kind hardware subsidies. On average, about 7% of house- A.4.3 Effectiveness in the use of public funds holds have received a subsidy from the government in the US$1,000ofthepublicexpenditurewassufficienttotrigger form of latrine components, whereas the remaining 93% have theprovisionofsanitationto135households. received no hardware subsidy at all. For those who have received a subsidy, it represented between 42% and 50% of the cost of Funds invested by the project and the government led to building a latrine (depending on how manual labor was carried a high level of coverage for a variety of reasons: first, the out: poor households usually perform it themselves to reduce latrines built are relatively cheap, at US$17 on average (just costs). In the project area, the Dishari project was instrumental for hardware costs). in focusing the subsidies on the households most in need. www.wsp.org 61 Financing On-Site Sanitation Annex A Bangladesh case study Thepoorhouseholdsthatdidnotreceiveasubsidyhadto Public funds, including hardware and software, represent developstrategiestobeabletobuildalatrine. 31% of the total costs of household sanitation adoption in the project area. These costs are, by definition, not recov- That may have included several households grouping ered. However, all operating costs are the responsibility of together to build a shared latrine, adapting the design of households as well as initial investments, which indicates a the latrine (by using household materials where possible, high potential for financial sustainability. using just one concrete ring or installing a pan on an earth- en mound rather than a concrete slab) and borrowing funds Sustainabilityofphysicalresultsmaybeanissuehowever. from an NGO or from relatives. In addition, comparatively rich people supported the poor by providing material or The critical question in terms of sustainability is whether or land for constructing latrines. not the improvements are going to be sustained over time and the latrines effectively used, given that the ODF evalu- Captureofthehardwaresubsidybythenonpoorisathreat ation is only carried out once. In addition, the financial tothescheme,however,asitisestimatedthatupto50%of incentives for UPs to be declared ODF are strong, which hardwaresubsidyrecipientsarenonpoorhouseholds. could lead to a tendency to over-report results. WaterAid Bangladesh conducted an action research on The program staff felt that there was an intense pressure to the use of the 20% ADP grant to provide subsidies to the concentrate on latrine installation at the expense of local poor.5The study area was outside the Dishari project and government capacity building. This happened due to the included two unions and one municipality. The finding rush to declare a union 100% sanitized and receive cash showed that 35%-56% of the subsidy was captured by the reward and recognition. The Dishari staff had to plead with nonpoor, largely due to weak monitoring, lack of transpar- local agencies and administration to slow down so that the ency, and a lack of involvement of the poor. process can be internalized by the local government for the sake of sustainability. The Dishari project took particular care to reduce the risk of subsidy capture by the nonpoor. The UP members and A.4.6 Scalability communities were made aware of the government program. The last indicator focuses on scalability, i.e. to evaluate how Poor people were included in the tasks forces and grass- much it would cost to serve all unserved households in the roots level para committees were created and effectively country with an approach like that of the Dishari project, linked with ward and union task forces. Regular open particularly in comparison with the annual water and sani- meetings were held where all issues were frankly discussed. tation sector budget in the country. The amount of subsidy received was revealed to the public. The communities themselves identified the poorest families Infinancialterms,itappearspossibletoendopendefecation eligible for the subsidy and submitted the list to the UP. inthe1,800remainingunionsyettobeODFinonetotwo yearsusingtheDishariprojectapproach. A.4.5 Financial sustainability Public funds (including for both hardware and software) Countrywide, it is estimated that about 60% of the unions represent 31% of the total costs of household sanitation have achieved full household sanitation. This leaves 40%, or adoption,whichmeansthatfinancialsustainabilityisrela- 1,800 unions, that have yet to achieve this status. To inves- tivelygood. tigate whether it would be possible to scale up the Dishari 5 WaterAid, "Poor Targeting of Sanitation Subsidy in Bangladesh" (Dissemination Paper No. 4) (Dhaka: WaterAid, 2008). 62 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study approach to reach these unions, we calculated the total costs Intermsofcosts,investmentsweremadeatareasonablecost of scaling up the Dishari project approach to these remaining compared to household income. Given that households were unions and compared these costs to available public funds. making all their investment decisions based on what they could afford, they chose to invest in relatively cheap latrines The total subsidy costs per union parishad reaching ODF were providing a basic level of service. These latrines cost about US$28,559 in the project area over 4.3 years, including the US$17 on average, which represents between 3% and 4% Dishari project costs and local government costs. If one were of household average income. In addition, software costs (i.e. to start from scratch to expand coverage in these remaining community mobilization and hygiene promotion activities, as 1800 unions, the total costs would be almost US$68 million. well as program management and staff costs) accounted for This is a substantial cost compared to the national annual water about US$7 per household latrine, or 28% of the total costs and sanitation sector budget, which was BDT 8,275 million of latrine adoptions. However, the project has not been cheap (US$120 million) in 2007 and particularly when compared to if compared against government investment, which account- the budget available for rural sanitation (7% of that budget or ed for just under US$2 per household latrine. But lack of US$8.4 million). The costs of scaling up the approach therefore comparators with areas where the government actions were not represent more than half of the total water and sanitation yearly supported by the Dishari project means it is difficult to make a budget and eight times the annual rural sanitation budget. definitive assessment of the impact of the project per se and to identify whether the additional software costs were well spent. However, the remaining 1800 unions have already gone through the national sanitation program activities for over Operating costs were also affordable, as they represented four years. It can therefore be assumed that some progress has between 0.8% and 1.8% of the yearly income of average already been achieved towards reaching the ODF goal. If we and poor households in the project area, respectively. estimate that it would take another 6 months for these villag- es to reach ODF, the additional budget required could be Intermsofeffectivenessintheuseofpublicfunds,US$1,000 estimated at US$7.8 million, which is just under the annual ofpublicfundsenabledtheconstructionofsanitationfacili- budget for rural sanitation and seems affordable. A critical tiesfor135households. The households themselves invest- factor that could potentially limit the ability to scale up the ed more than US$6 million in the facilities, which means approach is the lack of good quality facilitators, who are the that for each US$1 of public money spent, each household most important tool for implementing the approach. invested more than US$2.3, which is a substantial contri- bution given poverty levels. A.5 Summary evaluation In this section, we summarize the evaluation of the financ- In terms of poverty targeting, targeted hardware subsidies ing approach based on our set of criteria and draw practical providedbythegovernmentcoveredapproximately43%of implications for the applicability of this financing approach. the investment costs per household, bringing down invest- Overall, the Dishari project was considered a success, for ment costs from 15% to 6% of household incomes. The the following reasons. Dishari project targeted poor areas, with income substan- tially below the average rural income. Hardware subsidies In terms of impact on sustainable access to services, the were only provided to 7% of the population in the project Dishariprojecttriggeredasubstantialincreaseinaccessto area, however, which means that a substantial number of sanitation. In just under 4.5 years, 362,385 new hygienic poor people invested themselves in building latrines without latrines were installed in the project area, resulting in more external support. In general, people were willing to invest in than 90% of households in the project area having access sanitation after the social mobilization campaign. However, to hygienic latrines by late 2008. In addition, it has been there were some diehard individuals who refused to comply. shown that over 80% of the latrines built demonstrate phys- The Dishari project did not promote coercive measures but, ical evidence of maintenance. The high degree of ownership instead, gentle social pressure by local government and social is a good indication of sustainability. leaders was applied to persuade them to conform. The fact www.wsp.org 63 Financing On-Site Sanitation Annex A Bangladesh case study that poor households were free to choose the technology · The focus on mobilizing households to build low-cost that best suited their needs meant that they invested only in latrinesreducedpeople'sdependencyonexternalsubsi- what they could afford. diesandhelpedtoquicklyscaleuptheapproach. Partial hardware subsidies provided to a narrowly defined set Intermsoffinancialsustainability,publicfundsrepresented of poor households helped those households overcome aboutonethirdoftotalinitialcostswhileoperatingcostswere the affordability constraint. Such hardware subsidies fullypaidbyhouseholdsthemselves. This is a fairly high level represented only 8% of total public expenditure. Those of cost recovery, which means that the approach is finan- households that did not get a subsidy still chose to cially sustainable provided public funds continue to be made invest, through community pressure and occasional available. One major concern, however, is the sustainability support from richer households. of physical results, since there is no ongoing monitoring of · FinancialrewardsprovidedtovillagesreachingODF results once villages have been declared ODF. status (alongside nonmonetary rewards, building on prestige) increased the competitive drive among Intermsofscalability,reachingthe1,800unionsthathave villages. Such financial rewards accounted for about yettobedeclaredODFcouldbeachievedwithinonetotwo 4% of the total costs of latrine adoption. Setting years and could be financed with available budget funds. policy targets for local governments (such as 100% Although implementing the Dishari approach from scratch sanitation) and rewarding performance seem to have would be excessively costly, the fact that efforts have already created the right incentives for local governments, been carried out to reach ODF in these remaining villages so that they could leverage all service providers to means that the ODF goal could be achieved at a moderate deliver a minimum quality of sanitation service for cost over the course of a few years. all in an inclusive manner. · The Dishari project's institutional set up helped in WHAT SEEMS TO HAVE WORKED? reducingerrorsofinclusion plaguing the government's Overall, relying on household investment for latrine hardware subsidy scheme (with an estimated 50% of construction seems to have worked, despite pressures recipients being non-poor households in some cases). from competing NGOs to provide latrines free of charge. In the Dishari project area, the villagers themselves Achieving ODF status was achieved through a combination could help decide which families were most in need of nonfinancial and financial incentives, as follows: and would be eligible to receive the subsidy. · The CLTS approach of community mobilization delivered good results and local governments were AND WHAT DID NOT WORK SO WEll? capacitatedtomaintainthisapproachovertime.The TheupazilatocommunitychainestablishedbytheDishari Dishari project helped to successfully shift the role of projectmayormaynotlastbeyondtheprojectintervention. local government from providing sanitation services to If there is continued government interest in decentraliza- ensuring that such services are adequately provided. tion and devolution, this institutional set-up may flourish, The costs of such social mobilization (i.e., the software but there are no guarantees to that effect. costs) accounted for about a third of total initial costs, which seemed to be money well spent given the high levels of investment triggered in that way; 64 Water and Sanitation Program Financing On-Site Sanitation Annex A Bangladesh case study The government monitoring and evaluation system still remainsweak, as it is based on self-reporting by the unions. Third-party verification is not exercised and there is a tendency to over-report, given that achievement of ODF status triggers a one-off monetary reward, with no attempt to verify that coverage is maintained beyond that point. The inclusion of monetary rewards therefore may have intro- duced a perverse incentive to over-report results. Ongoing monitoring should be introduced (perhaps with the possi- bility of clawing back some of the rewards) so that such improvements can be sustained over time. Finally, although the CLTS approach in Bangladesh has been successful at shifting millions of people from open defecation to fixed-place defecation, thecountrywillneed furtherinvestmenttoallowhouseholdsto"climbthesanita- tionladder". To do so, higher investments per household are likely to be required, which calls for alternative financ- ing approaches, with the possible inclusion of microfinance arrangements or other mechani www.wsp.org 65 Financing On-Site Sanitation Annex B Ecuador case study Annex B - Ecuador case study Case study written by Patricio Arrata and Sophie Trémolet OVERViEW OF ECuAdOR CASE STudy (PRAGuAS PROJECT) Key facts Project name PRAGuAS: Programa de Agua y Saneamiento para Comunidades Rurales y Pequeños municipios Project objectives Expand water supply and sanitation coverage in small towns in rural areas and strengthen local management Public financiers Government of Ecuador and World Bank (loan) Scale 141,320 people adopted sanitation in 383 rural communities Timeframe Program years: 2001 to early 2009 / Study period: 2001 to 2006 (4.5 years) level of service mostly sanitation units, each including a toilet connected to a septic tank and a sink and shower Summary of financing approach Software support · Software support to strengthen municipalities to work in sanitation, provided for technical designs and monitor- ing · Software mark-up = 12% of total costs of sanitation solution hardware · up-front fixed hardware subsidies: fixed amount given to each household in the area subsidies · Hardware subsidy: fixed at US$210 per household (about 59% of hardware costs, although the costs can vary and the subsidy is not proportional) · Hardware subsidies = 86% of public funds Access to credit · not specifically included Summary evaluation impact on sustain- · 27% of population in project area gained access to sanitation or improved existing sanitation solution (equiva- able access lent a 6% percentage point increase per year). · no available ex-post data to evaluate sustainability of investments. Costs · Average hardware costs: uS$355 (21% of lowest quintile income) · Operating costs: US$72 per year (4.4% of lowest quintile income): Effectiveness in the · Very low leverage ratio: 0.18 use of public funds · low "increased access/ public funding" ratio: 2.9 solutions built per US$1,000 in public funds Poverty targeting · All households in project area eligible for a hardware subsidy. · Geographical targeting reached intended recipients. Financial · Public funds = 85% of total costs of sanitation adoption, indicating high dependency on external public funds. sustainability Scalability · Scale-up could be achieved given comparatively high national income. Some lessons learned What worked? · Choice of service levels proved very attractive for the local population: fixed hardware subsidy level left choice open to recipients while minimizing the financial burden on the project. · Participation, both in-kind and in-cash, by communities reinforced buy-in into project. What did not work · Requirement that community financial contribution be paid up-front meant that many projects did not go ahead as so well? communities had not paid their contribution, leading to some wasted project preparation resources. · The lack of an adequate centralized monitoring and evaluation system means that it is difficult to track costs. www.wsp.org 67 Financing On-Site Sanitation Annex B Ecuador case study B.1 Overview of the financing approach This case study starts by providing some brief background on The PRAGUAS project aimed at improving water and sani- the country and sanitation context. We present the way on-site tation services in small towns and rural areas and improving sanitation was provided through the project before analyzing the capacity of the service providers for those services. The the costs of such provision. We then evaluate the performance project name stands for Programa de Agua y Saneamiento para of the financing approach for on-site solutions, focusing on its Comunidades Rurales y Pequeños Municipios (Rural and Small impact on sustainable access to services, its costs, its effective- Town Water Supply and Sanitation Project). The focus of the ness in the use of public funds, its poverty targeting, its finan- first phase of the project (2001-2006) was on small municipal- cial sustainability, and its scalability. A summary section draws ities with cantonal capitals of less than 10,000 inhabitants (152 out key lessons learned from the project, looking at what seems out of a total of 219 municipalities were eligible). The proj- to have worked and what did not work so well. ect was financed by the central government (with the support of a World Bank loan), together with municipalities and the B.2 Country and sanitation sector context beneficiary communities. The project enabled about 140,000 people to gain access to improved sanitation over the course of B.2.1 Country context 4.5 years. The average hardware cost of the solutions built was Ecuador has a high number of indigenous people in rural US$355, although costs could be much higher depending on areas who have limited access to basic services. Out of a the level of service retained and the location (as transport costs total population of 13.8 million people in 2008, 35% were can represent a substantial portion of total investment). living in rural areas. Approximately 40% of the population was estimated to be below the poverty threshold, depending The PRAGUAS project had a strong up-front component on which threshold is used. Thanks to substantial natural to mobilize and organize communities to adopt sanitation resources (including oil), Ecuador's GDP per capita stood at (US$46 was spent on software support per household, which US$3,335 in 2007 and US$7,242 in PPP-adjusted-terms.6 represented 12% of the total costs of sanitation adoption). B.2.2 initiatives taken to increase coverage The project provided an up-front fixed hardware subsidy to Water supply and sanitation coverage in Ecuador have households for the construction of on-site sanitation solutions. increased considerably in recent years. According to data The subsidy provided by the government through the project from the Ministry of Housing and Urban Development was capped at US$210 in Phase 1 and increased to US$315 (MIDUVI), water supply coverage in the country rose in Phase 2 to reflect increases in the cost of a basic improved from 61% to 70% during the 1980s, and then fell to 67% latrine. The level of subsidy was set to cover 70% of hardware during the 1990s. Sanitation coverage increased from costs for a basic improved sanitation solution, so as to ensure 43% to 53% in the 1980s and rose to 57% percent in the that poor families could afford improved sanitation. The 1990s.7 However, sanitation coverage in rural areas remains remainder was to be financed by the communities in the form much lower, with 30% of the rural population lacking an of labor, material, and cash. Households were free to choose a improved sanitation solution in 2008. more expensive solution, but had to finance all additional costs over and above this fixed subsidy. Households could choose the The sector is characterized by: (i) low levels of coverage, level of service based on a broad catalog of technical solutions, particularly in rural areas; (ii) lack of quality and efficiency ranging from improved traditional latrines to a basic sanitation of service; and (iii) limited cost recovery and heavy reliance unit (unidad básica de saneamiento or UBS) which integrates on financial transfers from national, departmental, and a shower, a sink, a flush toilet, and a septic tank. A majority municipal government agencies. of households chose this higher level of service, which means that the subsidy they received covered a smaller portion of their investment (about 60% on average). 6 International Monteary Fund, World Economic Outlook. 7 National Institute of Statistics and Census, Population and Housing Census. 68 Water and Sanitation Program Financing On-Site Sanitation Annex B Ecuador case study B.2.3 institutional set-up for sanitation This case study is focused on Phase 1 (or APL1), which The Subsecretariat for Water Supply, Sanitation, and Solid itself had four main components: Waste (SAPSyRS) in the Ministry of Urban Development · Component 1: institutional strengthening of the and Housing (MIDUVI) is legally vested with sectoral poli- ministry, municipalities, and operators; cy-setting authority. However, as a result of decentralization, · Component 2: investments in rural areas in water responsibility for water and sanitation service provision was systems and sanitation solutions; transferred from the central government to the municipali- · Component 3: investment in small towns (cabeceras ties, including for the rural areas of the municipalities. Larger cantonales); and municipalities provide the services through dedicated empre- · Component 4: program administration. sas prestadoras de servicios (EPS), which are the local water and sanitation utilities. MIDUVI promoted the creation of Rural municipalities, which according to the 1990 census municipal water and sanitation units (EMS) through the had fewer than 10,000 inhabitants in their small towns, PRAGUAS project to help smaller municipalities provide were eligible (152 municipalities). Framework agreements assistance to water user committees that provide services in were concluded with 138 of these eligible municipalities rural areas and to improve provision in the urban centers of (91% of them). The municipalities that did not conclude the municipalities. There is no central regulatory authority. agreements were those that did not commit municipal resources for the execution of the program. In their view, B.3 PRAGuAS project design the state should fully fund this sanitation investment. This section presents the overall set-up of the PRAGUAS project, its approach, the area in which it has been oper- Cost-sharing arrangements between the MIDUVI, the munic- ating, its institutional set-up and technical specifications, ipalities, and the beneficiary communities were incorporated in and the total costs and sources of financing, as well as the the design of the project. Only components 1 and 4 were whol- methodology for its subsidy design. ly financed by the World Bank loan. Regarding Component 2 (investment in rural areas), the project started with a first B.3.1 Project overview phase of promotion and community development and designs PRAGUAS is a sectoral program financed through a World for potential investments in water systems or on-site sanita- Bank loan. Its main objectives were to expand water supply tion solutions. These designs, carried out by consultants, were and sanitation coverage by providing sustainable systems. completely financed by the PRAGUAS project. From an institutional standpoint, the objective was to develop an institutional framework for the water and sani- For investments in on-site sanitation solutions, PRAGUAS tation sector and to strengthen all participants with a view provided a fixed subsidy of US$210 per sanitation solution to the provision of efficient and effective services. built. Communities were free to choose the level of service that met their needs from a broad catalog of technical solu- The original objective was to develop the program over the tions, provided that they would pay any additional cost for course of 12 years in three phases. Phase 1 started in June a higher level of service on top of the subsidy provided. The 2001 with a target budget of US$50.25 million. It officially subsidy was supposed to cover 70% of the construction costs ended in October 2006, although all investments in the field of the basic solution, while the communities were to bring had been carried out by the end of 2005. Phase 2 started the remaining 30% in labor, materials, and cash.8 This was to toward the beginning of 2007 but was reduced in scope and ensure that the poorest could have access to a basic sanitation prematurely terminated at the beginning of 2009, follow- solution, while those who wanted to could choose to invest ing a change in political leadership that affected all ongoing in a more expensive solution. In practice, communities chose World Bank projects. to build more expensive sanitation solutions. 8 Investments in water systems were to be financed through the World Bank loan (50%), 20% from municipalities and 30% from the communities themselves through labor or in cash. www.wsp.org 69 Financing On-Site Sanitation Annex B Ecuador case study B.3.2 Project institutional set-up The communities had to organize themselves in working Atthecentrallevel,theprojectwasmanagedbytheproject groups in order to mobilize adequate financing and imple- managementunit(orUGP,inSpanish), in direct collabora- ment the projects. Such groups held meetings with the tion with the SSAPyRS in MIDUVI. The project manage- EMS and the PRAGUAS project staff to assess needs within ment unit was responsible for the financial and substantive the community, define which systems they wanted to go management of the project, as well as its monitoring and for, and mobilize resources in labor, material, and cash. The evaluation, effective use of and accountability for loan municipalities signed an agreement with the project when resources, and provision to the World Bank and MIDUVI all financing issues had been resolved. In some cases, they of progress reports based on the procedures agreed to with needed to mobilize complementary financing from other the Bank and reflected in the Operations Manual. In practi- sources, such as provincial councils. cal terms, the projected monitoring and evaluation systems were not used owing both to the fact that reports did not B.3.3 levels of service allow for the correlation and aggregation of report informa- A range of on-site sanitation systems was originally on offer tion and to the lack of interest among the technical and as part of the project, ranging from improved traditional social intervention organizations in entering data in the latrines to ventilated improved pit (VIP) latrines, aqua priv- system. As a result, monitoring and evaluation systems ies, flush latrines with a sink and shower, and "basic sanita- could not be used as a decision-making tool. tion units" (UBSs), comprising a shower, a sink and a toilet (connected to a septic tank). The UBSs proved to be partic- TheEPAs(provincialwaterandsanitationunits)inpartic- ularly attractive because they satisfied people's demands in ipating provinces participated in the project to assist the terms of improving overall hygiene levels. Communities project management unit with execution activities in each rejected lower levels of service such as latrines, as they want- jurisdiction. These provincial units promoted the project at ed to have a bathroom "like those in the city." This was the municipal level and assisted participating municipali- also made possible by the fact that the rural water supply ties with the organization of EMSs and with pre-investment systems developed under PRAGUAS included a piped studies. water connection in the house. As for sanitation, commu- nities were given a choice between different levels of water Of the municipalities involved in the project, 90% insti- services, and the only level accepted by the indigenous tutionalizedtheirEMSs, which led to improved technical populations was a water connection. capacity among the municipal units. However, an ex-post evaluation found that many professionals were not prop- Given the determinant role of the community in structur- erly trained and were quite unfamiliar with the PRAGUAS ing demand, a community usually had to select one type of Operations Manual. sanitation solution for all households within that commu- nity. This allowed cost savings from group negotiations on Implementation assistance agencies were responsible for materials but also meant that individual preferences could strengtheningEMSsby providing them with advice related not be taken into consideration. to the selection and supervision of construction contracts and channeling appropriate information to the project CAPiTAl COSTS OF hyGiEniC lATRinES management unit. These agencies were NGOs or engineer- Statistics on the actual capital costs of the sanitation solu- ing firms with experience in demand-based water and sani- tion were not available at the central level. The benchmark tation projects. used for designing the project was US$300 per sanitation solution, of which the PRAGUAS project was supposed Technicalandsocialintermediaryorganizationswerehired to finance 70% (US$210) and the local community 30%, for purposes of preparing engineering designs and plan- either in-kind or in cash. In practice, however, there was ning rural investments. These were private enterprises or considerable variation in capital costs from one area to the nongovernmental organizations. next, with transport costs being a very influential factor. 70 Water and Sanitation Program Financing On-Site Sanitation Annex B Ecuador case study Community contributions are hard to value as they were In the case of Chimborazo, the municipality contributed mostly made in kind (labor, material, transport). 19.68% (US$284 per unit), according to an agreement with the PRAGUAS project, which covered design and administra- The consultant collected information on actual investment tion costs, some material costs, and equipment. The provincial costs in a community in Chimborazo Province, where the council covered a significant share of material costs and covered community had selected UBSs as their sanitation solution all transport costs. The PRAGUAS project covered the differ- of choice. This was a well organized community, which had ence (US$300). We did not receive an explanation as to why the been able to mobilize financing from a variety of sources subsidy was higher than the cap of US$210 per household). and kept good records of the actual contributions made. In its case, the unit costs of an USB were US$1,443.6 (includ- OPERATinG COSTS OF hyGiEniC lATRinES ing administrative costs at the local level). The operation and maintenance of on-site sanitation systems was the responsibility of individual households. Information Such an estimate is considerably higher than the estimated on the operating and maintenance costs of hygienic latrines costs for the original project design. This may partly be due was not available at the project management level. to the impact of regional factors and transport costs. The breakdown of costs and sources of finance are shown in Below we provide an estimate of operating costs based on Table B.1 below. normal operation by a family of five. TABlE B.1. FinAnCinG OF uBS in ChimBORAzO, TABlE B.2. ESTimATEd OPERATinG And mAinTEnAnCE COSTS SOuRCES OF FinAnCE PER uBS OF A uBS Costs Source of Share of financ- Categories monthly Cost (uS$) (uS$) finance ing Electricity 0.9 Total costs / uBS 1,443.6 % uS$ Water 2.25 Total capital 1,255.31 Shared Toilet paper 0.45 investment costs/ Soap 0.12 unit, of which: Cleaning supplies 0.15 labor 354.38 Community 24.55 354.38 labor ­ cleaning time 1.11 material 792.56 municipality 5.73 82.77 Subtotal 4.98 Provincial 28.39 409.79 Replacement and recurring costs (over five years) Council Valves and faucets 4.25 PRAGuAS 20.78 300.00* Cleaning of sewers 60 Transport costs 95.35 Provincial 6.61 95.35 Total 64.25 Council Subtotal ­ monthly cost 1.07 Equipment 13.02 municipality 0.90 13.02 Estimated total ­ monthly 6.05 design and 188.29 municipality 13.04 188.29 administration B.3.4 PRAGUAS Project costs ( 15% of direct Total PRAGUAS project costs were US$47.08 million costs) between 2001 and 2006, against an original budget of US$50.25 million. This underinvestment was due to the fact that some municipalities and communities did not bring their expected share of the investments. Component 2 (investment in rural areas) accounted for the bulk of the project, with 87% of total costs. Project administration costs accounted for 6% of total costs. www.wsp.org 71 Financing On-Site Sanitation Annex B Ecuador case study Table B.3 shows the costs of each component and the TABlE B.4. BREAKDOWN OF PROJECT INVESTMENT COSTS sources of finance, specifically the World Bank (WB), the (COmPOnEnTS 2 & 3) central government (Govt), municipalities (Mun) and the Cost components uS$ % total communities themselves (Com). World Bank resources designs 6,353,000 19 covered 67.9% of total costs. Municipalities contributed Water systems 18,461,000 55 13.3% and communities 14.7%. For community partici- investments in rural Sanitation 6,247,000 18 pation, it is likely that only the contributions in cash have areas Total 24,708,000 73 been accounted for, since placing a monetary value on Water system investments in small 969,000 3 in-kind contributions requires an appropriate valuation towns of time contributed by communities. The central govern- monitoring 1,858,000 5 ment's contribution was a mere 4.1%, allocated to the Total investments 33,888,000 100 institutional reform component and to some infrastruc- ture funding in rural areas. Total funds contributed by the World Bank loan and the central government amounted to B.3.5 Sources of financing for household sanitation US$33 million. These funds were spent on the investment According to project design, financing for household sani- components 2 and 3 in the proportions shown in Table B.4 tation comes from two main sources: PRAGUAS project below. Investments in sanitation accounted for 25% of total funds (out of the World Bank loan) and the communities investments in rural areas. themselves.9 An estimate of expenditure on household sani- tation was not available at the level of the project manage- TABlE B.3. PRAGuAS APl 1 COSTS And SOuRCES OF FinAnCE ment unit. In this context, we have attempted to estimate (2001-2006) total expenditure on household sanitation from all sources Costs (uS$) WB Govt mun Com based on a series of assumptions. Component 1. 2,268,000 99% 1% 0% 0% institutional Central public funds covered approximately 85% of total strengthening costs. Component 2. 40,727,000 64% 4% 15% 17% investment in Table B.5 below shows how we have allocated World Bank rural areas and government spending on the sanitation component in Component 3. 716,000 100% 0% 0% 0% order to estimate the share of public funding for house- investment in hold sanitation. This calculation is not necessarily accu- small towns rate, however. For example, at the design stage, the bulk of Component 4. 2,984,000 88% 12% 0% 0% designs prepared may have been for water services instead of Project adminis- the 25% allocated to sanitation based on investment costs. tration We also assumed that 25% of institutional strengthening Others 385,000 100% 0% 0% 0% costs went toward sanitation, although there is no precise (Emergency data on how these costs were used. actions) Overall total 47,080,000 68% 4% 13% 15% 9 Municipalities were not supposed to play a direct role in the financing of on-site sanitation. However, they may have contributed to the costs in certain cases (as in the case of Chimborazo shown in Table B.1 above), when community participation was not sufficient to cover the difference between actual costs and the PRAGUAS subsidy. 72 Water and Sanitation Program Financing On-Site Sanitation Annex B Ecuador case study TABlE B.5. TOTAl ESTimATEd COSTS OF SAniTATiOn COmPO- community contributions went to household sanitation, in nEnT (WORld BAnK And GOVERnmEnT) line with the assumption for the other investments. Share allocated to Value Cost component sanitation (uS$) However, no information is available on community funding broken down by community and distinguishing between labor, Component 1: institutional Estimated at 25% 567,000 in-kind, and monetary contributions. Owing to this limitation, strengthening (like investments) it is not possible to draw a conclusion with regard to the Component 2:designs Estimated at 25% 1,588,000 level of community participation. It is likely that community (like investments) participation in-kind has not been fully accounted for, due to Sanitation investments in All 6,247,000 the absence of a methodology at the project level to value such rural areas participation. For example, in some cases, those who own a vehicle monitoring Estimated at 25% 465,000 would make the vehicle available for transporting materials, but (like investments) this cost is not counted as community participation. Component 4 ­ Estimated at 25% 746,000 Administration (like investments) Community monetary contributions are extremely important, Total: World Bank + 9,613,000 not only as a source of financing but also as an instrument for government allowing the population served to take ownership of the project, given that community labor (la "minga"), a traditional institu- Thebeneficiarycommunitieshavecontributedaround15% tion in Ecuador by means of which communities provide labor of the total costs, to which in-kind contributions must be for project-related construction, is not sufficient. added(butaredifficulttovalue). Although there may be financial limitations with respect We sought to assess community contributions for sanita- to monetary contributions from communities, other factors tion in order to estimate the total costs of the sanitation could be impeding the possibility of a bigger monetary component, as shown in Table B.6 below. contribution by communities to project execution. One of these factors may be the traditional application of pater- TABlE B.6. ESTIMATED COSTS OF THE SANITATION COMPO- nalistic or clientelistic policies that have led low-income nEnT ­ All SOuRCES communities to become used to receiving benefits from the uS$ state in exchange for electoral support. Problems may also WB + Govt (hardware) 8,300,000 exist with the organization of communities, a lack of trust in WB + Govt (software) 1,313,000 all levels of government, along with insufficient confidence Community contributions ­ 1,738,000 that their resources will be properly used by project admin- hardware - (25% of total) istrators. Added to this are internal conflicts among groups Grand total 11,351,000 within communities. In this regard, it should be mentioned that adequate resources are not made available to communi- Note: We have assumed that municipalities' contributions were mostly focused on water supply, in line with the original project design (see Section B.3.1). In some cases, ties in a timely fashion, a factor that discourages the contri- however, as in the example in Chimborazo in Table B.1, some municipalities will have bution of resources by the community. Limited levels of contributed to the financing. education in rural communities with scant resources may also fuel mistrust, given the limited control they have over As mentioned above, the project has not kept track processes and limited ability to demand accountability. of the total contributions made by municipalities and communities. Given that many of these contributions In order to mitigate the risks associated with the lack of were in-kind, there was no attempt to try and value them. monetary resources mobilized by the community, only The only estimate of the contributions is a global estimate those municipalities that could demonstrate such mobiliza- for the entire project: we have assumed that 25% of total tion were considered, and each municipality could propose www.wsp.org 73 Financing On-Site Sanitation Annex B Ecuador case study small numbers of communities for consideration once they At the design stage, designs were carried out for a total of had strengthened their capacity to mobilize resources from a total of 95,510 households or 514,500 people. Only a their communities. Providing assurances to communities limited set of these original designs were effectively execut- that they would be furnished with adequate services was an ed, since in some cases municipalities did not meet the incentive for them to make monetary contributions. As a requirement to finance their share of the investment or result, one can safely assume that community participations communities did not get organized to mobilize resources. have been paid in the areas where there has been invest- In a number of cases, PRAGUAS contracted designs for ment, although it is not possible to place a value on the full work before establishing the work's operational and admin- extent of such participation. istrative feasibility or securing municipal and community contributions, resulting in a significant waste of resources. B.3.6 Subsidy design According to project design, the subsidy from the PRAGUAS Following the initial design stage, 381 contracts were project was supposed to account for 70% of estimated unit concluded for 844 communities. Sanitation solutions were costs of a basic sanitation solution, or US$210 based on esti- built in 154 communities, and combined sanitation and mated costs of US$300. This subsidy is fixed, independently water systems were built in 229 communities. In total, 383 of the actual costs of the investment, and the community must communities invested in sanitation through the PRAGUAS finance the remainder out of its own resources or through project, which accounted for 45% of the communities that other sources. The underlying assumption was that those with had signed an agreement with the project at the design stage. a lower level of income could be covered with a basic solution In addition, more than 660,000 inhabitants took part in and receive the full 70% subsidy, whilst those with a compara- social development activities focused on system administra- tively higher income could select a higher level of service, with tion and O&M as well as hygiene education. a higher investment cost, and thus receive a lower subsidy in percentage terms. The subsidy amount also did not vary Overall (i.e., for water and sanitation), the project exceeded during the course of the project, even though there was infla- its targets in terms of population served, reaching a total of tion during that period. For APL2, the same subsidy design 417,150 beneficiaries from water and sanitation projects, was kept but the subsidy amount was increased to US$315. measured against an original target of 350,000. The subsidy is paid up-front to the project and is placed on Accordingtotheprojectimplementationreport,itwasesti- a single bank account managed by the Community organi- matedthat37%ofhouseholdsselectedaUBS,40%selected zation (under the supervision of the EMS and the EPPs), atoiletandsinkpackage,and23%improvedtheirpour- together with all other funds brought to the project. All cash flushlatrines. contributions are made up-front for the project to start. The UBS has proven to be an important success, although B.4 Evaluation of the PRAGUAS it was not possible to obtain a detailed breakdown of the project's performance type of sanitation solutions that were chosen by the popula- In this last section, we seek to evaluate the project's perfor- tions. Many families have improved their UBS with ceram- mance at extending household sanitation based on criteria ic tiles, water heaters, and so on. Delegations of specialists set out in the common methodology for the project. from Peru and Paraguay struggling with traditional latrines visited Ecuador to learn from this experience. B.4.1 Impact on sustainable access to services In total, 28,644 sanitation solutions were built, which No information is available on the number of sanitation benefitedapproximately143,320inhabitants(basedonfive unitsthatcontinuetofunction. peopleperhousehold) 74 Water and Sanitation Program Financing On-Site Sanitation Annex B Ecuador case study An ex-post evaluation has not been done of the PRAGUAS Annual operating costs were estimated at approximately program to assess the sustainability of investments. However, US$72peryearperhousehold. research done on a sampling of 40 subprojects that had been carried out 18 months earlier shows a complete willingness by This relatively high cost of operation reflects the fact that the communities to maintain the projects in instances where the standard of the UBS is relatively high and requires they were required to provide resources, compared with those water to be operated. Time spent cleaning the UBS was also projects that were fully funded by grants. incorporated, although admittedly this can be done by the family itself with no monetary outlay. B.4.2 Costs Totalaveragecostsofsanitationsolutionsstoodatapproxi- Operatingcostsaccountedfor3%and4.4%ofhousehold matelyUS$400,includingUS$46forsoftwarecosts. annual income, for average households and the poorest households,respectively These cost estimates are subject to considerable uncertainty, given the lack of detailed information at the central project Similarly, operating costs, although quite high, are below level and the absence of a breakdown between total water an acceptable affordability threshold, especially given that and sanitation investments. As a result, we have estimat- some of the tasks can be performed without a monetary ed costs based on a number of assumptions, which are all outlay. prone to error (see section B.3.5 above for more details). Most crucially, in-kind contributions from the communi- B.4.3 Effectiveness in the use of public funds ties have not been fully reflected for lack of a methodology From the public-sector point of view, the increased access/ to account for them at the level of the project itself. public funding ratio was low, with only 2.9 households servedperUS$1,000ofpublicfundsspent. Software costs (including project management, commu- nity strengthening, and social and technical supervision) This relatively low ratio reflects the relatively high cost of accounted for approximately 12% of the total initial costs. the sanitation solutions built, providing a good level of Information from specific projects indicates that, if all costs service for hygiene and sanitation. are taken into account, the unit costs could be much higher, up to US$1,443 in the case of a community in Chimborazo The leverage ratio for the project is low: US$1 of public funds province, as shown in Table B.1 above. mobilized about US$0.2 in community participation. Thetotalhardwarecostsaccountedforapproximately15% This is likely to be an underestimate of the full amount of the average household income in the project area and of community participation, due to difficulties in valu- 21.5%ofincomeforthepooresthouseholds. ing in-kind contributions and variations in the amounts actually invested by households, for which no actual data As mentioned above, these costs are likely to be an underes- has been compiled in a comprehensive manner. The data timate, and it is probable that hardware costs represented a obtained for the case of Chimborazo indicates that, while much higher share of the local population's incomes, hence the actual investment costs were higher than those in the the need for mobilizing additional sources of finance (for program design, the gap between the actual costs and the example from the Consejos Provinciales). central government's subsidy was covered by the municipal- ity and the provincial councils, which effectively amounts According to our estimates, the hardware subsidy from the to an additional subsidy. This indicates that even if the PRAGUAS project covered about 60% of the hardware communities selected a higher level of service, they did not costs, or even a lower percentage since this subsidy was fixed necessarily pay for it themselves because they tried to mobi- when actual costs could vary substantially. lize funding from other external sources. www.wsp.org 75 Financing On-Site Sanitation Annex B Ecuador case study B.4.4 Poverty targeting B.4.5 Financial sustainability Theprojectdeliberatelytargetedpoorruralareasandsmall Publicfundsfinancedaround85%ofthetotalinitialcosts, towns. including hardware and software. This means that such investments cannot be considered in the absence of external As set forth in the project's objectives, its beneficiaries were support. rural inhabitants living in municipalities whose small towns had a population of up to 10,000. One hundred and fifty- Operating costs are solely the charge of households. The two municipalities, of a total of 219, were eligible. The financial sustainability of operations is therefore possible project also placed special emphasis on communities living as long as the households can keep repairing the installa- close to southern and eastern borders (in light of the fact tions and carrying out recurrent maintenance tasks, such as that these areas have high levels of poverty) and on areas emptying the pit. with high numbers of indigenous people. B.4.6 Scalability According to PMU reports, the selection of municipalities Coverage in rural Ecuador remains very low, with 3.4 to participate in the project was based on three factors: low millionpeoplelackingsanitationin2008(or70%ofthe service coverage, high poverty indicators, and interest shown ruralpopulation). by communities in improving services. The last factor was a prerequisite for a project whose criterion for the provision Extending the PRAGUAS approach to cover all of these of services was based on demand by the beneficiary popula- populations would cost approximately US$231 million. tion. This appears to be achievable, when compared to the sums assigned to water and sanitation projects in the national Based on one PMU report, which mentions ex-post research budget. However, the early termination of PRAGUAS on 1,752 homes, the conclusion was drawn that the vast 2 means that the prospects for extending the PRAGUAS majority of beneficiaries were poor. According to this study, approach in its current project form appear slim. the income of the entire community was below the poverty line, estimated by the World Bank at US$2.13 per day per B.5 Summary evaluation capita. Average family income of the community living in In this section, we summarize the evaluation of the financ- the project area is estimated at US$1.43 per day, equivalent ing approach based on our set of criteria and draw prac- to an average annual family income of US$2,363 (based on tical implications for the applicability of this financing an average family size of 4.59 persons). At the national level, approach daily per capita income corresponding to extreme poverty . was estimated at US$1 per day, which is equivalent to an In terms of impact on sustainable access to services, the annual family income in the project area of US$1,652. PRAGUAS project was successful at delivering attractive sanitationsolutionstoabout30%ofthepopulationinits ThePRAGUASsubsidyforhardwarecostshelpedlowerthe project areas, which were rural areas with high incidence household contribution to 2.6% and 3.7% of household of poverty. Plans to increase coverage further using a simi- income,fortheaverageandthepooresthouseholds,respec- lar approach were foiled following the Government of tively. Ecuador's decision in 2009 to reduce World Bank activities in the country. Given the high level of subsidy, the cash contribution expected from households was rather modest, although In cost terms, the sanitation solutions introduced were households would need to complement this with in-kind relatively costly (about US$350 for hardware costs alone contributions. and US$400 including software costs) but met a real 76 Water and Sanitation Program Financing On-Site Sanitation Annex B Ecuador case study need within the population to improve hygiene levels in an integrated manner, with a toilet, a sink and a shower. Participationin-kindandin-cashfrombeneficiarycommu- Possibilities offered to communities to contribute a high nitiesreinforcedtheirinterestintheprojectandmeantthat percentage in-kind (up to two-thirds of their total partici- theyweremorewillingtouseandmaintainthefacilitiesbuilt pation) reduced the need for cash outlays and built on the through the project. The monetary contribution expected of local tradition of community labor ("la minga") to carry out beneficiaries remained affordable, at 2.5% to 3.5% of their public works around the villages. annual incomes (depending on income levels) and meant that no credit mechanisms appeared to be necessary in order In terms of effectiveness in the use of public funds, the to spread such contributions over time. recorded information indicated that public funds lever- aged a limited amount of private funds (with a 0.2 lever- AND WHAT DID NOT WORK SO WEll? age ratio), although the private funds actually invested were Lack of coordination with municipalities meant that a likely to have been underestimated since it was difficult to much higher number of designs were prepared compared account for in-kind contributions and many communities tothenumberofworksactuallycarriedout. This was due selected a higher level of service than the basic one used in to difficulties in identifying up-front which municipalities project estimates. and communities would come forward with their participa- tion. Although the subsidy was paid up-front into a shared In terms of poverty targeting, PRAGUAS targeted poor account managed by the community (under project and ruralareasandsmalltowns. An ex-post evaluation of the municipal supervision), the works would start only once project showed that a large majority of beneficiaries were the contributions from the community (and in some cases, indeed poor. from the municipalities) had been paid. This ensured that all contributions had been paid and that sufficient resources Intermsoffinancialsustainability,theprojectishighlydepen- would be available to complete the works. dentonpublicfunds, which funded approximately 85% of the total costs (although this calculation does not fully reflect the Thelackofanadequate,centralizedmonitoringandevalu- in-kind contributions made by the communities). ation system meant that it was difficult to track costs. In several cases, cost aggregates were done for water and sani- Scaling-upthePRAGUASapproachtocoverthe70%ofthe tation in conjunction, and it was not possible to isolate the rural population still without improved sanitation would sanitation element. In the absence of a baseline, it was not require about US$231 million. Scaling up the project possible to track what the original level of coverage was approach is possible, given that Ecuador is rich in natural and what was the contribution from the project. Moreover, resources, and will primarily depend on political will. the project only tracked its own costs (US$210 per on-site sanitation solution) but did not attempt to value all other WHAT SEEMS TO HAVE WORKED? contributions, in-kind or in-cash. Thechoiceoflevelsofserviceonofferprovedveryattractive tothetargetpopulations, which often chose the service level that brought the most benefit from hygiene improvements, namely the UBS. The broad catalog of technical options offered with a fixed subsidy for all options meant that house- holds could choose the most appropriate option to meet their needs without imposing an undue financial burden on the project. The fixed subsidy improved the poverty target- ing, since the subsidy represented a higher percentage of hardware costs for more basic sanitation solutions than for more expensive ones. www.wsp.org 77 Financing On-Site Sanitation Annex C maharashtra case study Annex C - maharashtra case study Case study written by Rajiv Raman and Sophie Trémolet OVERViEW OF mAhARAShTRA CASE STudy (TSC PROJECT) Key facts Project name TSC: Total Sanitation Campaign Project objectives Create an Open defecation Free (OdF) and clean environment in rural villages, at household and institu- tional levels (including in schools, nurseries, and community centers) Public financiers Government of india, with funding split between federal and state governments Scale About 21 million people reached in rural areas throughout the state Time frame Program years: 2000 to date / Study period: July 2000 to November 2008 level of service improved latrines (demand-led, leaving vast choice of options) Summary of financing approach Software support · Software support for community mobilization; information, education and communication; capacity building; and hygiene education · Outcome-based financial rewards to villages reaching OdF status, to be spent on sanitation investments · Software mark-up = 7% of total costs of sanitation solution hardware subsidies · Outcome-based hardware subsidies for below-poverty-line (BPl) households (paid once village reaches OdF status "in recognition of household achievement") · Maximum subsidy: US$24 per household (about 22% of hardware costs) · hardware subsidies = 22% of public funds Access to credit · Some commercial banks offer microcredit to help finance sanitation investments, but this does not form an integral part of the program. Summary evaluation impact on sustainable · 38% of population in project area gained access to sanitation or improved existing sanitation solution (a access 10% increase in coverage per year) · Evidence of use and adequate maintenance, high satisfaction levels Costs · Average hardware costs: US$208 (27% of lowest quintile income) · Operating costs: US$4 per year (1.1% of lowest quintile income) Effectiveness in the use of · high leverage ratio: 10.3 public funds · high "increased access / public funding" ratio: 50 latrines built per uS$1,000 in public funds Poverty targeting · means-tested based on national income classification · moderate error of inclusion (5 to 10% were not genuinely eligible) but relatively high error of exclusion (10 to 20% of poor families did not get the subsidy) Financial sustainability · Public funds = 9% of total costs of sanitation adoption (high sustainability) Scalability · Already scaled-up throughout the state; budget is affordable at state level www.wsp.org 79 Financing On-Site Sanitation Annex C maharashtra case study OVERViEW OF mAhARAShTRA CASE STudy (TSC PROJECT) COnTinuEd Some lessons learned What worked? · Community mobilization has been a main driver for household investment. · monetary rewards at village level appear to have been effective. · Outcome-based subsidies (at village and household level) have helped to meet the needs of the poor and shift the mentality of the program. What did not work so well? · long-term sustainability of investments, driven by the need to meet the OdF target and associated monetary rewards, is in question. however, annual campaigns help in maintaining high levels of cleanliness throughout. · Only sporadic initiatives to increase credit for poor households. So far, credit has mostly benefited above-poverty-line (ABl) households. C.1 Overview of the financing approach as the Clean Village campaign (Sant Gadge Baba) which The Total Sanitation Campaign (TSC) is a nationwide takes place annually and encourages maintaining overall program for which implementation varies from state to cleanliness in the villages. In total, approximately US$15 state. This case study focuses on how the TSC has been was spent on software support per household (including the implemented in the State of Maharashtra. The approach costs of the financial reward schemes), which represented is based on a CLTS (Community Led Total Sanitation) about 7% of total sanitation adoption costs. approach to promoting sanitation, combined with small hardware subsidies for the poorest households and mone- Hardware subsidies are provided to below-poverty-line tary rewards for villages that achieve overall cleanliness (BPL) households after the village has been declared ODF. objectives. Since being introduced in Maharashtra in 2000, As they are outcome-based, they are referred to as "incen- the approach has incentivized more than 21 million people tives" in the TSC guidelines, provided to households "in to adopt improved sanitation. On average, the hardware recognition of their achievements." The initial level of subsi- cost of the sanitation solution built was US$208. dy was Rs 500 (US$10) per BPL household, although this was raised to Rs 1,200 (US$24) in March 2006 to reflect Under the TSC program, software activities are conduct- cost inflation. The subsidy was initially intended to cover ed to generate demand and village-level mobilization. 80% of the hardware costs of a basic sanitation solution for Separately from the TSC, monetary rewards are provid- BPL households, but in practice it covers only about 20% ed to villages that reach ODF status. The Nirmal Gram of hardware costs as most BPL households chose to invest Puraskar (NGP) is a national program that provides one-off in a higher level of service than the basic minimum. monetary rewards from the central government to quali- fying gram panchayats or GPs (the smallest units of local Finally, in some areas access to credit has been provided government in India). Payments are based on a set of crite- in order to speed up the process of adopting sanitation. In ria (which include, among others, 100% sanitation cover- those districts where it was systematically introduced, it has age of individual households and being totally free from supported stronger demand for sanitation. However, these open defecation) and are made following a thorough veri- products tended to be more widely available in compara- fication process. These rewards can be anywhere between tively richer districts and largely benefited above-poverty- US$1,250 and US$12,500 per GP, depending on the line (APL) households in those districts. population. GPs can use the cash incentive to improve and maintain sanitation facilities in their respective areas with a This case study starts by providing some brief background focus on solid and liquid waste disposal and maintenance of on the country and sanitation context. We present the way sanitation standards. In addition, the State of Maharashtra in which on-site sanitation was provided through the proj- has introduced a number of state-based campaigns, such ect before analyzing the costs of such provision. We then 80 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study evaluate the performance of the financing approach for the In1999,anewapproachwasadopted(theRCRSP)which on-site solution, focusing on its impact on sustainable access advocatedashiftfromahigh-subsidytoalow-subsidyregime, to services on costs, its effectiveness in the use of public greater household involvement, and demand responsiveness. funds, and its poverty targeting, financial sustainability, and It promoted a range of toilet options to promote increased scalability. A summary section draws out key lessons learned affordability, and it placed strong emphasis on IEC (infor- from the project, looking at what seems to have worked and mation, education and communication) and social market- what did not work so well. We assess the performance of the ing. The RCRSP was piloted in selected states, and after due financing arrangements in the state as a whole and in three review it was launched as the Total Sanitation Campaign selected study districts: Kolhapur, Nashik, and Chandrapur. (TSC) at the national level in 2001. The key intervention areas are individual household latrines (IHHL), School C.2 Country and sanitation sector context Sanitation and Hygiene Education (SSHE), Community Sanitary Complex, Anganwadi toilets supported by Rural C.2.1 Country context: maharasthra Sanitary Marts (RSMs), and Production Centers (PCs). Maharashtra is India's third largest state in area and the The TSC was the culmination of reviews and learning from second most populated. In 2001, the state had a population sanitation initiatives from 1981 to 2000, which were either of 96,752,247 (19,521,809 households), with 42 % being national, limited to certain states, or limited to only a few resident in urban areas (compared to a 28% urbanization rate villages. In Maharashtra, the TSC started with four districts at the national level), making this the second most urbanized in FY 2000, and all of the 33 rural districts had initiated the state in the country. Mumbai, the capital city of Maharashtra, TSC by FY 2004. is India's largest city and a prime center of economy and culture. Maharashtra is India's most developed state, contrib- In2004,ODFwasintroducedasagoalpostwithfinancial uting 15% of the country's industrial output and 14.7% of its incentives in the form of the NGP, a scheme to reward GPs GDP. India's GDP was US$941 per capita in 2007, accord- that have achieved overall cleanliness (the "Nirmal Gram").2 ing to the International Monetary Fund's World Economic This was based on the realization that rural local govern- Outlook, and US$2,563 in PPP-adjusted terms.1 ment institutions are best placed to motivate the commu- nities/households to change their behavior and convince C.2.2 initiatives taken to increase coverage them to spend their own resources to ensure better sanitary Up until the latter half of the 1990s, progress on the rural outcomes. In addition, an output-based aid approach to the sanitationfrontinIndiahadbeenabysmallyslow.Although hardware subsidies provided to poor households was intro- Maharashtra is known for its high levels of industrializa- duced at that stage, with such subsidies described as ex-post tion and urbanization, the state has had very poor sanitation "incentives" and provided to the poor households once they indicators historically. In the late 1990s, about 20% of the have built a latrine. This condition was strengthened in the rural population had access to safe sanitation, despite several State of Maharashtra, where the subsidy can be provided campaigns to address this issue in the previous decades. only when the village as a whole has been declared ODF. Comprehensiveeffortsforachievingimprovementsintherural ByNovember2008,theTSCwasoperationalin590districts sanitationsituationstartedwiththeCentralRuralSanitation ofthecountry,leaving28ruraldistrictsthatareyettotake Program(CRSP)in1986,anationwideprogramforruralsani- upthecampaign. After four rounds of NGP awards, 16,616 tation. However, this focused purely on providing household GPS (7% of the total) had achieved ODF status across the sanitation facilities and relied mainly on subsidies to "generate country. Maharashtra has led the states in achieving positive demand" for household toilets; it had only limited impact on sanitation outcomes, as it has consistently had the largest coverage, with studies indicating low usage by households. number of NGP awardees and accounted for 37 % (6,131) 1 International Monetary Fund, World Economic Outlook Database, April 2009. http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx 2 See Section C.3.5 for more details on the NGP program. www.wsp.org 81 Financing On-Site Sanitation Annex C maharashtra case study of all the ODF GPs by November 2008. By then, it had The nodal agencies for rural and urban water supply and achieved NGP in 22% of its GPs, the highest proportion sanitation are the Department of Drinking Water Supply among large states. (DDWS) inside the Ministry of Rural Development and the Ministry of Urban Development and Poverty Alleviation. ThestateapproachfocusingonODFoutcomesisoftencitedas thereasonfortherelativelybetterperformanceofruralsanita- Theprimaryresponsibilityforprovidingdrinkingwaterand tioninMaharashtra. Initiatives driven by state subsidies, from sanitationfacilitiesrestswiththestategovernments(and with 1997 to 2000, only led to limited results, with more than half the local bodies in urban areas), as sanitation and drinking of the households not using the toilets constructed. In 2000, water are state subjects according to the Indian constitution. the state devised a set of campaigns that aimed at leveraging the reputation and status of communities to move towards sustain- In rural areas, the Panchayat Raj Institutions (PRIs), are able behavior change outcomes. While the TSC is the core charged with statutory responsibilities for sanitation. The campaign to create sanitation facilities, the State of Maharashtra PRIs are a three-tier structure of local government, includ- initiated two additional campaigns and a competition to ing district, block and GP. For sanitation, the key structures complement this by creating a broader awareness of sanitation are the 612 districts and the 245,394 GPs throughout India. and hygiene issues. These campaigns have created a competitive The GPs are demarcated based on a population norm decid- atmosphere among the GPs, and the activity calendar is a major ed by the state and would consist of a revenue village or a set driver in keeping the issues current and in public memory (see of revenue villages (if villages are small in size). The elected Box C.1 in Section C.3.5 for more details). governments for each tier ­ panchayat, block and district ­ are devolved certain powers in planning and administration, C.2.3 Access to sanitation in rural areas depending on the legal provisions in the state. InIndiaasawhole,therehasbeensignificantprogressinhouse- holdsanitationprovision,withruralsanitationcoveragerising C.3 TSC program design from22%in2001to41%in2008, although only 18% had This section presents the overall set up of the TSC program, access to improved (and not shared) sanitation facilities, accord- its approach, institutional set-up, levels of service, total ing to the National Family Health Survey published in 2006. program costs, sources of finance, and subsidy design. However, the goal of eradicating open defecation is far from being achieved, as 59% of households still do not have sanita- C.3.1 Program overview tion facilities and 93% of GPs still need to achieve ODF. TheTSC'soverarchinggoalistocreateanODFand"clean" environment. It focuses on the sanitary confinement and safe InMaharashtra,ruralsanitationcoveragerosefrom18%in disposal of human excreta within the physical environments 2001toapproximately49%inNovember2008, although of the households and institutions present in the village (such other statistics show higher coverage levels. Since 2005, as schools and anganwadis, nurseries for very small children). Maharashtra has made significant progress in the provision The approach is community-led and people-centered and of sanitation facilities to rural households. Institutional focuses on creating awareness and generating demand for sanitation facilities have also progressed significantly in sanitary facilities in houses and schools and for maintain- schools and anganwadis (nurseries for non- school-age chil- ing a cleaner environment. Strategies are developed to moti- dren). However, the state has still a long way to go towards vate individual households so that they realize the need for achieving an ODF rural Maharashtra. good sanitation practices and, as a result, not only construct toilets but also have the members of the family use them. In C.2.4 Institutional set-up for sanitation addition, the program aims at modifying personal hygiene Policy direction comes from the national government, behavior. Over time, the provision of toilet facilities has been which also provides a very significant share of total fund- widened to cover public places, with the ultimate objective of ing. Progressively larger allocations have been made for eradicating the practice of open defecation. water supply and sanitation in the various Five Year Plans. 82 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study TheTSCplacesstrongemphasisoninformation,education were transferred to an independent project management unit, andcommunication(IEC),capacitybuilding,andhygiene the Reforms Support and Project Management unit. education for effective behavior change with the involve- ment of PRIs, CBOs, NGOs, and others. Measures to raise DistrictSanitationCells(orTSCcells)havebeensetupto awareness levels and improve hygiene behavior are advocat- planandorganizetheimplementationoftheTSCthrough ed along with "building capacities" of program delivery staff theGPs.They have technical specialists (engineers), as well and other stakeholders through human resource develop- as specialists in community mobilization, IEC, and capacity ment initiatives. The operational strategy focuses on involv- building who are supported by an administrative section. ing multiple stakeholders and achieving a convergence of development programs at the GP level for all activities TheGPsarechargedwiththecoretasksofgettingthehouse- linked to sanitation (like housing for the poor). holdstoadoptsafesanitation. The GPs take the decision to become ODF and are in charge of implementing this decision. Supportive measures to help households build their own To do so, they are in charge of conducting a baseline survey and facilities have been introduced, such as the supply of the planning on how to achieve ODF. They would then prepare a necessary hardware and skill-sets for toilet construction list of households to receive incentive on completion and put through to the local manufacture/procurement and selling this up through the District Sanitation Cell. Later on, the GPs at cost-effective prices, training of a local pool of masons in facilitate the construction of household toilets, including orga- construction, and facilitation of the construction process. nizing material supply, masons, and advising on design. They Small subsidies are provided to BPL households only once are in charge of convincing households to invest and finding the GP as a whole has reached ODF status. alternatives for the poorest that are not willing or unable to invest. Once 100% sanitation provision is reached, they are C.3.2 Program institutional set-up responsible for declaring such status, organizing the assessment TheTSCisanationalprograminitiated,directed,andmoni- of the village based on NGP parameters, and making claims toredbytheTSCCellinsidetheDepartmentofDrinking for BPL household incentives. WaterSupplywithintheMinistryofRuralDevelopmentof thenationalgovernment. Project sanction and monitoring C.3.3 levels of service are the main responsibilities at the national level. Each state The TSC advocates the provision of affordable options, with a is responsible for defining program management strategies particular emphasis on the twin-pit leach-pit pour-flush design. and necessary support systems under the broad guidelines The program advocates the use of local materials, bulk produc- prescribed at the national level. While the program delivery tion of viable components, alternate supply chain systems for strategy in all states follows the overall TSC framework, the cost economy, and availability of a ladder of design options structure and institutional linkages vary with the situation that allow the household to move up at an affordable pace. of local-government systems. CAPiTAl COSTS In Maharashtra, the Water Supply and Sanitation The estimated cost of construction for alternative options Departmentisthenodalagency in charge of state policy and varies from one district to another, depending on the avail- coordination on issues of drinking water and sanitation across ability of building materials and their landed costs, as shown both rural and urban domains. It provides an overall strategic in Table C.1 below. direction for the implementation of the programs in terms of objectives, content, and methods for capacity building of Although the septic tank option is significantly more different stakeholders at the district and sub-district levels. expensive, it is preferred by the richer households (and even It also carries out regular monitoring of progress and assists some of the poorer ones) mostly due to their having seen in knowledge-sharing. Program management responsibilities similar designs in urban spaces or in other households and www.wsp.org 83 Financing On-Site Sanitation Annex C maharashtra case study TABlE C.1. ESTIMATED CAPITAl COSTS FOR SANITATION OPTIONS (2008 US$) Study district Chandrapur Kolhapur nashik Basic unit Single-pit leach pit 49 65 53 Twin-pit leach pit 100 133 110 Septic tank 250 272 230 Superstructure options Three-sided brick wall with cloth curtain for door 38 37 Brick wall, thin concrete door, and asbestos roofing sheet 51 60 52 Brick wall with colourwash and stone flooring tiles 68 67 Average total cost of sanitation facility for BPl household 100 125 106 Average total cost of sanitation facility for APl household 251 350 149 Note on methodology: Analysis of primary data as of March 2008, converted at US$1= Rs 50. This table shows point estimates based on field data gathered in the study districts. All costs have been fully monetized, including labor costs even when labor was provided by households themselves. These costs are not the result of a comprehensive survey and as such, they may be subject to a number of biases, including sampling bias. For example, costs for Kolhapur are on the high side, which may be a reflection of the households surveyed. Information was gathered in March 2008, at a period of high input prices following a squeeze in building material supply in rural areas owing to a reported construction boom in urban areas. Average costs are weighted averages based on the proportion of facilities by type built in each study area. to trust in the reliability of that option. This option is also C.3.4 Total TSC program costs trusted and is also possibly the only option known by bank- The total costs for the TSC in Maharashtra are shown in ers, credit scheme evaluators, and others. The superstruc- Table C.2 below. These include the prizes delivered under ture is where the household can economize significantly or the NGP awards and the costs of associated campaigns decide on staggering the expenditure. A relatively tempo- specific to Maharashtra, such as the SGBSA and the rary structure can actually be built with material collected Rashtrasant Tukdojee Maharaj (RTM) Competition (the or borrowed without incurring any monetary outgo. HMA, or Open Defecation Free campaign, is under the TSC without a separate budget line). OPERATinG COSTS Operating costs are minimal, at Rs 10 to Rs 20 per month, Hardware costs (including hardware for household sanita- which works out to approximately US$4 per year. There tion, but also institutional sanitation and public facilities) were no reported cases of pits filling up and needing pit- accounted for 47% of total TSC costs and all other "soft- emptying. There were some reports of households starting ware" costs for 53%. The financing of hardware subsidies for to use the second pit, even though the advocated reuse of BPL households accounted for 15% of these total costs. pit contents (after six months of nonuse) as agriculture compost is not reported. There is a reported preference to We defined software costs broadly to include anything but provide for larger pits than the design specifications call for, hardware costs.3 They comprise administrative costs, expen- which could well explain the lack of reports about fill-up. diture on IEC, training and capacity building of TSC staff, Operating costs for septic tanks are slightly higher, due to motivators and identified stakeholders, and revolving funds the need for regular cleaning. Such maintenance does not provided for setting up alternate delivery systems (through appear to have been required for the time being in the newly Rural Sanitary Marts and Production Centers) as well as installed septic tanks. Estimated costs for such activities in supporting microcredit institutions to provide short-term urban centers are around Rs 600 to Rs 800 per event. finance for sanitation. 3 Administrative and management costs have been included as software in all case studies, since it is sometimes difficult to separate them out, for lack of detailed information. 84 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study The next section examines in more details how household less than 10% of the total. Hardware costs account for 93% sanitation facilities are financed, including all sources of (as this includes household investment) and software costs for finance such as household finance. a mere 7%. We review the main characteristics of each source of financing in the following sections. C.3.5 Sources of finance for household sanitation Table C.3 below shows the total funds spent on financing Publicfundsaccountforlessthan10%ofthetotalcostsof household sanitation by both public and private sources in the householdsanitation. State of Maharashtra during the TSC campaign. On the whole, this table shows that households financed more than 90% of TSC funds account for about 3% of household sanita- the total costs of investing in household sanitation (including tioncosts,includinghardwareandsoftware.To reach that hardware and software) whereas public funds accounted for estimate, we took into account all TSC funds spent on TABlE C.2. ExPENSES ON TSC IN MAHARASHTRA UP TO NOVEMBER 2008 2008 US$ % total hARdWARE COSTS (TOTAl) 50,939,000 47 household sanitation (hardware subsidies for BPl households) 17,936,000 15 institutional sanitation facilities (schools and anganwadis) 29,812,000 25 Provision of common/public facilities 3,191,000 3 SOFTWARE COSTS (TOTAl) 66,391,000 53 TSC software components & program management 53,865,000 9 iEC 6,696,000 6 Administration 2,329,000 2 Others (Start-up + Rural Sanitary Marts/Production centers) 1,881,000 2 nGP incentives 42,958,000 37 State campaign (SGBGSA) and RTm CVC Prizes 12,528,000 11 Prizes 10,237,000 9 Publicity/Others 2,290,000 2 TOTAl 117,330,000 100 TABlE C.3. FundS SPEnT By PuBliC And PRiVATE SOuRCES On hOuSEhOld SAniTATiOn (uS$) hardware Software Total % of total PuBliC FundS 8.8% TSC expenditure on household sanitation 17,936,000 17,936,000 1.9 TSC expenditure on support activities 9,815,000 9,815,000 1.0 nGP incentives 42,958,000 42,958,000 4.6 SGBSA state campaign 2,290,000 2,290,000 0.2 RTm CVC Prizes 10,237,000 10,237,000 1.1 hOuSEhOld FinAnCE 91.1 BPl households 124,514,000 124,514,000 13.2 APl households 733,036,000 733,036,000 77.9 TOTAl 875,486,000 65,300,000 940,786,000 100.0 Note 1: The software costs shown in this table only include those of the TSC campaign. In addition, it is important to note that district, block and village-level officers spend considerable amounts of their time on supporting sanitation. We did not obtain specific figures for these costs, which means that the administrative costs have been underestimated, although this is unlikely to represent a large amount, especially when compared to the size of household investments. Note 2: The TSC funds are the budgeted funds. Disbursement delays may occur. www.wsp.org 85 Financing On-Site Sanitation Annex C maharashtra case study household sanitation (to finance hardware subsidies for BPL households) but excluded TSC funds spent on institutional BOx C.1 - ClEAn VillAGE COmPETiTiOnS And sanitation or for the provision of communal facilities.4 With CAmPAiGnS in ThE STATE OF mAhARAShTRA respect to the TSC's software and program management The Sant Gadge Baba Gram Swachayata Abhiyan costs (i.e. just under US$54 million), we assumed that 90% (SGBGSA), or Clean Village campaign, was initiated of those costs were used to promote household sanitation, in 2001. it was originally meant to be a one-off event the remaining 10% being spent on institutional sanitation. but later became a yearly one. This campaign exhorts villages to participate and cooperate spontaneously in NGPawardsarepaiddirectlyfromthecentralgovernmentto the programs for rural sanitation program, with a view thequalifyingGPs, following a detailed assessment process. to ensuring sanitation in households and at the village They account for just under 5% of the costs of household level. Operationally, this focused on a set of campaign sanitation. NGP rewards can be anywhere between Rs activities in a common calendar across the state, such 50,000 (US$1250) to Rs 500,000 (US$12,500) per GPs, as communities participating in one-off cleaning depending on the population of the GP, from less than 1,000 events and then continuing to maintain clean villages. population to 10,000 and above. The cash incentive is to be utilized for improving and maintaining sanitation facilities in This was backed up with rewards from the state their respective areas with a focus on solid and liquid waste government through a Clean Village Competition, the disposal and maintenance of the sanitation standards. Rashtrasant Tukdojee maharaj Competition. The priz- es are annually awarded to the best three GPs at the GPs are eligible by achieving the following: block, district, division and state levels. This competition · 100% sanitation coverage of individual households; compares the GPs across a set of development parame- · 100% school sanitation coverage (separate facilities ters ­ both social and infrastructural ­ that are weighted for boys and girls recommended); according to the priorities of the state administration. · Totally free from open defecation; and The sanitation component received a high priority and · Maintenance of clean environment (including in later years became a precondition. management of solid and liquid wastes). The hagandhari mukt Abhiyan campaign, initiated in For the purpose of estimating the costs of financing house- 2002, focused on freeing the GP from open defeca- hold sanitation, we have taken into account the total amounts tion. The response to this campaign made the state of NGP awards paid to the districts, since it was not deemed administration suggest that the open-defecation- possible to apportion those awards to household sanitation free condition be made a pre-condition for consid- in particular. This is bound to be an overestimate, but it also eration in the Clean Village Competition. After the reflects the stimulating impact that those funds had on trig- initiation of the nGP by the national government, gering behavior change at the village panchayat level. the SGBGSA guidelines for applicants also made OdF an implicit precondition. TheStateofMaharashtrahascreatedadditionalcampaignsand prizesinordertostimulatecompetitionbetweenlocalgovernments toachievecleanvillagestatus (see Box C.1 below). Households are by far the main source of sanitation invest- ment at the household level. They try to economize on the Householdsfundabout90%ofthetotalcostsofadopting cash outlay through various strategies, as shown in Table C.4. sanitation. These strategies include, for example, joint procurement of building materials, which may reduce household costs by up to 10%. Other strategies would include procurement on credit 4 Communal facilities do serve households, but the comparative focus of this study is on the cost of sanitation facilities at the household level rather than shared facilities, hence their exclusion from the analysis. 86 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study TABlE C.4. COMMUNITy AND HOUSEHOlD STRATEGIES TO ACHIEVE ODF STATUS Community Strategies household strategies Remarks To minimize costs Arrange for local building material vendor to supply at fixed Procure materials in groups to These can bring down cash outflow rates economize transport costs for households between 5-15% of Arrange bulk procurement and transport of select material (pan, Provide household labor for unit cost trap, cement) construction To ease cash-flow stress on households negotiate with building material vendor for credit period use house/land as collateral Credit from informal and personal for credit from bank sources are generally for a year, Bring to the notice of ShGs the need for financing sanitation Approach ShG for soft loans vendor is similar. Arrange with banks/societies for credit to households Borrow from friends/relatives Stand guarantor for household credit recovery Build temporary Superstructure choices are reported superstructure and upgrade to potentially lessen costs by 20% later or use recycled material To support sanitation provision in the poorest/most disadvantaged households Procure materials with GP monies or contributions) for poorest Provide household labor, This is generally for the poor- households. where possible. est households and those with Organize community voluntary labor for constructing toilets in use salvaged material only elderly or sick/handicapped poorest households for superstructure members Advance loan/grant to selected households who cannot access formal/informal sources Plan for shared latrines (2 households for 1 unit) on GP land from a designated building-materials vendor, which is helpful Two main types of microlending products have been devel- for households that are struggling to put the necessary cash oped: together. In many places, household voluntary labor has been · Tailored sanitation credit products, which can be supplemented by community labor to keep costs down and also offered directly to individual households, with the to make work progress at a planned pace. There are no rewards GP and sometimes a self-help group (SHG) provid- or remuneration for these volunteers, who are motivated by the ing a guarantee; and will to support village improvement and win a national award. · A general revolving-fund line of credit that can be disbursed to an SHG, where the SHG can then Sincethefinancialsupportforlatrineconstructionisprovid- on-lend to its members for specific end-uses. In the edbytheTSCtoBPLhouseholdsafterconstruction,theGPs study districts, it was noticed that some of these lines haveworkedoutsupportstrategiesforthosehouseholdswho of credit have been used for sanitation. cannotcomeupwiththenecessaryfundsupfront,including procurement of materials on credit and financial support to While the individual sanitation credit products from the indigent households from GP funds. formal banking channels were provided in Kolhapur district after discussions initiated by the district administration, this In some districts, the formal banking system has started type of credit product has been provided only in minuscule respondingtothesanitationfinancingneedswithlocallydevel- numbers in the other study districts, indicating that it is not opedcreditproducts. Most of these products are designed at a a pattern across the state. The SHG onward-lending channel discount on the Prime Lending Rate (PLR) fixed by the central has been reportedly more demand-based and in some cases has bank and have a tenor of four to five years. been offered where GP leaders have signaled SHG leaders. www.wsp.org 87 Financing On-Site Sanitation Annex C maharashtra case study Thelackofacentralrepositoryofdataonthesecreditprod- manager has some discretion over the subsidy award, depend- uctsmeansthatitisnotpossibletoassesstheextentoftheir ing on what is considered necessary to achieve full involve- use. Mehta (2008) analyzed available evidence from NGP ment of the community. In addition, the fact that a village verification reports for Maharashtra to suggest that about "60 needs to be eligible for the NGP award before any poor percent of households who built new toilets took loans with household can receive the subsidy strengthens the emphasis an average loan size of US$30." She also identified SHGs and placed on community mobilization. the district-level cooperative banks as the primary sources of credit. WaterAid India, in its annual review of projects, Theamountofsupporthasbeendecidedbasedontheesti- indicated that 52% of rural households in their project areas matedcostsofconstructingthelatrinewithoutitssuperstruc- access financial support for sanitation construction and these ture,withunskilledlaborbeingprovidedbythehousehold. households use a mix of finance sources ­ their own money, At the start of the TSC in 2000, the TSC subsidy or incen- borrowings from other households, and loans from SHGs or tive was fixed at Rs 500 (US$10). This was revised in 2006 Banks ­ to satisfy sanitation needs. However, no comprehen- to account for inflation and cost escalation. The incen- sive review of the use of microfinance products for sanitation tive amount was then set at Rs 1,200 (US$24). There are in the context of the TSC campaign has been carried out, demands to review this level of support for problem areas which means that it is difficult to assess its impact. (like hard rock terrain or water-logged areas) where the construction effort is more labor-and material-intensive The impact of these credit products seems positive when and necessitates a larger financial outlay. combinedwithavigilantlocalleadershipthatleveragesthe cash flows towards achievement of ODF outcomes. It also AccordingtotheTSCmanual,BPLhouseholdsaresupposed makes the household more vigilant and proactive owing tocontributeabout20%ofinvestmentcosts,astheywouldget to peer pressure from SHG members and GP members. ahardwaresubsidypaidinpartbytheGovernmentofIndia Discussions with district TSC officers and GP leaders indi- (60%ofthelatrinecost)andinpartbythestategovernment cated that such financing products have eased the mobiliza- (20% of latrine cost). However, given that the subsidy was tion process in the community by lifting the constraint of capped at Rs 1,200, such a high subsidy level would corre- cash availability. spond to an investment cost of Rs 1,500. In practice, howev- er, BPL households have invested much more in sanitation, C.3.6 Subsidy design with the average cost of their investment being Rs 5,500. This UndertheTSC,amaximumcashsubsidyofRs1200(US$24 means that the hardware subsidy provided only accounted for atcurrentexchangerates)pertoiletisprovidedtoBPLhouse- about 22% of household investment costs. holds. This is a maximum amount of subsidy provided by the state and the central government in combination, irrespective BPL households are identified through surveys carried out of the technical choices made by the household. The TSC every five years. Monitoring is done indirectly through guidelines allow the state government to provide additional national sample surveys carried out annually, although that subsidies, but it would need to do so from its own funds. would only determine the number of people moving above or below the poverty line, rather than change the qualification of TheTSCguidelinesrefertothispaymentasanincentiverath- particular households. The last survey was in 2003. The cate- erthanasubsidy,giventhatthecashistransferredtotheBPL gorization of the 2003 BPL survey is not used by most states, householdsonlyoncethevillageasawholehasreachedODF however, as the new criteria are not fully accepted. In most status. According to the 2007 TSC guidelines, the construc- states, including Maharashtra, any programs that are targeted tion of household toilets should be undertaken by the BPL at BPL households make use of the 1997 survey data. household itself. The "cash incentive" should be provided to the BPL household once completion of construction and There are substantial exclusion errors associated with this use of the toilet by the BPL household can be demonstrated, poverty categorization mechanism. In some cases, in the "in recognition of its achievement." However, the program drier and poor areas, poorer households migrate out for 88 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study work and hence fail to get captured in the survey. Village discussions indicated that exclusion error could be anywhere BOx C.2 - CRiTERiA FOR idEnTiFyinG BPl hOuSE- between 10% and 20%. Inclusion errors are reported to be hOldS less, at about 5% to 10%. Other studies point to higher The criteria for defining BlP households used in the levels of exclusion, such as 53% for Maharashtra and 50% 1997 survey had a set of five questions: nationally. A recent national survey analysis put the exclu- · Whether the household operated a land of more sion error at 31%, but this has not yet been validated. than two hectares; · Whether it owned a `pucca house' (i.e. made of C.4 Evaluation of the program's performance durable material) as defined in the Population This evaluation was done based on a more detailed analy- Census; sis and field visits carried out in the three study districts of · Whether its annual income was more than Rs Chandrapur, Kolhapur, and Nashik, since some of the infor- 20,000 (US$400); mation was not available in an aggregated form at the state · Whether it owned any of the following consum- level. Getting district-level information enabled us to evalu- er durables: television, refrigerator, ceiling fan, ate slightly different approaches depending on the district. motor cycle/scooter and three wheelers; and · Whether it owned farm equipment such as tractor, C.4.1 Impact on sustainable access to services power-tiller, or combined thresher/harvesters. TheTSChasgeneratedaverysubstantialincreaseincover- agethroughoutthestate,withmorethan4millionlatrines These questions were asked of each and every house- constructedinfouryearsuptoNovember2008. hold in the village. if a household answered in the affir- mative to any one of the five questions, it was declared Although the TSC program was initiated in July 2000, it to be visibly nonpoor. This was done to distinguish the started operating at the district level in 2004 or 2005, depend- "visibly poor" from the "visibly nonpoor" households ing on the district. The program expanded at a very fast pace in the village relatively quickly and in an inexpensive in those initial years, although progress slowed down slightly manner. Visibly nonpoor households were excluded in 2007-2008 as it sought to consolidate achievements. from the more extensive BPl survey that collected information on consumption expenditures. Out of the total number of latrines built under the TSC, approximately 34% were built for BPL households with a Once households are identified as BPl, identity cards hardware subsidy from the government. All other latrines were are issued to them that implicitly give them access to built without a public subsidy but thanks to a comprehensive various anti-poverty programs (e.g., free or subsidized program of social mobilization. In addition, it is important to electricity, subsidized rations) which are implemented note that a total of 117,693 latrines were provided to institu- by the central and/or the state governments. The 1997 tions during the same period, mostly to schools and angawa- BPl census methodology has several shortcomings dis. Table C.5 below shows key achievements of the program. which are part of the debate nationally on develop- 6,131GPsachievedODFstatusandobtainedNGPrewards ment and poverty. Some of the major shortcomings sinceTSC'sstart. are: (i) very stringent "exclusion" criterion whereby households are declared visibly nonpoor even if they The proportion of GPs having reached ODF status was possessed a ceiling fan; (ii) non-availability of official 22% in Maharasthra as a whole by late 2008 and as high poverty lines for all states/uTs; (iii) using uniform crite- as 77% in Kolhapur. Whereas the state as a whole has still ria without allowing for inter-state variations, especial- a long way to go before achieving ODF status, the districts ly for hilly and remote areas; and (iv) not allowing new where the TSC has been active for the last three or four households to be declared poor in the interim period years have made remarkable progress. before the next survey is instituted. www.wsp.org 89 Financing On-Site Sanitation Annex C maharashtra case study TABlE C.5 ­ ACHIEVEMENTS OF THE TSC IN MAHARASHTRA AND STUDy DISTRICTS (JUly 2000 TO NOVEMBER 2008) Study districts Chandrapur Kolhapur nashik maharashtra number of households without sanitation at start of TSC (2003) 196,874 326,521 437,740 8,897,000 BPl households w/o Sanitation 110,743 272,250 151,355 3,352,000 APl households w/o Sanitation 86,131 54,271 286,385 5,545,000 Baseline coverage 23% 33% 17% 20% households provided with sanitation facilities through TSC 54,803 301,654 212,776 4,201,000 BPl households provided 37,960 62,421 104,677 1,442,000 APl households adopted 16,843 239,233 108,099 2,759,000 Increase in coverage (compared to 2003 population)* 21% 62% 41% 38% Number GPs having obtained NGP reward (end Nov 08) 73 791 180 6,131 Note: The increase of coverage is calculated against the population in 2003 as data on the population in 2008 was not available. The increase in APL adoption in Kolhapur may reflect improvement of existing latrines. Householdsreportedsatisfactionwiththefacilitiesaccessed The average cost of sanitation provision for an APL house- asaresultoftheTSC. hold was highest in the Kolhapur district. There are sever- al potential reasons for this: Kolhapur is, on the whole, a Women members were more vocal and emphatic in stat- richer district, so this would tend to push all materials costs ing the advantages of having toilets in the house and took higher. In addition, design preferences there were higher, pride in their use and maintenance. Some reports of the helped by the availability of credit. Hardware costs repre- older men resorting to open defecation were heard in the sented the largest share of investments, with software costs villages that are yet to achieve ODF status, but this was accounting for only 7% of total costs in Maharashtra as a also reported as seasonal and temporary in nature. Village whole. In Nashik, the TSC program achieved significant committee members were confident of getting the "elders results with a very small software cost mark-up (2% of total to adopt acceptable practice," once the campaign for keep- costs compared to 10% in Chandrapur). ing Panchayat ODF starts. The village visits indicated that the facilities were being used and where superstructures had From the household point of view, APL households had to previously been temporary in nature they had been built contributebetween11%and26%oftheirincomeandBPL more permanently. households between 19% and 25% (after receiving financial support for hardware and adapting latrine construction designs C.4.2 Costs and material use), as detailed in Table C.7 see page 91. There is a wide variance in unit costs for household sanita- tion adoption depending on the district and on the level of In Kolhapur, household investments represented the highest household income, as shown on Table C.6 see page 91. percentage of their incomes. It is likely that, given the wider availability of credit in that particular district, households have Total costs per APL household ranged from US$156 in been able to commit higher investments than they would Nashik to US$387 in Kolhapur, and total costs per BPL have done without access to credit. The fact that investments household ranged from US$94.2 in Nashik to US$117.4 represent a high share of BPL households' income in Kolhapur inKolhapur may also explain why, proportionally, BPL households did not benefit as much from the program, as discussed above. 90 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study TABlE C.6. TOTAl (PUBlIC AND PRIVATE) COSTS By DISTRICT AND INCOME CATEGORy (US$2008) Chandrapur Kolhapur nashik maharashtra All households uS$ % uS$ % uS$ % uS$ % Total costs per household 162.3 100% 317.3 100% 127.0 100% 223.9 100% hardware costs per household 150.6 93% 307.6 97.0% 123.0 97% 208.4 93% Software costs per household 11.7 7% 9.6 3.0% 4.0 3% 15.5 7% APl households Total costs per household 274.89 100% 387.89 100% 156.82 100% 332.88 100% hardware costs per household 263.2 96% 359.8 93% 152.8 97% 265.7 80% Software costs per household 11.7 4% 28.1 7% 4.0 3% 67.2 20% BPl households Total costs per household 112.3 100% 117.4 100% 94.2 100% 104.1 100% hardware costs per household 100.6 90% 107.8 91.8% 92.3 98% 98.8 95% Software costs per household 11.7 10% 9.6 8.2% 2.0 2% 5.3 5% TABlE C.7. hOuSEhOld inVESTmEnT AS % OF hOuSEhOld inCOmE Chandrapur Kolhapur nashik maharashtra APl households 18.7 26.0 11.1 18.6 BPl households 19.0 25.3 20.5 21.6 Source: Author's analysis. Operating costs represent a very modest part of household TheTSC has succeeded in leveraging household investment incomesand,assuch,arenotanaffordabilityconstraint forsanitationfacilities,withleverageratiosvaryingfrom2to 38dependingonhouseholdincomeandonthedistrict. For BPL households, operating and maintenance costs repre- sented at most 1.20% of their annual income, mostly spent on Leverage ratios are defined as the ratio between the funds latrine cleaning materials. That share would increase slightly if invested privately and the public funds spent, including one were to include the cost of cleaning the septic tank (about hardware subsidies and a portion of the total software costs Rs 600-800 or US$12-16 per event), but lack of reliable infor- (including campaigns and awards). On the whole, leverage mation on the frequency required for such operations stopped ratios (as shown in Table C.8 bsee page 92) are lower for us from calculating total operating-cost estimates. BPL households than for APL households. given that BPL households receive a hardware subsidy and invest in a lower C.4.3 Effectiveness in the use of public funds (and cheaper) standard than APL households. The leverage Fromthepublicpointofview,theincreasedaccess/public ratio was highest in Nashik, where good results were achieved fundingratiowashighthroughoutthestate,with50house- with relatively few software inputs. The leverage ratio was also holdsservedforeveryUS$1,000ofpublicfundsusedand substantially higher than average in Kolhapur, particularly for morethandoublethatvalueinNashik. APL households, where the introduction of credit facilities seems to have helped in leveraging household investments. This indicator shows that US$1,000 of public funds could trigger investment in household sanitation for at least 50 Credit instruments can bring down the time required to households. In Nashik, this ratio reached 109 households move to total sanitation if other conditions of awareness as software costs were very small and the technical solutions creationandprideareinplace. adopted by households were comparatively cheaper. www.wsp.org 91 Financing On-Site Sanitation Annex C maharashtra case study TABlE C.8. lEVERAGE RATIOS: US$ INVESTED PRIVATEly FOR EACH US$ OF PUBlIC MONEy SPENT Chandrapur Kolhapur nashik maharashtra Overall (all households) 4.7 27.7 12.9 10.3 For APl households 22.5 37.3 38.0 17.1 For BPl households 2.1 6.1 11.0 3.1 Among the study districts, Kolhapur was the only district ThefundsallocatedtohardwaresubsidiesforBPLhouseholds where there had been an organized initiative to link house- accountedfor22%oftotalpublicspendinginMaharashtra, holds with credit institutions (it is also a comparatively richer although this share stood at close to 60% in Chandrapur district where households are likely to be better educated). and Nashik compared to only 13% in Kolhapur. This is This seems to have accelerated the move towards total sanita- because the programs have targeted BPL households much tion. In 2008, after such credit products were introduced, 603 more aggressively in Chandrapur and Nashik. In Kolhapur, GPs were declared NGP, compared to a cumulative total of even though 83% of the households without sanitation at 258 GPs achieved over the previous three years. In the other the start of the program were BPL households, almost 80% districts, credit instruments were only offered on a sporadic of latrines built under the TSC were for APL households. basis, arising from local bank manager initiatives and not as By contrast, in Chandrapur BPL households accounted for a district-wide attempt. Where used, credit instruments seem 56% of households without sanitation at the start of the to have been useful to lift any financial stumbling blocks to program, but they represented 69% of beneficiaries during move the household from intention to construction. the life of the program. C.4.3 Poverty targeting C.4.4 Financial sustainability Intermsofpovertytargeting,theprogramhasfocusedonbehav- The program appears financially sustainable given that iorchangeinpoorandnonpoorhouseholds,withadditional publicfinancingrepresentsarelativelymodestshareoftotal financialsupportforpoorhouseholdsthatadoptedhousehold investment. sanitation practices. The program is targeted at poor house- holds (those households that have an average annual household Public financing (non-repayable) represented 9% of total income of less than US$400 and meet a series of other criteria, expenditure in Maharashtra as a whole, but ranged from 3% as described in Box C.2 above). The hardware subsidy provided in Kolhapur to 18% in Chandrapur, pointing to relatively high to BPL households represented approximately 20% to 25% of financial sustainability. This ratio remains relatively modest, hardware costs for those households, whereas APL households which means that the financial sustainability of the scheme is received no hardware subsidies. not in question, especially given that funds to scale up this initia- tive have already been allocated. However, there are reasons to ErrorsofexclusionfollowfromtheBPLsurveycategorization. be concerned about the physical sustainability of the scheme. Discussions at the village indicate an exclusion error estimate between 10% and 20% and a possible inclusion error of a TheformalmonitoringandassessmentsystemfortheNGP similar proportion. Inclusion errors are not corrected, but awardsislargelyaone-offevent,however,whichmeansthat the GPs attempt to correct the exclusion errors by providing lastingimprovementsmaynotalwaysbeachieved. some kind of short-term support from the GP funds, where possible. The bottom range of the APL households, which A national study commissioned by UNICEF reported that might have been wrongly categorized as such, is disadvan- 35% of households resorted to open defecation in panchayats taged by the fact that they would seldom have access to credit declared NGP the year before.5 Among the study panchayats since they are not deemed creditworthy. (162 GPs), only 4% seem to have maintained ODF status (most 5 See UNICEF 2008. 92 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study of these from Maharashtra) and another 27% of panchayats C.5 Summary evaluation had less than 10% of the households practicing open defeca- This study examined the situation of sanitation financing tion whereas the other villages had a higher proportion of practice and the articulation of policies and program guide- people doing so. Thus, the sustainability of the ODF achieve- lines through small field studies in three selected districts of ment poses questions and points to the need for monitoring Maharashtra. Overall, the TSC campaign (and accompany- and corrections in the post-ODF achievement phase. ing measures) had a very substantial impact over a short period, and this impact has high chances of being sustained In Maharashtra, the SGBGSA and the RTM CVC serve to over time thanks to incentives linked to outcomes. maintain this performance for interested GPs to an extent, as these campaigns are run annually and 30% of the score for Intermsofimpactonsustainableaccesstoservices,theTSC the RTM CVC is based on household sanitation (in addition campaigninMaharashtrageneratedrapidgainsincover- to other indicators), so the number of villages returning to age, with 21 million people getting access to sanitation in open defecation practices is lower than in other states. four years throughout the state, equivalent to an 18% gain in coverage across the state. ThefinancingmechanismsdevelopedbyBanksforsupport- ing sanitation investments have been tried out for the first In cost terms, the program delivered solutions at a reason- timeinKolhapurandinsomepartsoftheotherdistricts.The able cost. The burden on public funds was limited, with a sustainabilityofthisasafinancialoperationwillonlybefully high increased access / public funding ratio, with US$1,000 understoodoverthenexttwotothreeyears. in public investments enabling between 50 and 100 house- holds to get access to sanitation. For APL households, the Considering the 95% recovery rate reported by the SHGs, investment represented a sizeable portion of their annual it should not be a problem for banks to recover and sustain income (between 11% and 26%), equivalent to the burden these operations, as long as relationships with the customers for BPL households following reception of the financial are maintained. incentive. Operating costs were very affordable but the costs of emptying septic tanks on a regular basis may have The key element of financial sustainability at the local level not been fully taken into account. would arise from successful completion of the sanitation initiative and not allowing the credit product to be misused Intermsofeffectivenessintheuseofpublicfunds, the lever- or badly used. This requires dovetailing the credit provision age ratio is very high, with US$1 of public funds generating with the IEC effort and management of the supply chain. slightly over US$10 of private investments. Among the study districts, the leverage ratio was very high (37) in Kolhapur for C.4.5 Scalability APL households, in part thanks to a district-wide initiative to TheTSChasalreadyscaledto587ofthe608ruraldistricts offer microcredit for sanitation investments. inthecountry,withenoughfundsbeingmadeavailableby thenationalgovernmenttoachievetheobjectivesidentified In terms of poverty targeting, theTSC program provided inthesedistrictsandtakeupandcompletetheremaining targeted support for BPL households identified based on ruraldistricts. a narrow set of criteria. The hardware subsidies account- ed for 22% of total public fund spending, which is rela- The program has already been extended to all the districts in tively modest. There were problems in the identification of the state of Maharashtra and has recorded modest to substantial poor households, however, with exclusion errors (i.e., poor progress. In terms of government investments, the quantum of people not being eligible for the subsidy) being estimated at funds earmarked for this form only a minuscule part of the 10% to 20% and in some cases up to 53%. Inclusion errors state and national budgets. For example, the national budget are reported to be much less. (2008-2009) had total expenditures of Rs 7,508,830 million, out of which the budget for TSC accounted for 0.2%. www.wsp.org 93 Financing On-Site Sanitation Annex C maharashtra case study TheTSCisfinanciallysustainable,asitwasmostlyhouse- Hardware subsidies are provided to a narrowly defined holdsthatinvestedintheirownfacilities,withpublicfunds group of poor households. These subsidies are provided accountingforonly9%oftotalcosts.There are questions ex-post, once the household has built the latrine and the about the physical sustainability of the scheme, however, village as a whole has been declared ODF. The switch to since the NGP award is largely a one-off event. However, an output-based subsidy meant more than a difference in the set of campaigns developed by the State of Maharashtra payment terms. It meant that the entire program was more helps maintain ODF performance over time, especially with focused on promoting demand at the village level rather the yearly Sant Gadge Baba (SGBGSA) campaign which than on building latrines for BPL households. puts emphasis on village cleanliness. Since the financial support for latrine construction to poor The TSC approach has already been scaled up to 587 households is provided only after construction, many such districtsoutofthe608ruraldistrictsinthecountry, with households have difficulty mobilizing the funds required to enough funds made available by the national government invest. Some local governments have defined strategies to to reach the objectives in those districts. The funds allocated help poor households build latrines before they get the subsi- to the TSC represent a minuscule portion of the national dy, such as procurement of materials on credit and financial budget (0.2%). However, the scale of the challenge remains support to indigent households from GP funds. The study substantial, with 59% of the Indian rural population still found that even poor households receiving a subsidy spent lacking access to improved sanitation. far more than the subsidy on building a latrine that met their needs; whereas external hardware subsidies were originally WHAT SEEMS TO HAVE WORKED? intended to cover 80% of the latrine costs, in practice they TheTSCprogramreliedmostlyoncommunicationandmoti- often covered only 20% to 25%. vation for behaviorchange leading to householdsanitation investmentandimprovedsanitationpractices.Where neces- Credit has developed in a number of ways to help house- sary, it has provided targeted support for poor households in holds meet the investment costs. One option has been to order to ensure that the village as a whole could reach ODF make use of credit facilities provided by the formal bank- status and other cleanliness objectives. ing channels to informal savings groups (SHGs), while the other (as in Kolhapur) has been to coordinate with the lead Monetary rewards provided to villages that have met a bank and the panchayats to design a credit product for numberofcriteria(including100%householdlatrineand latrine construction. However, this more "formal" type of ODFstatus)seemtohavebeeneffectiveattriggeringvillage- credit scheme has mostly benefited the APL households in widemobilization. The rewards need to be spent on sanita- the district of Kolhapur, which is also comparatively rich- tion investments, which strengthen the ability of the program er. Where available, credit has helped speed up household to sustain results over time. In addition, Maharashtra has adoption, although it was not a key determinant for getting adopted other statewide campaigns, which in some cases the households to adopt sanitation. include an annual monitoring process. This, together with a focus on outcomes rather than outputs. should help with maintaining usage over time. Such emphasis on outcomes was introduced in 2004 to improve effectiveness. 94 Water and Sanitation Program Financing On-Site Sanitation Annex C maharashtra case study AND WHAT DID NOT WORK SO WEll? Exclusionerrorslinkedtopovertycategorizationhavecreat- edconcernsregardingtheequityofthescheme. The income categorization applied to the 2003 survey has been ques- tioned and attacked in court, which means that most states still use data from a population survey dating back to 1997. Households will most certainly have moved in and out of poverty since then. This is mitigated to an extent at the local level through GP initiatives to provide support to excluded households. Theprovisionofcredithasbeenonewayofalleviatingthe burdenforpoorhouseholds (particularly for those that have been denied subsidies because they have not been catego- rized as poor). However, such initiatives are only sporadic at present, with some districts being ahead of others, and they have not been well documented. In addition, the mixed history of rural credit in India would suggest that such products need to be designed to suit local construction and livelihoods and delivered coupled with suitable institutional safeguards. Care must also be taken to ensure that access to such products follows behavior change interventions and is supported by the supply chain elements. Finally, despite the ongoing campaigns, sustainabilityofODF achievementsremainsakeychallenge. Program managers are discussing possible methods for post-ODF monitoring and dovetailing with the broader development agenda www.wsp.org 95 Financing On-Site Sanitation Annex d mozambique case study Annex d - mozambique case study Case study written by Alan Malina and Sophie Trémolet OVERViEW OF mOzAmBiQuE CASE STudy (Plm PROJECT) Key facts Project name Plm (Programa de latrinas melhoradas) Project objectives Establish production units of improved latrines in all major urban centers throughout the country and promote sales of improved latrines at a subsidized price. Public financiers Government of mozambique, with initial support from donors (with undP as lead) Scale 1,888,000 people reached in all 10 provincial capitals and some district towns Time frame Program years: late 1980s to date / Study period: data up to 2007 level of service improved latrines (domed slab with concrete blocks for lining the pit) Summary of financing approach Software support · Software support for sanitation promotion and the establishment of local workshops building slabs and latrines · Software mark-up initially accounted for a substantial amount but reduced to nothing following the decen- tralization process. hardware subsidies · Output-based hardware subsidies to local sanitation providers for each slab or latrine sold (initially intended to cover 40% to 60% of hardware costs) · Public hardware subsidy: about US$20 per household (19% of hardware costs). This can be complemented by a substantial cross-subsidy from other workshop activities (selling cement slabs, renting out space, etc.). · hardware subsidies = 100% of public funds (following decentralization as data for the previous period is not available) Access to credit · not specifically included Summary evaluation impact on sustainable · Almost all with improved latrine got it through PlM (29% of urban population) access · Relatively high level of maintenance and good evidence that slabs have been moved to a new pit when the initial one fills up Costs · Average hardware costs: uS$70 (about 10% of lowest quintile income) · moderate to low operating costs (exact figure not estimated) Effectiveness in the use · Relatively low leverage ratio: 0.87 (partly due to relatively low cost of latrine) of public funds · "increased access / public funding" ratio not available Poverty targeting · no explicit poverty targeting: all potential customers assumed to be poor · implicit targeting via self-selection given relatively low level of service Financial · Public funds = 58% of total costs of sanitation adoption (estimated): low sustainability and high dependency sustainability on external financing Scalability · not scalable in its current state (sources of subsidy financing have almost dried up) www.wsp.org 97 Financing On-Site Sanitation Annex d mozambique case study OVERViEW OF mOzAmBiQuE CASE STudy (Plm PROJECT) COnTinuEd Some lessons learned What worked? · Subsidies provided to the production workshops, based on sales figures, were an interesting attempt to bolster the supply chain. This was also more effective than providing subsidies to households, especially at times when the administrative system was weak during the civil war. What did not work so · The production subsidies have not been updated to reflect price increases well? · As a result, workshops are cash-strapped and cannot invest in adapting what they have on offer to current market demand. d.1 Overview of the financing approach This case study starts by providing some brief background The Improved Latrines Program (Programa de Latrinas on the country and sanitation context. We present the Melhoradas - PLM) was initiated in Mozambique in the early way in which on-site sanitation was provided through the 1980s in very difficult circumstances, including civil war and program before analyzing the costs of such provision. We extreme poverty. The program aimed to provide low-cost sani- then evaluate the performance of the financing approach tation solutions to households in peri-urban areas through a for the on-site solution, focusing on its impact on sustain- network of latrine and slab producers in all main cities. These able access to services, its costs and effectiveness in the use producers are referred to as "workshops" by the program and of public funds, and its poverty targeting, financial sustain- they are neither purely public nor private. The approach to the ability, and scalability. A summary section draws out key program has evolved substantially over the years. Over the last lessons learned from the program, looking at what seems to 17 years, the program has benefited almost 2 million people in have worked and what did not work so well. peri-urban areas of all the major towns. The average hardware cost of the sanitation solution built under the program (the The detailed evaluation in this case study is focused on the improved latrine) was around US$70. current set-up of the program, since detailed quantitative information on the previous phases was not available. The program initially helped to set up these production workshops, through a combination of software support d.2 Country and sanitation sector context (training activities, etc.) and subsidies. In many cases, the land on which the workshops operate was provided for free d.2.1 Country context by the government. From 1992, the government started Mozambique is one of the world's least developed nations, providing production subsidies to the workshops based on with over 50% of the total population of about 20 million their sales. As such, the program can be seen as an early living in severe poverty. Its situation has worsened over the form of providing output-based subsidies. The subsidies last three decades largely due to the civil war, which lasted were intended to cover between 40% and 60% of produc- from independence in 1975 until 1992. The war destroyed tion costs depending on the region, to reflect differences in much of the social and economic infrastructure of the coun- input costs and poverty levels and to reduce the sale price try. Thousands of people died, 1.5 million became refugees, to households. From 1994, the government (with exter- and 3.5 million were displaced internally, mainly to insani- nal donor support) also financed the costs of "community tary and poverty-stricken peri-urban areas. Drought and animators" to carry out social marketing and sanitation economic factors have also contributed to Mozambique's promotion campaigns. It is not possible to estimate the problems. Mozambique's GDP per capita stood at US$396 value of such software support, however, as this system has in 2007 and was US$842 in PPP-adjusted terms, according since been dismantled following decentralization. to the IMF's World Economic Outlook. 6 The "community animators" were transferred to municipalities but effectively stopped promoting sanitation, which resulted in decreased interest in the product. Responsibility for paying production subsidies was transferred to provincial governments. Some provinces stopped giving the subsidies and others kept their level unchanged since 2000 while production costs have increased significantly. As a result, the workshops have had to carry out other income-generating activities in order to cross-subsidize slab and latrine production costs. 98 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study d.2.2 initiatives to increase coverage in 2008 in some peri-urban areas of Maputo indicated 82% In peri-urban areas, the major initiative to increase coverage was coverage by improved sanitation (38% of the population the National Low-Cost Sanitation Program (Programa Nacional had septic tanks, 43% had improved latrines and 1% had Saneamento Baixo Custo, PNSBC), which has been in existence ecosan latrines, while 16% had traditional latrines and only in different forms since its creation in 1985. This program, 2% no excreta disposal facility at all). which was later renamed the Improved Latrines Program (Programa de Latrinas Melhoradas, PLM) is the subject of this Adequate sanitation coverage is higher in the 23 larger cities case study and is reviewed in more detail in Section D.3. (48% of a total of about 5.5 million people) than in the 68 small towns (14.4% of about one million people). These d.2.3 Access to sanitation small towns were included in the urban context for water Urban coverage. The coverage through sewer networks in and sanitation in 2006 only. Mozambique is very low and will continue to be low despite significant planned investment, benefiting the residents of the Rural coverage. Rural coverage lags considerably behind central fully urbanized areas of some cities. Only two wastewa- urban coverage, even if towns are included in the definition ter treatment plants exist in the country, one in Maputo and of rural (see Table D.2 below). Depending on whether unim- one in the model town of Songo that serves the Cabora Bassa proved or traditional latrines (without a concrete slab) are dam. In 2006, urban sanitation coverage (including peri-urban included in the coverage numbers, the actual coverage (with areas) was estimated as shown in Table D.1 below. The number an improved traditional latrine) can vary from 2% to 36%. of people served by an improved latrine corresponds rough- ly to the number of improved latrines built under the PLM TABlE d.2 RuRAl SAniTATiOn COVERAGE in mOzAmBiQuE throughout the various stages of the program, which means Total rural unimproved improved Septic that the PLM made a key contribution to improving access to year coverage latrine latrine Tanks improved sanitation throughout the country.7 2000 28.7% 27% 1.4% 0.3% 2002 33.3% 31.2% 1.8% 0.3% Coverage is substantially higher in the capital city, Maputo. Source: National Statistics Institute (INE). Note:Statistics include coverage in the 68 towns, still defined as rural at the time. A comprehensive household survey carried out by the Water and Sanitation for the Urban Poor (WSUP) project D.2.4 Institutional set-up for sanitation TABlE D.1. URBAN SANITATION COVERAGE, 2006 Coverage (%) Population Served by adequate sanitation 44% 2,860,000 of which Public sewer network 4% 260,000 Septic tank 11% 715,000 improved latrine 29% 1,885,000 no adequate sanitation 56% 3,640,000 of which Traditional latrine about 40% ~2,600,000 Other or none about 16% ~1,040,000 Total 100% 6,500,000 Sources: National Directorate of Water; sewerage data from individual towns 7 The private construction sector provides other types of sanitation solutions, including cesspits and pour-flush toilets, which are targeted at the better-off segment of the population. www.wsp.org 99 Financing On-Site Sanitation Annex d mozambique case study Overallset-up.The Ministry of Public Works and Housing d.3 The improved latrines Program (Plm) (MOPH) is the highest government entity with authority This section presents the overall set-up of the PLM, the insti- over public works and water resources management that tutional set-up and levels of service, the total costs and sources directs and controls activities in the water and sanitation of financing, as well as the methodology for subsidy design. sector. The National Directorate of Water (DNA) is the entity within MOPH responsible for water supply, sanita- d.3.1 Program overview tion and water resources management. DNA is composed The PLM has evolved substantially from its inception in the late of three departments and three offices, with the Sanitation 1970s to date. We can distinguish several phases, as follows: Department (DES) being responsible for the promotion · Initialpilotphase: From 1979 to 1981, the low-cost and coordination of both urban and rural sanitation activi- latrine technology was developed and tested, mostly ties. The sectoral functions of MOPH are executed at the in Maputo; provincial government level by Provincial Directorates of · Scale-upphase: From 1982 to 1992, the government Public Works and Housing (DPOPH). The decentraliza- extended the approach, creating slab production work- tion process assigns increased responsibilities to the district shops, first in Maputo and then in other cities, without governments and municipal councils. hardware subsidies but with software support; · Developmentphase: From 1992 to the late 1990s, the Urbansanitation. Wastewater and rainwater networks and government refined the approach to increase perfor- wastewater treatment infrastructures are generally managed mance, with the introduction of output-based subsidies directly by the municipalities. Given that each municipal- paid directly to the workshops (based on sales) and the ity defines its own internal structure, this service can be inclusion of community animators in charge of demand managed by a directorate, a department, an office, a coun- promotion and community mobilization; and cilor, a service or a sector. Only in Maputo, Quelimane, and · Decline phase: From the late 1990s to date, the Beira are the services administered in a more autonomous program has been gradually losing momentum, due way. With respect to on-site sanitation, the promotion and to the withdrawal of most external donor support, construction of improved latrines is the responsibility of the a badly managed decentralization process, a subsidy Improved Latrines Program (PLM), the subject of this case freeze (they have not increased in line with costs or study (see Section D.3 for an overview of the program). have been eliminated by provincial governments), the loss of community animators, and a slump in Ruralsanitation. With decentralization, responsibility for rural demand for the workshops' products. The future sanitation falls to the municipal councils (which often have of the program as it currently stands is seriously at significant rural areas under the responsibility) and district stake, unless it is revitalized. administrations. Their responsibility is not to build but to give direction, coordination and supervision to NGOs, CBOs and Initialpilotphase(late1970sto1985). The program started the private sector, so that each family can have its own sanita- when the government, with external support, instituted a tion facilities. The Provincial Water and Sanitation Department research project in 1979 to design a latrine that was techni- (DAS) under the DPOPH has a key role in supporting the cally sound, could be used widely in the country and was municipal councils and the district administrators through affordable to most peri-urban households. The research training and technical assistance as well as assisting in identify- revealed that most households could dig a pit, typically 1.1 ing financing (supported by DNA at the national level). meters in diameter, and most were satisfied with an unroofed fence for privacy, but that the biggest problem was covering the pit. The research project designed a domed latrine slab, and piloted it successfully in one peri-urban area of Maputo. In 1982 the Maputo City Council adopted the research proj- ect's approach and began replicating it in other parts of the city by establishing a series of cooperatives. 100 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study Scale-upphase(1985to1992). The program was expanded Declinephase(fromthelate1990stodate). In the late 1990s, to the national level in the mid 1980s with central govern- the external support agencies became increasingly concerned ment and donor support, and in 1985 was transformed into about the sustainability of the program. Demand for the PNSBC with the objective of serving expansion zones on workshops' products had slumped, as the demand in their the outskirts of cities. At that time, there was an acute short- immediate surroundings had already been fulfilled and the age of qualified professionals in Mozambique. They were population was getting richer, with higher expectations in concentrated in Maputo, so PNSBC's main management terms of level of service. The United Nations Development and decision-making office was located there. However, Programme (UNDP), the main support agency, began plan- Mozambique is a very large country with poor transport ning its withdrawal from PNSBC. Donors facilitated the infrastructure, so it was necessary to establish production development of a Low-Cost Rural and Peri-Urban Sanitation units in cities and towns across the country. Strategy, 1999-2003, with the objectives of decentralizing operations, changing the role of the government from imple- The program led to the creation of PLM workshops in 16 mentation to that of creating an enabling environment and majorcities. The initial idea was to establish cooperatives in involving the private sector and NGOs in implementation. each neighborhood, where three to five people would make This Strategy foresaw the gradual transfer of responsibilities slabs and blocks, carry out promotion and offer installation to the municipal councils and/or DPOPH with a program of services for improved latrines. However, the cooperatives did capacity building over three years. not take off and the workshops were established as semi-pub- lic entities, with funding from the central government via A rapid and poorly prepared decentralization process was the project. By 1987, PNSBC had established 38 production initiatedin2002. Despite the development of the strategy, units around the country and was active in all 10 provincial little or no progress was made in decentralizing the PNSBC, capitals and some large district towns. This helped to bring and eventually the external donors withdrew their funding the program closer to its target beneficiaries. Production because they saw the centralized program as unsustainable. rose to 25,000 slabs per year and a rural program was also The PLM workshops became "autonomous" units under the established, although the focus remained predominantly on direction of the Provincial Water and Sanitation Departments peri-urban areas. However, workshops were equipped with (DAS) with unclear legal status, being halfway public and donated tractors and trucks and other equipment which was halfway private bodies. Although the workshops are techni- not viable from an economic point of view. cally under the supervision of the Provincial DAS, the DAS have no budgetary obligation towards the PLM workshops. Developmentphase(1992tothelate1990s). In 1992, follow- The workshop workers are not civil servants and in most ing a sharp increase in the costs of construction materials, cases they do not have a contract (although in Maputo and production subsidies were introduced and paid to the work- a few other cases, the DAS does in fact locate civil servants shops for each unit produced and sold. By 1994, an increasing in the workshops). The workshop workers are paid through effort was made to introduce a promotional element, including the proceeds of latrine sales but the transfer of government health and hygiene, using community animators. Although subsidies varies in each province. The community anima- there were never more than 80 community animators for the tors were assigned to municipal councils, while some went to whole country, it made a significant impact on the demand for work for NGOs as trained community development agents. improved latrines. The community animators were assigned to As a result, the PLM workshops effectively lost their "sales specific PLM Workshops and assisted in publicizing the servic- people". However, in two or three cases, the municipal coun- es offered and increasing demand. This helped in coordinating cils did take a more proactive role in adopting the PLM, and latrine construction with hygiene promotion and the assess- these workshops are still functioning well to date ment of eligibility for free latrines. www.wsp.org 101 Financing On-Site Sanitation Annex d mozambique case study ThePLMiscurrentlygoingthroughaseriouscrisis,andthelong- The domedslab (with or without lining of the pits, depend- termviabilityofthePLMworkshopsisatrisk. At present, very ing on soil conditions) was the technology initially devel- few of the PLMs are financially sustainable. They are receiving oped by the PNSBC. It contains about half a bag of cement no training or support from the national level. The approach and no steel and there are a significant number of people to the PLM varies from one Province to another. Given that trained to fabricate it. the PLM Workshops have very few remaining social animators, little is carried out regarding hygiene and health education and The sanplat consists of a 0.6 x 0.6 meter square concrete demand generation. Some technicians from the workshops try slab (with lid) that can be placed on existing traditional to stay in contact with the communities with lectures in schools latrines, making them easier to maintain as well as safer. and house visits, but this is very much dependent on the train- ing and character of each individual. The pour-flush latrine using a sanplat has been proposed as an alternative model. This option can be used inside the d.3.2 Program institutional set-up house, linked to the pit through a PVC pipe. The pit can be The PNSBC was initially hosted by the National Institute closed off with a slab. Very few units with this option have for Physical Planning, which was later absorbed by the been produced and sold, however. Institute for Rural Development. Following institutional reform, the PNSBC was relocated in 2001 to a low-cost The PLMs generally produce the domed slab with concrete sanitation office within the DNA. blocks for lining the pits. The other technologies are proposed as models. Since the PLMs no longer have social Followingdecentralization,thereisnolongeracentralPLM animators, there is little demand for the other technologies, officegivingguidanceandadvicetothePLMWorkshops.The which are not well known to the population. Department of Sanitation (DES), under DNA, is directly responsible for three PLM workshops in Maputo City, but it CAPiTAl COSTS only has indicative responsibility for the decentralized PLM In 2007, the production costs of a domed slab in the PLMs workshops in the provinces. With little direction from the varied from 375 to 800 MTn (US$ 10 to 30) and the costs national level, each province decides independently what of building a complete latrine varied from 1,462 to 2,350 to do with its PLM. The pool of qualified people trained MTn (US$ 56 to 89) as shown in Table D.3 below. These through the PLM is gradually being lost. costs include labor and overhead. Thislackofcentralizedcontrolhashadadetrimentalimpact TABlE d.3 ­ CAPiTAl COSTS OF lATRinE COnSTRuCTiOn in onprogrammonitoringandevaluation. DES tries to obtain Plm WORKShOPS, 2007 figures of annual production of improved latrines from the Production costs per unit (2007 uS$) Provinces, both by the PLM and others. However, DES admits Province latrine (including that it is difficult to obtain "real" numbers for latrine construc- Slab cost of slab) tion, as many different actors are now involved from the PLM nampula 16.9 55.6 workshops through the municipal Councils, NGOs, and the zambézia urban 19.0 58.9 private sector as well as the individual families themselves. zambézia rural 25.9 Gaza 30.4 89.4 d.3.3 levels of service maputo City 14.3 74.5 Three basic technologies are proposed through the PLM, as Average (straight) 21.3 69.6 described below: Note: The data is expressed in 2007 US$ based on the following exchange rate: · The domed slab (with or without lining of the pits, 1US$= 26.3 MTn depending on soil conditions); · The sanplat; and Production costs vary from one province to another largely · The pour-flush latrine using a sanplat. 102 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study due to transport costs and the relative availability of build- management activities have also been kept to a minimum. ing materials. Production costs are lower in the capital city Some workshops produce annual reports but these are basic of Maputo, where all materials are available and transport and focus on the number of slabs produced and sold. Due costs are minimized. Even though the workshops used to to this lack of project administration, software costs are not build entire latrines (for vulnerable populations that used accounted for at present and are likely to be very small. to receive a 100% subsidy) they are now mostly producing and selling slabs, leaving latrine building to the households. D.3.4 Total program costs The workshops would only build entire latrines when they Since the central management of the PNSBC was broken up got paid by donors for doing it. following decentralization, solid numbers (of any kind, includ- ing financial) from the provincial level have been very difficult OPERATiOn And mAinTEnAnCE COSTS to collate. The DES attempts to compute annual provincial Operating costs are considered to be low, largely because the latrine production figures, although it would itself question the latrines are not emptied and cleaning is carried out with locally validity of such figures. Given these limitations, it is not possi- available products (brooms, water, etc.). When the latrine pit is ble to compute an estimate of the total costs of the program as full, the slab is removed and placed over a new pit. Pits tend to they currently stand. Historical information on program costs fill approximately every 10 years, although this would depend prior to decentralization was not available either. on their depth and the number of people using them. Although there is evidence that some households have been moving the d.3.5 Sources of funds slabs to new pits, no data is collected on the number of slabs Prior to decentralization. In 1992, the government started being moved or pit-emptying activities. providing a subsidy for the cost of production so the slabs would be affordable to the poor in peri-urban areas. Workshops SOFTWARE COSTS received the subsidy based on actual sales carried out so that Software costs were incurred during the earlier phases of the the slabs could be sold at lower prices. The costs of building a program to pilot the approach, establish the PLM work- complete latrine were also subsidized, but the workshop would shops, fund the community animators and provide overall only receive the subsidy after the latrine had been built. program coordination at the national level. However, much of these earlier initiatives has unraveled since the late 1990s. The PNSBC was initially supported by several external agen- The PLM workshops no longer carry out the "soft" activi- . cies, principally the UNDP The sanitation work was funded ties (such as health and hygiene education and demand from three sources: external support agencies (mostly support generation) which were previously provided by commu- for personnel, equipment, slab production costs and some nity animators. Since decentralization, administration and recurrent costs); householders (purchase and transport of slabs, TABlE D.4 CENTRAl GOVERNMENT SUBSIDIES FOR IMPROVED lATRINES (IN 2000 US$) City Product Production price Subsidy Charge to household % subsidy maputo/ Slab 10.7 4.5 6.2 42% matola latrine 44.9 22.2 22.7 49% lining 36.9 20.7 16.2 56% xai-xai Slab 8.8 4.3 4.5 48% latrine 36.8 17.3 19.4 47% lining 30.1 17.2 12.9 57% Tete Slab 11.6 6.4 5.2 55% latrine 36.5 17.1 19.4 47% lining 26.3 11.4 14.9 43% Note: The data is expressed in 2000 US$, based on the following exchange rate: 1US$= 15,447 MZM. The total latrine cost includes the cost of the slab, as well as digging and lining costs. www.wsp.org 103 Financing On-Site Sanitation Annex d mozambique case study construction work); and the national government (part fund- production costs. For example, the PLM workshop in ing of the subsidy for slabs, staff and other costs). In 2000, the Nampula sold a slab for 300 MTn (US$11) in 2007 relative contributions amounted to 57% from external support instead of the price set by the government in 2000 agencies, 10% from the government and 33% from house- of 80,000 MZM (US$5). Others, such as the PLM holds. workshops in Maputo, which are still controlled by the DAS, have not been able to do so and are still Subsidy amounts and percentage of costs varied from one prov- charging the same nominal prices as in 2000 (i.e. not ince to the other, as shown in Table D.4 below. The last time even adjusted for inflation). subsidies were based on a fairly detailed analysis of production · SomePLMworkshopshavedevelopedotherincome- costs was in 2000. Different subsidy rates were defined in order generation activities to cross-subsidize the latrines, to reflect varying levels of poverty in the provinces. including some for which they do not have permits (e.g., civil construction), some that are inappropri- Followingdecentralization, responsibility for the program was ate (selling chickens or renting out office space), transferred from the central to the provincial governments. The and others where they are competing directly with subsidy system was continued only in certain cases. The subsidy the unsubsidized private sector (e.g., concrete block amounts have not been updated since 2000 levels (as shown production). in Table D.4 above), while production costs have substantially · Some PLM workshops have sought other subsi- increased, partly due to substantial general inflation. dy sources from donors and NGOs. In Zambézia Province, for example, the workshop has entered Moreover, a 2005 regulation regarding the disbursement of into a contract with UNICEF to provide services government funds (Regulation 54/2005) has been interpreted for rural areas. Thanks to this contract, the PLM in different ways by provincial authorities. Some have inter- workshop was able to recruit new social animators. preted this regulation to mean that DPOPH cannot fund or The PLM workshop trains local artisans in sanita- transfer subsidies to the PLM workshops as they do not have tion infrastructure construction techniques as well an official license to build (alvará). To obtain such a license, as health and hygiene education. They also create they would need, among other conditions, to have 150,000 demonstration centers where the different technolo- MTn (US$5,700) in a bank account, an impossible task for the gies can be seen and the social animators spend time workshops. Without such a license, some provincial authorities in communities. UNICEF subsidizes each latrine have decided to stop providing subsidies. In addition, outside with half a bag of cement per family. The family pays of Maputo, little effort is made to inform the provincial direc- the rest to the local artisan and provides most of the tors of the procedures for obtaining the subsidies. physical labor. The PLM workshops were expected to take on other activi- In several cases, however, these strategies have not been ties in order to survive, without actually specifying what sufficient. Many PLM workshops have not paid staff and how. The workshops have to be self-supporting to pay salaries for several months and are on the verge of bank- for their staff. In general, slabs and latrines are being sold ruptcy. In Nampula, for example, the workshop has 21 at a loss, even if taking account of the subsidies from the workers with a total salary base of 20,000 MTn (US$760) DPOPH in some cases. As a result, each PLM workshop per month and has had to delay paying salaries for several had to develop its own strategy in order to survive, includ- months. Some workshops (in Nampula) have closed down ing the following elements: or have stopped production (for example, in Maputo city). · Some PLM workshops have increased sales prices. Box D.1 on page 105 gives an example of the PLM work- Even though the charges to the client were set in 2000 shops' financial situation. together with the subsidy levels, some workshops have increased their charges to bring those closer to 104 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study BOx d.1 ­ FinAnCiAl imBAlAnCES And CROSS-SuBSi- A particular feature of the maputo workshop is that it diES in OnE mAPuTO CiTy Plm WORKShOP employs a high number of civil servants, since it main- in the maputo City Plm workshop, the actual cost of tains a connection with the department of Sanitation in production of each slab was about 375 mTn (about the central government. US$14) in 2007, but the sales price is still 95 MTn (about US$4) and has not changed since 2000 in local currency. To cover the shortfall between sales revenues and work- Plm workshops in maputo City are still under central shop costs, income is generated through the sale of government control, which may explain why sales concrete blocks and the rental of office space to the private prices have not changed. On the other hand, they are sector within the workshop compound (the workshop was among the few workshops which still receive a subsidy built on land donated by the municipality). for each unit sold. yEARly P&l ACCOunT FOR mAPuTO CiTy Plm WORKShOP (2007) uS$ Comments number of latrines / slabs produced 686 Estimated to be only slabs rather than latrines Sale price / unit 4 Sales revenues 2,478 Production costs / unit 14 Total estimated production costs 9,781 Workshop salary costs (12 contract staff ) 8,213 Based on 12 employees at 18,000 MTn/month Other staff costs (10 civil servants) 0 Civil servants are paid by central government ­ estimated cost to the government: US$6,844 Other costs 1,141 Based on 2500 mTn/month Total workshop costs 9,354 difference from production costs may reflect the fact that civil servants are not paid by workshop Shortfall (sales / production) -6,876 Based on actual production costs, without the costs of civil servants Subsidies 1,826 Paid by central government @ 70 mTn/slab Shortfall after subsidies - 5,049 To be covered through other activities, such as office rental, and cement block construction www.wsp.org 105 Financing On-Site Sanitation Annex d mozambique case study D.3.6 Subsidy design Section D.3.5, however, decentralization has resulted in At different stages of the program, two types of direct hard- those production subsidies not being paid in many prov- ware subsidies have been provided by the government: hard- inces, depending on their interpretation of the workshops' ware subsidies to poor households and production subsidies legal status. to PLM workshops. In the mid 1990s, hardware subsidies were provided to poor households but they were discon- This method of subsidization can be seen as a crude form of tinued following decentralization. Production subsidies to output-based aid, with subsidies paid directly to the provider PLM workshops are now the main source of subsidies, but after the product has been provided. However, OBA usually they are only paid in certain provinces. requires strong monitoring systems in place to ensure that the subsidy is paid when the product has been delivered Targetedhardwaresubsidiestopoorhouseholdshavebeen and that the level of subsidy closely matches demand in discontinued. order to target the subsidy on the poor. Such monitoring and targeting systems appear to be crucially missing in the In the mid-1990s under the PNSBC, the poor and vulner- current PLM set-up. able became a specific target for support with improved latrines. Vulnerable segments of the population were iden- Householdsreceiveamuchhighersubsidywhen,asinthe tified with the support of the GAPVU (Gabinete de Apoio case of the Maputo workshop, sales prices have not been a População Vulnerável ­ Office for Support to Vulnerable increasedsince2000. Populations). Vulnerable people were identified by GAPVU in collaboration with local leaders according to established In the case of the Maputo workshop, sales prices have not criteria (e.g., single mothers with at least five children, been updated since 2000 despite cost increases. As a result, chronically disabled people over 18 years old, elderly people the workshop has to cover the cost differential by finding over age 60 more than two years unemployed, etc.). They ways of cross-subsidizing the sale of slabs (at a loss) from would receive food subsidies as well as other support. About other income-generation activities. 10% of the production of the PLM workshops was given to these vulnerable populations with a 100% subsidy towards D.4 Evaluation of the program's performance a complete latrine. Following decentralization, these direct In this last section, we seek to evaluate the program's perfor- sanitation subsidies were discontinued. INAS (Instituto mance at extending household sanitation based on criteria Nacional de Accão Social ­ National Institute for Social set out in the common methodology for the project. Due to Action) helps vulnerable people through cash and food data limitations, it was only possible to carry out this more transfers but has no contact with the PLM. detailed analysis for the current phase of the program, with a particular focus on the situation in Maputo (as data for Production subsidies to PLM workshops is now the main other regional workshops was incomplete). form of government transfer, although these subsidies are grosslyinsufficientandhaveoftennotbeenpaidsincedecen- D.4.1 Impact on sustainable access to services tralization. Virtuallyallimprovedlatrinesinperi-urbanMozambique havebeenbuiltwithPLMsupport. Around 1992, following a sharp increase in the costs of construction materials, production subsidies were intro- Since the beginning of the PLM in 1980 in Maputo City, an duced and paid directly to the workshops for each unit estimated 363,056 improved latrines have been constructed produced and sold (see Table D.4 above for subsidy levels). with PLM support, serving 1,887,891 people in the peri-ur- Given that the country was still going through the civil war, ban areas of Mozambican cities and towns. As noted in the paying subsidies to the workshops rather than to households discussion of coverage figures, this is roughly equivalent to the was also seen as easier to manage, even though it was clearly total number of people having access to improved sanitation. supply-driven rather than demand-driven. As discussed in 106 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study Theprogram'sperformancehasvariedhugelyovertheyears. need it, since most of their (often donated) vehicles have fallen into disrepair and they have no funds to As can be seen in Figure D.1 below, the performance buy new ones. of the PLM has varied hugely during the four phases of · Ahastyandbadlydesigneddecentralizationprocess the program. The most productive phase of the program combined with the withdrawal of external donor was from 1994 to 2002, when production subsidies were funding resulted in the loss of social animators (the provided, social animators were carrying out social market- "sales persons" of the PLM) and in a lack of mana- ing activities and the central government was providing gerial and financial supports to the Provincial PLM overall guidance and management. During that phase, the workshops. Subsidies to the workshops have often program sold an average of 22,477 latrines per year. Since been discontinued, leaving them in a very difficult decentralization, this figure dropped by more than half to financial position, with no funds or human resources 9,033 (between 2003 and 2007). to carry out promotional activities. FiGuRE d.1. TOTAl SAlES OF imPROVEd Theimprovedlatrinesthathavebeenbuiltseemtobewell lATRINES,1980 ­ 2007 maintained. There have been no recent studies on usage of the improve latrines. The last study on this topic was carried out in the late 1990s. At the time, that study showed that more than 70% of improved latrines constructed during the previ- Decentralization ous 17 years were still in use and that a significant number of slabs had been moved to replacement pits. Already in those days, some households had adapted the pits to water flushed systems. The current situation appears to be similar. Anecdotal evidence during latrines visits in the peri-urban areas showed correct usage and good cleanliness, sometimes combining the latrine with the bathing area. A house- hold survey carried out by WSUP in peri-urban Maputo Source: Draft Urban Water and Sanitation Road Map confirms the widespread use of improved sanitation includ- ing the improved latrine. Therehasbeenamarkeddeclineinsalessincethelate1990s, foranumberofreasons: D.4.2 Costs · OverallreductionindemandforthePLMproducts. ThehardwarecostsaveragedatUS$70perimprovedlatrine, In many of the peri-urban areas where PLM work- includingUS$21fortheslab shops are established, economic development in these areas, as well as current sanitation coverage, is such At the moment, the software costs of the PLM workshops that the PLM workshop no longer has a significant are close to nil for most workshops, as all social animators market. Most people now build concrete block hous- were moved to the municipalities, so they could not be es with internal bathrooms and septic tanks. They accounted for specifically, except in the case of a Maputo would use the cheaper domed slab latrines only for workshop as described below. "guards and maids." The workshops neither have the capacity to move in order to meet demand where it InMaputo,thehardwarecostofaslabwasUS$14,butthe exists (as they cannot invest in building new produc- costsofcivilservantsemployedbytheworkshopaddedapprox- tion workshops closer to the demand) nor can they imatelyanotherUS$10perslabor42%oftotalcosts. finance transporting their production to those who www.wsp.org 107 Financing On-Site Sanitation Annex d mozambique case study In the case of the Maputo workshop described above (see D.4.3 Effectiveness in the use of public funds Box D.1), this situation is less clear given the high number of Fromthepublicstandpoint,itwasnotpossibletocalculate civil servants employed at the workshop (even some of these anincreasedaccess/publicfundingratio. civil servants are not employed as social promoters but rather as administration staff, chauffeurs or guards). In that case, The increased access / public funding ratio is defined as the software cost mark-up amounted to 42% of total costs. the number of households served with US$1000 of public This is a very high mark-up considering that the contribu- investments. However, due to a lack of data on the use of tion of those civil servants is not entirely clear, as they do public funds throughout the life of the program, it was not not perform any clear managerial role within the workshop, possible to calculate such a ratio. raising doubts about whether the Maputo workshop is not simply a source of employment for civil servants. It is not possible to estimate how much households have investedinimprovedsanitationnortoestimatetheratioof Afewsoftwareactivitiesarecarriedoutbyworkshoptechni- private/publicinvestmentsatthenationallevel. cians,butwithnospecificvalueattachedtothem.Notall"sunk" softwareinvestmentsintheprojectcanbeaccountedfor. The leverage ratio gives the ratio of private investment for each US$ of public money spent on the project. Given the A few animation activities (such as house visits, school lack of reliable financial data and the decentralized nature lectures) are carried out by PLM workshop technicians of the program (with no central data base and variations in based on the experience they had with the PNSBC in the implementation strategy from province to province), it is 1990s. These activities do not have an additional cost since not possible to estimate such a ratio in a reliable manner at the PLM employees tend to do this in their spare time, at the national level. We do not have any information on the no extra cost to the workshop. All previous investments in amount of public funds which were invested in setting up software, such as training the masons (let alone the social the program (to create the workshops and train the staff) animators, who subsequently left) and establishing the nor do we have information on the amounts of public workshop management structures during the life of the subsidies which are paid at present (some provinces pay a program cannot be taken into account as this was done subsidy, others do not). In addition, although we have capi- earlier in the program and there are no statistics on this. tal cost estimates for latrine costs, we do not know how much households have invested in building latrines. For households, the program provides access to improved latrinesataveryaffordablecost,includingforthoseearn- IntheMaputoworkshop,theleverageratiowasamere0.87 ingthepovertythreshold. ifthecostsofcivilservantsattheworkshopareincludedbut risesto4.36ifthosecostsareignored. At the national level, the average sales price of a latrine repre- sents 1.8% of an average household's yearly income and 4.1% We can estimate the leverage ratio (i.e. the amount of private for poor households (at the national poverty threshold). The funds invested per US$ of public funds spent) only for the hardware costs represent 4% of the yearly income of an aver- case of a workshop in Maputo City, on which we have more age household and 9% for a poor household. detailed information (see Box D.1 above). We assumed that the workshop only produced slabs and did not get involved In certain cases, these costs may be charged fully to the in latrine construction. Public funds correspond to the hard- customers, i.e. where workshops have increased their sales ware subsidies, which continue to be paid at the rate of MTn prices and when production subsidies have been discontin- 70 (US$3) per slab, and the payment of civil servant salaries ued. However, given the type of technical standard adopted, (as noted in Box D.1, the Maputo workshop is exceptional in this seems relatively affordable to the local population given the way it employs a high number of civil servants attached to current socio-economic conditions. the central government). We do not have staff cost estimates for these civil servants but we formulated an estimate based 108 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study on the same salary as contract staff. Private funds include the At the national level, households contribute about 49% of price paid by households per slab (US$4) as well as the cross- the costs of production for slabs and 43% of the costs of subsidies from the workshop itself, which must finance the production for latrines. The remainder needs to be financed shortfall with other activities. through cross-subsidies from other activities undertaken by the PLM workshops, which may not be completely legal. If salaries for civil servants are taken into account, the lever- age ratio was a mere 0.87, i.e., US$0.87 of private invest- The risk of bankruptcy for PLM workshops is high, which ment was made for each dollar of public money spent. This would result in the loss of all investments made in the ratio is likely to be higher in other workshops, which func- program. Due to their unclear legal status, workshops tion with less staff and no civil servants. It is possible that cannot borrow from banks, which means that they cannot this workshop, which is still under the responsibility of the invest in order to expand their activities sustainably, as a central PLM program, is used as a source of employment private undertaking may be able to do. for central government staff. Therefore, we also estimated that the leverage ratio if civil servant costs are not included Initscurrentstate,thePLMisnotscalableasitsfinancial rises to 4.36. sustainabilityisinquestion. D.4.4 Poverty targeting The PLM workshops are struggling to survive with what ThePLMworkshopsdonotparticularlytargetpoorcustomers they have, i.e. with existing buildings and trained staff, but unlessanoutsideagencysuchasUNICEFprovidessupportin they have no possibility to expand. The program as it stands emergencies(e.g.,duringacholeraepidemic). is therefore not deemed to be scalable. The government is considering adopting a new approach, with the possibility Even though efforts were made when it was the national of privatizing production and using the PLM workshops PNSBC program to assist the poor through the GAPVU, now simply as demonstration and education centers. For the that sanitation is the responsibility of the municipal councils, purpose of the urban road map, the government has esti- there is little the PLM can do to support the poor specifically mated that improved latrines could be built for an average other than respond to requests from appropriate agencies. of US$60, of which 45%, or about US$25, would be for latrine promotion and health and hygiene education, to be Whensalespriceshavenotbeenupdated,asinMaputo,the covered by the government. This approach has yet to be effective subsidy (including cross-subsidies from the work- tested and costed adequately however. shops)canbeveryhigh,rangingfrom75%to85%. d.5 Summary evaluation The subsidy to households can be calculated by comparing In this section, we summarize the evaluation of the financ- the sales price to the actual costs of production. In Maputo, ing approach based on our set of criteria and draw prac- households are paying only 25% of the total production tical implications for the applicability of this financing costs for slabs (hardware only) and only 15% of the total approach. Overall, the PLM achieved substantial results in costs if the costs of civil servants employed by the work- terms of increasing coverage. However, significant changes shops are treated as software costs. The remainder of those in program design have led to a gradual decline and the costs are subsidized by the government via production current financial crisis faced by most production workshops subsidies to the workshop (11% of total subsidy) and by throughout the country. cross-subsidies from the workshop level. Intermsofimpactonsustainableaccesstoservices,thePLM D.4.4 Financial sustainability and scalability was critical in getting people throughout Mozambique to Financialsustainabilityishighlyuncertainanddependent adopt improved sanitation, since virtually all improved onotherworkshopactivities. latrinesinthecountrywerebuiltthroughtheprogramand thoselatrinesappearwellmaintained.The PLM was most www.wsp.org 109 Financing On-Site Sanitation Annex d mozambique case study successful during the development stage (from 1992 to the Even though the program was successfully scaled up from late 1990s), when production subsidies were paid to the the mid 1980s to the late 1990s, this was highly donor- workshops and the central government financed commu- dependent, and further scale-up is highly unlikely due to nity animators to carry out sanitation marketing activi- concerns about the financial sustainability of the approach. ties. Demand for the products started slowing down while these mechanisms were still in place, due to the workshops' WHAT SEEMS TO HAVE WORKED? inability to expand beyond their existing service area. The Thenationalprogramwaseffectiveatsupplyingasubstan- removal of community animators was a blow to the program tial number of improved latrines over a large geographic and accelerated the drop in sales. areainverydifficultcircumstances. The provision of subsi- dies to the production workshops, based on sales figures, Incostterms,thepriceofslabsandoflatrinesisfairlylowwhen was an interesting attempt to bolster the supply chain and comparedtohouseholds'income.Hardware costs represent 4% improve access using output-based subsidies. In 2000, those of yearly annual income for an average household and 9% for a subsidies were defined based on an analysis of production poor household. These sales prices are particularly low because costs and varied by region to reflect differences in produc- they have not been adjusted for inflation, even though produc- tion costs and poverty levels, indicating a reasonable target- tion costs had gone up. The program has therefore been success- ing of the initial subsidy program. ful at maintaining its focus on a low-cost sanitation solution. Such emphasis has probably dampened sales over time, as the AND WHAT DID NOT WORK SO WEll? areas immediately surrounding the workshops got richer and Sincedecentralizationin2002,theprogramhasbeenless the population was more interested in higher levels of service, effectiveforacombinationofreasons. such as septic tanks. The production subsidies have either been capped at their It was not possible to evaluate effectiveness in the use of previouslevel(andnotupdatedforinflation)ordiscontin- public funds in detail for lack of reliable information, ued.Since the sales prices were not updated either in most particularly in the period when substantial public support cases, the PLMs were expected to compensate for these loss- was provided, which can be considered as the "heyday" of es by taking on other activities. However, these activities the program. have not been clearly specified, leaving each PLM workshop to invent fund-raising activities in order to survive, includ- Intermsofpovertytargeting,eventhoughtheprogramin ing some for which they do not have permits (e.g., civil theoryservesallclassesofcustomers, its emphasis on low- construction), or which are inappropriate (selling chickens cost solutions makes it attractive primarily to poor custom- or renting office space) or where they are competing direct- ers. When cross-subsidies from income-generating activities ly with the private sector (e.g. concrete block production). carried out by the workshops are taken into account, the However, it is thanks to such activities that the workshops prices of slabs and latrines are highly subsidized (up to can cross-subsidize the costs of latrine production and sell 85% of actual production costs). As a result, the sales price them to households at affordable prices. accounts for less than 5% of a poor household's income. In many of the peri-urban areas where PLM workshops are Financial sustainability at present is highly uncertain, as established, economic development in these areas, as well the production subsidies have been discontinued in certain as current sanitation coverage, is such that the PLM no provinces and workshops have been unable to increase their longerhasasignificantmarket. But no mechanisms are in sales prices in others. Many existing workshops are on the place for the workshops to move to more appropriate areas, verge of bankruptcy or have already stopped operating. in part because there is no real understanding of what the "autonomous" PLMs are allowed to do and also because the workshops are cash-strapped and cannot afford to invest in new premises or new production facilities. 110 Water and Sanitation Program Financing On-Site Sanitation Annex d mozambique case study The PLM workshops have been left in a legal vacuum. During the decentralization process, little thought was given to what the PLM workshops were actually supposed to do or where or how it should fit into the provincial struc- ture. Following decentralization, their legal status was left unclear. They are neither a fully funded public entity nor a private company able to raise their own resources and set tariffs for their services. In many workshops, the work- ers have never had any type of work contract, thus leaving them in limbo regarding social security, severance pay, etc. However, in the few cases where municipal councils have taken a proactive role in taking on the workshops, these are still working well. This is a clear example of the need for political will to implement effective sanitation programs. Finally, nocapacitybuildingwascarriedouttoassisteither thePLMworkshopsorthesupportingDPOPHinimprov- ing their management skills to manage "autonomous" workshops.Management skills are therefore crucially lack- ing, which partly explains the poor quality of data (includ- ing financial data) available at the workshops. The pool of qualified sanitation people that had been created thanks to software investments at the beginning of the program is gradually being lost. www.wsp.org 111 Financing On-Site Sanitation Annex E Senegal case study Annex E - Senegal case study Case study written by Ousseynou Guène, Chimère Diop, and Sophie Trémolet OVERViEW OF SEnEGAl CASE STudy (PAQPud PROJECT) Key facts Project name Programme d'Assainissement Autonome des Quartiers Périurbains de dakar Project objectives Scale up the Community led Total Sanitation (ClTS) approach and strengthen local governments so that they can become main implementers of the approach. Public financiers Government of Senegal, World Bank Scale 366,000 people served in peri-urban areas in and around Dakar (capital city) Time frame Program years: 2002 to date / Study period: 2002 to 2005 level of service Range of options, from improved latrines to septic tanks Summary of financing approach Software support · Software support for sanitation promotion, including hygiene promotion and education, community organiza- tion, technical support · Software mark-up = 20% of total costs of sanitation solution hardware subsidies · Output-based hardware subsidies to local sanitation providers for each sanitation solution built · hardware subsidy: uS$200 to uS$1,000 per household depending on sanitation solution built (75% of hardware costs) · hardware subsidies = 77% of public funds Access to credit · Various channels to provide access to credit to households to pay their contributions; limited take-up Summary evaluation impact on sustain- · About 22% of population in project area accessed sanitation through PAQPud able access · All facilities appeared to be working well, with high levels of satisfaction Costs · Average hardware costs: US$568 per household (16% of lowest quintile income) · Operating costs: US$137 per year (3.4% of lowest quintile income): Effectiveness in the · low leverage ratio: 0.13 use of public funds · low "increased access/ public funding": 1.6 sanitation solution built / US$1,000 public funds Poverty targeting · All households in project area eligible for subsidy; in practice, about 22% received the subsidy, the vast majority of them were poor (small inclusion error) Financial · Public funds = 89% of total costs of sanitation adoption (low sustainability) sustainability Scalability · Scaling-up PAQPud to serve the population not yet covered would be very expensive, accounting for a substan- tial share of the national budget www.wsp.org 113 Financing On-Site Sanitation Annex E Senegal case study OVERViEW OF SEnEGAl CASE STudy (PAQPud PROJECT) COnTinuEd Some lessons learned What worked? · PAQPud was successful at raising the profile of on-site sanitation, which was neglected up to that point, and met the needs of a population of over 400,000 people. What did not work · high subsidies were offered for all sanitation solutions (as a percentage of costs, resulting in higher subsidies for so well? costlier solutions) with limited targeting. · household contributions were reduced (from 50% to 25% of hardware costs) to increase take-up, but recipients still have difficulties or are unwilling to invest . · Attempts at providing credit to spread household contribution (which must be paid up-front) have largely failed. · Current approach is costly and not scalable to meet mdGs. E.1 Overview of the financing approach take-up rate. The hardware subsidy provided by the program PAQPUD (Programme d'Assainissement Autonome des ranged between US$200 and 1,000 per sanitation solution, Quartiers Périurbains de Dakar) provided sanitation services depending on the costs of each solution. Access to credit was in poor peri-urban areas around Dakar, Senegal's capital. provided in the second phase in order to spread the burden The program, which was developed between 2002 and of this contribution over time. 2008, offered a wide range of sanitation options, mostly on-site facilities as well as small-bore sewers in areas where This case study starts by providing some brief background on-site sanitation could not be considered for techni- on the country and sanitation context. We present the way cal reasons. Over that period, the program benefited over in which on-site sanitation was provided through the proj- 400,000 people, although a large proportion of the facili- ect before analyzing the costs of such provision. We then ties built were for management of gray waters rather than evaluate the performance of the financing approach for human excreta. The hardware costs of the sanitation facili- on-site solution, focusing on impact on sustainable access ties built through the program varied substantially depend- to services, costs, effectiveness in the use of public funds, ing on the option retained, with an average of about 568 poverty targeting, financial sustainability and scalability. A per household covered (bearing in mind that each house- summary section draws out key lessons learned, looking at hold received 1.56 sanitation facilities on average). what seems to have worked and what did not work so well. Software support was provided to develop a catalog of servic- E.2 Country and sanitation sector context es, promote sanitation and hygiene and organize commu- nity mobilization. On average, software support represented E.2.1 Country context US$144 per sanitation solution built, or 20% of the total Senegal is a West African country with a population of 11.3 costs of sanitation adoption. The entrepreneurs building the million, of which 40.7% are qualified as urban. GDP per sanitation facilities were paid directly through the project capita in 2007 was estimated at US$914 at current exchange for every item built based on a catalog of services. This is rates, but was US$1,692 at PPP-adjusted exchange rates. equivalent to an output-based subsidy, something which was later formalized through an extension of the project via the E.2.2 initiatives taken to increase coverage GPOBA. The beneficiary households were required to make Up to 1996, SONEES (Société Nationale d'Exploitation an up-front contribution in order to obtain access. Based on a des Eaux du Sénégal), a publicly-owned company, was willingness-to-pay survey, households were initially required in charge of water and sanitation services in urban areas to contribute 50% of hardware costs, but the hardware throughout the national territory. With respect to sanita- subsidy was subsequently increased to cover 75% of hard- tion, SONEES was managing the sewerage systems in ware costs, given limited demand for the facilities and a low Dakar (the capital) and six other urban centers where such 114 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study networks had been built. Reforms of the water and sanita- To meet the MDGs and reduce by half the number of tion sector were initiated in 1995 under a World Bank loan, people without access to water and sanitation, the govern- the Projet Sectoriel Eau (PSE). The national company was ment established the PEPAM (Programme Eau Potable et split into three entities: two in the water sector, including Assainissement pour le Millénaire). In the urban sector, SONES (Société Nationale des Eaux du Sénégal),a publicly- PEPAM's objective is to bring the overall urban sanitation owned asset-holding company, and SDE (Sénégalaise des coverage from 56.7% in 2002 to 78% in 2015. The rate Eaux), a private operator operating under an affermage of progress towards achieving these objectives was deemed contract,1 Responsibilities for sanitation services were spun to be slow as of 2008, partly due to a low level of financial off to a dedicated public office, ONAS (Office National de resources being mobilized and spent on sanitation. l'Assainissement du Sénégal). During the first phase of the reforms financed by the PSE, most investments were allo- E.2.4 Institutional set-up for sanitation cated to the water sector as it was considered urgent to At the national level, sanitation is under the responsibility increase water production, reduce leaks, improve service of the Ministry of Urban Planning, Habitat, Public Hygiene efficiency and extend coverage of water services. The sanita- and Sanitation. This ministry includes two operational tion sector was somewhat neglected and sanitation coverage directorates, DAS (Direction de l'Assainissement) which is did not increase much. There was a perceived lack of politi- responsible for overseeing sanitation in rural areas and over- cal will to promote on-site sanitation solutions. all sector planning, and DPIC (Direction de la prévention individuelle et collective), which is responsible for ensuring The Programme Eau à Long Terme (PLT), initiated at the end the adoption of hygienic practices. of 2001 with World Bank financing, intended to redress these imbalances by allocating more resources to the sanitation sector. ONAS, a public agency, is responsible for sanitation in One component of this overall program was the Programme urban areas throughout the country under the supervision d'Assainissement Autonome des Quartiers Périurbains de Dakar of DAS. As part of its overall responsibilities, ONAS is in (PAQPUD), the first government-led program to provide charge of developing on-site sanitation solutions and has support to on-site sanitation solutions (only NGOs had overall responsibility for managing PAQPUD. provided support in this area up to that point). This program targeted peri-urban areas of the capital, where it was deemed E.3 PAQPud program design too expensive or impractical to extend conventional sewer- age networks. Whereas previous on-site sanitation programs E.3.1 Program overview had not met with much success in Senegal, this proved to be more successful thanks to social mobilization and demand- The general objective of PAQPUD was to help improve the generation activities being put in place. living conditions of low-income populations in the peri-ur- ban areas of Dakar by providing access to better sanitation E.2.3 Access to sanitation in urban areas services. The program focused on the provision of sanita- In 2002, the access rate to sanitation among urban house- tion services and included household sanitation, small-bore holds stood at 64% in the Dakar region, of which 25% sewers, community sanitation (public toilets), school sani- had access through a sewerage system. Coverage was much tation, and sludge treatment facilities. lower in secondary towns (around 39% coverage, mostly with on-site sanitation). Access to sanitation in rural areas The program also served as a platform for building the capac- was even lower, with only 17% of households having access ity of actors in the subsectors, and promoting hygiene and to an improved sanitation solution. technologies that had been used only sporadically up to that point. The program aimed to increase the technical skills of 1 An affermage contract (or lease contract) is a contract under which a government delegates the management of a public service to a company in return for a specified fee. In Senegal, the operator receives a fee based on the volume of water sold. www.wsp.org 115 Financing On-Site Sanitation Annex E Senegal case study small entrepreneurs and service providers and to improve the Expansion Phase, 2004-2008. For the expansion phase, ability of ONAS and NGOs to manage sanitation projects in ONAS modified a number of the parameters with a view peri-urban areas. The project sought to adapt sanitation to the to improving results. The beneficiaries' contribution rate sociocultural and financial context of the populations by offer- was lowered to between 20 and 25% of the hardware costs, ing technical solutions that were effective and capable of evolv- depending on the type of facility. Technical contractors ing over time and space, with a view to achieving the MDGs. (consulting firms, consultants) were recruited and tasked The program was divided into two phases: a pilot phase with serving as intermediaries between AGETIP2 and from 2002 to 2003 (two years) covering four municipali- the artisans responsible for construction and supervising ties (or communes) (Sicap-Mbao, Wakhinane-Nimzatt, construction work. Community supervision of the proj- Ouakam, and Ngor), and an expansion phase from 2004 to ect was also reorganized with the recruitment, in tandem 2006 (three years), which was subsequently extended until with the NGOs responsible to date for this component, of December 2008 for the construction of collective facilities community based organizations (CBOs), which are closer and sludge treatment plants. The expansion phase covered to the households. Extension workers were given incentives 31 municipalities, including the four aforementioned to make a high number of household visits and to be remu- ones. nerated based on results. Lastly, AGETIP recruited firms specializing in mass communication (mass media, posters). Pilotphase,2002-2003. The activities conducted during the These measures helped to significantly increase the program's pilot phase yielded poor results (approximately 600 on-site efficiency and the access rate to sanitation services. sanitation facilities were built, including wash basins and latrines) owing to a number of factors, including in particular: E.3.2 Program institutional set-up · A high household contribution rate (50% of the Asprojectmanager,ONASwasresponsibleforimplement- hardware costs); ingPAQPUD, which was achieved through an implemen- · The low level and lack of skills of a number of the tation agreement between the Government of Senegal and actors, including for technical supervision and with- ONAS. ONAS outlined the objectives and activities, and in the NGOs; then implemented the program on the state's behalf. In · Delays in the implementation of several compo- order to effectively achieve the program's objectives and nents, such as mass communication (mass-media, manage on-site sanitation solutions, ONAS established a posters, etc.); and program coordination unit (PCU) and signed, along with · The fact that on-site sanitation facilities (the only ones AGETIP, a delegated management contract for a fee of 5% on offer during the pilot phase) were not suitable for of all services provided. several areas of the four targeted municipalities. Astheprogram'sdelegatedexecutingagency,AGETIPwas In particular, the NGOs that had been recruited had only responsible for implementing the program by recruiting had experience with highly subsidized programs (95%) and private service providers. AGETIP selected, supervised, they were not eager to change their ways of operating and and paid the service providers that implemented the request households' participations more than they used to program's various components, including the main tech- in previous programs. They had high management costs, nical contractors, the community project supervisors, and demonstrated little flexibility to play by the project rules the SMEs and artisans for the provision of materials, labor, and were not used to working towards specific performance and construction work. It was responsible for managing targets and on a given time frame. This delayed the imple- the contracts, ensuring the quality of work and reaching mentation of the program and impacted the population's the contractual targets. willingness to make their contributions. 2 AGETIP is a private NGO that was established in July 1989 to execute projects aimed at reducing underemployment which were deemed to be economically and socially beneficial. It was established as an association and signed a contract with the State so that it can manage public funds in the manner of a private enterprise. 116 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study The main technical contractors (consultants, consulting The local project committee members are volunteers. The local firms) that were recruited by AGETIP during the expan- project committee was responsible, among other things, for sionphasehelpedtoimprovemonitoringofthequalityof outlining the choice of facility and its funding, ensuring social thefacilities and compliance with work deadlines, through mobilization in the communities and ensuring the financing close monitoring and assistance provided to the contractors of contributions by the populations. to resolve any technical problems. The contractors, who were paid more quickly and received technical assistance, E.3.3 levels of service were able to improve their performance, thus helping to Theprogramofferedabroadrangeoftechnicaloptions,with increase the program's responsiveness to meeting needs. capital costs ranging from CFAF 21,917 (US$40 at the 2005 exchange rate) for a clearing device to separate cooking oils Communitymobilization(includingcollectingbeneficiary from gray water (dégraisseur) to CFAF 734,966 (US$1,395 contributions, support and follow-up) was entrusted to at 2005 rate) for a septic tank with three compartments. communitybasedorganizations(CBOs) during the expan- Not all sanitation options could be offered in each area, sion phase instead of the NGOs used during the pilot phase. as their feasibility depends on soil conditions. A catalog of Community supervision had initially been entrusted to potential technical options was prepared for each geograph- three NGOs, which had not facilitated program ownership ical area, based on a detailed analysis of soil conditions. The by the populations, and contributed to the inertia inherent costs of each facility were the same across the whole project in the beginning of any program. CBOs were specifically area. Households could select their preferred options based recruited instead of the NGOs to reduce or eliminate this on this catalog and on their ability to pay. inertia. The CBOs took advantage of their proximity to the grassroots communities in several ways: The sanitation options on offer can be classified as follows: · Appointing residents of the towns to serve as facilita- · Gray water disposal facilities, to discharge water used tors to mobilize the populations' support; for cooking, washing and bathing.; · Making optimal use of households, given their · On-site excreta disposal options, ranging from dry in-depth knowledge of the communities; and facilities such as VIP latrines to water based options, · Effectively managing collection efforts; in the case such as septic tanks and pour-flush toilets; of the households, not paying a debt contracted · Semi-collective sewerage systems and public toilets. through a resident is tantamount to compromising one's respectability in the community. Operating costs for each type of installation have been eval- uated based on technical factors. For example, in the case Lastly,alocalprojectcommitteewasestablishedineachprogram of all sewerage work, a period greater than or equal to three areainordertohavearepresentativeforthebeneficiariespres- years with respect to the filling of septic tanks was used as entforcertaincontractualprocedures, including investments the working hypothesis. Operating costs relate to ongoing for semi-collective or community systems, monitoring activi- maintenance, cyclical maintenance, preventive mainte- ties, and the operation and management of semi-collective nance, and corrective maintenance. or community facilities. The local project committee was composed of local, religious, and traditional authorities, repre- Capital costs and operating costs for the main on-site sani- sentatives from associations, representatives from the public and tation solutions are presented in Table E.1. private sectors and civil society, ONAS and AGETIP represen- tatives, and community project supervisors in a support role. www.wsp.org 117 Financing On-Site Sanitation Annex E Senegal case study TABlE E.1. CAPiTAl COSTS And OPERATinG COSTS FOR mAin On-SiTE SAniTATiOn FACiliTiES (2005 uS$) Capital Sanitation facility costs Operating costs per year Washing facility and soakaway (BAlP) 261 45 VIP latrine + shower 672 101 Pour-flush latrine + shower 739 129 Toilet connected to small-bore sewer 910 140 Toilet with water-tight pit (fosse étanche) 910 170 Toilet with septic tank 1,393 147 Note 1: The BALP only allows getting rid of gray water and is not a solution for elimination of human excreta. Note 2: As the CFAF is pegged to the Euro, it has appreciated against the US$ throughout the project period. For example, a toilet with septic tank cost CFAF 734,966 according to the project catalog. This was equivalent to US$1,054 at the start of the project in 2002 but rose to US$1,709 in 2008, which is equivalent to a 60% increase in US$ terms. For our purposes, CFAF costs were converted using 2005 average rate (1 US$= 528 CFAF), as this is the date by which all on-site sanitation facilities had been built. This exchange rate is close to the average exchange rate for the entire project period. E.3.4 Total PAQPUD program costs Total software costs accounted for about 30% of invest- The overall costs for the PAQPUD program at the end of ments costs and were split as follows: 5% were charged October 2008 are presented below. by AGETIP as a management fee, 2.5% was charged by ONAS, 20% went to finance hygiene promotion and TABlE E.2. SummARy OF PROGRAm COSTS communication activities and approximately 4% went to (END OCTOBER 2008) site supervision. For on-site sanitation, the amounts spent in 2005 uS$ Program household on hygiene promotion and communication were slightly (1 US$ = 528 CFAF) costs contributions lower, standing at 18% of investment costs in this area. Total hardware costs 32,626,000 - household sanitation 19,853,000 3,354,000 E.3.5 Sources of finance for household on-site sanitation Sanitation systems and treat- 12,773,000 - Table E.3 see 127 shows the costs and sources of finance for ment stations household on-site sanitation, including PAQPUD project funds - Public toilets 102,359 - (financed through a World Bank loan) and household contribu- - School sanitation 813,455 - tions. Hardware costs are the actual costs of household sanita- tion, although a portion of software costs has been allocated to - Collective and semi- 10,052,000 368,000 this component using the ratios mentioned in the section above collective networks and applying such ratios to the household sanitation hardware - Treatment centers 1,805,000 - costs. These costs are expressed in 2005 US$ as the construction Total software costs 10,053,000 - of household sanitation solutions stopped at the end of 2005. hygiene promotion and 6,395,000 - communication Whereas households were asked to contribute 20% to 25% Program management (AGETiP 2,447,000 - of hardware costs, their contribution accounted for only 11% & OnAS) of total costs after software costs were taken into account, as Technical assistance / works 1,211,000 - shown in Table E.3 below. Note that the table shows the maxi- supervision mum amount of household contributions likely to be mobi- Total costs 42,679,000 3,722,000 lized. As of October 2008, CFAF 107.8 million (or 6% of total household contributions) were still outstanding. 118 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study TABlE E.3. TOTAl COSTS FOR ThE hOuSEhOld SAniTATiOn COmPOnEnT (2005 uS$) hardware Software Total % of total PAQPud project 19,852,000 5,857,000 25,709,000 89% household sanitation investments 19,852,000 hygiene promotion and communication 3,573,000 Program management 1,489,000 Technical assistance / work supervision 794,000 household finance 3,267,000 3,267,000 11% Total 23,119,000 5,857,000 28,976,000 100% % of total 80% 20% 100% E.3.6 Subsidy design · Prior to the start of construction of the facility, The PAQPUD project provided a high subsidy for hard- the household was required to pay its contribution ware costs (70% to 75% of hardware costs depending on up-front and in full, which, in addition to the finan- the technical solution). The subsidy was paid in-kind, given cial barrier, meant that the program was not assum- that the program financed the construction of the facili- ing any risk and that the households therefore bore ties at the households' premises, following payment of the full responsibility. households' contribution, usually in cash (payment in-kind · Owing to its novelty, the low level of participation of was offered as an alternative but was not popular). The local and political leaders, and the delay in launching subsidy amount was increased from 50% to 75% following the mass communication component, the program a slow program start. was not well known and did not have enough cred- ibility to reassure even the households that could or Definitionofthesubsidyamount.With a view to fixing the wanted to pay their contributions in installments. subsidy amount, a study to determine the populations' will- · During the pilot phase, the technical solutions on ingness and ability to pay was conducted in seven district offer, which consisted solely of individual facilities, communes. According to this study, the majority of these were unsuitable for several areas in the four targeted populations (in six of the seven communes) indicated their towns, either because of a high water table, a lack of readiness to contribute up to 50%. However, poor take- space on the plots of land, or the existence of a virtu- up rates during the pilot phase showed that this rate of ally impermeable rocky substrate. This discouraged contribution was too high: after two years of implementa- the targeted populations who were cognizant of the tion (2002-2003), there was very low take-up relative to fact that the construction of individual facilities was expressed demand (on the order of 14%). not a viable solution. Slow take-up during the pilot phase could be attributed to In January 2004, a series of changes were introduced to a series of factors: address the perceived shortcomings of the first phase of the · The contribution rate of 50% applied to hardware program. Household contributions were brought down costs translated into amounts that were excessive in from 50% to 25% for excreta management facilities and to relation to the income of the targeted households, 20% for gray water management facilities (with an increase especially in the absence of credit facilities. Previous in subsidy). Households were given the possibility to spread NGO-led programs had been offering a 95% subsidy payment via credit. The institutional set-up was modified, and the population therefore was expecting a similar with community-based organizations managing the project level of financial support. level rather than NGOs. www.wsp.org 119 Financing On-Site Sanitation Annex E Senegal case study Rules on subsidy eligibility. Subsidy eligibility for house- Impact of credit on program performance. During the holds was subject to the following criteria: second phase of the program, households had the opportu- · The household must be located in one of the areas nity to secure credit to spread payments of their contribu- targeted by the program; tion over time, based on three options: · The requested facility must be included in the · Credit from the program: Under this mechanism the program's investments catalog; site was opened once the household had advanced · The requested facility must be technically feasible in a portion of the contribution, with the determina- terms of the site's physical characteristics (water table tion of the amount of this advance being left to the level, presence of rocks, space on the plot of land); discretion of the CBO, which is then responsible for and collecting the balance. · The household must be willing to contribute the · Credit from the community association: Women were percentage amounts stipulated by the program, generally members of an association in their commu- depending on the type of solution. This contribu- nity and were accustomed to organizing tontines tion is paid up-front, prior to construction of the (rotating savings and credit associations) to facilitate facility. payment of individual projects. They needed only to be apprised of this option for tontines to be organized The community project manager and the main technical specifically for the acquisition of sanitation facilities. contractor were responsible for processing the request. The · Credit from a micro-credit institution: Only the procedure was initiated once the main technical contractor PAMECAS entity offered its services for the PAQPUD. had examined the site's parameters to determine the feasi- Households could access credit to finance their contri- bility of constructing a sanitation solution and the commu- bution after opening an account, mobilizing one-third nity project supervisor has received the household's support of the requested amount and making a commitment to and contribution to finance the facility. pay the principal and interest of the loan. The CBOs developed initiatives to finance the contribution Only the first two options generated enthusiasm from from the poorest. These included: households for the following reasons: · The search for sponsors (locally based companies · The process to make credit available was simplified such as SHELL, institutions such as UNDP, and as there were very few formalities; local entities) to finance the contribution from the · Credit could be provided in-kind (the program) or poorest; and in cash (tontine); · The appeal to local authorities that drew on their · Credit was provided interest-free, and therefore own resources or used resources derived from decen- payment of the principal only was required; and tralized cooperation. · Credit management was community based, which contributed to a high collection rate because of Impactofthemethodsformobilizinghouseholdcontributions community oversight; 95% of household contribu- onprogramperformance. The program faced a number of diffi- tions were collected using this system. culties with respect to mobilizing the household's contribution to the project. Two types of approaches were adopted by the The advantages of credit for the households were that financing program to secure the payment of household contributions: needs could be spread over a longer period and risks could be dealing directly with households or through an organization. shared between the program and the households, in contrast The advantages and drawbacks of these alternative approaches to the ex-ante payment of the contribution which leaves the are presented in Table E.4 see page 121. household with the impression that it is assuming sole responsi- bility for all risks. The introduction of credit therefore improved relations between the program and households by establishing greater symmetry, equity, and confidence between them. 120 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study TABlE E.4. AlTERNATIVE METHODS FOR COllECTING HOUSEHOlD CONTRIBUTIONS Approach Advantages drawbacks Approaches where the project deals directly with the households The contribution is collected from the household in cash and ­ Allows for collection in ­ negative effect on the results of in full before the site is opened. full of all household the program in terms of facilities contributions. constructed because the amount to be paid represents a significant share of the household's income. The contribution is collected from the household in cash and in ­ Boosts the program's ­ Risk of noncollection of a portion of installments, and the site is opened once the household has paid results in terms of facilities the households' contribution. a certain amount of the contribution (flat fee of CFAF 10, 000 or constructed. one-third of the contribution amount). The contribution is in-kind and entails the construction of the ­ Facilitates access by the ­ The standards established for the superstructure by the household. in this case, the site opens poorest by removing the superstructure are not necessarily once the household has been registered. financial barrier. - Possibility adhered to. - negative influence on of a reduction of the house- the willingness of the other house- hold contribution if rules holds to pay. governing construction of the superstructure are relaxed. Approaches where the project deals with an organization The community organization has a fund that is financed by ­ Allows for collection in full of ­ individual opinion is suppressed the contributions from all household members. it deposits all household contributions because the household has lost the amount corresponding to the contributions from member in a very short period of time. its main means of exerting pres- households, in cash and in full, into the program's account. sure, which was the ability to solely The opening of the site is contingent on payment in full of the decide whether or not to pay its contributions. contribution. A sponsor assumes responsibility for the contributions from ­ Allows for access to sani- ­ negative influence on the willing- targeted households, which are paid in cash directly to the tation by the poorest by ness of the other households to program. Sites are opened once the contributions have been removing the financial pay, who begin to believe that the paid in full. barrier. facilities are being provided free of charge. www.wsp.org 121 Financing On-Site Sanitation Annex E Senegal case study By contrast, giving households the possibility to make their The most popular technical sanitation facility was the contribution in-kind, by building the superstructure while BALP (Bac à Laver Puisard), which represented 43% of the the program was responsible for the main components of the number of facilities built. The BALP proved very popular latrine, has had limited take-up. Only 283 pour-flush latrines as it was the cheapest solution on offer and helped families were built in that way (0.45% of the total number of latrines in managing gray water, which is often a reason for conflicts built). This solution was only offered to the very poor and between neighbors in densely built areas. Although these only for the TCM-douche model (pour flush latrine + show- facilities do not allow for safe management of human excre- er), which was the type of latrine that was most in demand. ta (except for babies and small children), they have made a significant contribution to improving the cleanliness of the E.4 Evaluation of program performance immediate environment; they helped eliminate stagnant grey water in the yard and in the street and reduced the E.4.1 Impact on sustainable access to services prevalence of insects, odors and rodents with potentially The PAQPUD program provided sanitation to 366,039 significant health impacts. peopleinDakar'spoorperi-urbanareas,whichisequiva- lentto22%ofthepopulationintheprogramarea. The pour-flush latrine was the second most popular facility (31%). It qualifies as improved sanitation by the definitions The PAQPUD program led to the construction of 63,548 of the UNICEF/WHO Joint Monitoring Programme, on-site sanitation solutions, which was more than the origi- adopted by this study. The least popular option was the nal objective of 60,000 and two years ahead of schedule.3 On septic tank (4%), which can probably be explained by its average, households benefited from 1.56 sanitation solutions comparatively higher costs. per household, since many of them built facilities for dealing with gray water as well as excreta disposal. This means that Offering connections to small-bore sewers improved the the program reached 40,671 households, which is equivalent attractivenessoftheprogram. to 410,507 people (based on the PEPAM benchmark esti- mate of nine persons per household). Approximately 22% Approximately 8,827 households, that is, 87,387 inhabit- of the population in the project area (of 1,694,904) received ants, were connected to a small-bore sewer network, after sanitation facilities through the program. construction, where necessary, of an interceptor tank for the household. Offering connections to collective sanita- In addition, the program was successful at establishing a tion networks during the second phase boosted demand in socialintermediationprogramandstrengtheningtheability these ways: ofpublicbodiestocarryoutsuchprograms. · Through the provision of solutions adapted to contexts that had previously been neglected, which Social engineering activities targeted, without restriction, all allowed for inclusion of the sectors in the program populations in the program area and exceeded construction area for which the individual solutions were not projections. These activities included house visits, PHAST4 technically feasible; meetings or meetings with the local project committees. · Through increased awareness of the program, because households considered the network connection to be Only57%ofthefacilitiesbuiltweresolutionsforsafeexcre- very attractive as it was synonymous with integration tamanagement. into a real city; and 3 An additional allocation from the proceeds of the World Bank loan led to the construction of an additional 3,562 facilities. This second phase ended in May 2008. These additional facilities were not included in the detailed analysis as we did not have detailed information on their associated costs. 4 PHAST stands for Participatory Hygiene and Sanitation Transformation, and is a well-established method for carrying out hygiene promotion activities. 122 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study · In areas with high water tables, small plots of land, and cement costs. In addition, the water table is very high in or rocky soil, the prospect of being connected to the certain areas, which means that higher quantities of cement sanitation network boosted demand for individual must be used. Finally, the local currency (CFAF) is pegged facilities. A facility such as a water tight pit or a to the Euro and tends to be over-valued versus the US$. septic tank was indeed essential before connection to the small-bore sewer network could be provided. With respect to software costs, the costs of technical and social supervision were comparatively high, because the PAQPUD Allfacilitiesappearedtobeworkingwellasoflate2008and program offered a broad range of sanitation solutions and the householdsweresatisfiedwiththeoutcome, except in some cases program required a comparatively higher and more diversi- with the connections to the small-bore sewers, as there were fied level of technical expertise. The institutional set-up, with some delays in implementation of that program component. several institutions responsible for program management and technical supervision under delegated arrangements, may E.4.2 Costs also account for comparatively higher software costs. The total costs of building sanitation facilities were US$712.4onaverage,ofwhich80%werespentonhard- Finally, the PAQPUD program financed some activities ware(US$568)and20%onsoftware(US$144). to build ONAS's capacity over the long term, such as the setting up of a GIS database covering all on-site sanita- These costs have been calculated by dividing the total costs tion facilities to integrate with the ONAS GIS database of of providing on-site sanitation by the number of house- collective sanitation systems or the training of ONAS staff holds reached, rather than by the number of facilities, to on condominial sewerage. It was not possible to separate reflect the fact that households served received 1.56 facili- such costs out for lack of specific data. ties on average. This reflects the approach of the program to provide complete coverage of all sanitation and hygiene Thecostsofsoftwareactivities(suchashygienepromotion needs to a few families rather than partial coverage of some andmassmediacampaigns)perhouseholdreachedoverall needs to a larger number of families. weremuchlower,atUS$18perhousehold. We did not have access to a breakdown of total hardware Approximately 97% of the population in the project area costs for the households that obtained excreta management was reached through hygiene promotion and mass media facilities. If we did, the average costs would likely be higher. campaigns. The costs of these activities alone (without work The hardware costs of these options are high (as shown on supervision or program management) stood at US$18 per Table E.1 above), particularly for a toilet with septic tank, household. It is difficult to evaluate the impact of such which costs US$1,393. This may explain the very limited activities, however, and to differentiate their impact from take-up of such facilities and people's preferences for cheap- increasing the level of subsidy to boost demand. er options (such as the BALP, at US$261). Fromthepublicstandpoint,theincreasedaccess/publicfund- Even though these costs are high, they were comparatively ingratiowaslow,withonly1.6householdsprovidedwithsani- lower than the costs of previous NGO-led programs with tationfacilitiesperUS$1000ofpublicfundsspent. very high rates of subsidy (up to 95%), except for programs conducted in secondary towns where input costs tend to be This reflects many factors: on the one hand, each household lower. At design stage, several studies were carried out in served by the program could have access to 1.56 sanitation order to identify cheaper technical solutions, but there are facilities, which would at least include a gray water manage- a number of exogenous factors that partly account for such ment facility and in some cases a latrine. The levels of service high costs. First, hardware costs tend to be higher in Dakar were therefore quite high, as were the unit costs of the solu- than in the rest of the country or than in the surrounding tions on offer. Finally, the high level of public subsidy made region because input costs are higher, in particular labor the program expensive for the public purse. www.wsp.org 123 Financing On-Site Sanitation Annex E Senegal case study Whilecapitalexpenditurerepresentedahighshareofhouse- E.4.3 Effectiveness in the use of public funds hold income, household contributions (after the subsidy) A critical issue is the program's heavy reliance on public represented1%to15%ofincome,dependingonthesolu- funding: US$1 of public funds was used to leverage only tionandincomebracket. US$0.13ofprivatefundsviahouseholdcontributions. Table E.5 below shows capital costs, operating costs and As mentioned above, the size of household contributions household contributions as a percentage of income for average was reduced, which means that households financed only income in the project area (Av Inc), poor households (Poor Inc) 11% of total project costs (including software costs). and the bottom quintile. This table shows that capital expen- Difficulties in mobilizing investments from households diture accounts for a substantial portion of household income, may be due to the high cost of the sanitation solutions on ranging from 6% for a BALP for an average household to 59% offer, which represent a high share of the local population's for a toilet with septic tank for a hardcore poor household. income and lack of credit facilities. The household contribution (taking account of the subsidy) is much more accessible and is in fact not significantly different Offering credit to the population as a way of boosting house- from the ongoing operating costs for some of these solutions hold investment was tried during the second phase of the (especially the BALP), which explains their popularity. program and the GPOBA extension, but this was deemed difficult and is taking time. Local microcredit institutions Operating and management costs stood at US$138 per are used to offering their products for income-generation householdperyearonaverage activities rather than this type of household investment. There was considerable variations in operating costs depend- E.4.4 Poverty targeting ing on the technical solution retained, however, ranging PAQPUD targeted the most poverty stricken areas in the from US$45 for a BALP to US$170 for a toilet with water Dakarregion tight pit. These estimates are at the upper bound of how much it costs households to operate them, however. For Subsidies were primarily granted to poor households, example, for a BALP, they included daily cleaning of the through two types of targeting mechanisms: facilities with water, soap and bleach as well as regular main- · The program focused mainly on peri-urban areas tenance, which many households would save on depending deemed poor and lacking in appropriate sanitation on what they can afford. In addition, labor can be provided systems. While 33% of the population in the Dakar by the households themselves, which can greatly reduce the urban area was living below the poverty line in 2002, cash outlay required to keep the installations going. 66% of the population in the program areas was below this line. TABlE E.5 ­ CAPEx, OPEx And hOuSEhOld COnTRiBuTiOn AS PERCEnTAGE OF hOuSEhOld AnnuAl inCOmE household contribution as Capex as % of ... % of ... Opex as % of ... Av inc Poor inc Bottom Av inc Poor inc Bottom Av inc Poor inc Bottom quintile quintile quintile BAlP 6% 7% 11% 1% 1% 2% 1% 1% 2% VIP latrine + shower 16 19 28 4 5 7 2 3 4 Pour-flush latrine + shower 18 21 31 5 5 8 3 4 5 Toilet connected to small-bore sewer 22 25 38 6 6 10 3 4 6 Toilet with water-tight pit 22 25 38 6 6 10 4 5 7 Toilet with septic tank 34 39 59 8 10 15 4 4 6 124 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study · Within the communities, the community project An extension of the PAQPUD project has been defined supervisors (associations of youths or women resid- with GPOBA financing to serve an additional 15,100 ing in the community) usually visited households that households. The design of the GPOBA program largely either lacked or had substandard sanitation facilities, built on the PAQPUD project but with a number of key based on their sound knowledge of the area. modifications, such as a stream-lined technical catalog and the requirement of no more than one facility per household. A study carried out at the design stage established that such A maximum subsidy ceiling of US$487 per household on geographical targeting was going to be the cheapest target- average was set for the program as a whole, although the ing method, as other more specific methods would have subsidy for more expensive facilities such as a toilet and been extremely costly and would not have brought a signifi- shower can go up to US$757 per household. cant difference compared to the costs involved. The project has been relatively slow to start, however. The Anecdotal evidence shows that a few comparatively richer gap between the two projects has led to a partial waste of householdsbenefitedfromtheprogram,particularlyduring resources, particularly in social mobilization. The house- thepilotphase. holds that have applied for a subsidy do not seem to invest in the facilities themselves (i.e. without a subsidy) as they No study has been carried out to evaluate inclusion and may be waiting for extensions of the program to material- exclusion errors. There was some anecdotal evidence that ize and their economic situation has deteriorated sharply in a few comparatively richer households benefited from the recent years due to the food crisis, the rise in energy costs program during the pilot phase (and therefore paid a 50% and the global economic crisis. The sector's stakeholders are contribution). In some cases, they had a positive impact on unanimous in emphasizing the necessity to rapidly resume the program as their participation served as a demonstra- funding to preserve the trust and dynamics of the program. tion factor for other households. E.4.5 Scalability E.4.4 Financial sustainability Servingthe70,400householdsthathaveexpresseddemand Publicfundsaccountedfor89%oftotalinitialcosts,point- wouldrequireanotherUS$54.5million,tocoverhardware ingtoalowfinancialsustainability. subsidiesandsoftwarecosts. Households were responsible for covering operating costs, This represents 514% of the annual sanitation budget for the however, and a good level of maintenance of the existing entire country, which was estimated at CFAF 4.5 billion in infrastructure indicates that they were willing and able to 2008 (or US$10.6 million at 2008 exchange rates). Besides, finance such expenses once the infrastructure has been built. this demand is only the outstanding demand within the original boundaries of the project. Meeting the MDG by Lackofpublicfundinghasputtheprogramonhold,leaving 2015 would require building an additional 135,300 on-site interestedhouseholdsunserved. sanitation facilities, which means that more than double this amount would be required. At current levels of spending Allocated funding for the household sanitation component was on sanitation, scaling up the PAQPUD program approach used up at the end of 2005 and construction of on-site facilities would clearly be unattainable. had to stop, leaving 70,400 demands for facilities unmet as of late 2008. Those households have applied for a sanitation solu- ConcernsthatthesanitationMDGswillnotbemetdueto tion, a technical feasibility study has been carried out, and the lackoffundsarelegitimate. households are ready to pay their contribution but there are no project funds to meet their demands. The PAQPUD project Additional funding would need to come from external continued till 2008 in order to complete the construction of sources (as is the case with the GPOBA program, which collective equipments, such as sludge treatment plants. is providing grant financing) or through an increase in the www.wsp.org 125 Financing On-Site Sanitation Annex E Senegal case study share of the sanitation budget out of the total budget. The households' income. The most expensive solution was the sums needed to meet unmet demand under the original septic tank, which accounted for 59% of the poorest house- PAQPUD project represent 1.42% of the national budget, holds' annual income but only 15% after the subsidy. which seems relatively small but would most likely not be mobilized given other competing pressures on limited In terms of effectiveness in the use of public funds, the funds. Given that mobilizing such additional financing is increased access / public funding ratio was low, as US$1,000 very unlikely, a change in approach, with cheaper facilities was only sufficient to serve 1.6 households. On the other or more leveraging of private investments, is therefore need- hand, the financing approach did not succeed in leveraging ed. Scaling up the current approach would require a high private financing, since only US$0.13 of private funds were level of financing that is not currently available. mobilized for each US$1 of public funds spent. E.5 Summary evaluation Intermsofpovertytargeting,PAQPUDtargetedareaswith In this section, we summarize the evaluation of the financ- ahighincidenceofpoverty.The same level of subsidy was ing approach based on our set of criteria and review what offered to all within the target area for all sanitation solu- seems to have worked and what did not work so well. tions. There was some anecdotal evidence that compara- Overall, PAQPUD achieved significant impact, but ques- tively richer households captured the subsidy, particularly tions about the costs and the financial sustainability of for building more expensive solutions like a septic tank. the scheme mean that scaling up this program to meet the Reliance on community-based organizations allowed an Millennium Development Goals is unlikely to be achiev- improvement in the targeting to some extent. able for lack of funding. PAQPUD'sfinancialsustainabilitywasverylow,giventhat Intermsofimpactonsustainableaccesstoservices,PAQPUD publicfundsaccountedfor89%ofinitialcosts. As has been ledtosubstantialincreasesincoverageinitsprogramarea. experienced, the program was totally dependent on external The program served about 366,000 people in the peri-urban financing and it actually ground to a halt when World Bank areas of Dakar, who previously had no facilities and were financing was exhausted. using public toilets or a neighbor's toilet or were defecating in the open. The target number of facilities was overshot The approach does not appear to be scalable, given its and built ahead of schedule. The program was a "victim highdependencyonexternalfunding. Serving the 70,400 of its own success" since investments in household facili- outstanding demands alone would require another US$54.5 ties had to stop early, not for a lack of demand (more than million, which represents 514% of the sanitation budget 70,000 households expressed a demand and could not be for the entire country and 1.42% of the national budget. served) but due to a lack of funding. WHAT SEEMS TO HAVE WORKED? In cost terms, the costs of sanitation facilities provided PAQPUD was successful at focusing attention on on-site undertheprogramarehigh. The program offered a range sanitation, which had been neglected up to that point. In of sanitation solutions, and households could choose one the context of the reforms of the water and sanitation sector or several based on the physical characteristics of their plots in Senegal, the sanitation sector had received compara- and what they could afford. The most popular facility was tively little attention and on-site sanitation had only been a sink for washing with a soakaway (BALP), which was the promoted by NGOs on a small scale. PAQPUD was there- cheapest facility on offer but does not provide an improved fore successful at placing on-site sanitation on the agenda for method for excreta management. The improved sanitation politicians, policy makers and ONAS, the para-statal agency solution that was most popular was the pour-flush latrine in charge of sanitation that had previously been focused on and shower. Total investment costs accounted for 31% of network-based solutions. This was a significant achievement, household income for hard-core poor households, but the since on-site sanitation will need to form part of the solu- household contribution (after subsidy) was only 8% of these tion for Senegal to meet the sanitation MDGs. The program's 126 Water and Sanitation Program Financing On-Site Sanitation Annex E Senegal case study integrated approach, with attention paid to organizing the Akeystumblingblockseemstobetherequirementthathouse- whole chain of excreta management (and building of sludge holdspaytheircontributionup-front,withlimitedpossibil- treatment facilities) was also extremely interesting. ityofspreadingthecostsofthiscontributionovertime. Even though credit was made available during the second phase, PAQPUDofferedabroadcatalogofservicesthatcouldmeet it was not at the core of the program design and does not thevariedneedsofthetargetpopulation. The inclusion of seem to have been accessed by those who would need it connections to small-bore sewers improved the attractive- most. Ways of improving access to credit may need to be ness of the program, since on-site sanitation was not tech- sought in order to increase demand for the program and nically possible in certain areas. Moreover, the beneficiary ultimately reduce public fund outlays. populations liked small-bore sewers, which they considered more attractive in an urban setting. Theapproachdoesnotseemtobescalable,unlesssubstantial amountsofexternalfundingareprovidedorthegovernment AND WHAT DID NOT WORK SO WEll? reallocatesresourcestothesanitationsector. Given the compe- The rate of hardware subsidy was increased from 50% to tition for existing funds, a change in PAQPUD's approach 75%halfwaythroughtheproject,duetoinitialpoortake- may be warranted. Efficiency gains in hardware costs may up of the facilities. The initial rate of subsidy had been be needed, since such costs appear to be high (this may even defined based on a willingness to pay survey that gave an require the households to play a larger role in choosing the inflated picture of how much the population would be will- optimal technical solution or type of superstructure given ing to pay for the facilities. Although the increase in subsidy what they can afford). Finally, social mobilization efforts increased take-up substantially, it also negatively affected could be stepped up in order to increase the acceptability of the financial sustainability of the program, which had to household financing and make the local population feel more stop due to lack of funds. Additional grant financing has responsible for investing in their own facilities rather than been mobilized via GPOBA with a similar project design, "wait" for the program to deliver heavily subsidized latrines. but such financing has been slow to arrive and will not be The recent deterioration in households' finances, linked to sufficient to meet all the unmet demand. The gap between the food crisis, the increase in energy prices, and the global the end of PAQPUD's investment period (at the end of economic crisis, makes all of these challenges even more chal- 2005) and the start of the GPOBA program means that lenging, as households are focused on day-to-day expenses social mobilization efforts may have been partially wasted rather than making long term investments. or will need to be rekindled via additional funding. About 2,000 sanitation facilities were built in the interim with World Bank financing, but this was insufficient to sustain the previous rate of investment. Highsubsidieswereofferedforallsanitationsolutions,with limitedtargeting. On the one hand, 80% of the costs of gray water management solutions were subsidized. Even though demand was clearly there, one could question whether public funds should be used for building such facilities. On the other hand, high subsidies were also offered for high-cost solutions, such as septic tanks, which were only attractive to compara- tively richer households. Focusing subsidies on a narrower set of sanitation solutions that help with excreta management at a reasonable cost might have been preferable. www.wsp.org 127 Financing On-Site Sanitation Annex F Vietnam case study Annex F - Vietnam case study Case study written by Mai Van Huyen, Cu Thuy and Sophie Trémolet OVERViEW OF ViETnAm CASE STudy (ThE ThREE CiTiES SAniTATiOn PROJECT) Key facts Project name Three Cities Sanitation project ­ Sanitation Revolving Fund component Project objectives Provide loans to low-income households to help them construct or improve sanitation facilities (both on-site and with sewer connections) Public financiers World Bank, Government of Australia, Government of Finland, Government of denmark Scale 193,670 people served in peri-urban areas in three regions Time frame Program years: 2001 to date / Study period: 2001-2004 level of service mostly septic tanks (also composting/urine-diverting latrines and sewer connections) Summary of financing approach Software support · Software support for sanitation promotion and hygiene education · Software mark-up = 10% of total costs of sanitation solution hardware · Subsidized interest rates on loans for hardware construction subsidies · Hardware subsidy: US$6 per household (3% of hardware costs) · hardware subsidies = 30% of public funds Access to credit · Facilitated access to credit via Sanitation Revolving Funds is the program's core Summary evaluation impact on sustain- · Contributed to increasing coverage in target area by between 13% and 21% able access · All facilities appeared to be working well five years down the line Costs · Average hardware costs: US$197 (30% of lowest quintile income) · Operating costs: US$30 per year (6.5% of lowest quintile income): Effectiveness in · high leverage ratio: 20 the use of public · high "increased access/ public funding": 117 latrines built / uS$1,000 public funds funds Poverty targeting · People in targeted areas have no sewer connection and are predominantly poor. · Savings and Credit group leader plays an important role in selecting group members who are eligible for a loan. Financial sustain- · Public funds = 7% of total costs of sanitation adoption (high sustainability) ability Scalability · Scaling-up to cover the remaining uncovered population is achievable. · Approach already scaled up through World Bank and government-led projects. www.wsp.org 129 Financing On-Site Sanitation Annex F Vietnam case study OVERViEW OF ViETnAm CASE STudy (ThE ThREE CiTiES SAniTATiOn PROJECT) COnTinuEd Some lessons learned What worked? · The revolving fund proved highly sustainable, as the funds were revolved several times before being transferred back to the municipalities to allocate further. · The Women's union, a pervasive organization throughout the country with experience in microfinance, managed the scheme initiated by the local utilities. · lending procedures were attractive to borrowers, and the loans worked as a catalyst for the households to find additional financing and invest. · The creation of Savings and Credit groups was seen as critical to ensure repayment of the loans and regular saving contributions. What did not work · The solutions built represent a high proportion of poor households' income and are not affordable to the poorest, so well? who were excluded from the scheme. F.1 Overview of the financing approach per household was about US$21 and represented about 10% A Sanitation Revolving Fund (SRF) component was incorpo- of the total costs of sanitation adoption. rated in the broader Three Cities Sanitation Project in Vietnam to provide loans to low-income households for building This case study starts by providing some brief background on-site sanitation facilities. Working capital for the revolving on the country and sanitation context. We present the way funds was provided by the World Bank, the Government of in which on-site sanitation was provided through the project Australia, the Government of Finland and the Government before analyzing the costs of such provision. We then evaluate of Denmark for three sub-projects in Danang City, Haiphong the performance of the financing approach for the on-site solu- City and Quang Ninh Province (Halong City and Campha tion, focusing on its impact on sustainable access to services, Town). The program benefited almost 200,000 people over on costs and effectiveness in the use of public funds, and on the course of seven years. The average hardware costs of the poverty targeting, financial sustainability, and scalability. A sanitation facilities built was US$197. summary section draws out key lessons learned, looking at what seems to have worked and what did not work so well. The SRF provided small loans (US$145) over two years at partially subsidized rates to low-income and poor house- F.2 Country and sanitation sector context holds to build septic tanks or, in fewer cases, urine diverting / composting latrines or sewer connections. The subsidized F.2.1 Country context interest rate was equivalent to providing a US$6 subsidy Vietnam, a country of 85.6 million people at the end of on each loan. The loans covered approximately 65% of the 2007, is the 13th most populous country in the world. average costs of a septic tank and enabled the households to Although urbanization is developing rapidly, only 27% spread these costs over two years. They acted as a catalyst for of the population was living in cities as of 2007. In recent household investment, though households needed to find years, Vietnam has experienced relatively high economic other sources of financing to cover their total investment growth, at approximately 7% per annum. costs, such as borrowing from friends and family. In 2007, GDP per capita was estimated at US$828,5 The program also included a significant software support although this was considerably higher when considered in component, for sanitation promotion, the creation of Savings PPP-adjusted terms (US$2,589). The national poverty rate and Credit groups, and hygiene promotion. Software support was estimated at 15% in 2007. 5 International Monetary Fund, World Economic Outlook Database, April 2009. http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/index.aspx 130 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study F.2.2 initiatives to increase sanitation coverage maintaining existing drainage systems, collecting and treat- The government's sanitation sector strategy was developed ing wastewater and solid waste, and other services such as withassistancefromUNDP/WorldBankin1990andthe street pavement maintenance, parks, street lighting, road FinnishGovernmentin1995/1996.Among other things, construction, and burial services. We refer to these collec- the strategy focused on decentralizing activities to the local tively as the "local sanitation service companies" in the rest level and, where appropriate, outsourcing service functions of this case study. such as septage collection or maintenance of equipment to the private sector. At the household level, it was decided F.3 Sanitation Revolving Fund project design that property owners would continue to be fully responsible This section presents the overall set-up of the Sanitation for on-site sanitation costs, although it was recognized that Revolving Fund (SRF) component of the Three Cities sani- lower-income households would need assistance to build tation project, its institutional set-up and levels of service, suitable sanitation facilities through access to credit. Prior the total costs and sources of financing, as well as the main to this, however, donors had tried to develop sanitation characteristics of the lending product. investments through heavily subsidized schemes, but by and large these had failed. F.3.1. Project overview TheThreeCitiesSanitationProjectwasinitiatedtosupport Between2000and2006,accesstoimproveddrinkingwater theGovernmentofVietnam'ssanitationsectorstrategy.The andimprovedsanitationincreasedfrom78.7%to89.0% World Bank-funded Three Cities sanitation project was andfrom44.1%to64.3%,respectively. According to Joint approved in May 1999. It officially started in January 2000 Monitoring Programme (JMP) figures, 88% of the urban and closed in June 2008, although the Sanitation Revolving population in Vietnam had access to improved sanitation Fund component is scheduled to continue operating under in 2006 and 5% had shared facilities.6 Urban water-supply a different institutional set-up until at least 2010 in some coverage reached 97.1% in 2006. cities. The original project operated in three subprojects, in Da Nang City, Haiphong City, and Quang Ninh Province F.2.3 institutional set-up for urban sanitation (Halong City and Campha town). A project management Atthenationallevel,theMinistryofConstruction(MOC)is unit was established in each city/province. responsibleforurbanwatersupply,sanitation,anddrainage. This includes responsibilities for planning, policy formula- The project as a whole aimed to make sustained improve- tion, regulation, training, and technology transfer. ments to public health and to increase economic development by reducing the incidence of flooding, upgrading the urban Attheprovinciallevel,theProvincialPeople'sCommittees environment, and developing more efficient and financially (PPCs)areresponsibleforurbaninfrastructuredevelopment, sustainable sanitation and drainage companies. In terms of including water supply, sanitation and drainage. In the implementation, it focused on increasing decentralization "special" cities such as Ho Chi Minh City and Hanoi as well by developing greater financial and governance capacity at as some other large cities--such as Haiphong, Da Nang and the local level and promoting private sector participation by Ba Ria Vung Tau--where there are large drainage systems, helping to commercialize public utility agencies. the PPCs established Sewerage and Drainage Companies (SADCOs) or Urban Drainage Companies (UDCs) for The project included rehabilitating essential sanitation infra- maintaining existing drainage systems and collecting and structure, institutional strengthening of the local sanitation treating waste water and solid waste. In smaller cities, the services companies, and facilitating greater private-sector PPCs have established Urban Environmental Companies participation. This was done directly by providing techni- (URENCOs), which are public enterprises responsible for cal assistance for the procurement and regulation of private 6 These figures are disputed. Other figures, from the MOC/ Vietnam Water Supply and Sewerage Association, placed urban water supply coverage at 70% in 2006 and urban drainage coverage at about 60%. www.wsp.org 131 Financing On-Site Sanitation Annex F Vietnam case study contractors and indirectly by helping to build commercially by the Provincial People's Committees since there oriented public utilities. It was expected that, by the end of is still demand from local people. The principle the project, local governments and their sanitation service of continuing to use the fund beyond Phase 1 to companies would be in a position to take over responsibility finance other areas with a social or environmental for an increased share of the investment costs of sanitation purpose was agreed to at an early stage. infrastructure. In terms of hardware, the project focused on improving primary and secondary drains, sewers, and solid F.3.2. Revolving fund institutional set-up waste collection, transfer and disposal. Ineachcity,thelocalsanitationservicecompaniesappointed thelocalbranchoftheWomen'sUniontoadministertherevolv- Project components were designed in the same way in all three ing funds on their behalf. The Women's Union has a lot of areas including (i) sewerage and sewage treatment; (ii) drainage; experience and is the most competent organization to deliver (iii) institutional development and construction management; health education programs and manage microcredit schemes in and (iv) revolving funds for household sanitation facilities. Vietnam. It has been managing similarly funded projects since 1992. As they had been very successful in managing Phase 1, Revolving funds were established in selected areas in each Women's Union branches were assigned to manage the revolv- citytoprovideloanstolow-incomehouseholdstohelpthem ing funds during Phase 2 as well. They received assistance from construct or improve on-site sanitation facilities, mainly the local sanitation companies in order to develop technical individual septic tanks and urine-diverting / composting solutions and supervise the quality of constructed work. latrines, or to build sewer connections. This component built on the recognition that on-site sanitation solutions should At the community level, the Revolving Funds functioned on be offered to those who were located far from existing or the basis of Savings and Credit groups, formed by potential expected sewers, because sewers and full biological treatment borrowersandledbyagroupleader. Savings and Credit groups would not be affordable for the entire population. The sanita- included 12 to 20 people each who had to live close to each tion service companies thereby recognized that they should other in the same ward in order to ensure community control. provide sanitation services to all urban citizens and not only People in the same groups had to pay back the loan on time the families that are connected to their piped networks. to enable others to get a loan. Several groups could be formed in the same ward according to demand. To join a Savings and The revolving fund component was implemented in two Credit group (and therefore be eligible for a loan), households distinct phases: had to meet the following eligibility requirements: · DuringPhase1(from2001totheendof2004),the · Be in need of funds for construction or improve- revolving funds were operated under the manage- ment of sanitation facilities including latrines, septic ment ofthe Three Cities Sanitation Project in each tanks, or internal plumbing; of the cities. After phase I of the project, funds were · Have no other outstanding loan and no previous bad debt handed back to the People's Committees of the three and they must be deemed able to pay back the loan; cities/provinces. · Be low-income, although hardcore poor7 were exclud- · DuringPhase2(from2005todate),thefundswere ed because of their low ability to pay the loan back; transferred to the management of the Municipal/ applicants had to have an income above the provincial Provincial People's Committee. The second phase poverty line but less than 1.5 times that level; and ran from 2005 to 2008 for Halong and Campha and · Be willing to commit to the group's activities and rules will extend to 2010 for Da Nang and Haiphong. In and regulations; this would usually entail making Halong and Campha, the funds are now closed and compulsory savings of VND 10,000 to VND 20,000 the working capital was sent back to the Provincial per month, which cannot be withdrawn before the loan People's Committee. A follow-up is being considered ends, and participating in monthly group meetings. 7 Those below the national poverty threshold of VND 150,000 per capita per month, or US$516 per household per year in 2004 132 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study SavingsandCreditGroupswereledbyagroupleader,who Haiphong and Da Nang cities, with better-off people living in hadtoliveinthesameareaandbeeitherastafffromthelocal urban areas with limited land for accommodation. However, Women'sUnionortheheadoftheresidentialblock.Group the take-up of sewer connections was considerably reduced leaders played a very important role to make sure that all by delays in the construction of the main sewers. borrowers paid back the loan and interest on the loan within the payment term. In some cases, they had to advance their CAPiTAl COSTS own funds to those who might not be able to pay the install- A detailed design was provided together with the estimat- ment. Group leaders (mostly women) were involved on a ed cost to every potential borrower. Borrowers decided on voluntary basis and would usually be motivated by pride or the technical solution that best suited their needs, depend- the desire to enhance their reputation. They were respon- ing on affordability and other considerations (such as odor sible for managing group activities, which included iden- and convenience). tifying eligible households to receive the loans, organizing group meetings, managing the loan repayment progress, and The project provided estimated costs for these options to collecting interest as well as compulsory savings, and finally the households: VND 2,050,000 (US$149, using the 2001 ensuring that investments were carried out within 30 days exchange rate) for a composting/urine-diverting latrine, and following the disbursement of a loan. VND 3,200,000 (US$225) for a septic tank (2001 prices). Whereas such estimates were sufficient to cover the costs of SavingandCreditgroupsweremonitoredatthewardlevel a septic tank, they represented only a bottom estimate for andattheprovinciallevelbyRevolvingFundmanagement septic tanks, with actual costs being at least VND 3,500,000. boards, which were themselves placed under the scrutiny These estimated costs were increased in 2006, partly to reflect of the project management units in each city. At the ward inflation, to VND 3,500,000 (ÚS$218 at 2006 exchange level, a three-member management board was formed and rate) for a composting/urine-diverting latrine and VND was responsible for monitoring the use of funds and super- 4,100,000 (US$256) for a latrine with a septic tank. vising the groups' activities. They were also in charge of building up promotion teams and disseminating informa- For sewer connections, the costs varied substantially tion on hygiene issues as well as reporting to the Provincial depending on the length of pipe required and on the type / Municipal Management Boards about the use of the loans. of terrain. An average estimate made by the consultants to At the provincial level, the management boards were created the Three Cities Project was VND 1,310,000 (US$95 at with five to seven members each, who were permanent staff 2001 exchange rate) per sewer connection. of the Women's Union and/or contractual staff. In addition, representatives from the local sanitation service companies OPERATiOn And mAinTEnAnCE COSTS and/or project management units were part of the Provincial The operating cost of a toilet with septic tanks includes Management Boards. Their responsibilities included moni- cleaning products, electricity, toilet paper, and water for toring the revolving funds' performance and developing flushing, and ranges from VND 30,000 to VND 60,000 materials that could be used at the ward level, such as IEC per month in 2008. Emptying septic tanks should be done materials or bookkeeping and reporting systems. once each four or five years. It is normally charged at VND 400,000 to VND 800,000 (2008 prices) per tank depend- F.3.3 levels of service ing on the accessibility and the volume of the tank. Three potential technical solutions were offered to borrowers in all three cities: septic tanks, composting/urine-diverting Since 2001, the sanitation service companies have introduced latrines, and sewer connections. Composting/urine-diverting a wastewater fee for all households connected to the water latrines were applicable mainly in the semi-urban communes networks, payable through the water bill. Those households of Campha and Halong cities, where nutrients from human that pay that wastewater charge and have on-site sanitation excreta are needed for vegetable production. Latrines with facilities (rather than being connected to the sewers) can have septic tanks and sewer connection were highly preferable in their pits emptied at no extra charge once every five years. www.wsp.org 133 Financing On-Site Sanitation Annex F Vietnam case study The sanitation service companies have contracted out the Revolving fund component. A total of US$3 million was provision of these services to private operators. As a result, allocated to the revolving fund component (less than 3% of the total yearly operating and maintenance costs for a latrine the total budget), of which US$1 million was a grant from with septic tank (including the costs of pit emptying) were Denmark (transferred to the World Bank through a trust estimated to be US$31 in 2004 prices (the end of Phase 1). fund), US$1 million a grant from Finland to Haiphong's Women's Union and US$1 million from the World Bank The operating costs of composting/urine-diverting latrines project funds (transferred by the central government to the were smaller, at about VND 10,000 to VND 20,000 per recipient cities as grants). The funds for Phase 1 were allo- month, mainly for toilet tissues (2008 prices). Pit empty- cated as shown in Table F.1 below. ing is done by the owners themselves for crop cultivation purposes, so there is no cost information on this. The total Approximately 15% of the total was allocated as operat- operating costs for that type of latrine were estimated to be ing costs and hygiene education activities for the revolving US$8 per year in 2004 prices. fund component (in Haiphong, there was also a contingency which corresponded to the funds made available by the City We did not obtain data on the operating costs of a sewer of Haiphong itself ). In addition, funded out of the main connection. project, a group of technical consultants helped the Women's Union carry out intensive hygiene education activities. F.3.4. Project costs and financing sources Overall project costs. The total cost of the Three Cities The remainder was used as working capital for the revolv- Sanitation Project was US$119.53 million, of which ing fund component. Administrative expenses at the local US$80.50 million (67%) was from an IDA/World Bank level were funded through interest revenues on this working loan with a 10-year grace period and 40 years to maturity. capital (see next section on loan design). In addition, grants were received from the Government of Australia (Da Nang); the Government of Finland The total value of loans provided during Phase 1 is shown (Haiphong) and the Government of Denmark (Quang in Table F.2 below. This shows that, on average, working Ninh) for a total of US$18.74 million (16%). The contri- capital funds were "revolved" about twice. bution from the Government of Vietnam was about US$20.29 million (17%). TABlE F.1. PhASE 1 - REVOlVinG Fund AllOCATiOnS (in 2001 uS$) da nang haiphong halong Campha Total Phase 1 ­ initial allocations Working capital 861,000 707,000 545,000 398,000 2,511,000 Operating costs* 152,000 151,000 85,000 64,000 452,000 Contingencies 0 151,000 0 0 151,000 Total 1,013,000 1,010,000 630,000 461,000 3,114,000 Converted using 2001 exchange rates, US$1= VND 13,800 Note: Operating costs were split between, approximately, 5% for management and 10% for hygiene education. TABlE F.2. TOTAl VAluE OF lOAnS PROVidEd duRinG PhASE 1 (in 2001 uS$) danang haiphong halong Campha Total Total number of loans 12,815 8,608 7,547 6,854 35,824 Total value of loans 1,950,000 1,254,000 990,000 847,000 5,041,000 loans/working capital 2.27 1.77 1.82 2.13 2.07 134 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study At the end of Phase 1, the working capital was returned to the for the second phase of the project. Provincial People's Committees, which re-allocated those funds · Interest: The monthly interest rate was 0.5%, which as to be used for Phase 2. With the effect of inflation, the value of about half the normal commercial rate.9 This is equiva- this working capital had decreased, however. In addition, the lent to a 5.85% annualized interest rate over the life of operating costs for Phase 2 were retained out of the transferred the loan (taking into account the grace period). These funds, which led to an overall reduction in working capital value, interest rates were increased slightly during Phase 2. as shown in Table F.3 below. In Halong and Campha, there had · Payment terms: The loan had to be repaid over 24 been savings on operating costs during Phase 1, which meant months, with a 6-month grace period during which that funds transferred for Phase 2 were slightly higher. no capital repayment is due. Interest had to be paid from the first month. Additional expenses were incurred by the project as a whole, such as in community participation development or hygiene Disbursement schedule: An advance payment of 20% was paid awareness campaigns, but it was not possible to disaggregate to the household borrowers on approval of the loan by the such figures in order to allocate them to the revolving fund Management Board. Subsequent percentage payments were component. The estimate of the software costs (including made at predefined stages of completion, based on progress hygiene promotion and administrative expenses) is there- certificates signed by the Women's Union. Revenues from fore an underestimate. interest payments were used to cover administrative costs and any potential default. Those revenues were allocated as follows: F.3.5 loan design 50% for administrative costs at the ward and group level; The Sanitation Revolving Funds (SRFs) offered two main 20% for administrative costs at the provincial level; 20% for types of loans: sanitation loans and income-generation defaults; and 10% to make incentive payments and reward loans, the latter for activities such as garment sewing or groups with significant achievement in loan repayment. The handmade production.8 Sanitation loans accounted for decision to write-off a bad debt must be approved by the 80% of the number of loans provided by the SRFs, and Provincial Management Board, and the Savings and Credit income-generation loans were made mainly out of the group must pay at least half of the outstanding loan principal funds available from compulsory savings. from its compulsory savings pool. The key characteristics of the sanitation loans provided by In addition, Savings and Credit group members had to make the SRFs were as follows: compulsory savings, from at least VND 10,000 to 1% of the · Loan size: The maximum amount that could be award- value of the loan, which had to be paid from the first month.10 ed to each borrower was VND 2,000,000 (US$145 Members were not allowed to withdraw their savings before at 2001 exchange rates). This was increased to VND the end of the loan term and they did not earn interest on these 3,000,000 in 2006 (US$187 at 2006 exchange rates) compulsory savings, which can therefore be seen as a deposit. TABlE F.3. PHASE 2 ­ REVOlVING FUND AllOCATIONS (IN 2004 US$) da nang haiphong halong Campha Total Value of principal fund reimbursed - end of Phase 1 755,053 620,313 478,137 348,926 2,202,428 Value of principal fund brought to use in Phase 2 645,100 508,453 448,456 357,760 1,959,769 Allocated for operating costs of Phase 2 109,953 111,860 28,028 22,372 272,213 Allocated for operating costs of Phase 2 (%) 15% 18% 6% 6% 12% 8 In addition, during Phase 2, some revolving funds provided loans for water supply investments. This was not allowed during Phase 1. 9 This subsidized rate has not been taken into account into the computation of the use of public funds, as the funds were provided as a grant to the project. Estimating the value of this subsidy would require putting a value on the public cost of capital, which goes beyond the scope of this project. 10 In Haiphong, savings were not compulsory, but capital repayments equivalent to 5% of the total loan had to be returned each month from the 5th month of the cycle. They were able to offer these conditions because the population was better-off in Haiphong, which meant that the credit risk was lower. www.wsp.org 135 Financing On-Site Sanitation Annex F Vietnam case study Savings could be retained and managed by the Savings and households that had already invested in septic tanks, so they Credit groups. Group members decided how to use savings, but were reluctant to connect to the newly built sewers. This is in general they were used to give loans for income generation a potential limitation of the SRF scheme, and it would have and sanitation improvements. Loan recipients who received been preferable to delay it until the sewers were actually built. this savings had had to prove their capability for repayment by However, the Women's Union was keen to press on with the performing well on previous sanitation loans awarded. loan program so as to provide access where demand was high. F.4 Evaluation of the project's performance Improvedsanitationfacilitycoveragerateshavesignificant- In this last section, we seek to evaluate the project's perfor- lyincreasedinallfourcities. mance at extending household sanitation based on crite- ria set out in the common methodology for the project. Coverage with improved sanitation facilities varied between Detailed calculations are based on Phase 1 only, as some 15% (Campha) and 70% in Da Nang and Haiphong, prior critical data was missing for Phase 2. to the project being in place. The project made a significant contribution to increasing coverage in all four cities, rang- F.4.1 Impact on sustainable access to services ing from 13% to 21% coverage increase when compared to The SRF mechanism covered 94 wards in the four cities the baseline population in 2000. However, the percentage of andbenefitedabout200,000peoplefrom2001to2008, as coverage increase is lower when compared to the 2007 popu- shown in Table F.4 below. lation, reflecting the population growth during the period. Of the 46,308 sanitation facilities built with financial Not all these achievements can be attributed to the revolving support from the revolving funds, 88% were septic tanks, fund component alone, however. For example, it was esti- 9% were for sewer connections, and 3% were for compost- mated that about 20% of households invested in improving ing/urine-diverting latrines. their sanitation facilities from their own resources, thanks to the overall impact on sustainable access to services, such as the At the project design stage, it was envisaged that a high- hygiene promotion campaign. In Da Nang, for example, it was er percentage of the loans would be used to invest in sewer estimated that about 1,700 households improved their sani- connections rather than septic tanks. However, the construc- tation facilities following the communication campaign but tion of the main sewers encountered some delays and did without a loan from the SRF. Those improved sanitation units not keep up with the pace of the revolving fund component. contributed to an increase of sanitation access coverage (includ- When the main sewers eventually got built, toward the end of ing nonimproved latrines) from 83.6% in 2000 to 90.4% in the Three Cities Sanitation project, the revolving funds had 2004. In Halong, access to improved sanitation had risen to to be wound down and transferred to the municipalities and 90% by 2007, largely due to the impact of the SRF. TABlE F.4. ACHIEVEMENTS OF THE REVOlVING FUND APPROACH (PHASES 1 & 2 - 2001-2008) da nang haiphong halong Campha Total Total number of loans provided 18,516 15,532 10,978 9,863 54,889 number of sanitation facilities built 15,368 13,855 9,581 7,504 46,308 Composting / urine-diverting latrine 0 0 411 1,031 1,442 Toilet with septic tanks 15,266 9,980 9,098 6,405 40,749 Sewer connection 102 3,875 72 68 4,117 number of people reached with sanitation facilities 69,310 54,312 39,282 30,766 193,670 number of loans for other purposes 3,148 1,677 1,397 2,359 8,581 % of sanitation loans out of total loans 83% 89% 87% 76% 84% 136 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study TABlE F.5. inCREASE in COVERAGE in PROJECT AREA (2000-2007) date da nang haiphong halong Campha Baseline population in project area 2000 543,637 419,400 186,029 154,035 Baseline coverage 2000 70% 70% 55% 15% Baseline number of household facilities (estimated) 2000 84,378 74,893 24,955 5,635 number of sanitation facilities built 2000-2007 15,368 13,855 9,581 7,504 Equivalent increase in coverage vs. baseline population 13% 13% 21% 20% increase in coverage vs. 2007 population 9% 8% 20% 19% Other significant achievements have included the following: Despite this cost difference, borrowers had a strong preference · Awareness of the linkages between hygiene, sanitation, for building septic tank latrines. In the two larger cities, Danang environment, and health was raised by many hygiene and Haiphong, all loans were used to build a septic tank, reflect- promotion campaigns conducted by the technical ing the fact that these two cities are more urban in nature (hence assistance subcomponents of the overall project. there is no need for compost for agricultural production) and · The capacity of the Women's Union staff was that the population is comparatively better off. strengthened by many training activities conducted on credit appraisal, loan portfolio quality monitor- Operatingcostsoftheseptictanklatrinewerealsohigher,at ing, and study tours to exchange experience among aboutUS$30peryear(in2004prices),comparedtoUS$8 project sites and relevant projects in the country. peryearforacompostingurine-divertinglatrine. According to the Women's Union's experience, as well as However, after 2001, services for emptying septic tanks focusgroupdiscussionsandobservations,allfacilitiesbuilt were offered free of charge to those who were connected withrevolvingfundfinancingappeartobestilloperating to the water system, as this cost would be covered through fiveyearsdowntheline. This reflects strong ownership of the wastewater charge. This amounts to a savings of US$6 the scheme, with the loan recipients taking good care of the on operating costs, although households still needed to pay facilities built out of the loan proceeds. this service indirectly through the wastewater charge. F.4.2 Costs For households, the loans helped spread the burden of the Thetotalcostsofbuildingaseptictanklatrine,including investmentcostsovertime,buttheinvestmentstillrepresented financing costs and software costs, were around US$220, asubstantialportionoflow-incomehouseholds'income. includingUS$20toUS$25forthesoftwarecomponent. Given the choice of technical specification (a latrine connect- Taking account of the financing costs and the software costs ed to a septic tank, which was not at the bottom of the sanita- (i.e. the operating costs of the revolving fund), we estimated tion ladder), the investment costs for households (including that the total costs for a septic tank with latrine ranged from hardware and financial costs of the loan) represented a size- US$221.7 in Haiphong to US$214.4 in Campha in 2004 able portion of their annual income. For a composting/ prices. The software component (the operating costs of the urine-diverting latrine, it ranged from 22% for a low-income SRF) represented between 8% and 11% of the total costs household to 30% of yearly income for a poor household. For for a septic tank. a septic tank, household investment ranged from 24% for a low-income household in Da Nang to 46% for a poor house- A composting/urine-diverting latrine was comparatively hold in Haiphong, as seen in Table F.6 below. Despite this cheaper, at around US$150, including US$17 to US$19 apparent burden, low-income households were still prepared forthesoftwarecomponent(13%oftotalcosts) to make substantial investments in improved sanitation. www.wsp.org 137 Financing On-Site Sanitation Annex F Vietnam case study TABlE F.6. HOUSEHOlD INVESTMENT COMPARED TO HOUSEHOlD INCOME Composting / urine-diverting latrine danang haiphong halong Campha household investment as % of average income n.a. n.a. 7 7 household investment as % of low income n.a. n.a. 22 22 household investment as % of poor income n.a. n.a. 30 30 latrine with septic tank household investment as % of average income 9 13 10 10 household investment as % of low income 24 38 32 32 household investment as % of poor income 40 46 44 44 Note: Information on the percentage of income for an average income household are provided as a basis for comparison, as average households were not a target group for the program. The total outgoings on a sanitation loan (including the F.4.3 Effectiveness in the use of public funds compulsory savings, which are only recouped once the loan Fromthepublic-sectorpointofview,the"bang-forthebuck" has been repaid) amounted to VND 2,385,000 or US$142 ratio was particularly high, as US$1,000 of public funding (at the 2004 exchange rate). This represented about 30% enabledtheconstructionofseptictanksfor116households. of the yearly income of a poor household, defined as being below the national poverty threshold (i.e. a monthly income This reflects the fact that the type of investment retained of VND 150,000 per capita for the period 2001-2004). For was relatively low-cost and, most importantly, that the use low-income households (below a threshold defined by each of public funds was rather limited, with most of the invest- municipality, slightly higher than the national poverty thresh- ments financed by households themselves. old), the cost of the sanitation loan represented between 18% and 28% of their yearly income depending on the city. Investments in sanitation facilities have overwhelmingly beenfinancedbythehouseholdthemselveswithprefinanc- Operationandmaintenancecostsofacomposting/urine- ingfromtherevolvingfund. diverting latrine were relatively affordable, ranging from 1.6% of an average household income to 7% of a poor We sought to estimate the value of household investments, household income. In addition, compost from the latrine based on the average costs for each technical solution.11 The could be used for agriculture purposes and therefore gener- loans provided by the SRF covered approximately 98% of the ate revenues. hardware costs for a composting/urine-diverting latrine and 65% of the average hardware costs of a septic tank. Taking Thecostsofmaintainingaseptictankwerealsorelatively into account that households had to cover interest costs affordable, ranging from 1.3% of an average household (which partly paid for administrative expenses), we estimated incomeinDaNangto6.5%forapoorhousehold. In addi- that households had invested close to US$5.2 million during tion, the fact that emptying septic tanks is provided as a free Phase 1 alone in septic tanks and urine-diverting /compost- service by municipalities (and financed through the waste- ing latrine.12 This is likely to be an underestimate, however. water charge) can reduce the financial burden of maintain- ing a septic tank further. AlthoughSRFloansdidnotcover100%oftotalinvestment costs, demand for the loans was very high and the loans servedtocatalyzeothersourcesoffunding. 11 This was done only for septic tanks and urine-diverting/composting latrines, since the focus of the project was on on-site sanitation solutions. Besides, sewer connection costs varied substantially from one household to another. 12 The information for Phase 2 was incomplete so we only carried out detailed calculations for Phase 1. 138 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study Loan recipients indicated that they often borrowed addi- The public funds used were calculated based on the operat- tional funds from other sources such as friends, brothers/ ing costs set aside for the revolving fund. The costs of proj- sisters, or even from other funds managed by the Women's ect preparation for the Three Cities Project, as well as overall Unions to build an adequate latrine, because they did not operating expenses of the overall project, should in theory want to have to upgrade it in the near future. For example, be included in the estimation of operating costs, but these during Phase 2, it was found that some borrowers built expenses could not reliably be attributed to the revolving combined bathrooms and toilets for a total cost of VND fund component and have therefore been excluded. Funds 30,000,000 (10 times the size of the loan). Those were made available as working capital were not "used" as such, people with comparatively high incomes in cities such as since they were fully repaid and interest revenues covered Haiphong and Halong, however. In addition, it was esti- administrative expenses and the risk of default. mated that about 30% of households within the project area asked for a loan for sanitation improvement but could Finally, another "use of public funds" can be associated not obtain one because funds were limited. with the fact that the interest rate on the loans was partially subsidized, as it was about half the commercial rate with a Therepaymentrateshavebeenveryhighinallcities, with six-month grace period. We have not estimated the value of 99.63% and 99.8% in Da Nang and Haiphong, respective- this subsidy, as this would depend on the opportunity cost ly, and 100% in both Halong and Campha during Phase 1. of capital for public entities (rather than on the commercial Compulsory savings set aside by borrowers have also made interest rate), a piece of information that was not available it possible to grant a total of 8,581 loans for income-gener- to us and would require further analysis to obtain. ation, which contributed to reducing poverty in the cities. The leverage ratio (i.e. the amount of private investment F.4.4 Poverty targeting generated by US$1 of public investment) for the revolving Therevolvingfundstargetedpoorhouseholdslivinginareas fund mechanism was extremely high, ranging from 13.4 for notconnectedtothesewers investment in septic tanks in Haiphong to 25.3 for septic tanks in Campha (where operating costs were kept to a Women Unions kept information on the incomes of the minimum). These are shown in Table F.7 below. loan recipients, as shown in Table F.8 below. The definition of low-income and poor households varied from city to city, TABlE F.7. lEVERAGE EFFECT ($ inVESTEd PRiVATEly / $ depending on their relative wealth. PuBliC mOnEy SPEnT) da nang haiphong halong Campha All households who benefited from the loans were in the Composting / n.a. n.a. 14.1 17.1 first (i.e. the lowest) income quintile according to the local urine-diverting definitions. The majority of loan recipients were defined as latrine low-income households based on city-level definitions of Septic tank 19.8 13.4 20.9 25.3 poverty, whereas a smaller percentage loans went to those who are defined as poor based on the provincial definition. TABlE F.8. DISTRIBUTION OF lOAN RECIPIENTS By INCOME BRACKET da nang haiphong halong Campha definition of poor household (provincial level) monthly income per capita < 250,000 180,000 250,000 150,000 definition of low income household monthly income per capita < 275,000 270,000 275,000 225,000 % recipients defined as poor household 31% 100% 40% 15% % recipients defined as low income households 69% 100% 60% 85% www.wsp.org 139 Financing On-Site Sanitation Annex F Vietnam case study Errorsofinclusionwereclosetonil. F.4.4 Financial sustainability Allcosts(exceptoperatingcosts)wererecoveredfromhouseholds Rich people did not benefit from the scheme, as they would viatheloan,pointingtoahighfinancialsustainability. have already had very good facilities and funds were limited compared to demand. The error of inclusion was therefore As discussed in Section F.3.4 above, the working capital was limited to an absolute minimum via the control of the revolved about twice during Phase 1 and provided a basis Savings and Credit group leaders. for further loans during Phase 2. Operating costs which were not covered by interest revenues (and which can there- Verypoorhouseholdsdidnothaveaccesstotheloansdueto fore be seen as a software contribution) represented about theirlimitedabilitytopayitback. 16% of the cost of a septic tank and between 9 and 11% of the costs of a composting/urine-diverting latrine. The very poorest (i.e. those with an income below the nation- al poverty line of VND 150,000) did not have access to the Mostoperatingcostswerecoveredbyhouseholdsthemselves, loans because of their assumed low ability to pay it back. exceptthecostsofemptyingseptictanks,whichwerecovered Although this is a potential limitation of the program, its viathewastewatercharge. impact was limited. Given that the cities where the program was run were comparatively richer than the small towns, the We did not have sufficient data to assess whether the waste- percentage of people falling below the national poverty line water charge was indeed sufficient to cover the real costs of was very small (2.41% of households in Da Nang, 3.21% in emptying septic tanks, and whether or not a cross-subsidy Haiphong, 7.97% in Quang Ninh for example). In addition, is at play here. However, given the logic of the overall set-up other government programs, including free housing, were and the move towards commercialization of the sanitation available for those under the national poverty line. companies, cost-recovery of operating costs is likely to be very high, close to 100%. During the design stage of the program, it had originally been contemplated to offer several types of loan products F.4.5 Scalability (with varying levels of subsidization) to tackle the needs Scaling-uptheapproachseemsaffordablecomparedtothe of different income groups. However, the Women Union's government'sbudget. advised against this segmentation, based on their experi- ence, as they indicated that offering highly subsidized loans On average, extending coverage via septic tanks consumed would dampen the demand for less subsidized ones. The about US$20 (in 2004 prices) of public funds per house- other alternative that was contemplated was to revolve the hold, i.e. to pay for the operating costs of the revolving fund funds up to the point where all existing demand for the that were not covered via interest revenues. If the remaining loans had been exhausted and to then use the remaining approximately 12% of Vietnam's urban population which working capital to provide hardware subsidies to the poor- currently does not have access to improved sanitation (i.e., est households, i.e. those who were not able to access a loan. 3.2 million people in 2005) were to gain access via this However, the revolving funds are still functioning as there is approach, this would cost about US$15 million, which is still untapped demand for loans so it is not possible to assess 1.8 times the government's estimated annual budget on the validity of such an approach. sanitation and seems affordable.13 In order to reach the very poor who are not deemed able to repay such loan, however, it may be necessary to define alternative lending schemes, with a higher level of subsidized interest rate. 13 This estimate is very difficult to obtain given the decentralized nature of the sanitation sector. This is based on an estimate that the government budget covers only 4% of the annual investment needs to meet the MDGs at the national level, estimated to be US$221 million annually according to government statistics. 140 Water and Sanitation Program Financing On-Site Sanitation Annex F Vietnam case study The approach has been scaled up through a variety of proj- Incostterms,theSRFsupportedinvestmentthatrepresent- ects and government-led initiatives. edarelativelyhighpercentageofhouseholdincomebutwas stillseenasaffordable. The average total cost of a septic tank The SRF was replicated trough a variety of projects, includ- built with financial assistance from the SRF was US$220, ing on-going projects funded by the World Bank. For exam- of which only 9% were software costs. From the point of ple, the Coastal Cities Environmental Sanitation Project view of the households themselves, the required investment (CCESP), which is ongoing and scheduled to end in 2014, represented about 30% of their annual income for low- has a sanitation revolving fund component managed by the income households and up to 46% for poor households. Women's Union. The loan terms are similar to those of the Despite this relatively high burden, they were still willing to Three Cities Sanitation Project, but about twice the size. invest substantially (from their own funds and other sources Similarly, the Vietnam Urban Upgrading Project (VUUP) of finance) and there is still significant unmet demand for has a revolving fund component for housing improvements, the loans. with an average loan amount of US$390. According to the Project Appraisal Document for this project, the repayment Intermsofeffectivenessintheuseofpublicfunds, returns requirements represent 10-25% of average monthly house- to public fund investments were particularly high since hold income in typical project areas, which is within the US$1,000 of public funds used enabled the construction of limit considered affordable for low-income households. The septic tanks for 116 households. The revolving fund mech- total working capital for microcredit in World Bank proj- anism allowed minimizing the use of public funds while ects was estimated to be about US$25 million as of March leveraging household investment by a factor of up to 25 2009, and all existing funds are performing very well. times the amount of public funds spent on the project. It is reported that the Vietnam Bank for Social Policy, estab- Intermsofpovertytargeting,theSRFtargetedpoorhouse- lished in 2003, has also adopted this kind of approach for holdsnotconnectedtothesewers.The SRF offered loans to household improvement and water and sanitation loans households within the first income quintile, i.e. the poorest throughout the country, with impressive results. quintile. The possibility of offering a higher level of subsi- dized interest rate to the poorest households (those who F.5 Summary evaluation were not offered a loan due to their perceived low ability In this section, we summarize the evaluation of the financ- to pay it back) was dismissed at project design stage as it ing approach based on our set of criteria and review what may have affected the effectiveness of the main loan prod- seems to have worked, and what did not work so well. uct and other types of support could be provided to very Overall, the Sanitation Revolving Funds (SRFs) achieved poor households via government programs. great impact, both in raising sanitation and hygiene aware- ness and sanitation facility improvement. The SRF was highly financially sustainable, since 93% of theinitialcostswerefinancedbyhouseholdsthemselves(via Intermsofimpactonsustainableaccesstoservices,theSRF theloans). The seed funds initially provided were revolved component of the Three Cities Sanitation project delivered several times (more than twice in the first phase and more substantialinvestment, as it helped almost 200,000 house- during the subsequent ones), with minimum leakage in holds build sanitation facilities over the course of seven years. order to cover the operating costs of the scheme. Repayment This resulted in increases in coverage of about 13% to 21% rates were extremely high (at or close to 100%). In addi- when compared to the baseline population. According to tion, the scheme has generated revenues to provide loans the Women's Unions, all facilities seemed to be working well for income-generation activities, contributing to reducing five years down the line and septic tanks were emptied on a poverty in the project area. regular basis thanks to services provided by the local utilities (in exchange for payment of the wastewater charge by those households connected to piped water supply). www.wsp.org 141 Financing On-Site Sanitation Annex F Vietnam case study Intermsofscalability,theapproachappearedtobehighly · Thesizeoftheloanwasadequate, given that all loans scalable. A dwindling number of Vietnamese households were recovered and the leverage effect was high. If the did not have access to sanitation. Extending sanitation loan size had been too low, the leverage factor would services to them via the SRF approach would cost about not have been as significant. Had the cap been too high, US$15 million, which was 1.8 times the government's there might have been some defaults on the loans. annual budget on sanitation. The approach has already · TheformationofSavingsandCreditgroupswasseen been successfully scaled up via World Bank-funded projects ascritical to ensure repayment of the loans and regular (with working capital of US$25 million as of March 2009 saving contributions. The role of the Women's Unions in a variety of programs) and by government institutions, in organizing these groups was particularly valuable. such as the Vietnam Bank for Social Policies. They are a well organized and well entrenched orga- nization, with local branches in all wards and consid- WHAT SEEMS TO HAVE WORKED? erable experience at managing such microfinance The revolving fund approach has proved to be a highly initiatives. Support structures (including the Savings effective approach to financing household sanitation for the and Credit group leaders, who played a critical role) poor. Critical factors for this success were as follows: provided mentoring, monitoring, and guidance with · Demand for sanitation investment was generated the selection of target group for loan disbursement throughextensivehygienepromotionprogramscarried outatthelevelofawholeprovince, rather than being AND WHAT DID NOT WORK SO WEll? focused on the areas where the SRF was operating. Although the scheme is deemed financially sustainable and These programs sought to increase awareness of scalable,itsabilitytotargetthepoorestpeople,whoarethe health and environmental benefits from sanitation oneslikelytoremainunservedascoveragegrows,isquestion- and to encourage communities to extend coverage able. Investment costs represent a high percentage of their and improve the quality of septic tanks through the income (around 45% for the poorest people, i.e. below the sanitation subloans. They were funded in part from national poverty line) which may be unaffordable, even with the World Bank loan although it was not possible to a subsidized loan. To reach the remaining 3.2 million people obtain a breakdown of such project costs. without improved sanitation in urban areas, the approach · Lending procedures were attractive to borrowers, may need to be adapted either with a higher subsidy built into although the loan size was lower than the actual the interest rate or perhaps with a small hardware subsidy. investment cost. The interest rate was attractive, as it was 50% lower than commercial bank rates. The loans helped to spread the investment costs over a period of two years and were instrumental for cata- lyzing other sources of funding. 142 Water and Sanitation Program Financing On-Site Sanitation Annex G On-site sanitation at household level: A primer Annex G ­ On-site sanitation at household level: A primer This Annex presents basic information on on-site sanitation at There is a broad range of on-site sanitation solutions avail- the household level, which supported the development of the able, as presented below:2 methodological framework underlying the study.1 It includes: · Simplepitlatrine. This is the most common type of · A typology of on-site sanitation solutions, which is technology, as it is simple and quick to build. It usual- intended to be a quick guide to on-site sanitation for ly consists of a pit (at least 2 meters deep, which can readers not familiar with the sector; be lined on part of the walls), a slab (with lid) and a · An assessment of the types of costs associated with superstructure, which can be made of various materi- the main on-site sanitation solutions presented here, als, such as wood, mud and grass or brick and mortar, including capital expenditure, operating and main- depending on local material available. The slab can be tenance costs and software costs; and made from concrete or wood, or from a prefabricated · A typology of the sources of funds for on-site sanitation. plastic material (which is much lighter and cheaper to transport). A variation of the simple pit latrine which G.1 Types of on-site sanitation interventions employs an "ecological" approach is the Arborloo. Sanitation interventions can take various forms, depend- These are constructed with simple, often unlined pits. ing on the type of technical solution that is provided (the When the latrine is full, the superstructure has to be "hardware") and on the support activities that are carried out moved and the site of the pit is used to plant a crop- to promote the uptake of sanitation solutions by communi- bearing tree so as to make use, at least in part, of the ties and their sustainable use over the long-term (the "soft- nutrients available in the pit waste. ware"). · Ventilated improved pit latrines (VIP). This is an improvement on the simple pit latrine, consisting of levels of service adding a vent pipe covered with a gauze mesh or fly- A commonly used concept is that of the sanitationladder, proof netting in order to remove smell and prevent- which represents a menu of sanitation solutions that are ing flies entering the pit from flying away. This is a supposed to deliver incremental levels of service, with corre- more expensive solution (mostly due to the addition sponding increases in costs. On-site solutions, where facilities of a PVC pipe) and more difficult to build, as the are not connected to the municipal or community sewers, design is often not fully understood. The interior of are usually considered to be the "first rungs" on the sanita- the latrine must be kept dark, which makes it less tion ladder, because they are relatively simple to install and acceptable by local populations and more difficult to generally cheap. They are likely to remain the most prevalent use, particularly for children and the elderly. and accessible solution for years to come in many regions in · Pour-flush or flush latrine. These latrines rely on a large number of developing countries, even though sewer- water to act as a hygienic seal and to help remove age networks may also need to be built, particularly in dense excreta to a wet or dry disposal system. They require urban environments with high water use. access to a source of water nearby and are more 1 This Annex is based on the methodological note that was prepared at the start of the study in order to define the overall methodological framework for the study and helped the local consultants familiarize themselves with the sector. 2 Each of these "access" solutions would have an associated method for downstream waste management, such as burial in-situ, manual desludging (for compost / eco latrines), mechanical removal and disposal or transfer to a sewer. These are considered in the costs of operating each access solution rather than in their own right. www.wsp.org 143 Financing On-Site Sanitation Annex G On-site sanitation at household level: A primer expensive to build than pit latrines as a sealed pan and piping to the pit must be added. A variation BOx G.1 ­ "imPROVEd ACCESS" TO SAniTATiOn By on this approach is the twin-pit pour-flush latrine ThE JmP dEFiniTiOn (pioneered in India), which has two offset pits, linked The Joint monitoring Programme (run by WhO and by a short plastic pipe. When one pit fills, the second uniCEF) is the internationally accepted source of is brought into use. In the meantime, the first pit can information on access to water and sanitation servic- be safely emptied after its contents are left inert for es in developing countries and used as a key source a year to be brought back into operation when the for measuring progress towards the millennium second one fills up. development Goals (mdGs). The JmP distinguishes · Latrineconnectedtoaseptictank.3 A septic tank is between "improved" and "not improved" sanitation designed to collect and treat toilet wastewater and solutions. An improved facility is defined as a facil- gray water and disperse it through a drain field into ity constructed in such a way that it hygienically the surrounding soil. Such a solution is used when separates human excreta from human contact. For the volume of wastewater produced is too large evaluating progress towards the mdGs, users of an for disposal in pit latrines and when water-borne improved toilet facility are considered to have access sewerage is uneconomic or unaffordable. They are to sanitation, while those using a facility defined as best suited for single households, schools, or health "not improved" or having no facility at all are consid- centers. All septic tanks require a system for remov- ered not to have access to sanitation. ing the sludge and disposing of it hygienically. · Composting/urine-divertinglatrine: Various types not improved of latrines have been designed to separate urine and improved sanitation sanitation feces in such a way that either or both can be re-used. facilities facilities These are based on ecological sanitation principles, Simple pit latrine with slab Public or shared which consist of recycling nutrients from human Composting toilet latrine Open pit excreta for agricultural production. This requires Flush or pour-flush latrine latrine separating feces from urine through the use of a Ventilated improved pit latrine Bucket latrines special slab and in some cases, the addition of ash, Connection to a septic system no facilities carbon, or sawdust to the content of the latrine. Connection to a public sewer Source: http://www.wssinfo.org In the context of publicly funded programs or projects, addi- tional fixtures may be added to the on-site sanitation solution such as a shower or a sink provided as a "package" together sink and shower) in Ecuador. In almost all cases, the level of with the latrine. Although these are not "sanitation" solutions service provided qualifies as "improved access" by the JMP in the narrow sense used in this study (i.e. they cannot be used (Joint Monitoring Programme) definition (see Box G.1 to manage human excreta in a safe and sustainable manner), below). In Bangladesh, however, some of the latrines built by they can be useful to improve general hygiene levels and can be households are simple basic latrines or shared latrines and do a trigger for demand for the sanitation unit. All these elements not qualify as "improved sanitation" by the JMP definition. taken together are referred to as the "level of service". Software support associated with hardware solutions The cases reviewed as part of this study included a broad Besides construction of the sanitation infrastructure, it is usually rangeoflevelsofservice, ranging from simple pit latrines in necessary to conduct additional activities in order to stimulate Bangladesh to a full sanitation unit (including septic tank, demand for sanitation or organize community mobilization. 3 Some latrines connected to a cesspit or soakaway are sometimes wrongly referred to as a being connected to a septic tank. The key difference between those solutions is that septic tanks treat sewage whereas cesspits are only used to store it. Septic tanks require more careful and therefore more expensive maintenance but are more effective in stemming contamination. 144 Water and Sanitation Program Financing On-Site Sanitation Annex G On-site sanitation at household level: A primer These additional interventions may consist of the following: G.2 Costs of on-site sanitation interventions · Training of local staff for project management or all Sanitation interventions generate a series of costs related to activities below; the "hardware" (i.e. the technical solution), including invest- · Community mobilization, i.e. activities that help ment costs and operating and maintenance costs. The associ- communities get together and manage part or total- ated software costs must also be taken into consideration to ity of sanitation services; generate a comprehensive estimate of the unit costs of provid- · Sanitation promotion,4 i.e. activities that help create ing access to sanitation under a given project or program. All or reveal latent demand for sanitation, e.g. total sani- too often, the "software" costs are not properly taken into tation approach, sanitation marketing, etc; account, which means that a project or program runs the risk · Hygiene promotion, i.e. activities that promote of failure once the source of finance for those software costs changes in key hygiene behavior to maximize health is interrupted. Table G.1 below outlines the type of costs that benefits of water and sanitation facilities. Such "key may be considered for the main types of service levels. hygiene behaviors" can be placed into three groups: hand washing with soap at critical moments, prop- As a rule of thumb, the higher the technical standard, er management of child excreta, proper storage of the higher the level of service and benefits and the more household drinking water. costly the sanitation solution is likely to be. Building low- cost solutions with simple materials may in some case be a In addition, program management activities, such as "false economy" as the latrines will simply not last as long program staff, procurement, monitoring and evaluation, as higher cost solutions with more permanent materials. As and general overhead need to be carried out in order to a result, over the long run the poor often have to pay more ensure the success, sustainability and replicability of any for their sanitation solutions than the better off. sanitation project or program. TABlE G.1. COSTS ASSOCiATEd WiTh On-SiTE SAniTATiOn SOluTiOnS On-site sanitation Capital costs (capex) O&m direct software5 Simple pit latrine Pit digging and lining, slab, Emptying services · Capacity building superstructure minimal maintenance · Community mobilization manual labor · Sanitation promotion Ventilated improved pit latrine (ViP) Pit digging and lining, slab, Emptying services · Demand creation superstructure, vent pipe minimal maintenance · Sanitation marking manual and skilled labor · Training of mason Pour-flush or flush latrine Pit digging and lining, slab, Emptying services · Management costs superstructure minimal maintenance Access to water Cost of water use manual and skilled labor latrine connected to a septic tank Excavation, foundations and Regular emptying and superstructure, septic tank and maintenance soakage pit, PVC pipes Access to water manual and skilled labor 4 These activities are not always conducted as part of an on-site sanitation project and they may be conducted separately. 5 To the extent possible, the costs of strengthening the "enabling environment" need to be taken into consideration as well: these can include expenditures linked to sanitation specific policy development, capacity building, knowledge sharing or coordination. However, it is usually difficult to estimate those costs other than by taking a percentage of overhead costs for staff working on policy development at sector level, either within the government or within donors. www.wsp.org 145 Financing On-Site Sanitation Annex G On-site sanitation at household level: A primer Comparing costs from one country to the next is compli- · Facilities to safely dispose of the sludge once collect- cated by differences in purchasing power parity, exchange ed should be available. Such facilities would need rates, input prices, transport costs, design features, and so to be built and maintained by the public agency in on. As a result, straight cost comparisons across countries charge of sanitation. Public agencies may have to pay may be misleading and should only be considered as indica- to get householders / pit emptiers to dispose of the tive. Ratios which are independent of the exchange rates, sludge in the proper facility once it is built, rather such as leverage ratios or costs as percentage of income, can than dispose of it in the nearest drainage pipe. be more meaningful for cross-country comparisons. Another critical factor is the cost of transporting the special- In addition, a number of complex factors can impact the ized equipment to the site, such as the slab (in the case of a relative magnitude of such costs, and in particular the simple pit latrine) or the vent pipe (for a VIP latrine). Such balance between capital expenditure (Capex) and operat- transport costs can be particularly significant in rural areas ing expenditure (Opex). For example, for pit latrines, a with low population density. These costs can negatively affect key factor to consider is the size of the pit. A larger pit is the profitability of local businesses installing latrines, espe- more expensive to build but reduces the need for regular pit cially if the population is too dispersed to develop a sustain- emptying (higher Capex, lower Opex). able client base and transport is costly and time-consuming. A key difference between urban and rural settings is that in The software costs vary depending on the acceptability low-density areas (typically rural areas), it is possible to build of the sanitation solution that is proposed. The intensity larger latrines (i.e. excavating a larger pit) so that they fill up of software activities to be conducted would depend on over a longer period. When full, the latrine can be moved to prevalent hygiene practices in the region or country and another site, which would generate additional capital costs.6 the extent to which the proposed technical solution can be easily related to existing practices. By contrast, in high-density areas (typically peri-urban and urban areas), space is a rare commodity. There is a limit to G.3 Financing sources for on-site sanitation how large a pit can be and the latrine needs to be emptied Funds for on-site household sanitation can come from on a regular basis to ensure safe sanitation. To ensure that households, government funds from tax proceeds, or trans- such latrines provide sustainable and safe access, the follow- fers from external sources, as shown in Table G.2 below. ing components should be present: · Pit emptying services should be available and afford- For on-site sanitation facilities, households are usually a able. The "low-cost" alternatives, i.e. self-emptying or main source of investment. Most households rely on small manual emptying, may be adequate if the latrines have scale providers, such as local masons or pit emptiers, to twin pits and the sludge is left to rest for at least year build latrines and dispose of the waste. However, many of before being emptied. However, they may also create the sanitation facilities that are constructed in that way do more health hazards for the community as a whole. Pit not meet any public health or environment standards. They emptying services may be provided by the local private may even not be adequate to protect households' health. sector, which would need to use specific equipment for accessing poor areas that are usually more difficult to Public-sector support may be needed to change incen- reach (for example, the streets may not be wide enough tives and improve the services on offer, or to create incen- to allow a standard sludge removal truck). tives for proper disposal of pit waste in urban areas. Public 6 When subsidies are provided for the first latrine to be built, it is not always the case that subsidies are provided for moving the latrine a few years down the line. If the household cannot afford moving the latrine, it may lose access to a sustainable sanitation solution that they had obtained through a publicly funded project. 146 Water and Sanitation Program Financing On-Site Sanitation Annex G On-site sanitation at household level: A primer TABlE G.2. FinAnCinG SOuRCES And APPROAChES FOR On-SiTE SAniTATiOn Source of funds Example of financing approaches for on-site sanitation solutions households · Households invest in their own facilities and pay directly for operating and maintenance costs Government funds · Public subsidy for hardware and / or software · Subsidized credit to households for investment in their own facilities · Subsidized loans to service providers (public or private) · Community-level rewards (e.g. grants to local government) Transfers from external · Grants to government (central or local) sources (nGOs, inGOs, · Grants directly to households or service providers (e.g. OBA) philanthropic organizations) · Subsidized credit to government, households or service providers interventions may also be needed to create the right envi- These reasons are not necessarily made explicit in public policy ronment for small providers to develop and grow their busi- making, however, and actual interventions may have more to nesses. Going back to first principles, potential reasons for do with local politics than with such economic rationales. It is the government to provide financial support for the adop- useful to keep such principles at the back of one's mind when tion of on-site sanitation may include the following: designing public support schemes for sanitation, however. For · Lack of information (or information asymmetry). example, if lack of information is the main hurdle preventing For cultural reasons, demand for sanitation may be sanitation adoption, a program emphasizing software support limited and households may not fully understand the may be the most effective use of public funds. If there are posi- positive impact they may gain from improved sanita- tive externalities from safe sludge disposal (which is usually the tion, particularly on their health. As a result, they case), public support may be needed to encourage safe removal may not be willing to invest in sanitation, which is a and disposal of the sludge when latrines fill up. concern from society's point of view given the posi- tive externalities from sanitation (see next point). · Lifting the affordability constraint. Sanitation investments at household level may simply be too costly for the poor, so they would either do with- out or build low-cost solutions that may not provide improved sanitation and / or would be expensive to maintain in a serviceable condition. · Positive externalities from sanitation. Sanitation investments have a positive external effect on the general health of the population (by reducing the prevalence of diarrheal diseases and epidemics) and on the environment. For example, local residents might benefit from an increase in access to sanitation by their neighbors even if they are not connected themselves, as such an increase would help in stem- ming the spread of epidemics. Subsidies can be used to encourage investment beyond the level that would be done based solely on private benefits. www.wsp.org 147 Financing On-Site Sanitation Annex h Standard terms of reference for case studies Annex h - Standard terms of reference for case studies The case studies were prepared by consultants on the ground undertaken (at a national or local level in the based on standard Terms of Reference for all six countries so project area) to meet the MDGs? as to produce comparable results across countries. In addition, ­ What initiatives have been undertaken to the consultants were provided with a spreadsheet to facilitate increase coverage? How does the program/proj- data collection in a comparable manner. The consultants had ect under review fit within broader policies to an average of 6 weeks to prepare the case studies, although increase coverage? the time allocation varied depending on the availability of · Institutional set-up for sanitation: information and the need for additional field work. ­ Which institution (s) is responsible for supervi- sion (i.e. ensuring that the service is delivered)? The Scope of Work section of the standard Terms of ­ Which institution (s) is responsible for deliver- Reference is presented in this Annex for reference. ing services? ­ Which institution (s) is responsible for monitor- [A] Country and sanitation policy overview ing that services are effectively delivered? The first section should provide an introduction to current sani- tation policies in the country and in the town or region of inter- [B] Program (or project) design7 est within that country. It should address the following topics: This section should provide a comprehensive presentation · Access to sanitation in urban and rural areas: of the program (or project) objectives and design, as well ­ Current coverage and trends: has coverage been as the characteristics of the targeted area and population. increasing / decreasing? In qualitative terms, When this information is not known or not available, this what has been the main driving force behind should be stated explicitly and ways of obtaining this indi- coverage increases (if any)? cator or deriving a proxy for this indicator should be set out ­ How far is the country from meeting the in the draft report. MDGs for sanitation and what efforts have been Program · Overall introduction to the program: start date and end date (if applicable), lead institution overview and institutional arrangements · Objectives and overall scope of the program o is it solely focused on sanitation elements or broader (i.e. it could be water and sanitation, slum improvement program, sanitation and solid waste removal, rural development program etc...) ­ Program approach: is the program providing a total sanitation solution or focusing on certain elements (i.e. only access, or also collection and treatment)? ­ Total program budget, % of funds allocated to sanitation · information on the program area ­ Geographical scope and number of households targeted / reached o Population density in the program area ­ Average income of population in the program area · Type of service provided through the program 7 As we can be referring to programs or projects, for convenience, the word "program" is used in what follows to refer to either a program or a project. www.wsp.org 149 Financing On-Site Sanitation Annex h Standard terms of reference for case studies Program institu- · Has the program been established by donors or by the government? tional set-up · Has a program management unit been set-up? · Which institution is in charge of channeling funds to the recipients and how are flows of funds organized? · At what level is the project managed (donor/national government/local government/ utility/ NGO)? · Which organizations are in charge of providing services (government / utility / private providers / NGOs)? · At what level does monitoring and supervision take place (donor/national government/local government/ utility)? Total Costs of sani- · hardware: capital investments and operating costs tation · Software (include total project supervision costs and technical assistance) components note: the accompanying spreadsheet provides details of the types of costs to be included in each category. As (total at program these are the total costs, they should include the contributions from all sources of finance (including households). if level) limited data is available, this should be noted Sources of finance Give the shares of financing from each the following source, indicating which cost components they are providing finance for (for example, is it for capital costs or operating costs and for which component): · household finance (initial investment made by the household or via the payment of a tariff payment or a tax) · Private sector financing (for example, if the private sector has invested in initial infrastructure and getting its investment back through charges) · domestic public sector financing: loans/ grants (indicate whether financing is coming from local / regional / central government) · donor financing: grants / loans (for a loan, indicate the financing terms) From a qualitative point of view: · Why are households investing (or not)? Were they investing before or have they started investing in response to the program? What are non-financial constraints to household investment? · Have any incentives / guarantees been offered to the private sector to encourage them to invest? Have these been sufficient to trigger such a response? Pro-poor focus in · did the program specifically seek to target the poor or was it designed to reach everybody, irrespective of project design income? · Has any poverty mapping exercise been carried out before implementing the program? · has any willingness-to-pay study been carried out and how have the results been incorporated in the design of the program? Subsidy design if subsidies are provided: · Who is the subsidy awarded to: household, service provider? · Is the subsidy provided in kind or in cash? If in kind, what is provided? · What are the cost components covered by the subsidy? · Is the subsidy for a basic level of service? Who pays the complement if a higher level of service is sought? · What are the criteria and procedure to follow to obtain a subsidy? Do the criteria aim to target the poor in particular? 150 Water and Sanitation Program Financing On-Site Sanitation Annex h Standard terms of reference for case studies C. Evaluation of the program's performance case study to another. Each of the main questions (in the This section will seek to evaluate the program's performance blue box) should be answered in both a qualitative and on the basis of a number of indicators, which have been quantitative manner (with information on as many indica- standardized in order to facilitate comparisons from one tors that follow as possible for the quantitative part). Efficacy (did the financing approach trigger investment?) · Total number of sanitation facilities built (e.g. latrine, sewer connection, etc... - it will be necessary to state these figures by type of sanitation facility built) · number of people receiving "adequate" sanitation services as a result of the program · number of villages having achieved "Open defecation Free" status (if applicable) · Percentage of sanitation facilities built that are still operating 5 years down the line (if the program does not have sufficient history, indicate the percentage of facilities deemed to still be in operation at the present time) · Indicators of household satisfaction: are they using the facilities and are they satisfied that they have improved their existence? Efficiency (was investment carried out at a reasonable cost?) · Average total costs / household served by the project / program · Average total costs / households in the served community (even if the household itself is not served, in order to capture potential externalities) · Average hardware costs / household served · Average "software" cost / household served · Total capital investment costs (hardware) as a percentage of average income and as a percentage of poor household annual income · Operating costs as a percentage of average monthly income and of poor monthly income Equity (effectiveness in reaching the poor) · Average income of population reached by the project vs. average income of overall population (also use median income if data is avail- able) · Qualitative assessment of: ­ Errors of exclusion (what percentage of the poor population did not obtain the subsidy?) ­ Errors of inclusion (what percentage of the population obtained the subsidy even though they are above the poverty threshold?) · Size of household overall contribution (including capital costs) vs. average income of poor household (as an indicator of affordability for the poor) · Size of household overall contribution (including capital costs) vs. average income of median household (as an indicator of affordability for median households) Financial sustainability · Cost recovery indicators: operating cost recovery, capital cost recovery and total project cost recovery (estimated as the percentage of non-subsidized funds covering actual costs) Scalability · number of unserved population (or household) vs. financing availability: how much would it cost to serve all unserved households/ population (in the area of the program and in the country) with this sanitation solution? Compare this to the annual sanitation budget in the country, and to the annual public sector budget (give %) · Any evidence of spontaneous uptake of what the program offers or demand for expansion? Note: in the case of projects / programs that span several areas or cities, the analysis should be disaggregated as much as possible and seek to use location-specific data (including in terms of income or poverty levels). www.wsp.org 151 Financing On-Site Sanitation Annex h Standard terms of reference for case studies [C] Overall evaluation · Was the program considered to be a success overall? If sanitation was one element of a broader program, was the sanitation component considered to be a success? If not, why not? · Did the program reach the intended recipients? What (anecdotal) reflections do the program manag- ers have on how it actually evolved? Were they posi- tive spin-offs, unintended consequences, unforeseen barriers? · When both on-site sanitation and sewerage connec- tion were available, did users have the choice between those solutions or were areas planned to be serve differently by the program designers? How did the financing structure influence users' willingness to invest in either mode of service? · Based on a qualitative assessment, to which extent was the financing scheme a determinant of either success or failure of the particular program / proj- ect? · Was the financing scheme seen as a good match for the level of service and additional interventions provided? · Do you know of any parallel program that may have affected the results of the project / program under consideration (for example, if an NGO-led program has been providing "free facilities" whereas the program only provided credit)? 152 Water and Sanitation Program Financing On-Site Sanitation Annex i indicative bibliography Annex i - indicative bibliography Works Cited and General Sources Komives, Kristin, Vivien Foster, Jonathan Halpern, and Quentin Wodon. 2005. Water, Electricity and the Poor: Foster, Vivien. Undated. El Alto ­ Bolivia / Pilot Project Who Benefits from Utility Subsidies? 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Washington, DC: Sanitation: Lessons and Innovation for Sustainability and The World Bank. Success in the New Millennium. Occasional Paper for the Human Development Report 2006 (2006/27). Human Ross, Ian, and Oliver Cumming. 2009. Fatal Neglect: How Development Report Office. Health Systems Are Failing to Comprehensively Address Child Mortality. London: WaterAid. Kar, Kamal, and Katherine Pasteur. 2005. Subsidy or Self- respect? Community Led Total Sanitation: An Update on UNICEF. 2008. Impact Assessment of NGP Awarded Recent Developments. IDS Working Paper 257. Brighton: Panchayats. TARU Leading Edge, August 2008. Institute of Development Studies (IDS). www.wsp.org 153 Financing On-Site Sanitation Annex i indicative bibliography UNICEF/WHO JMP (Joint Monitoring Programme for Water Supply and Sanitation). 2008. Progress on Drinking Water and Sanitation: Special Focus on Sanitation. Geneva: WHO. Varley, Robert C. G. 1995. Financial Services and Environmental Health: Household Credit for Water and Sanitation. Applied Study No. 2. Environmental Health Project (EHP). WHO (World Health Organization). 2008. UN-Water Global Annual Assessment of Sanitation and Drinking Water: 2008 Pilot Report ­ Testing a New Reporting Approach. Geneva: WHO. WSP (Water and Sanitation Program). 2006. A Study on Cost and Performance Efficiency of Sanitation Approaches in Bangladesh. Unpublished paper. Water and Environment Federation. 2004. Financing and Charges for Wastewater Systems, Manual of Practice 27. New York: McGraw-Hill. Wright, Albert. 1997. Toward a Strategic Sanitation Approach: Improving the Sustainability of Urban Sanitation in Developing Countries. Washington, DC: The World Bank. 154 Water and Sanitation Program