MUNICIPAL SOLID WASTE COST CALCULATION TECHNICAL GUIDELINES For low- and middle-income countries © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Further permission required for reuse. Graphic design: Miki Fernández/ULTRAdesigns, Inc. MUNICIPAL SOLID WASTE COST CALCULATION TECHNICAL GUIDELINES For low- and middle-income countries iv Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries Municipal Solid Waste Cost Calculation Technical Guidelines discusses good practices for calculating investment and operating costs in the solid waste management sec- Purpose and tor illustrated through notional cost calculations for waste management functions audience and a combined waste management system. The report emphasizes the need to accurately determine the full costs of munici- pal waste services to establish recurrent financing needs and plan new investments. The publication aims to impress that funding annual operating expenses—typically higher than the annualized capital costs of investments and the single most import- ant factor for sustaining waste operations—needs to be a key area of attention for local authorities. It emphasizes that the waste management sector is principally a net cost activity that requires financing; while investments in advanced treatment facilities and processes bring higher environmental and economic benefits, they also incur higher financial costs and hence revenue requirements. The publication aims to support the work of technical departments within munic- ipalities that inform, advise, and guide their municipal councils and policy makers. The guidelines were developed with consideration of the state of the sector and its development trajectory in low- and middle-income countries. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries v Municipal Solid Waste Cost Calculation Technical Guidelines was prepared by Nikola Doychinov and Peter Faircloth. The work was led by Kremena Ionkova. Acknowledgments The team thanks Frank van Woerden, Brian E.C. McCarthy, Ali Abedini, and James Michelsen for their valuable guidance. Funding was provided by PROBLUE, an umbrella multi-donor trust fund, housed at the World Bank, that supports the sustainable and integrated development of marine and coastal resources in healthy oceans. This publication was developed under the general guidance of Bernice K. Van Bronkhorst, Global Director of the Urban, Land and Resilience Global Practice. vi Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries Purpose and audience iv Table of Contents Acknowledgments v Abbreviations xi Executive summary xiii 1 Introduction and overview 1 1.1 Introductory comments 1 1.2 Current and future service costs 2 1.3 Chapter outlines 4 2 Defining the waste management system 7 2.1 Project parameters 8 2.2 The waste management system and its technical components 8 2.3 Project parameters and scenarios used for sample calculations in . subsequent chapters 13 3 Cost factors for the main elements of the waste management system 14 3.1 Collection of mixed/residual waste 14 3.2 Municipal waste transfer 27 3.3 Landfilling of waste 32 3.4 Separate collection of recyclables 40 3.5 Composting of waste 51 3.6 Anaerobic digestion 61 3.7 Sorting and material biological treatment of residual waste 65 4 Costs of the entire waste management system 75 4.1 Individual versus regional provision of services and the effect of economies of scale 75 4.2 The effect on costs of changing waste management objectives 76 5 AIC analysis for municipal waste management 82 5.1 Introductory comments 82 5.2 Average incremental cost approach to calculating annual revenue . requirements and tariffs 83 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries vii 6 Approaches to estimating residential waste management tariffs 93 6.1 Calculating indicative tariffs per capita as an extension of the average incremental cost per tonne approach 93 6.2 Calculating indicative tariffs per capita using an average incremental cost per capita approach 95 6.3 Traditional accounting approach to tariff setting 97 6.4 Comparison of average incremental cost and traditional accounting . approaches 100 6.5 Value of average incremental cost analysis to waste systems analysis and tariff planning 101 6.6 Affordability and financial sustainability 101 7 Revenue from sales of separately collected and sorted material 105 7.1 Commercial considerations regarding separate collection of recyclable waste 105 7.2 Revenue and cost flows associated with product sales 107 7.3 Revenue flows 107 7.4 Costs incurred in generating the sales revenue 109 7.5 Summary of material sales outcomes 110 Annex 1: Unit costs and assumption used for preparing cost estimates 114 Annex 2: Discounted cash flow analysis 120 Annex 3: Average incremental cost analysis (unit cost analysis) 122 Annex 4: A traditional accounting approach 127 Annex 5: Comparing the average incremental cost and traditional accounting approaches 132 Annex 6: Affordability and financial sustainability 135 Glossary of cost categories, types and tools used in municipal solid waste management 137 viii Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries List of Figures Figure 1: Illustration of input data, mass flows, and cost parameters of a waste management system 10 Figure 2: Comparison of waste collection costs for different systems 21 Figure 3: Impact of distance on collection cost per tonne in urban areas 22 Figure 4: Impact of distance on collection costs per tonne in urban and rural areas 23 Figure 5: Impact of container loading time on unit costs 24 Figure 6: Unit costs per tonne of waste landfilled at sites with different capacities 39 Figure 7: AD process 63 Figure 8: Sample diagram for a municipal waste sorting plant 66 Figure 9: Unit costs per tonne of waste generated for individual and a shared landfill 76 Figure 10: Mass balance and comparison of different waste management alternatives 78 Figure 11: Estimated initial investment costs for different waste management alternatives 79 Figure 12: Estimated unit costs per tonne of waste generated for different waste management alternatives 81 Figure 13: Net cash flow and cost components 85 Figure 14: Net cash flow and equivalent annual revenue requirement compared 88 Figure 15: Tariffs per capita calculated using AIC per tonne as base 94 Figure 16: AIC per capita tariff and unit cost per tonne based on AIC per capita approach 96 Figure 17: Comparing per capita tariff profiles for two AIC approaches 97 Figure 18: Components of the TA cost flow 98 Figure 19: The ROI effect 99 Figure 20: TA-based tariff profile 99 Figure 21: Variations in prices of waste plastics for PET and low-density polyethylene bales 106 Figure A3.1: Revenue flows for fixed and variable material flows (AIC approach) 126 Figure A4.1: Unit costs for fixed and variable material flows (TA approach) 130 Figure A4.2: Revenue flows for fixed and variable material flows (TA approach) 130 Figure A4.3: Cost per tonne (TA approach) 131 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries ix List of Tables Table 1: Basic planning characheristics 8 Table 2: Formulation of technical scenarios 10 Table 3: Waste collection with 1.1 m standard euro containers 3 17 Table 4: Comparison of waste collection with 1.1 m3 standard euro containers and individual 240 liter plastic bins 18 Table 5: Comparison of waste collection schemes 20 Table 6: Impact of collection frequency on waste collection costs 25 Table 7: Impact of number of shifts on waste collection costs 26 Table 8: Comparison of investment and operating costs for direct transportation of waste and using transfer station 30 Table 9: Comparison of unit costs for direct transportation and using transfer station with or without compaction 30 Table 10: Summary costs data for a transfer station with larger capacity 31 Table 11: Initial investment requirements and annual operating costs for landfills with different capacities 36 Table 12: Landfill investment costs, depreciation and operating costs over lifetime 38 Table 13: Calculating quantities of separately collected waste and the number of required containers and vehicles for different separate waste collection alternatives 43 Table 14: Sample cost estimates for different separate waste collection alternatives 45 Table 15: Sample cost estimates for waste sorting plants for separately collected waste 50 Table 16: Sample time required for intensive composting and maturation phases for different composting technologies 55 Table 17: Sample cost estimates for green waste windrow composting plants with different capacities 57 Table 18: Sample cost estimates for biowaste closed composting installation in tunnels 59 Table 19: Sample cost estimates for AD facilities with different treatment capacity 64 Table 20: Main waste preparation and sorting techniques 67 Table 21: Sample cost estimates for residual waste sorting facility (MRF) and MBT plants 70 Table 22: Sample cost estimates for MBT facilities based on simplified treatment/low-cost concepts 72 Table 23: Recycling rate and percentage of waste landfilled for different alternatives 78 Table 24: Comparison of DUCs per tonne of waste generated for different waste management alternatives (AIC) 80 Table 25: Components of the net cash flow (based on the combined CAs) 85 x Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries Table 26: Net cash flow by waste component: AIC by waste generated (AIC 1) and actual waste (AIC 2) 87 Table 27: Unit cost (AIC) per tonne of total waste generated and per tonne managed by function 90 Table 28: Waste function unit costs defined as the AIC per tonne of total municipal waste generated 91 Table 29: Contribution of each function to total costs by CA 91 Table 30: Comparing waste function costs relative to the PVs of net cash flows 91 Table 31: AICs per tonne of waste managed by each function 92 Table 32: Unit costs per tonne and per capita: calculations based on AIC per tonne of waste generated 95 Table 33: Parameters contributing to revenue analysis 108 Table 34: AICs per tonne of waste managed by each function 110 Table 35: Summary of revenues and costs associated with product sales 111 Table 36: Summary of cost and revenue flows estimated for the combined system 112 Table A3.1: Example AIC calculation and equivalent full cost recovery revenue flow 123 Table A3.2: Simple AIC example - fixed annual waste flow 124 Table A3.3: Simple AIC example - variable annual waste flow 125 Table A4.1: Simple TA example - fixed annual waste flow 128 Table A4.2: Simple TA example - variable annual waste flow 129 Table A5.1: Comparison of AIC and TA approaches: Fixed annual waste flow 132 Table A5.2: Comparison of AIC and TA approaches - Variable annual waste flow 133 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xi AD Anaerobic Digestion AIC Average Incremental Cost Abbreviations ASP Aerated Static Pile BSF Black Soldier Fly CA Catchment Area CEA Cost-Effectiveness Analysis CHP Combined Heat and Power CLO Compost-Like Output COD Chemical Oxygen Demand DCF Discounted Cash Flow DUC Discounted Unit Cost (equivalent to AIC) EPR Extended Producer Responsibility EU European Union HIC High-Income Country IVC In-Vessel Composting KPI Key Performance Indicator LIC Low-Income Country MBT Mechanical Biological Treatment MRF Material Recovery Facility MIC Middle-Income Country NIR Near-Infrared Technique O&M Operation and Maintenance PE Polyethylene PET Polyethylene Terephthalate PTO Power Take-Off PV Present Value R&D Research and Development RDF Refuse-Derived Fuel ROI Return on Investment SWM Solid Waste Management TA Traditional Accounting VAT Value Added Tax WEEE Waste from Electrical and Electronic Equipment WtE Waste to Energy xii The cost calculations provided in these guidelines are illustrative. The presented unit and overall costs are calculated for the assumptions made and based on assumed, specific parameters as provided. Listed costs should therefore be interpreted in their own context and must not be regarded as overarching or applicable across geographies or income groups. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xiii Municipal Solid Waste Cost Calculation Technical Guidelines discusses good practic- es for calculating investment and operating costs in the solid waste management (SWM) sector. The document includes illustrative examples of notional cost calcula- Executive summary tions for selected waste management functions and for a combined waste manage- ment system. The guidelines—using a step-by-step approach and set input data—demonstrate how the costs of each of the main municipal waste management functions are calculat- ed and how changes in operational and/or technical requirements affect cost levels. They then show how the outputs from the initial cost analysis are combined to estab- lish the total investment and operating costs of a notional waste management sys- tem. These are then used to determine indicative annual revenue requirements and full cost recovery tariffs. Outcomes from the analysis can also be used to answer sev- eral questions: are the proposed services affordable to users and municipalities; are they financially viable; is external grant funding needed; does the scope and scale of the envisaged system need to be re-examined? The publication aims to impress that funding annual operating expenses—typically higher than the annualized capital costs of investments and the single most import- ant factor for sustaining waste operations—needs to be a key area of attention for local authorities. It emphasizes that the waste management sector is principally a net cost activity that requires financing; while investments in advanced treatment facilities and processes bring higher environmental and economic benefits, they also incur higher financial costs and hence revenue requirements. The document was prepared in response to interest expressed by many municipalities across geographic regions in receiving guidance to determine their operating costs from local unit rates. The publication aims to demonstrate the approach of establish- ing costs and support the work of technical departments within municipalities that inform, advise, and guide their municipal councils and policy makers in planning their waste systems, justifying and setting tariffs, and mobilizing finance. It is expected to assist municipalities in operating current systems more efficiently and improving mu- nicipal capacity to plan system improvements and expansions beyond current levels. The guidelines were developed with consideration of the state of the sector and its development trajectory in low- and middle-income countries (LICs and MICs). The document is organized into seven chapters. The first chapter explains why it is important that municipal waste management departments know the full cost of their municipal waste services along the various functional components of the waste system. The second chapter presents the basic parameters and steps toward calculating system costs. The third chapter gives the notional cost calculations for selected waste management functions of municipalities of various sizes along with varying technical and organizational system alternatives (scenarios). The fourth chapter presents the notional costs of an entire combined waste management sys- tem under regional arrangements. The fifth chapter describes financial techniques used to evaluate technical options in terms of their cost implications and introduc- es the concept of absolute and relative costs for the various functions of the waste management system. The sixth chapter outlines approaches to calculate residential waste management tariffs. The final chapter discusses potential revenue from sale of separately collected and sorted materials and emphasizes that the waste man- agement sector is principally a net cost activity. xiv Executive Summary Current and future service costs Many municipal SWM departments in LICs and MICs are unaware of the full costs of their services. Rarely are costs allocated against specific service functions, such as waste collection or landfill operations, and many are recorded on a line-item basis with related services, such as drain cleaning, street sweeping and repairs, and snow removal. Separate financial and accounting records are not kept, and costs when needed—for example, to prepare a budget—are based on rough estimates at best. Costs often reflect predetermined norms for waste generation, unit input costs, and tariffs. They are rarely based on real, current, empirical data taken from recent ex- perience or market prices. Problems with cost accounting also arise because waste service costs are often combined and brought under general budget items or, the opposite, spread across a range of budget items. Chapter 1 outlines why it is important that municipal waste management depart- ments know the full costs of their municipal waste services and the various func- tional components of the waste system. Before a municipality can define its actual financing needs, it must clearly define the full costs of its current services; only then it can establish the incremental costs of planned new investments and operations. Although the largest single expenditure incurred in providing municipal waste ser- vices is typically for infrastructure investments, the most significant financial chal- lenge usually is to estimate the annual revenue requirement and determine how it should be funded. Annual operational expenditures (excluding depreciation) are of- ten higher than the annualized capital costs of investments, with estimates showing them to account for 70 percent or more of total annual budgetary requirements. It is therefore critical that the operational finance implication is fully considered when deciding on new capital expenses. The financial costs of providing municipal solid waste services must be funded one way or another. Users must ultimately pay for the services they use, either directly though user charges or indirectly through municipal transfers/taxes or a combina- tion of the two. Municipal waste services should be appropriate, affordable, socially acceptable, and financially sustainable. This means that municipalities should be clear about the scope of the services being provided, the full costs of those services, and how those costs—both investment and operational—are to be funded. This infor- mation enables realistic decisions to be made on whether the services proposed can be operated and funded sustainably over time. It can be hard to secure financing for waste services if the full costs of service are not known—the single most important factor in sustaining operations. The munici- pal and higher-level authorities that typically approve financing for municipal waste management departments are more likely to approve requests to raise budget allo- cations and tariffs when they are supported by a full cost analysis. When requests are not supported in this way, budgets are likely to be assigned according to prior funding allocations and available municipal resources, which can lead to severe un- derfunding. Without knowing the full costs of baseline services, it is also hard to plan system im- provements. A current example is that of municipalities looking to introduce systems of waste separation at source in parallel with existing mixed waste collection and disposal systems. In the absence of a functional extended producer responsibility (EPR) scheme to finance the incremental costs, which is overwhelmingly the case in LICs and MICs, reliable data on the full cost of the existing mixed waste system should be the benchmark against which the incremental net costs of separation at source can be evaluated. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xv Once full costs are known, the annual revenue required to cover these costs can be established and indicative user tariffs estimated, for example, average cost per per- son or household. This does not mean that a full cost recovery charging system will be introduced but it does provide a powerful indicator of what the tariffs would need to be if a full cost recovery policy were to be introduced. If a partial user-based cost recovery system is proposed, for example, to cover operational or fixed costs only, the full cost analysis will help determine the balance of the municipal funds needed to cover the annual revenue requirement and for the services to be operated on a commercially sustainable basis. Defining the waste management system The waste management costs are a function of the adopted technical and organiza- tional solutions to achieve the waste management objectives in the planning area. Developing cost estimates is preceded by defining the planning area with its physical characteristics, preparing population forecasts and projections of waste quantities and composition, defining the waste management objectives, and formulating tech- nical scenarios for the different elements of the system that allow the achievement of these objectives. Each of these has a significant impact on waste management costs. Reliable data about the waste quantities generated are the basis for development of reliable waste projections. However, the available information is often limited to waste quantities collected and disposed of through the system managed by the local authorities. The estimates of generated waste quantities should consider all differ- ent sources and possible collection channels, including, for example, the recyclable waste collected by informal collectors, green waste collected from public areas, and illegally disposed waste. The impact of future waste prevention measures should also be considered. Chapter 2 lists the physical parameters that determine current costs and possible technical alternatives to be considered when formulating different scenarios to achieve future waste management objectives. It then outlines the approach followed in subsequent chapters. First, it lists the individual waste management functions or principal components of the waste system included in the cost analysis in Chapter 3 which include collection of residual/mixed waste, municipal waste transfer, landfilling of waste, separate collection and sorting of recyclable materials, home composting, separate collection and composting of green waste, separate collection and treatment of food waste, and sorting and mechanical biological treatment (MBT) of residual waste.1 Second, it lists the size of municipalities used for the subsequent examples of cost calculations—five service areas2 with populations of, respectively, 10,000 residents, 50,000 residents, 100,000 residents, 250,000 residents, and 1,000,000 residents have been considered. These service areas, described in Chapter 4, are considered jointly as a single regional system with a population of 1.4 million residents. 1 Waste-to-energy (WtE) incineration is outside the scope of these guidelines. 2 Also referred to as ‘catchment areas’ (CAs) or ‘municipalities’. xvi Executive Summary Costing the principal components of the waste management system Costs for the principal components of the waste management system could vary sig- nificantly based on input data, such as planning area size, scale, distances, technol- ogy, and many others. Chapter 3 presents detailed cost calculations and estimates for each principal com- ponent of the municipal waste management system, that is, collection of municipal mixed waste, waste transfer, and so on, as outlined in the previous chapter. Descrip- tions of each component are given, together with scenarios for illustrating important considerations such as the economy of scale effect on the total and unit costs of the alternatives considered. It is to be noted that the provided cost estimates for the different waste management operations should be interpreted with caution as they refer to the specific examples presented and based on assumptions and unit costs used in these guidelines. If ap- plied to specific local conditions, significant deviations from the presented cost es- timates can be observed due to the differences in waste quantities and composition as well as local and regional differences in the costs of labor, fuel, energy, construc- tion, and materials. Major price differences are also observed between different manufacturers of equipment and vehicles, and costs for machinery with comparable technical characteristics can vary significantly. Local legal requirements, norms for emissions discharged into the environment, specific design and construction re- quirements, labor safety, and fire protection standards could also have a significant impact on the applied technical solutions and the related construction and equip- ment costs. Municipal mixed waste collection The chapter provides examples of cost calculations for mixed waste collection in a municipality with 100,000 residents, with 70 percent living in urban areas and 30 per- cent in rural areas. It then examines the impact on costs of different types and size of container systems, varying distance to treatment/disposal, loading times, collection frequency, vehicle size, and number of working shifts. The examples provided are for illustrative purposes only. The actual collection sys- tems in large agglomerations usually combine different collection schemes and logistic arrangements. Significant price differences could also occur as a result of social and cultural aspects that play a role in waste management system design. The chapter lists the frequently observed mistakes when planning collection systems with bearing on costs and argues that low initial investment costs do not necessarily result in lowest overall costs over the implementation period. It provides important benchmarks on cost ranges per tonne of waste collected and a list of suggestions to optimize collection costs. The cost for mixed municipal waste collection and transportation is estimated to be typically below $50/tonne3 of waste and higher amounts may suggest a possibility for cost optimization. If, on the other hand, costs are below $20/tonne of waste, it should be checked that all cost components have been considered. Municipal waste transfer Transfer stations are often constructed with the expectation that they will reduce transportation costs. 3 All instances of $ in the document refer to US dollars. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xvii The decision to construct a transfer station should be based on an options analysis. The economic expediency of transfer stations is influenced by factors such as dis- tances, quantities of waste, road conditions and topography, density of population in the service areas, and technology of transfer. Transportation distances, waste quantities collected, and residents served are typi- cally the main factors to consider. As a general rule, transfer stations are usually not considered for transportation distances below 40 km and less than 50,000 residents served. The chapter provides different alternatives for organizing municipal waste collection and transfer in a settlement with 100,000 residents, assuming average transporta- tion distance of 50 km to treatment/disposal site. The main technical characteris- tics and costs for direct transportation of waste and using transfer station with and without compaction are provided and compared. An example of cost estimates for a transfer station serving 1,000,000 residents is also presented. The cost of municipal transfer should typically be lower than municipal waste col- lection costs and could usually be expected in the range of $8–$20/tonne of waste transferred. Municipal waste landfill Landfilling of waste will continue to be a main disposal method in LICs and MICs even as other types of treatment increase. Very often in LICs and MICs, insufficient funding is provided for operation and mainte- nance (O&M) of disposal sites. Landfill operations procedures are not strictly followed, resulting in low compaction rates, excessive leachate generation, steep slopes com- promising stability, and so forth. As a result, the lifetime of the landfill site is reduced and higher costs per tonne of waste received are incurred than initially planned. Another important factor affecting costs is waste quantities accepted on site. In case the site receives much less quantities than initially planned, considerably higher costs per tonne than initially estimated are incurred due to fixed investment and operating costs. On the contrary, if the landfill receives much larger quantities than planned, the capacity is utilized faster and the overall lifetime of the facility is reduced. Typically, landfills are constructed in stages and the investment costs for construct- ing landfill cells appear over the whole life of the site. Costs for closure and aftercare related to monitoring of environmental parameters should also be considered during the lifetime of the facility. Landfill costs demonstrate significant economies of scale. Large-capacity landfills allow higher average deposition height and more waste to be deposited per unit area occupied. This is demonstrated in the chapter through several examples of cost es- timates for landfills of different sizes corresponding to the five sample municipalities (service or catchment areas) defined in Chapter 2. The typical landfill costs for municipal waste are estimated to be in the range of $12– $30/tonne of deposited waste, assuming full cost recovery. Higher unit costs are possible if the landfill has relatively small capacity that in principle should be avoided. Separate collection of recyclable waste The separate collection of municipal waste is most often focused on paper, card- board, plastics, metal, and glass. Other waste fractions such as textile and electronic waste can also be collected for recycling. xviii Executive Summary The quality of the collected materials is an important aspect for a successful recycling system. Both the demand and the value of recycled materials are directly linked to the way these materials were initially collected.4 The chapter described typically observed shortcomings when municipalities plan to introduce separate collection systems, for instance, overoptimistic projections of the recycling potential of the waste and/or unrealistic expectations for households’ participation and source separation rates. The potential impact of informal sector collection is also often not considered. In case of significant presence of informal waste pickers, the most valuable waste fractions will be removed before entering the collection system or from installed collection infrastructure. The potential revenues from the sales of recyclable waste commodities are also sometimes overestimated. Municipalities often underestimate the logistical challenges of multiplying waste/re- cyclable streams and lack appropriate capacity to manage the recyclable waste that requires market assessment and commercial arrangements for sales of separated materials. As a result of such challenges, separate waste collection systems are of- ten not sufficiently financed due to the difference between planned (expected) and actual costs and revenues. The chapter demonstrates that once a decision is taken to introduce separate col- lection, alternative systems and collection methods should be considered. Different collection methods result in different quantities and quality of collected waste frac- tions and have different investment and operating costs. For example, bring systems require more efforts from citizens to reach the containers and discard sorted frac- tions and show relatively high level of impurities. Curbside systems on the other hand achieve higher collection rates and better quality of material collected but are more expensive. The chapter presents cost examples for different collection systems and container sites. For example, it shows that a collection scheme using individual plastic bins has the highest implementation cost but results in higher quantities and good quality of collected materials. Similar to other waste management operations, economies of scale exist when orga- nizing separate collection of recyclable waste. For that reason, recycling programs are usually focused on large urban settlements and then extended to neighboring areas. It is important to note that separate collection and sorting of household recyclable waste is a net cost activity, that is, the revenues from the sales of recyclable material are often lower than the combined costs for separate collection and sorting. For that reason, economic instruments and/or EPR schemes are often required to provide additional financing. The separate collection costs per capita served in the urban areas according to the examples provided in these guidelines are expected in the range of $2.5–$5.0 per resident per year. The costs per capita served in rural areas are considerably high- er due to the smaller waste quantities generated/collected and higher transporta- tion distances. These costs do not include the public awareness costs estimated in the range of $0.5–$1.5 per capita at least in the first years of operation or until the separate collection system is fully settled. It should be noted that costs per tonne of recyclable waste collected are different for the different materials/fractions and could vary considerably depending on quantities collected, residents’ participation, and the achieved capture rate. 4 GIZ. 2022. Guideline on Separate Waste Collection and Sorting of Recyclable Municipal Waste. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xix Sorting of separately collected recyclable waste Typical problems faced in planning and operations of sorting facility for separately collected waste are usually related to inappropriate capacity or design. The capacity could be too small for the quantity of input waste fractions, for example, due to high quantities of material assumed to be separated by worker at the sorting line or insuf- ficient number of sorting lines. In the opposite case, the installed sorting capacity is overestimated, and the facility could process much higher quantities than actually delivered on site. The sorting facilities are usually established for separately collected paper and card- board, different kinds of plastic waste, and metal packaging. The separate collection and sorting of glass should be analyzed independently. In many countries there is no developed glass industry and the recycling possibilities are limited. Typically, the separately collected glass fraction requires a special sorting/treatment plant with a significant input capacity of 50,000 tonnes and beyond to be economically justified. Solutions that use waste glass in the production of concrete and construction mate- rials are often considered as alternative to traditional recycling. The simplest sorting facilities comprise of manual picking station and baling press- es that could be provided in different configurations and capacities. Small sites equipped with vertical baling press are usually intended for processing small quan- tities of 30–60 tonnes of waste per month and served by few workers, while large sorting plants could process several thousand tonnes per month. The chapter provides two examples of sorting facilities with different capacity. The examples show that significant economies of scale exist with the increase of sort- ing capacity. Construction of small size installation processing only few tonnes of recyclable waste per day should be avoided. It should also be noted that better sales prices can be achieved for larger quantities of recyclable materials. If properly designed, the revenues from the sales of recyclables should exceed the sorting costs but in most cases will still not be sufficient to cover the combined sep- arate collection and sorting costs. It should also be noted that the market of recy- clable waste is dynamic and significant price fluctuations are observed even within short periods. Performance indicators for sorting efficiency should be established at the beginning of operations. Typically, these include quantity of separated materials per unit input waste (sorting efficiency), costs per tonne of separated material, revenues per tonne of separated material, and others. Composting of separately collected green waste Composting of organic waste is a controlled biological process in which organic materials are broken down by microorganisms. Composting installations could be implemented in various sizes and capacities and different technologies (with varying costs) exist, for example, static pile, open windrows, aerated piles, and different in-vessel composting (IVC) systems based on tunnels, containers, bays/ beds, silos, and rotating drums. The different technologies require different du- rations to produce compost that has impact on the area required. The selection of composting technology depends on the type and quantities of input waste, the legal requirements in place, climate conditions, site characteristics, and other conditions. While the open windrow composting and aerated piles are well-proven technologies for green and market waste, the presence of food waste in the input material requires using covered or closed composting systems to properly manage emissions and odors. xx Executive Summary The chapter discusses typical shortcomings observed when planning composting systems, such as contamination of collected green/biowaste as a result of which the produced compost does not meet the planned quality requirements and projected revenues and demand for compost are much lower than initially planned. The key considerations when planning composting systems are also discussed, includ- ing whether to give priority to home composting or to implement separate collection of green and other biowaste; whether to implement centralized composting installation or smaller decentralized sites; and what type of composting technology, equipment, and site design requirements will be optimal for the type and quantities in the specific case. In general, home composting is the appropriate solution for rural areas while com- posting installations usually serve more densely populated areas. The composting can be organized through centralized large-scale facilities usually accepting several thou- sand tonnes of waste per year or decentralized to several small sites where few hundred tonnes of waste are treated close to the place of generation. If the decentralized model is applied, usually mobile equipment is used for shredding, turning, or sieving. The chapter provides two cost estimate examples for green waste open windrow composting sites with different sizes. Windrow composting installations demon- strate significant economies of scale, and larger facilities processing several thou- sand tonnes per year have lower unit costs. The chapter also provides summary cost estimates for composting installations using IVC in tunnels and aerated static pile (ASP) technologies for the intensive phase of the process, and open windrows are used for compost maturation. In the examples given, the ASP composting shows comparable costs to windrow composting while composting in closed system is con- siderably more expensive. It should be noted that the possible technical solutions and equipment used could vary significantly even for composting sites that have same capacity and employ similar technology. Potential revenues from compost depend on quality, demand, and available outlets. There are many examples in LICs and MICs where composting installations ceased to function due to lack of market and expected revenue stream. On the other hand, it is noteworthy that the revenues sales could be significant if the compost quality is guaranteed by recognized certification scheme. Anaerobic digestion Anaerobic digestion (AD) is a technology for controlled anaerobic treatment of bio- degradable waste used to transform the organic matter contained in the waste into biogas and digestate valuable as an organic fertilizer or soil improver. In municipal waste management, the AD is mainly used for recovery of separately collected bio- waste. It is also used outside the municipal waste sector for wastes high in chemical oxygen demand (COD) and as a treatment process for sewage sludge. The production of biogas from controlled AD is one of the principal advantages of the process. It is a renewable energy source that can be used to produce electricity, heat, and fuel (gaseous or liquefied). The main AD technologies used are wet digestion, dry continuous digestion, and dry batch digestion. The characteristics of the feedstock have significant impact on the AD process and therefore on the biogas yield and the digestate quality. Uncertain quantities and composition of input biowaste and possible contamination could be a significant challenge for the AD operation. The AD plants can be of different capacities starting from several hundred tonnes per year to hundreds of thousands of tonnes per year. In some developing countries, Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xxi AD is also applied at a small scale where large number of small facilities are used by one or several households to produce small quantities of gas used for cooking. The chapter provides summary cost examples for AD plants with different capacities for separately collected biowaste. In principle, AD is an expensive technology with high investment and operating costs that considerably exceed the costs for aerobic treatment (composting) for the same installed capacity. The high costs are compen- sated to a large extent by the revenues from the sales of electricity produced or gas provided to public network, but this is only possible for large-capacity installations. The revenues could be considerably higher if preferential tariff applies for electricity produced from renewable sources. The conditions and costs for connection to elec- tricity grid (in case of electricity production) should also be well analyzed during the site selection and feasibility stage. The construction of an AD facility requires well-functioning separate collection sys- tem of biowaste to guarantee the feedstock. Appropriate pretreatment of input bio- waste is required to remove plastic bags and other impurities not desirable for the process. The O&M of a complex AD facility also requires the availability of qualified personnel and specific skills. Treatment of residual/mixed municipal waste Material recovery facilities (MRFs) and MBT plants have been considered for treat- ment of mixed (residual) municipal waste and production of refuse-derived fuel (RDF). Besides shredding, sorting, screening, and so on to separate the recyclable waste fraction, additional biological treatment and mechanical processes apply at the MBT stage. The chapter provides two examples of MBTs of the same size: one where high-cal- orific RDF is produced and the biotreated fraction is designated for landfill, with or without production of compost-like output (CLO); a second one designated to maximize the RDF production and minimize the quantity of treatment residues des- ignated to landfill. In both examples, the mechanical treatment of input waste is or- ganized in a similar way. The biological treatment in the first case aims to stabilize the material, and the majority of combustible fraction contained in the dried waste is separated using different separation techniques for RDF production. The treatment residues containing mainly mineral fraction are designated to landfill. In the second case, bio-drying is used. Sample cost estimates are provided for both scenarios. It should be noted that the resulting high-cost estimates reflect the assumed tech- nology of the installations. Simplified treatment concepts could be considered when limited funds are available and two additional examples of such simplified MBT plants of the same capacity are also presented to demonstrate possible costs reduction. In this case, the industrial halls are replaced with shelters and biofilters and other equipment for treatment of exhaust gases are removed; ventilation is limited only to sorting cabins; the MBT tunnels are replaced with open ASPs; and some of the expensive equipment modules (optical sorting and eddy current separators) used to produce RDF are removed. The resulting cost estimates are considerably lower. It should also be noted that such cost reduction is achieved as a result of removing some process equipment, applying lower standards for emissions and smell reduc- tion from installations, relaxing labor safety requirements, and so on. As a result, such lower-cost solutions have some disadvantages compared to more ‘standard de- sign’ facilities and may not be able to provide the same operational characteristics, ensure flexibility to changes in input waste quantities and composition, and guaran- tee the quality of output products. xxii Executive Summary The chapter lists some of the key challenges when planning waste treatment facili- ties, usually related to uncertain quantities, composition, and granulometry of input residual waste and overoptimistic projections of recycling potential of input waste and capture/separation rates achieved, resulting in overestimated revenues since the quality of separated recyclable materials, RDF, and CLO could not be in line with market demand and requirements of the final recipients. It should also be taken into account that the materials separated for recycling out of the mixed municipal waste are of lower quality than the separately collected recycla- bles and the demand and market prices for such materials will be lower. Revenues from the sales of RDF are not certain and price could be negative if quality require- ments are not met. Costs of the entire waste management system Chapter 4 starts by demonstrating that significant economies of scale are associ- ated with larger sites and this affects total waste management costs per tonne of waste collected and the cost per household, as reflected in the tariff. The costs calculated in Chapter 3 for each waste management component are then brought together to show examples of a total waste management system. The pur- pose is to demonstrate and compare several collection and treatment options for a regional municipal waste management system serving all sample municipalities (catchment areas - CAs) listed in Chapter 2, with a total population of 1.4 million res- idents. In doing so, investment and O&M cost data are input on an annual basis across a fixed operational period. Investment cash flows include the initial investments and rein- vestments to replace equipment at the end of its economically useful life. Specific details of each system component are retained within the analysis. For example, line items covering sorting plant’s O&M costs are recorded separately and then aggregat- ed with the costs of all other waste components into a system total for the specific cost item. The following five alternatives and two sub-alternatives are compared in terms of costs: i. Alternative 1 provides basic municipal waste collection services organized at the municipal level where all collected municipal waste is disposed of to a central re- gional landfill. ii. Alternative 2 builds on the previous alternative and adds additional services: sep- arate collection of recyclable waste and composting of green waste collected from public parks and green areas. All residual/mixed municipal waste is collect- ed and delivered to a regional landfill. The reduced quantities of waste designated to landfilling compared with the previous alternative are taken into account when calculating the necessary landfill capacity and costs. iii. Alternative 3. The third alternative retains the waste collection, separate collec- tion, and composting elements considered in the previous alternatives but all re- sidual waste is designated to an MRF where additional recyclables are separated, and RDF is produced. iv. Alternative 4. In the fourth alternative, the MRF is upgraded to an MBT plant pro- ducing high-calorific value RDF and CLO. Two variants of Alternative 4 are con- sidered. In Alternative 4a, the entire mechanical part and intensive phase of biological treatment is installed in closed industrial buildings. Alternative 4b has Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xxiii treatment steps similar to Alternative 4a but the equipment is installed in an open area under a shelter and a simplified treatment concept is used for the purpose of cost reduction. v. Alternative 5. In this alternative, a different technology for MBT plant is consid- ered, based on bio-drying. The changed treatment technology’s main objective is to maximize the production of RDF and ensure no CLO is produced. Alternative 5a is for an entirely closed plant while Alternative 5b provides a lower-cost solution where the process equipment is installed under a shelter and some of the more typical RDF processing steps are not applied. Detailed mass balances and cost estimates are prepared separately for the different waste operations for the whole waste management system under each alternative described above. The comparison demonstrates the various cost requirements for the different alternatives which may have varying objectives, such as maximizing di- version from landfill or production of RDF. It shows that the construction of MBT un- der the last two alternatives results in more considerable reduction of landfill waste; however, the investment requirements increase with the extension of separate col- lection system and application of more advanced treatment technologies for residu- al/mixed municipal waste. The analysis shows that total unit costs per tonne of waste generated considerably increase with the establishment of separate waste collection and composting and increase further with the implementation of more advanced treatment for residu- al waste such as MRF and MBT. If revenues from the sales of recyclables are con- sidered, the costs increase is partly compensated and the resulting net costs show smaller differences between alternatives. Such conclusion should be interpreted with caution because the revenues are not guaranteed and are influenced by many factors as explained in Chapter 7. The chapter seeks to impress that waste management operations are interdepen- dent and understanding the costs of the entire waste management system is re- quired. Potential benefits of economies of scale in establishing common treatment and disposal facilities serving several neighboring municipalities should be assessed and common benefits identified at the planning stage. Average incremental cost (AIC) analysis for municipal waste management Chapters 5 to 7 cover some powerful costing techniques that can be readily applied to many situations found in domestic waste management: understanding the fi- nancial structure of the waste system; evaluating technical options and their cost implications for tariffs and revenue; assessing the financial viability of schemes to collect, sort, and sell recyclable materials; and undertaking longer-term planning, budgeting, and tariff analysis. Chapter 5 introduces the concept of AIC analysis and the insights it can bring to effec- tive financial management and planning. It shows how an understanding of unit costs can be invaluable for systematically analyzing and comparing the costs of waste sys- tem options and components, how to translate an irregular cost flow into a smooth revenue flow with the same current value as the cost flow, how to define the relative contribution made to total costs by each waste function, and how to define a uniform gate fee for an MRF plant when full capacity utilization is to be phased over time. Chapters 5 to 7 take as an example Alternative 2 presented in Chapter 4 and draw on analysis undertaken with the cost model for each municipality/catchment area de- xxiv Executive Summary fined by population size and for five waste management functions (separate collec- tion, residual waste collection, composting green waste, sorting separately collected material, and landfill operations). Net cash flows, AICs per tonne and per capita, and their equivalent annual revenue flows are estimated. Unit costs of separately collect- ed waste and recyclable materials sorted are assessed. The analysis is carried out in constant 2022 values and based on a 12-year planning period. The analysis is undertaken using the techniques of discounted cash flow (DCF) anal- ysis; AIC analysis is an extension of this. AIC analysis enables the full costs of service provision to be allocated over the planning period pro rata to the quantity of waste (or recyclable material) managed each year. The aim is to define a revenue flow which has a present value (PV) equal to the PV of the net cash flow, that is, a discounted revenue flow which is equal to the discounted cost flow, and hence covers projected costs in full. The annual revenue requirement refers to the revenue needed annually over the plan- ning period to cover system costs in full. This does not mean that costs must be re- covered in full from user charges but that any gap between the revenue requirement and revenue from user charges must be covered by other sources of funds (such as municipal transfers). AIC analysis techniques can be used to provide estimates of absolute and relative unit costs: i. By function, such as the direct cost per tonne of material sorted at an MRF plant (a measure of the absolute or actual unit cost of the function or activity per tonne of material managed). i. By the contribution the unit cost of a system component makes to total system unit costs relative to the unit cost contributions of all other components mea- sured against the same base (for example, per tonne of total waste generated). The example used in the chapter demonstrates that significant differences can ex- ist between absolute and relative AICs for some functions, whereas for others they are small. Both absolute and relative values are powerful tools to assess the planned waste management system in terms of cost and revenue requirements. Approaches to estimating residential waste tariffs Chapter 6 starts by outlining three approaches to calculating residential waste management tariffs—per capita, based on AIC techniques, and based on traditional accounting (TA) techniques. The approaches result in different unit costs, revenue flows, and indicative tariffs per capita but all generate revenue flows with (almost) identical PVs. The first and most valuable approach based on an AIC per tonne is a simple extension of the AIC analysis described in Chapter 5. The second, based on an AIC per capita, is even simpler to calculate but suffers from significant drawbacks. The TA approach is based on traditional accounting concepts (depreciation, return on investment [ROI], and operating costs) and is commonly used for setting tariffs in a specific year with only limited consideration to future service demand or capacity constraints. But it can also be used for evaluating existing services or planning new ones over time. It also has serious drawbacks which limit its use over time. The chap- ter concludes with sections on affordability and financial sustainability and fixed and variable costs. The AIC per tonne of waste generated is used to calculate the annual revenue re- quirement—this being the product of the AIC per tonne and annual waste quantities Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries xxv in tonnes. The PV of the annual revenue requirement is then identical to that of the net cash flow. The annual revenue requirement is then divided by the annual popu- lation (held constant over the planning period) to give a starting indicative tariff in the base year rising over time. The rise in the tariff profile results from increasing waste generation per capita. The approach leads to lower tariffs in earlier years and to higher tariffs in later years, reflecting the user pays principle (rising waste quantity generated per capita). Both the AIC per tonne and the TA approaches define an annual revenue flow that covers total costs in full. They differ in the way investment costs are recognized. This is in turn reflected in the way annual revenue requirements are defined and in the tariff profiles created from them. To recap, the AIC per tonne approach is based on the estimated annual investment costs, the residual value of the assets created by the investments, annual operating costs, and the discount rate used to discount the future cash flows to their PVs. The TA approach is based on depreciation of the as- sets created by the investments, the financial return on those investments, annual operating costs, and the relevant rate for calculating the ROI (taken to be equal to the discount rate). Identical revenue streams are generated in PV terms, but the timing of the revenue requirements is different. The TA approach leads to erratic and falling tariffs over the planning period whereas the AIC approach results in progressively rising tariffs consistent with rising popu- lations and increasing waste generation per capita. It should be noted that the AIC approach depends critically on the availability of accurate data on current and pro- jected population numbers, per capita waste generation, and per capita incomes. Revenue from the sale of separately collected and sorted material A key objective of many local municipalities is to recover value from materials con- tained in the waste stream. Although separation at source is increasingly becoming a legal requirement, implicit in this is a desire to generate profits which can contribute to the costs of the wider waste management system. The first part of Chapter 7 sets out some commercial factors to be aware of when considering setting up separate recyclable waste collection, sorting, sales, and mar- keting facilities. The second part draws on waste and material and revenue and cost flows introduced in earlier chapters to assess the financial performance of a sep- arate material collection and recycling scheme. The analysis relies heavily on unit costs and PVs derived using the AIC approach. The materials recovery and sales component is part of the total municipal waste management system, its costs form part of total system costs, and its sales revenues contribute to the total revenue needed to cover system costs in full. The materials recovery and sales system is assessed from the perspective of a separate, stand- alone commercial entity. This is followed by a general commentary on the financial viability of material recovery schemes together with some summary notes to help guide decision-making in this area. It should be remembered that collecting recyclable materials separately avoids the need to gather and dispose of them to landfill. That is, mixed waste collection and landfill disposal costs are reduced. These avoided costs should be fully recognized when assessing the net costs of the materials recovery system. However, the full costs of service provision are not avoided if material is diverted from the residual waste stream to the separate collection of recyclable material. xxvi Executive Summary Revenue from the sale of recyclable materials is subject to two main risks: the quan- tity of recoverable material in the separately collected waste and markets for the materials recovered. Unless driven by mandatory obligations, materials recovery systems should be implemented when there is a high level of confidence that a rea- listic and predictable supply of recoverable material is available for collection and proven markets exist for the recovered materials. Concern over waste composition comes from an awareness that informal collectors can often retrieve a large share of the valuable material before it can be formally col- lected. If this is the case, then the material quantities on which the sorting plant ca- pacity and the sales analysis are based may be unrealistic. This factor is crucial to the assessment of any materials recovery scheme. Data on the composition of the waste stream available for formal collection are generally poor. Markets for materials recovered from municipal waste are often poorly developed, with assumptions on product markets, sales potential, and selling prices being speculative and uncertain. A reliable market analysis of the potential for recyclable material sales should be undertaken in the planning phase. The prices of recyclable waste commodities also vary considerably over time. Importantly, it should be recognized that municipal waste management is a net cost activity. The extensive systems of waste material recovery found in high-income countries today are a result of legislation that imposes strict and binding waste man- agement targets on local authorities. The annexes to these technical guidelines define and explain the categories and types of costs used in the cost analysis. It is recognized that municipal waste man- agement services are characterized by a high share of fixed costs in their overall cost structure and describe the implications of this for charging structures and revenue stability. The broad concepts of DCF analysis, cost-effectiveness analysis, and AIC analysis are outlined—these being powerful tools for analyzing the relative costs of system components and for calculating unit costs and tariffs. A Glossary of financial terms used in this document is also provided. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 1 Introduction and overview 1.1 Introductory comments Municipal Solid Waste Cost Calculation Technical Guidelines discusses good practices for calculating investment and operating costs in the solid waste5 management (SWM) sector. The document includes illustrative examples of notional cost calculations for selected waste management functions and for a combined waste management system. The guidelines—using a step-by-step approach and set input data—demonstrate how the costs of each of the main municipal waste management functions are calculat- ed and how changes in operational and/or technical requirements affect cost levels. They then show how the outputs from the initial cost analysis are combined to estab- lish the total investment and operating costs of a notional waste management sys- tem. These are then used to determine indicative annual revenue requirements and full cost recovery tariffs. Outcomes from the analysis can also be used to answer sev- eral questions: are the proposed services affordable to users and municipalities; are they financially viable; is external grant funding needed; does the scope and scale of the envisaged system need to be re-examined? The publication aims to impress that funding annual operating expenses—typically higher than the annualized capital costs of investments and the single most import- ant factor for sustaining waste operations—needs to be a key area of attention for local authorities. It emphasizes that the waste management sector is principally a net cost activity that requires financing; while investments in advanced treatment facilities and processes bring higher environmental and economic benefits, they also incur higher financial costs and hence revenue requirements. The document was prepared in response to interest expressed by many municipalities across geographic regions in receiving guidance to determine their operating costs from local unit rates. The publication aims to demonstrate the approach of establish- ing costs and support the work of technical departments within municipalities that inform, advise, and guide their municipal councils and policy makers in planning their waste systems, justifying and setting tariffs, and mobilizing finance. It is expected to assist municipalities in operating current systems more efficiently and improving mu- 5 ‘Municipal solid waste’ means (a) mixed waste and separately collected waste from households, including paper and cardboard, glass, metals, plastics, biowaste, wood, textiles, packaging, waste electrical and electronic equipment (WEEE), waste batteries and accumulators, and bulky waste, including mattresses and furniture and (b) mixed waste and separately collected waste from other sources, where such waste is similar in nature and composition to waste from households. Munic- ipal waste does not include waste from production, agriculture, forestry, fishing, septic tanks, and sewage network and treatment, including sewage sludge, end-of-life vehicles, or construction and demolition waste. Waste from markets, bulky waste, and garden and park waste are also consid- ered part of municipal waste. ‘Biowaste’ means biodegradable garden and park waste; food and kitchen waste from households, offices, restaurants, wholesale, canteens, caterers, and retail premises; and comparable waste from food processing plants. The definitions are aligned with Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste and repealing certain Directives, also referred as European Union (EU) Waste Framework Directive (EU WFD) as well as definitions adopted by the Organisation for Economic Co-operation and Development (OECD), United States Environmental Protection Agency (US EPA), and the ‘What a Waste 2.0’ report produced by the World Bank (2018). 2 1. Introduction and overview nicipal capacity to plan system improvements and expansions beyond current levels. The guidelines were developed with consideration of the state of the sector and its development trajectory in low- and middle-income countries (LICs and MICs). 1.2 Current and future service costs The majority of municipal SWM departments in LICs and MICs are unaware of the full costs of their services or how to calculate them. Only rarely are costs allocated against specific service functions (such as waste collection or landfill operations) and many are recorded (if at all) on a line-item basis with related services, such as drain cleaning, street sweeping and repairs, and snow removal. Separate financial and accounting records are not kept, and costs when needed—for example, to pre- pare a budget—are based on rough estimates at best. Costs often reflect predeter- mined norms for waste generation, unit input costs, and tariffs. They are rarely based on real, current, empirical data taken from recent experience or market prices. Problems with cost accounting also arise because waste service costs are often combined and brought under general budget items or, the opposite, spread across a range of budget items. Except for waste collection and transportation, data collected on municipal SWM cost items are inadequate. Taking landfill as an example, data on tasks such as com- paction, cover, active gas capture, and environmental performance monitoring are typically not collected separately from other landfill activities. Asset depreciation is commonly not systematically recorded. As a result, treatment and disposal costs reported can be well below those reported by a professional organization using local unit rates. On the other hand, costs reported for collection and transportation are often observed to be higher than those reported for a professional and competent system. Such outcomes suggests that there are cost efficiencies to be exploited, such as trimming staff numbers or reducing high levels of cross-subsidy (municipal transfers), thereby creating efficiency incentives. In such cases, high costs for waste management services, particularly for waste collection, is a strong signal for ineffi- cient spending of public funds. Municipal waste management departments should know the full costs6 of their municipal waste services and the various functional components of the waste system. Before a municipality can define its actual financing needs, it must first clearly define the full costs of its current services and then establish the incremental costs of planned new investments and operations. Although the largest single expenditure incurred in providing municipal waste services is typically for infrastructure investments, the most significant financial challenge is often to estimate the annual revenue requirement and determine how it should be funded. Annual operational expenditures (excluding depreciation) are often higher than the annualized capital costs of investments, with estimates showing them to account for 70 percent or more of total annual budgetary requirements. Difference should be made between the ‘full costs’ and ‘full costs recovery from users fees’. When 6 practical and considering affordability constraints, in addition to the user fees, budget transfers and financing from other municipal sources could be used for covering waste management costs. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 3 The financial costs of providing municipal solid waste services must be funded, one way or another. Users must ultimately pay for the services they use, either directly though user charges or indirectly through municipal transfers/taxes or a combina- tion of the two. Municipal waste services should be appropriate, affordable, socially acceptable, and financially sustainable. This means that municipalities should be clear about the scope of the services being provided, the full costs of those services, and how those costs—both investment and operational—are to be funded. This infor- mation enables realistic decisions to be made on whether the services proposed can be operated and funded sustainably over time. There are many reasons why municipalities should properly understand the full cost of the waste management services they provide and of the services they propose to introduce in the future. Reliable and comprehensive cost information is needed to define the full costs of current services, plan future strategy and services, pre- pare realistic capital and operational budgets, define the scope for cost recovery via user charges, and assess the financial implications of involving the private sector in service delivery. It also enables calculation of unit costs (for example, $/tonne of waste collected) for the total system and its component parts, thereby facilitating unambiguous cost comparisons between various system components (for example, an options analysis to define the net financial gain or loss to the combined waste management system of introducing a regional system of waste transfer stations or the financial implications of shifting from individual municipal collection services to a combined regional waste collection service). It can be hard to secure financing for waste services if the full costs of service are not known—the single most important factor in sustaining operations. The munici- pal and higher-level authorities that typically approve financing for municipal waste management departments are more likely to approve requests to raise budget allo- cations and tariffs when they are supported by a full cost analysis. When requests are not supported in this way, budgets are likely to be assigned according to prior funding allocations and available municipal resources, which can lead to severe un- derfunding. Without knowing the full costs of baseline services, it is also hard to plan system im- provements. A current example is that of municipalities looking to introduce systems of waste separation at source in parallel with existing mixed waste collection and disposal systems. In the absence of a functional extended producer responsibility (EPR) scheme to finance the incremental costs, which is overwhelmingly the case in LICs and MICs, reliable data on the full cost of the existing mixed waste system should be the benchmark against which the incremental net costs of separation at source can be evaluated. Once full costs are known, the annual revenue required to cover these costs can be established and indicative user tariffs estimated (for example, average cost per per- son or household). This does not mean that a full cost recovery charging system will be introduced but it does provide a powerful indicator of what the tariffs would need to be if a full cost recovery policy were to be introduced. If a partial user-based cost recovery system is proposed (for example, to cover operational or fixed costs only), the full cost analysis will help determine the balance of the municipal funds needed to cover the annual revenue requirement and for the services to be operated on a commercially sustainable basis. 4 1. Introduction and overview 1.3 Chapter outlines The document is organized into seven chapters. It demonstrates how the full costs and the unit costs of individual service components (for example, residual waste col- lection and material recovery facility [MRF] operations) are calculated, how these are brought together to calculate the costs of the combined waste management system, how these are used to calculate the annual revenue needed to cover them, and how this information is used for setting user tariffs and charges. Making such calculations requires understanding of how to apply the financial tech- niques of discounted cash flow (DCF) analysis and average incremental cost (AIC) analysis. These are outlined in Chapter 2 and further developed and illustrated in the analysis of total system and system component costs and annual revenue require- ments presented in Chapters 5 and 6. The scope of the guideline, following this introductory Chapter 1, is as follows: Chapter 2: Defining the waste management system This chapter lists the physical parameters that determine current costs and possible technical alternatives to be considered when formulating different scenarios to achieve future waste management objectives. It then outlines the approach followed in subsequent chapters. First, it lists the individual waste management functions or principal components of the waste system included in the cost analysis in Chapter 3 which include collection of residual/mixed waste, municipal waste transfer, landfilling of waste, separate collection and sorting of recyclable materials, home composting, separate collection and composting of green waste, separate collection and treatment of food waste, and sorting and Mechanical Biological Treatment (MBT) of residual waste.7 Second, it lists the size of municipalities used for the subsequent examples of cost calculations. Chapter 3: Cost factors for the main components of the waste management system This chapter focuses on sample cost calculations and estimates for municipal waste components and scenarios outlined in Chapter 2. The summary results are present- ed to demonstrate the scale of costs for the different waste management operations and technical alternatives, while several detailed examples showing different inputs and outputs of the analysis are presented in the tables and figures. Descriptions of each functional component are provided, together with scenarios for illustrating the economy of scale effect on the total and unit costs of the alternatives considered. The cost estimates for the different waste management operations are present- ed. These should be interpreted with caution as they refer to the specific examples presented and based on assumptions and unit costs used in these guidelines. If ap- plied to specific local conditions, significant deviations in the scale of ±20 percent from the presented cost estimates can be observed due to the differences in waste quantities and composition as well as local and regional differences in the costs of labor, fuel, energy, construction, materials, civil works, and equipment. Such differ- ences could be higher for waste management treatment and recovery operations such as composting, anaerobic digestion (AD), or MBT. It should be noted that ma- jor price differences are also observed between different manufacturers and unit prices for equipment, machinery and vehicles with otherwise comparable technical characteristics. Local legal requirements, norms for emissions discharged into the environment, specific design and construction requirements, labor safety, and fire protection standards could also have a significant impact on the applied technical solutions and the related construction and equipment costs. 7 Waste-to-energy (WtE) incineration is outside the scope of these guidelines. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 5 Additionally, the cost estimates examples provided in the guidelines are based en- tirely on purchasing of new equipment. While it is acknowledged that secondhand equipment is often purchased in LICs and MICs and that equipment is operated well beyond its typical economical life (and therefore depreciation period), appropriate assumptions about lifetime and increased maintenance costs should be made when preparing respective cost estimates. Chapter 4: Costs of the entire waste management system Cost outcomes calculated in Chapter 3 for each waste management component are brought together in Chapter 4 to define a total waste management system. Investment and operation and maintenance (O&M) cost data are input on an annual basis across a fixed operational period. Investment cash flows include the initial investments; reinvestments to replace equipment at the end of its economically useful life, for example, construction of new cells at regional landfills; closure and recultivation of old cells; and closure and aftercare costs8 that arise following closure of a landfill or waste treatment plant. Specific details of each system component are retained within the analysis. For example, line items covering sorting plant’s O&M costs are recorded separately and then aggregated with the costs of all other waste components into a system total for the specific cost item. Chapter 5: AIC analysis for municipal waste management Chapters 5 to 7 cover some powerful costing techniques that can be readily applied to many situations found in domestic waste management: understanding the financial structure of the waste system; evaluating technical options and their cost implica- tions for tariffs and revenue; assessing the financial viability of schemes to collect, sort, and sell recyclable materials; and undertaking longer-term planning, budgeting and tariff analysis. Chapter 5 introduces the concept of AIC analysis and the insights it can bring to effective financial management and planning. It shows how an under- standing of unit costs can be invaluable for systematically analyzing and comparing the costs of waste system options and components: how to translate an irregular cost flow into a smooth revenue flow with the same current value as the cost flow, how to define the relative contribution made to total costs by each waste function, and how to define a uniform gate fee for an MRF plant when full capacity utilization is to be phased in over time. These and other questions are answered with the help of tables and diagrams. Chapter 6: Approaches to estimating residential waste tariffs The chapter starts by outlining three approaches to calculating residential waste management tariffs—per capita, based on AIC techniques, and based on traditional accounting (TA) techniques. The approaches result in different unit costs, revenue flows, and indicative tariffs per capita but all generate revenue flows with (almost9) identical present values (PVs) of today. The first and most valuable approach based on an AIC per tonne is a simple extension of the AIC analysis described in Chapter 5. The second, based on an AIC per capita, is even simpler to calculate but suffers from significant drawbacks. The TA approach is based on TA concepts (depreciation, return on investment [ROI], and operating costs) and is commonly used for setting tariffs in a specific year with only limited consideration to future service demand or capacity constraints. But it can also be used for evaluating existing services or planning new ones over time. It also has serious drawbacks which limit its use over 8 Note the need for ‘advanced depreciation’ to cover the costs in advance for the closure and resto- ration of a landfill cell. 9 The two AIC-based approaches have identical PVs whereas the TA approach leads to marginally different outcomes due to limitations of accounting process. The differences are negligible. 6 1. Introduction and overview time. The chapter concludes with sections on affordability and financial sustainability and fixed and variable costs. Chapter 7: Revenue from the sale of separately collected and sorted material A key objective of many local municipalities is to recover value from materials con- tained in the waste stream. Although separation at source is increasingly becoming a legal requirement, implicit in this is a desire to generate profits which can contribute to the costs of the wider waste management system. The first part of the chapter sets out some commercial factors to be aware of when considering setting up sep- arate recyclable waste collection, sorting, sales, and marketing facilities. The sec- ond part draws on waste and material, revenue, and cost flows introduced in earlier chapters to assess the financial performance of a separate material collection and recycling scheme. The analysis relies heavily on unit costs and PVs derived using the AIC approach. A key consideration for operators with regard to system planning and revenue to sustain the systems is the cash flow in terms of time lag between an MRF sorting and recovering materials and receipt of moneys from the sale of materials, which can be a significant time that affects the viability of operating a separate col- lection and material recovery service. Other topics covered in the chapter include recyclable material sales and risks, avoid- ed costs and credits, the importance of knowing the difference between fixed and variable costs, and the competing objectives of affordability and financial viability. The annexes to these guidelines define and explain the categories and types of costs relevant to the cost analysis. It is recognized that municipal waste management services are characterized by having a high share of fixed costs in their overall cost structure and describes the implications of this for charging structures and revenue stability. The broad concepts of DCF analysis, cost-effectiveness analysis, and AIC analysis are outlined—these being powerful tools for analysing the relative costs of system components and for calculating unit costs and tariffs. Outlines are provided on other issues having a bearing on waste systems outcomes and costs: affordabil- ity and financial sustainability; the relative costs of regional and municipal systems; recyclable material markets; and the influence of government policy in determining municipal waste outcomes: is municipal waste a net cost activity? A Glossary of financial terms used in this document is also provided. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 7 Defining the waste management system This chapter lists the physical parameters that determine current costs and possi- ble technical alternatives to be considered when formulating different scenarios to achieve future waste management objectives. It then outlines the approach followed in subsequent chapters. The chapter has three sections. The first identifies core physical parameters that underpin the cost analysis: ● The planning period ● The service area ● Population sizes and projected change ● Household numbers ● Per capita/household income and projected growth ● Per capita waste generation and composition projections. The second, on preparing a municipal waste management system and its technical components, entails the following: ● Compiling realistic waste generation and composition data over the planning pe- riod ● Undertaking waste flows analyses and mass balance calculations ● Defining future waste management objectives and targets ● Defining scenarios and technical alternatives for achieving municipal waste man- agement objectives and targets. Data on per capita waste generation and composition are fundamental to determining physical capacity requirements and sizing alternative waste collection and treatment facilities. Knowing the physical capacity requirements enables the resource cost requirements of municipal waste systems and their component parts to be calculated and allocated between capital expenditures (investments) and direct O&M expenditures (operational costs). General descriptions are given below, and the main cost factors established for the individual waste management components included in the cost analysis are as follows:10 ● Collection of residual/mixed waste ● Municipal waste transfer ● Landfilling of waste ● Separate collection and sorting of recyclable materials ● Home composting ● Separate collection and composting of green waste ● AD of food waste ● Sorting and MBT of residual waste including with refuse-derived fuel (RDF) pro- duction. The last section in the chapter lists the size of municipalities (catchment areas - CAs) used for the subsequent examples of cost calculations. 10 Waste incineration plants for mixed municipal waste are not included in the present guidelines. 8 2. Defining the waste management system 2.1 Project parameters Table 1 lists the project characteristics that need to be defined at the planning stage. Table 1: Basic planning characheristics Planning period The planning period is usually between 5 and 30 years. It should correspond to the lifetime of the main assets. In case of large waste treatment and disposal infrastructure, such as landfills, MBT, or WtE plants, the planning period is usually 20 years and above. In case planning is limited only to waste collection services, the planning period is much shorter and usually corresponds to the envisaged contract duration, that is, 5–7 years for contain- ers and 10 years for vehicles.11 Service area Depending on the objective, the planning could be done at national, regional, or municipal level. For specific waste management activities, the planning could consider one or sev- eral districts within the same municipality, individual settlement or could be even done for a waste collection route. Population sizes and household Data about present number of residents living in the service area and respective number numbers in the defined area of households are needed for calculating waste generation. Per capita (or household) income Data about household incomes (or household expenditure) are needed for the assess- growth projections ment of affordability of proposed tariffs for waste management services. Per capita waste generation and Per capita waste generation and composition projections and their sensitivity to increase/ composition projections decline in population numbers and increase in per capita incomes need to be determined. It is recommended that the waste generation data are presented separately for house- hold waste and similar waste from commercial, industrial, or administrative origin. In addition, the impact of future waste prevention measures and global production and consumption trends (for example, replacing plastic food packaging with other alterna- tives) should also be considered. 11 Corresponds to assets lifetime/depreciation period. 2.2 The waste management system and its technical components 2.2.1 Waste generation data and waste generation forecasts Reliable data about the waste quantities generated are the basis for development of reliable waste projections. Often the available information is limited to waste quanti- ties collected and disposed of through the system managed by the local authorities. The estimates of generated waste quantities should consider all different sources and possible collection channels, including, for example, the recyclable waste col- lected by informal collectors, green waste collected from public areas, and illegally disposed waste. Waste flow projections need to be prepared for the respective planning period. The projections should reflect both the total amounts of the different waste streams generated and expected changes in waste composition over the planning period. Specifically, ● Projections should be based on available data for waste quantity and composition, population growth, and expected economic development in the region. ● Projections should be prepared separately for urban and rural areas and consider differences in waste generation rates per capita and waste composition. ● To the extent possible, projections should distinguish between waste generated by households and similar waste of a commercial or non-process industrial origin. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 9 ● Projections should consider any other specific conditions at the regional or dis- trict level. The following main factors influence the waste quantities and composition: ● Type of settlement (for example, large town or village) ● Type of buildings (for example, houses or apartments) ● Type of heating (for example, central heating, gas or coal based) ● Standard of living ● Household income ● Seasonal changes ● Local and regional economic, social, and cultural differences ● Consumer behavior ● Level of development of services in the respective area (commercial and non- process industrial waste). Waste quantities and composition data are important to ● Define the necessary capacities for waste collection, treatment, and disposal, for example, total installed capacity, sizing of necessary technological equipment used in the respective treatment process (for example, screens and conveyor belts); ● Define the quantities of recyclable materials (recycling potential); and ● Ensure that the quantities of RDF and/or its heating value are not overestimated or underestimated. 2.2.2 Future waste management objectives and targets, waste flows analysis, and alternatives considered The waste management costs are a function of the adopted technical and organiza- tional solutions to achieve the waste management objectives in the respective plan- ning area. Developing cost estimates is preceded by defining the planning area, preparing pop- ulation forecasts and projections of waste quantities and composition, defining the waste management objectives, and formulating technical scenarios for the different elements of the waste management system that allow the achievement of these ob- jectives. Each of these has a significant impact on waste management costs. Various options for waste collection and treatment should be prepared for the pro- jections and mass balances of the quantities of municipal waste collected, separate- ly collected, sorted, treated, recycled, recovered, and disposed of to a landfill. The analysis of waste flows and the projections form the basis for determining capacity requirements and for sizing the different collection and treatment options. Selection of the optimal waste management option requires the identification and comparison of different technical alternatives for waste collection, recovery, and disposal. Figure 1 illustrates the data, calculations, and output parameters that need to be developed for each technical alternative to provide the basis for comparison and decision-making. Social and cultural aspects can also play a role in waste management system design, for instance, in door-to-door versus bring systems for collection of recyclables, man- agement of food waste, and centralized and decentralized composting systems. 10 2. Defining the waste management system Figure 1: Illustration of input data, mass flows, and cost parameters of a waste management system Inputs Calculations Outputs Service Area Policy Responses Characteristics ● Population ● Investment ● Waste generauin Mixed Landfill/ Investment financing? ● Composition collection treatment requirements ● Tariffs and ● Distances affordability Costs summary ● Per capita income ● Role of the private ● Unit costs sector? Green and Composting/ ● Legal and bio-waste treatment institutional change? Waste Flows Separate Materials Revenue collection sorting requirements Material sales and revenues Source: Own presentation. Table 2 presents the main, though non-exhaustive, list of waste management ac- tivities and operations and possible technical alternatives to be considered when formulating different scenarios to achieve future waste management objectives. Typically, the waste management system is considerably simpler and does not in- clude all activities listed below. Table 2: Formulation of technical scenarios Waste management Outputs per municipality/service zone and average/ operation Alternatives to be compared total for the entire planning area(s) Residual/mixed Considering different collection systems with regard Calculation of required number of containers and waste collection to container type, volume, collection frequency, col- collection vehicles, estimated number of operational lection days per week, working shifts, working time, personnel for each service zone and the entire plan- vehicles type and payload, and so on. ning area. Alternatives for dividing the planning area in several Calculation of investment costs per category of as- service zones where the same or different collection sets and operating costs per economic elements over systems can apply. the planning period, unit costs per tonne of waste generated/collected, unit costs per resident/house- hold served, and unit costs per container served. Cost estimates should be prepared separately for services provided to households and those for legal entities. The cost estimates should be prepared separately for each service area/administrative unit and presented as total and average for the entire planning area. The quantities and cost estimates for the collection of bulky waste and street cleaning waste should also be presented separately. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 11 Table 2: Formulation of technical scenarios (cont.) Waste management Outputs per municipality/service zone and average/ operation Alternatives to be compared total for the entire planning area(s) Waste transfer Comparison of direct transportation of collected Calculation of investment and operating costs relat- and long-distance waste with the establishment of one or several trans- ed to waste collection and transfer over the planning transportation fer stations. period, unit costs per tonne of waste collected/trans- ferred. Considering different technical and technological al- ternatives for transfer, for example, with or without compaction. Separate waste Formulation of alternatives with regard to separately Calculation of required number of containers and collection of collected fractions. Usually these include paper and collection vehicles, estimated number of operation- recyclable waste cardboard, plastics, glass, and metals. Other frac- al personnel for each service zone and the entire tions such as textile waste could also be included. planning area. Quantities of separately collected frac- tions. Formulation of alternatives with regard to the num- ber of residents/households provided with separate Calculation of investment costs per category of as- waste collection services over the planning period. sets and operating costs per economic elements over the planning period, unit costs per tonne of Considering different separate collection systems with waste generated/separately collected, and unit costs regard to container type, volume, collection frequen- per resident/household served. Separate collection cy, collection days per week, working shifts, working costs could also include communication and public time, vehicles type and payload, and so on. Alternative awareness component. separate collection systems based on plastic bags or recycling/buy-back centers are also possible. Cost estimates should be prepared separately for services provided to households and those for legal The percentage of impurities (nonrecyclable waste) entities. to be thrown in separate collection containers must be considered. Civic amenity sites (if relevant) are usually presented as separate cost item. Alternatives for ‘bring’ separate collection systems and curbside collection. Alternatives for dividing the planning area into several services zones where the same or different separate collection systems can apply. Sorting of Different alternatives for sorting of separately collect- Required sorting capacities for the different sepa- separately collected ed fractions, when relevant. For example, the sorting rately collected fractions. waste of paper and cardboard could be organized in a com- Calculation of investment costs per category of as- mon or separate sites, the sorting and treatment of sets and operating costs per economic elements separately collected glass packaging is usually orga- over the planning period, unit costs per tonne of nized at large-scale facilities and alternative solutions waste generated/treated/separated, and revenues with regard to capacity, location, and output quality/ from sales of separated recyclable waste commodi- treatment technology must be considered. ties. When relevant, the costs should be designated to individual waste fractions. Home composting, Different alternatives for composting green waste.12 Quantities of green waste generated, composted on separate collection, site of generation (home composting), and separately Composting on site, decentralized composting sys- and composting of collected. tems, centralized composting. green waste Investment and operating costs for the establishment Different alternatives with regard to separate collec- of composting facility. Unit costs per tonne of waste tion system for green waste. generated/per tonne of input material/per tonne of compost produced. 12 While it is possible to compost food waste in open windrows, in particular when combined with green waste, it is recommended that post-consumer food waste is only composted by this means when collected through a separated source collection service and where the facility has mechanisms to control emissions (that is, biofilter with negative air suction through windrow) and robust procedures to ensure elimination of pathogens. 12 2. Defining the waste management system Table 2: Formulation of technical scenarios (cont.) Waste management Outputs per municipality/service zone and average/ operation Alternatives to be compared total for the entire planning area(s) Home composting, Different composting technologies (for example, Projected revenues from the sale of compost (if ex- separate collection, windrows, aerated piles, and composting under roof pected). and composting of versus open area) green waste (cont.) Separate collection Considering different alternatives for separate Quantities of food waste generated and separately col- and treatment of collection of food waste considering the type of set- lected. food waste tlement and buildings in the area. Investment and operating costs for the establish- Establishment of AD facility or closed composting ment of AD facility and/or closed composting. Unit systems for collected biowaste. Possible treatment costs per tonne of waste generated/per tonne of in- with other waste types - sewage sludge, animal ma- put material. nure, green waste. Projected revenues from the sale of electricity, heat, and materials produced. Sorting and/ Formulation of different technical solutions for sort- Required treatment capacities. or treatment of ing and treatment of residual waste. The simplest Calculation of investment costs per category of as- residual waste alternative could consider the separation of recy- sets and operating costs per economic elements clables of mixed waste and could be extended with over the planning period; unit costs per tonne of separation/production of RDF. waste generated/treated/separated; revenues and/ In case MBT is considered, different technological or costs from sales of separated recyclable waste and/or technical solution should be compared. commodities, RDF, MBT, and compost-like output (CLO).13 When relevant, the costs should be designat- Considerations about plant working time and avail- ability (working hours, number of shifts) and flexibility ed to individual waste fractions or output materials. (number of processing lines, treatment technology, and possible future adaptations) must be taken into account. For large agglomerations, alternatives with regard to the number, location, and treatment capacity should be considered. Landfill Formulation of different alternatives for the number, Required landfill capacity over the planning period, service area, and location of landfill. required area for individual landfill cells and the entire site. Different alternatives for leachate treatment on site and landfill gas utilization should be considered at Calculation of investment and operating costs over feasibility or design stage. the planning period, including costs for closure, mon- itoring, and aftercare. Calculation of unit costs per tonne of waste generat- ed/deposited on site. Other waste Collection of bulky waste, separate collection of The collection of bulky waste can be presented as management household hazardous waste, other specific waste separate cost estimates or included in the collection functions and costs fractions. of residual waste as out-of-schedule service. It is obvious from the table above that if the entire waste management system in the service area is considered, it will be practically impossible to analyze all possible combinations of alternatives for the different waste management operations. In- stead, the approach is to consider separately the alternatives for the individual waste management operations and to analyze the costs for the entire waste management system for a limited number of possible scenarios. 13 Although CLO from MBT facilities shares a similar processing as compost, the two outputs should not be confused. CLO is generally not suitable for land application and therefore should not be confused with source-separated green or food waste compost. CLO rarely has a marketable sales value and the benefit is in stabilizing the material to make it relatively inactive and therefore cheaper to transport and manage in a landfill (produc- es far less gas and leachate, requires less compaction work, and results in less landfill settlement). Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 13 2.3 Project parameters and scenarios used for sample calculations in subsequent chapters For the present document, five service areas with population of, respectively, 10,000 residents, 50,000 residents, 100,000 residents, 250,000 residents, and 1,000,000 residents have been considered. The examples in Chapter 3 present various segments of the waste management sys- tem (for example, mixed and separate collection, transfer, various treatment, and disposal) for some of the above five service areas. Chapter 4 presents the overall costs for the entire waste management system if the service is organized at the regional level for all the above municipalities (that is, population of 1,410,000 waste generators). This has been done under several scenarios for waste collection and treatment. Specifically, ● The samples for residual/mixed municipal waste collection services in Section 3.1 are provided for a municipality with 100,000 residents, of which 70,000 live in ur- ban areas and 30,000 live in rural areas. Some of the examples that showcase the sensitivity of various cost items refer to urban or rural residents only. ● The examples for municipal waste transfer are presented in Section 3.2 for a mu- nicipality with 100,000 residents and is used for collection of residual municipal waste. Additionally, costs for municipal waste transfer for a service area with 1,000,000 residents are provided. ● Sample costs estimates for municipal waste landfills with different capacities are provided in Section 3.3. The presented landfill capacities correspond to munic- ipalities in all five service areas, that is, ranging from 10,000 through 1,000,000 residents. ● The samples for different separate collection systems for recyclable waste provided in Section 3.4 refer to 70,000 residents living in urban areas of a municipality with 100,000 residents (same as in the case of collection of residual municipal waste). The estimates for organizing separate collection in municipalities with different sizes are also shown as part of the overall waste management costs for a regional system serving all five sample municipalities (presented in Chapter 4). ● Examples of sorting facilities with capacities of 150,000 tonnes/year and 10,000 tonnes/year are provided in Section 3.4. The first case corresponds roughly to a service area with population of 1,410,000 residents, that is, all sample municipali- ties considered, while the second case is for a municipality with 100,000 residents. ● The examples for composting installations with different capacities are shown in Section 3.5. The capacities correspond to the quantities of green waste from pub- lic parks and gardens and maintenance of green areas collected in municipalities with 100,000, 250,000, and 1,000,000 residents. ● Section 3.6 presents examples of AD installations with capacities of 22,000 tonnes and 130,000 tonnes per year that roughly correspond to 50 percent of food waste generated in municipalities with population of 250,000 and 1,410,000 residents. ● Section 3.7 presents different alternatives for treatment of municipal waste for municipalities with total population of 1,410,000 residents, including MRF and MBT plants. Unit rates used in the sample calculation (for example, waste generation/capita, waste composition, salaries, and cost for fuel) are listed in Annex 1. 14 Cost factors for the main elements of the waste management system Chapter 3 presents sample cost calculations and estimates for each municipal waste The presented unit and overall component referred to in Section 2.3. Descriptions of each functional component costs are calculated for are given, together with scenarios for illustrating the economy of scale effect on the the assumptions made and total and the unit costs of the alternatives considered. based on assumed, specific parameters as provided. Listed 3.1 Collection of mixed/residual waste costs should therefore be The collection and transport system to be implemented should be defined separately interpreted in their own context for each service area and comprises the following major elements: and must not be regarded ● Collection system as overarching or applicable across geographies or income ● Container volume and container placement system groups. ● Collection frequency ● The type of vehicles used for collection and short distance transport ● Number of collection shifts per day. Estimation of the collection costs should consider the following parameters: ● Waste quantities collected ● Container volume and type ● Requirements for container sites or slabs, if applicable Box 1: Main mistakes when planning collection systems with bearing on costs ● The full collection costs are not considered, for example, when part of the collection equipment is provided as a grant. ● The collection costs are not separated from other waste management or public utility costs, for example, street cleaning. ● The number and qualification of appointed personnel does not correspond to the equipment used. ● A much larger number of containers are installed than actually needed. ● The collection equipment is not efficiently used, for example, the vehicles operate less than 80 percent of the collection time. ● Maintenance and repair costs are underestimated or insufficient funding is allocated for maintenance, for example, replacement of tires, broken container wheels or lids, problems with vehicle compaction systems. ● Shorter lifetime of containers and vehicles are used because of low-quality equipment or lack of maintenance due to which the containers or vehicles are not operational for longer periods or have to be replaced earlier than planned. ● Daily routines are not defined and/or service performance indicators are not established. ● Lower collection efficiency are observed than initially planned, for example, inappropriate container placement necessitating additional maneuvering of collection vehicle, cleaning the areas around container sites, and manual loading of waste placed outside waste containers. ● The containers installed are not appropriate for the type of vehicles used and vice versa. ● The service providers have no experience or capacity to properly operate and/or maintain the new equipment, which could result in damages. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 15 Box 2: Waste containers versus bin free systems Although waste collection systems in high-income countries (HICs) are almost exclusively conducted with waste containers (bins), considered a best practice, containers/bins are not available in many locations in LICs and MICs. This could be due to financial limitations or a local government policy (for example, ‘Bin Free City’ policy common in India and Thailand). In these cases, the waste is either taken straight to the collection truck by waste generators or waste is accumulated in uncontained piles awaiting bulk col- lection. There are certain implications of non-containment systems including waste scattering due to wind, rain, animals, and rain infiltration as well as increased weight of waste, health and safety risks of workers and the public, and so forth. In addition, there is potentially lower loading efficiency due to time taken to load the waste manually or mechanically from the ground into trucks. While this guidance recommends that the waste is contained at the point of collection, it should be acknowledged that this is not always the case. Therefore, specific conditions and collection time for uncontained locations must be adjusted for the collection method employed locally. ● Asset lives for different asset categories. The usual lifetime of containers is 7 years and of vehicles is 10 years ● Waste density in containers and compaction vehicles ● Collection frequency ● Average proportion of bin utilization/degree of container filling ● Irregularities in waste generation, usually presented as ‘irregularity coefficient’ calculated as a ration between the maximum and average daily quantity of waste collected ● Time taken to lift one container ● Payload of collection trucks and utilization rate ● Number and duration of working shifts ● Personnel working days and effective working hours per day ● Number of loaders per collection vehicle ● Collection working days ● Distance (on suitable route for type and gross [full] weight of vehicle) to landfill or treatment facility, average speed of travel (accounting for traffic congestion), and time spent for unloading at the site ● Fuel consumption for the types of collection trucks to be used. Developing costs estimates for municipal waste collection system requires deter- mining investment and operating costs for each element of the selected system. The investment costs of municipal waste collection relate to ● Supply and replacement of containers and bins; ● Costs for construction of container sites or slabs;14 ● Purchasing costs for waste collection vehicles; ● Costs for other vehicles, for example, container cleaning vehicles, vehicles for su- pervisors; and ● Costs for acquisition of other assets, not directly related to municipal waste col- lection (garage for collection vehicle, offices, and so on).15 14 Not considered in the present document. The construction of container sites is usually not includ- ed in waste collection costs and tariffs and is typically financed by other municipal sources. 15 In case of more general analysis during preliminary planning stages, these costs are usually not con- 16 3. Cost factors for the main elements of the waste management system The following operating costs are incurred for municipal waste collection: ● Personnel costs, including social and health insurances, provision of personnel protective equipment ● Maintenance costs for waste collection containers and vehicles ● Fuel costs ● Costs for other consumables such as lubricants and tires ● Public awareness costs ● Insurance costs for personnel, containers,16 and vehicles ● Administrative costs. The calculation of investment and operating costs over the project planning period allows the determination of unit costs such as costs per tonne, person, container lifted, and household—also used as comparison or benchmark indicators. The costs for collecting residual waste exhibit some variation depending on the se- lected technical solutions and local conditions in the country/region. The most typ- ical are as follows: ● Variations in the typical situation in respect of the number of collection points passed per unit of time (the higher this is, the lower the cost—this is not simply an issue of population density, though this has an effect, but is also affected by factors such as traffic). ● The nature of municipal waste fees or taxes and the responsibility to provide re- quired containers, bins, or other receptacles used (in some systems, residents purchase bags/bins, in others, these are provided my municipality or operator of services and the respective costs included in the municipal waste tariffs). ● Variation in the quantity of residual waste collected per collection point (the lower the collection, the higher the per tonne cost), which, is affected by › The rate of source separation (effective source separation reduces the residual waste set out); › The nature of containers used for collection; and › What householders are allowed to put in the container for collection (for exam- ple, whether garden waste is excluded). ● The vehicles used and their maximum payload (as long as vehicles are not complet- ing rounds half empty—larger vehicles can reduce costs); ● Labor costs (these vary with the number of operatives, which is affected by the na- ture of the area where collection takes place, and with unit labor costs in country); ● The frequency of collection, related to the nature of the housing stock, the collec- tion mechanism, the climate, and most significantly, the presence or absence of food waste/biowaste separate collections; and ● The sophistication of the collection equipment (for example, are vehicles equipped with on-vehicle weighing systems or other computational equipment designed to record emptyings of containers). This guideline acknowledges the different collection models operating globally, par- ticularly in LICs and MICs. It is relatively common in many large urban cities to have a sidered as separate investment but as overheads over direct collection costs on an annual basis. 16 Containers’ insurance is not a common practice. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 17 primary collection service (from door-to-community waste container or small transfer station) that is operated by local entities separate from the municipal SWM service. This is often financed through fees levied directly to the waste generator at the point of collection (for example, household door) or through community collected payments given to local youth groups or entrepreneurs that deliver the service. The waste is then taken to community-level collection points (secondary collection points) that are planned and operated by the city administration. The present document, while ac- knowledging that primary collection service is critical to the full waste management service, is focused on municipality/local administration delivered service where the service starts from the community bin/secondary waste collection point level. 3.1.1 Examples for waste collection costs estimates Table 317 presents a summary of costs for waste collection using standard 1.1 m3 waste containers with wheels in settlement with 100,000 residents. Table 3: Waste collection with 1.1 m3 standard euro containers Urban Rural Total Parameter Unit Quantity Residents Residents 70,000 30,000 100,000 Waste collected per capita including commercial waste kg/capita/year 379.8 339.8 367.8 Collection frequency Times/year 365 104 Average degree of container filling % 85 85 Irregularity coefficient 18 Value 1.3 1.3 Average volume per container lifted m /container 3 0.7 0.7 Containers needed Pcs. 633 852 1,485 New containers to be purchased, including reserve Number 665 895 1,559 Investment for new containers $ thousand 426.7 574.3 1,001.0 Depreciation containers  $ thousand 61.0 82.0 143.0 Average distance to disposal site km 15 30 Average speed when travelling 19 km/h 35 35 Time for loading one container 20 Minutes/container 1.50 1.50 Loading efficiency/hour Tonnes/hour 4.6 4.6 Collection trucks required (including reserve) Number 6.3 3.4 9.7 Collection trucks in operation Number 5.4 2.9 8.3 New trucks required including reserve Number 7.0 4.00 11.0 New investment for collection trucks $ thousand 898.8 513.6 1,412.4 Depreciation vehicles $ thousand 93.7 53.3 147.0 17 Calculations done under following assumptions: (i) For waste collection in 1 shift and 7 days per week in urban areas and 5 days per week in rural areas. (ii) Density of waste in containers 0.16 tonnes/m3, container volume 1.1 m3, vehicle volume 16 m3 and vehicle average payload 8 tonnes, utilization 85%. 18 Ratio between the maxim and average daily quantities. 19 Average speed when travelling refers to the time for travelling to/from garaging location and dis- posal site (versus loading route). 20 Time for loading one container includes maneuvering and lifting containers as well as time to travel between containers. Where waste is not contained in containers, this includes the time to physi- cally load waste into trucks; wait for loading equipment, crews, or waste generators to come to the truck; and the rest time on route where required. 18 3. Cost factors for the main elements of the waste management system Table 3: Waste collection with 1.1 m3 standard euro containers (cont.) Urban Rural Total Parameter Unit Quantity O&M costs $ thousand 563.6 306.6 870.1 Staff costs $ thousand 182.9 67.1 249.9 Fuel $ thousand 115.5 66.3 181.9 Other consumable $ thousand 2.3 1.3 3.6 Maintenance costs $ thousand 73.6 55.2 128.8 Administration $ thousand 37.4 19.0 56.4 Unscheduled services $ thousand 56.6 34.4 91.1 Overheads $ thousand 46.8 24.3 71.2 Insurance $ thousand 48.4 38.9 87.1 Unit operating cost $/tonne 21.2 30.1 23.7 Unit depreciation cost $/tonne 5.8 13.3 7.9 Unit annual cost $/tonne 27.0 43.3 31.5 Price per lifting of 1 container $/container 3.1 5.0 Price per resident $/resident/year 10.3 14.7 11.6 In case 1.1. m3 containers in the above example are replaced with 240 liter plastic bins with wheels provided to individual houses in rural areas (30,000 residents), collection costs will change as presented in Table 4 (assumed waste collection organized in one shift, 5 days per week). It can be observed that higher collection efficiency is achieved with fewer and larger bins requiring less stops for collection and loading and consequently two trips per shift versus longer times required to stop and load numerous 240 liter bins allowing only one trip per shift. Table 4: Comparison of waste collection with 1.1 m3 standard euro containers and individual 240 liter plastic bins 1.1 m3 containers 240 liter bins with Parameter Unit with wheels wheels Residents Residents 30,000 30,000 Waste collected per capita kg/capita/year 339.8 339.8 Container volume m3/container 1.1 0.2 Collection frequency Times per year 104 52 Average degree of container filling % 85 85 Irregularity coefficient Value  1.3 1.3 Average volume per container lifted m /container 3 0.7 0.1 Average lifted quantity Tonnes/container 0.1 0.0 Average number of households per container Number 11.7 1.0 Containers/bins needed Pcs. 852 10,000 New containers to be purchased Number 895 10,500 Investment for new containers $ thousand 574.3 674.1 Depreciation containers/bins  $ thousand 82.0 96.3 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 19 Table 4: Comparison of waste collection with 1.1 m3 standard euro containers and individual 240 liter plastic bins (cont.) 1.1 m3 containers 240 liter bins with Parameter Unit with wheels wheels Average distance to disposal site km 30 30 Average speed when travelling km/h 35 35 Time for loading one container Minutes/container 1.5 0.8 Loading efficiency/hour Tonnes/hour 4.6 1.6 Average trips per day Trips/day 2 1 Collection trucks required (including reserve) Number 3.4 6.8 Collection trucks running Number 2.9 5.8 New trucks required Number 4.0 7.0 New investment for collection trucks $ thousand 504.0 918.0 Depreciation vehicles $ thousand 53.3 91.8 O&M costs $ thousand 306.6 450.7 Number of employees Number 12.0 23.0 Staff costs $ thousand 67.1 128.6 Fuel costs $ thousand 66.3 71.9 Other consumable $ thousand 1.3 1.4 Maintenance costs $ thousand 55.2 79.0 Administration $ thousand 19.0 28.1 Unscheduled services $ thousand 34.4 49.7 Overheads $ thousand 24.3 35.9 Insurance $ thousand 38.9 56.2 Unit operating cost $/tonne 30.1 44.2 Unit depreciation $/tonne 13.3 18.5 Unit annual cost $/tonne 43.3 62.7 Price per lifting of 1 container/bin $/container 5.0 1.2 Price per resident $/resident/year 14.7 21.3 The costs per tonne of waste collected are usually higher in case of using individual bins compared to bring system with larger volume containers. The reason is lower loading efficiency, that is, less quantity is loaded in the same time and it takes more time to fill the collection vehicle. Using individual bins is sometimes also difficult due to limited access and narrow roads to served areas that also require using small vol- ume collection vehicles. On the other hand, individual bins have advantages of allowing clear cost allocation to household and applying volume or weight-based tariffs for services. The individ- ual bins are also more convenient if separate collection and composting programs are applied in parallel to residual waste collection. The reason is that the amount of mixed waste that households could discard is limited by the bin volume and collec- tion frequency, which is not the case for large volume containers placed in public sites serving many anonymous users in the area. 20 3. Cost factors for the main elements of the waste management system There are many different collection systems implemented using different containers and collection vehicle types. Few examples about the number of required containers and vehicles for different types of collection schemes in an urban area with 70,000 residents are presented in Table 5. Table 5: Comparison of waste collection schemes 1.1 m3 containers with 1.8 m3 stationary 4 m3 skip Parameter Unit wheels containers containers Residents Residents 70,000 70,000 70,000 Waste collected per capita kg/capita/year 379.8 379.8 379.8 Waste quantity Tonnes 26,587 26,587 26,587 Tonnes/m3 in Waste density container 0.16 0.16 0.24 Container volume m3/container 1.1 1.8 4.0 Collection frequency Times per year 365 365 365 Average degree of container filling % 85 85 100 Irregularity coefficient Value  1.3 1.3 1.1 Average volume per container lifted m /container 3 0.7 1.2 3.3 Average lifted quantity Tonnes/container 0.1 0.2 0.7 Average number of households per container Number 36.9 60.3 208.3 Containers needed Pcs. 633 387 112 New containers to be purchased Number 665 406 118 Investment for new containers $ thousand 426.7 413.1 209.0 Depreciation containers $ thousand 61.0 59.0 29.9 16 m rear-end 3 21 m side 3 Collection vehicle type loading compactor loading compactor Skipper truck Average pay load Tonnes 8 10.5 0.8 Utilization % 85 85 100 Average distance to disposal site km 15.0 15.0 15.0 Average speed when travelling km/h 35.0 35.0 35.0 Minutes/con- Time for loading one container tainer 1.5 3.0 8.0 Loading efficiency/hour Tonnes/hour 4.6 3.8 n.a Average trips per day Trips/day 2.0 2.0 5.0 Average load collectable/day Tonnes/day 13.6 17.9 3.3 Collection trucks required (including reserve) Number 6.3 4.8 21.9 Collection trucks running Number 5.4 4.1 18.6 New trucks to be purchased Number 7.0 5.0 22.0 New investment for collection trucks $ thousand 898.8 1,078.6 1,920.6 Depreciation vehicles $ thousand 92.0 109.6 192.1 O&M costs $ thousand 563.6 477.8 1,329.5 Number of employees Number 32 11 40 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 21 Table 5: Comparison of waste collection schemes (cont.) 1.1 m3 containers with 1.8 m3 stationary 4 m3 skip Parameter Unit wheels containers containers Staff costs $ thousand 182.9 82.9 309.7 Fuel costs $ thousand 115.5 138.7 586.4 Other consumable $ thousand 2.3 2.8 11.7 Maintenance costs $ thousand 73.6 79.7 181.2 Administration $ thousand 37.4 30.4 54.5 Unscheduled services $ thousand 56.6 50.5 68.3 Profit $ thousand 46.8 38.5 60.6 Insurance $ thousand 48.4 54.4 57.2 Unit operating cost $/tonne 21.2 18.0 50.0 Unit depreciation $/tonne 5.8 6.4 8.4 Unit annual cost $/tonne 27.0 24.4 58.4 Price per lifting of 1 container $/container 3.1 4.6 45.8 Price per resident $/resident/year 10.3 9.3 22.2 Figure 2 presents costs per tonne of waste collected for the different collection sys- tems presented above, for a service area of 100,000 residents. Figure 2: Comparison of waste collection costs for different systems Unit costs per ton of waste collected ($) 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 Depreciation 20.00 OPEX 10.00 0.00 1.8. stationary containers The above comparison shows that waste collection without compaction has consid- erably higher costs per tonne compared to other collection schemes considered. Within the assumptions made, the waste collections using standard 1.1 m3 contain- ers with wheels and large volume stationary containers have comparable costs per tonne despite differences in investment requirements, labor involved, and operating 22 3. Cost factors for the main elements of the waste management system costs. It should be noted, however, that a variety of local factors such as social and cultural aspects can also play a role in waste management system design and should be considered carefully according to local conditions and needs. The above examples are for illustrative purposes only. The actual collection systems in large agglomerations usually combine different collection schemes and logistic arrangements. Significant price differences could also occur depending on equip- ment used, labor costs, and other specific local conditions. 3.1.2 Impact of distance to disposal site on waste collection costs The waste collection costs increase with the increase in distance to the final waste management site. Figure 3 shows the impact of distance on the collection costs per tonne of waste. The calculations are done for settlement with 70,000 residents using 1.1 m3 contain- ers with wheels and 16 m3 rear-end collection vehicles with compaction. The waste collection is organized daily in one shift. Costs per tonne of waste collected depending on distance ($) 60.00 50.00 40.00 30.00 20.00 Depreciation OPEX 10.0 0 0.00 15 20 25 30 35 40 45 505 5 60 kilometers Figure 3: Impact of distance on collection cost per tonne in urban areas As presented in Figure 3, there is a small linear increase in the collection costs with the increase in distance to disposal site from 15 km to 35 km followed by a rapid in- crease when distance reaches 40 km which is again followed by linear increase. This is due to two factors that need to be considered. The first one is fuel consumption that increases with travelling distance. The second factor is that the more time the vehicle spends travelling to the disposal site, less time it has for waste collection within the working shift. In the example above, the waste collection vehicle is capa- ble of covering two routes per shift for distances of up to 40 km to disposal site . With further increase in distance, the vehicle is capable of completing only one full route which is the reason for the rapid cost increase. In case only full routes are considered, the transportation of waste to 40 km will mean that the truck is not fully utilized and effectively works less than 5 hours per shift. Such situations should be avoided in practice and alternative options to op- timize collection costs should be considered. Depending on local conditions, there could be, for instance, changes in route planning, changes in vehicle volume and/or characteristics, an increase in the number of working shifts, a reduction in the num- Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 23 ber of containers served per route (if relatively small reduction of utilized payload is required), or consideration of a transfer station if quantities justify its use. Though not optimal, some operators are also considering half route operation in which cases the collection vehicle would cover only part of its assigned route during the working shift and will stay overnight in the garage half full without going to landfill. Never- theless, it should be noted that such practice increases risk of fire, can lead to more rapid corrosion of compaction unit resulting in lower service life, and generally in- creases insurance premiums. The collection costs under different collection systems change differently with in- crease in transportation distances due to their different loading efficiencies. The example shown in Table 3 for waste collection in urban area for 70,000 residents using 1.1 m3 containers and in Table 4 for waste collection in rural area with 30,000 residents using 240 liter bins could be used again to show how collection costs are changing with increase of transportation distance for a municipality with 100,000 residents. Figure 4: Impact of distance on collection costs per tonne in urban and rural areas Costs per ton of waste collected ($/tonne) 80.00 70.0 0 60.00 50.00 40.00 30.00 20.00 10.0 0 0.00 15/30 20/35 25/40 30/45 35/50 40/55 45/60 50/65 55/70 60/75 kilometers urban/rural It can be seen that initially the collection costs increase more significantly in rural areas where collection is provided with 240 liter bins and average transportation dis- tances are higher. 3.1.3 Impact of container loading time on collection costs Loading efficiency is a key parameter affecting costs of the collection system. It is usually presented in tonnes per hour but a simple estimate is the time for loading one container. Different container types and vehicles have different loading times that could be found in their technical specifications. Actual time for container loading includes the time for container manipulations and time for travelling to the next container. The actual loading time for the existing collection system can be easily obtained through dividing the effective vehicle operating time excluding time for travelling to/ from disposal site by the number of containers served for the respective collection 24 3. Cost factors for the main elements of the waste management system route. On this basis, the average loading time for the entire collection system can be obtained by combining data from all collection routes. Considering that the maximum distance from the building entrance to the container site is accepted to not exceed 100 m, the maximum distance between two contain- er sites should not exceed 200 m. Considering that time for lifting one container is below 25 seconds, the optimal time for loading 1.1 m3 container in urban area is sup- posed to be below 1.5 minute. This includes time for lifting the container and moving to the next container site. The example highlights one of many reasons to have a containerized collection sys- tem as the time required to collect waste from an uncontained waste collection point far exceeds the time of lifting and emptying a container and therefore greatly affects overall service efficiency and operational costs. The container placement is the main factor affecting the loading time. When con- tainers are installed along the main roads, they are easily accessible by the collection vehicles. Placement of containers in backyards, in special building premises, or in other areas with difficult access increases the vehicle maneuvering time. Figure 5 presents the unit costs per tonne and costs per lifting of one container with different loading times in a service area with 100,000 residents. The estimates are calculated for average transport distance to disposal site of 15 km for urban areas and 30 km for rural areas. Figure 5: Impact of container loading time on unit costs Costs per ton of waste collected ($/tonne) 70.0 0 60.00 50.00 40.00 30.00 20.00 10.0 0 0.00 1.5 02 .0 02 .5 03 .0 03 .5 0 Minutes for lifting one container The above examples refer to containerized collection. Often in LICs and MICs, waste is discarded by residents directly on designated site or land and then manually or mechanically loaded to collection vehicle and transported to disposal site with or without compaction. Such practice is usually justified in cases when there are lim- ited available funds for purchasing of containers and more expensive collection ve- hicles. In addition to the potential issues related to contamination around the site, such practice usually results in higher collection costs compared to containerized collection systems due to lower loading efficiency. This highlights the argument to have a containerized collection system since time required to collect waste from an uncontained collection point far exceeds the time of lifting and emptying a container and therefore affects the overall service efficiency and operational costs. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 25 3.1.4 Impact of collection frequency on collection costs The collection frequency also has a significant impact on costs. More containers are needed to collect the same volume of waste if the frequency of collection is lower. It is obvious that increasing collection frequency without adjusting other conditions will reduce collection costs. Using a lower number of containers could also create difficulties due to fluctuations in waste quantities over time. The fewer containers that are used, the higher the likelihood of waste overflowing out of containers. More containers used also means more space occupied. Such free space is usually not easily available. Installing additional containers is also reducing parking space available in the same area. Conversely, reducing number of containers used increases distance between containers, and service users have to walk further to discard their waste. Table 6 presents a comparison of daily collection, every second day collection, and twice per week collection. The estimates are calculated for an urban area with 70,000 residents. Table 6: Impact of collection frequency on waste collection costs Every second day Twice per week Parameter Unit Every day (7/7) (2/7) (2/7) Containers needed Pcs. 633 1,270 2,222 Reserve for maintenance %  5 5 5 New containers Number 665 1,334 2,333 Unit operating cost $/tonne 21.2 22.9 25.4 Unit depreciation $/tonne 5.8 8.1 11.6 Unit annual costs $/tonne 27.0 31.0 36.9 Price per lifting of 1 container $/container 3.1 3.6 4.3 Price per resident $/resident/year 10.3 11.8 14.0 The provided examples for bring waste collection systems using 1.1 m3 containers with wheels show that costs increase with the reduction of collection frequency. The simple explanation is that a larger number of containers and consequently higher investment costs are needed to collect the same volumes less frequently. This argument should be interpreted with some caution because quite often limita- tions on collection frequency apply due to specific local conditions. This example serves to highlight the interconnection of system elements and sanitary norms. It is important to design a service that ensures the container and vehicles are sized appropriately to mitigate excessive unit (container and vehicle) numbers, and mere- ly reducing collection frequency may not achieve cost savings. In case of bring col- lection systems, it is practical to collect waste more often in areas with multistorey buildings and usually this happens every day or even twice per day in densely popu- lated areas or central parts of the cities where large volumes of waste are generated and possible locations where container sites are limited. In less populated areas and areas with family houses, lower collection frequencies apply, which also helps re- duce the walking distances between premises and containers. In curbside collection systems where individual containers are provided to the house or building, the collection frequency is usually predefined. For example, plastic bins with two wheels provided to family houses are usually collected once per two weeks 26 3. Cost factors for the main elements of the waste management system or once per week and the container size and number is selected accordingly, consid- ering the waste quantities collected. 3.1.5 Impact of vehicle size on collection costs Vehicle size has a significant impact on collection costs. Using larger volume collection vehicles with compaction is more cost-effective be- cause the vehicle is spending more time to load waste and less time to travel to/from disposal site for the same waste quantities. In the same way, using small volume col- lection vehicles for transportation to large distances is not a cost-effective solution. However, using large volume collection vehicles is not always possible due to narrow streets, weight limits on roads and bridges, and difficult access in some areas. It is also important that each collection vehicle completes one or several full routes within the working shift. For example, if the time for loading vehicle and travelling to the disposal site is 5 hours, it is obvious that there is not enough time left for completion of a second trip. If no second trip is made, such vehicle and its crew is not effectively utilized. Even if a second trip is made, the vehicle will travel half empty which should be avoided. The possible solution in this case is to consider whether using smaller ve- hicle capable of covering two trips per shift will be appropriate, assuming that smaller vehicles have lower investment and operating costs compared to larger vehicles. Alter- natively, the working hours of the larger vehicle could be extended and prolonged shift duration could be introduced (for example, 12 hours) or a second shift applied. 3.1.6 Impact of working shifts on collection costs Transfer from one working shift to two working shifts reduces the number of vehicles used. Work in two and even three shifts is a common practice in large cities and rarely ap- plied in rural areas. Table 7 exemplifies the impact of the number of shifts. The estimates are made for a service area with 70,000 residents, average transport distance of 15 km to disposal site, and daily collection. Table 7: Impact of number of shifts on waste collection costs Parameter Unit 1 shift 2 shifts Collection trucks required (including reserve) Number 6.3 2.5 Collection trucks running Number 5.4 2.1 New trucks required Number 7.0 3.0 New trucks to be purchased Number 7.0 3.0 New investment for collection trucks $ thousand 898.8 385.2 Unit operating cost $/tonne 21.2 15.9 Unit depreciation $/tonne 5.8 3.8 Unit annual costs $/tonne 27.0 19.7 Price per lifting of 1 container $/container 3.1 2.3 Price per resident $/resident/year 10.3 7.5 Applying a second shift could have other benefits such as avoiding waste collection during hours with high traffic. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 27 Box 3: Tips for waste collection ● Knowing the actual waste quantities is crucial for understanding the real costs of collection systems. ● Using generation norms presented in volume per capita should be avoided when planning the collection system. Such volume figures cannot be checked and confirmed. ● Low initial investment costs do not mean lowest overall costs over the implementation period. ● The number of containers and container sites used should ideally be selected in a way that the maximum walking distance from the entrance of a living premise to the container site does not exceed 100 m. ● Costs per tonne and costs per resident serve as key performance indicators (KPIs) and could be compared with other cities. ● In case costs per tonne for waste collection and transportation exceed $50/tonne, there is a possibility for cost optimization. ● If municipal waste collection costs are below $20/tonne, it should be checked that all cost components have been considered. ● Transportation of uncompacted waste should be avoided. ● Collection with small volume collection vehicles in case of significant transportation distances should be avoided. ● Vehicle availability and utilization close to 90% should be the goal. 3.2 Municipal waste transfer Box 4: Main mistakes when planning municipal waste transfer stations ● Transfer stations are constructed without detailed cost analysis and proper justification. ● The transfer station site is not properly selected due to no or limited alternatives considered during the feasibility stage or in- complete selection criteria used. ● The transfer technology and transportation system are inappropriate for the selected location, waste quantities, and road con- ditions or lack optimized compatibility with primary collection vehicles. ● Service contracts for transfer station operation and equipment maintenance are inappropriate, for example, the transfer costs are not accounted separately from waste collection. ● Transfer stations are justified when the cost to transport waste directly from the point of generation to a treatment/disposal site is greater than the cost to transport the waste from the source of generation to a point where the waste is transferred onto a larger container or vehicle and then transported to the final treatment site or landfill. The economical expediency of transfer stations is influ- enced by several factors: ● Distances ● Quantities of waste (capacity of transfer station) ● Road conditions and topography ● Low density of population in the service areas ● Technology of transfer. Transfer stations can be basically divided into two types: ● Transfer of municipal waste by using a compaction system ● Transfer of municipal waste using containers or semi-trailers without compaction. 28 3. Cost factors for the main elements of the waste management system The transfer stations can be constructed ● As stations with direct unloading into the transfer hopper or containers; or ● With an interim storage area, which allows buffering the waste during peak hours. The transfer stations may be with roofed transfer area, to allow proper working con- ditions in case of rain, or/and fully housed and equipped with ventilation and odor treatment. Nowadays, open air plants are not considered an optimal solution due to issues with odors and rainwater. Transfer stations without compaction are used when distances are not large, where- by the higher investment costs of transfer stations with compaction cannot be jus- tified. With larger distances, the operational costs of transfer stations without compaction become higher compared to those of transfer stations with compaction. The choice of transfer station is in fact a trade-off of investment and operating cost. The capacity of a transfer station has an impact on the unit costs of transfer. As with most plants, economy of scale is also an important issue for the transfer station. The location of the transfer station should be as close as possible to its CA to min- imize the distance that the primary waste collection vehicles must travel to deliver their municipal waste. The shorter the distance to the transfer station, the more time the primary collection vehicles will have to conduct another waste collection trip or for longer collection if not fully loaded. Transfer stations without compaction For small municipal waste quantities of up to 100 tonnes/day and transportation dis- tances of 50–60 km, simple transfer stations with open containers are usually the more economical solution. The waste is directly tipped into a container or semi-trail- er and is then hauled to the treatment or disposal plant. There are several types of semi-trailer technologies, such as tippers or semi-trailers with walking floor. Such transfer stations usually have multiple tipping places for several roll-off containers or semi-trailers. Often the municipal waste is slightly compacted by a wheeled loader or rolling com- pactor before hauling. Depending on the composition of the wastes and whether the waste was already compacted in a waste collection vehicle or whether it was deliv- ered loose on open trucks or by companies, the density in these containers can vary, typically between 200 kg/m³ and 350 kg/m³. The municipal waste can also be transported by truck trailers, transporting two con- tainers of 40 m³ each or about 16 to 20 tonnes in total, or walking floor semi-trailers with up to 100 m³, transporting 18 to 22 tonnes. Transfer stations with compaction The purpose of transfer stations with compaction is to increase the density of the waste and thus the quantities of waste to be transported in one run. Such transfer stations are equipped with a ramp having a discharging point, reception bunker (of about 45 m3), compacting device, large transportable containers (often between 27 m3 and 32 m3), railing system for shifting the containers, and vehicles for long-dis- tance transportation. Equipment of such transfer stations is designed to minimize the loading time from collecting trucks and the compacting time for the waste. An automatic railing sys- tem for shifting the containers is also installed to reduce the operation time. While Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 29 a long-distance transport vehicle is being loaded with a full container, another con- tainer may receive new wastes. In a compaction transfer station, the municipal waste is compacted to a density of up to 600 kg/m³. There are compaction systems that can compact up to 70 tonnes/hour of waste, mainly limited by the necessary exchange of compaction containers. Such compaction containers might also be mounted on semi-trailers. To always be sure that at least one compactor is operating, during periods of major overhauls of a compactor, usually a transfer station needs to be equipped with at least two compactors. Besides the much more complicated mechanical equipment for compacting, the need of at least two compactors results in comparatively high costs when small waste quantities are being transferred. Additionally for small quan- tities, two compactors cause high overcapacities. The static compacting device can be substituted with large self-compacting trans- portable containers, between 25 m3 and 32 m3, that are able to store between 15 tonnes and 19 tonnes. The transfer stations with compaction are usually used for large quantities and long transfer distances. However, given the maximum weight conditions on road of 40 tonnes, the maximum payload usually is in the range of 22–24 tonnes, that is, practi- cally the same weight as used for transfer without compaction. Waste transfer using satellite collection vehicles Over the last decades, several manufacturers of collection vehicles have developed solutions allowing waste from a small volume vehicle (up to 8–10 m3) to be reloaded directly to a large rear-end loading collection vehicle with compaction and capacity exceeding 21 m3. In this case there is no need for a special transfer station and re- loading is conducted directly on the road. Such solution allows the small collection vehicle(s) to operate in the areas with narrow streets where the access of the larg- er vehicle is not possible. In addition to the waste reloaded from the small vehicles, the large vehicle could also serve and collect waste from containers installed around the main roads in the service area. Solutions also exist for reloading waste collected from small vehicle into roll-on container with compaction or large volume semi-trail- er with compaction.21 A similar system is typical in LICs and MICs at the interface between community-operated primary waste collection services using hand carts, motor tricycles, and small vans and the secondary collection or transfer to larger haulage vehicles operated by the municipal authority. If we consider again the example provided in Figure 4 for organizing municipal waste collection in a settlement with 100,000 residents and assuming average transporta- tion distance of 50 km to disposal site, the following three alternatives are compared: ● Direct transportation of waste ● Establishment of transfer station with compaction using stationary compactor and 30 m³ hooklift containers ● Establishment of transfer station without compaction. The comparison of investment and operating costs and unit costs per tonne of waste collected is presented in Tables 8 and 9, where the annual operating costs are pre- sented for the first year of operation. Variations between operating costs for different years exist due to different waste quantities collected. The capacity of the transfer station in the given example is 40,000 tonnes/year with or without compaction. 21 Electricity supply is needed on site where press container or trailer is installed. 30 3. Cost factors for the main elements of the waste management system Table 8: Comparison of investment and operating costs for direct transportation of waste and using transfer station Transfer without Transfer with Parameter Unit Direct transport compaction compaction Residual waste collection New containers to be purchased Pcs. 1,559 1,559 1,559 Investment costs of containers $ thousand 1,001 1,001 1,001 Number of waste collection vehicles required Pcs. 20 9 9 Investment costs of collection vehicles $ thousand 2,568 1,156 1,156 Waste collection operating costs $ thousand 1,629 719 719 Transfer and transportation of residual waste Investment costs for transfer station $ thousand — 699 1,346 Number of transportation vehicles required Pcs. — 8 4 Investment for transportation vehicles $ thousand 873 437 Waste transfer and transportation operating costs $ thousand 758 606 Cumulative collection and transfer costs Investment costs $ thousand 3,569 3,729 3,940 Operating costs $ thousand 1,629 1,477 1,325 The above cost estimates show that a transfer station with compaction has the highest total investment costs for waste collection and transfer but lower operating costs. Table 9 compares the unit costs calculated as discounted unit cost (DUC)/AIC for a period of 10 years. Table 9: Comparison of unit costs for direct transportation and using transfer station with or without compaction ($/tonne) Transfer without Transfer with Parameter Direct transport compaction compaction Residual waste collection Investment costs 13.5 8.4 8.4 Operating costs 44.2 19.4 19.4 Total residual collection costs 57.8 27.7 27.7 Transfer and transportation of residual waste Investment costs — 5.3 6.2 Operating costs — 20.4 16.1 Total waste transfer costs — 25.6 22.3 Total collection and transfer costs Investment costs 13.5 13.6 14.5 Operating costs 44.2 39.7 35.5 Total collection and transfer costs 57.8 53.3 50.0 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 31 The provided example shows that construction of a transfer station with compaction is justified for the specific case considered. The additional investments required for the construction of a transfer station are partly absorbed due to the smaller number of collection vehicles required compared with the case of direct transportation. In the example considered, the construction of a transfer station leads to reduced operating costs. The above example is relevant for the case when relatively small quantities of waste collected from one or several municipalities have to be transferred and transported to a treatment or disposal facility situated near larger settlement in the same planning area. The use of a transfer station can also be justified in large population agglomerations. In this case, some districts could be situated away from the disposal facility and due to the large waste quantities, the transfer station could provide flexibility in the selec- tion of collection vehicles and help reduce waste collection and transportation costs. A sample cost estimate for a transfer station serving 1,000,000 residents and with ca- pacity of 400,000 tonnes per year is shown in Table 10, where the operating costs were estimated for average waste quantity of 370,000 tonnes/year and DUCs (AIC) are cal- culated for 5 percent discount rate and 12-year period following the initial investment. Table 10: Summary costs data for a transfer station with larger capacity Parameter Unit Value Investment costs for transfer station site, including $ thousand 6,375 Land acquisition $ thousand — Civil works $ thousand 1,518 Machinery $ thousand 2,432 Vehicles, mobile equipment $ thousand 1,723 Engineering, commissioning, contingencies $ thousand 701 Depreciation costs for transfer station $ thousand/year 536 Unit depreciation costs of waste transfer $/tonne 1.45 Transportation distance km 30 Operation shifts Number 2 Number of transportation vehicles required Pcs. 8 Investment for transportation vehicles $ thousand 1,746 Depreciation costs of transportation vehicles $ thousand/year 175 Unit depreciation costs of transportation vehicles $/tonne 0.5 Waste transfer and transportation operating costs $ thousand 3,289 Unit operating costs $/tonne 8.9 Annual costs $ thousand 4,000 Unit annual costs $/tonne 10.81 Discounted investment unit costs of waste transfer $/tonne 2.6 Discounted operating unit costs of waste transfer $/tonne 8.9 DUC waste transfer $/tonne 11.5 32 3. Cost factors for the main elements of the waste management system Box 5: Tips for waste transfer ● The major argument for using a transfer station is the reduction of transport costs compared to direct transportation of waste. Another argument for using transfer stations could be to balance the costs in regional waste management system. In case of sig- nificant differences of collection costs between several municipalities served by common regional landfill or treatment facility, a possible way to equalize costs is to establish a system of transfer stations such that each entity pays broadly the same cost per tonne of waste transported either directly to the facility or to a transfer station. Transfer station and haulage costs from the transfer station to landfill would be covered in the disposal part of the tariff. ● The decision for construction of transfer stations in any case should be based on option analysis and detailed cost estimates. ● In some cases, change and optimization of existing waste collection system for direct transportation of waste could be more cost-effective solution than construction of a transfer station. ● The use of small size satellite collection vehicles uploading to a large volume collection vehicle and then direct transportation could be an alternative to a stationary transfer station in case of relatively small waste quantities. ● The cost efficiency of establishing a transfer station depends on transportation distances and waste quantities collected, which in turn depend on the number of residents served. ● The costs for municipal waste transfer should typically be lower than municipal waste collection costs and usually in the range of $8–$20/tonne of waste transferred. ● Transfer stations are usually not considered for transportation distances below 40 km and less than 50,000 residents served. 3.3 Landfilling of waste Box 6: Main mistakes when planning municipal waste landfill ● The landfill capacity does not correspond to actual waste quantities accepted on site. In case the site receives much less quan- tities of waste than initially planned, this will lead to considerably higher costs per tonne than initially estimated due to the fixed investment and operating costs that do not depend on landfill capacity. In an opposite case, if the landfill receives much larger quantities than planned, the capacity will be utilized much faster and the overall lifetime of the facility could be reduced. ● Similar to above, if the capacity of a landfill cell exceeds the typical operating period of 5–7 years, this could mean that unneces- sary high investments have been done in the initial stage. ● Sufficient funds are not allocated annually for landfill O&M. ● Landfill closure and aftercare costs are not considered in the calculation of landfill gate fee. ● The landfill operation procedures are not strictly followed leading to issues such as inadequate compaction, increased leachate production, and slope instability. These problems may shorten the landfill’s lifespan and elevate the cost per tonne of waste processed beyond initial projections. Additionally, incorrect operational practices could lead to severe consequences such as landfill fires. ● Waste not acceptable for landfilling is deposited at site, for example, infectious waste, animal tissue waste, liquid waste. This can pose significant environmental and operational challenges. ● Insufficient or excessive personnel are appointed at the landfill site. ● Mistakes in the landfill design can result in additional costs or operational risks. ● Underplanning or underinvestments in landfill due to unrealistic expectations of transitioning away from landfill to a recov- ery-based economy within a short period. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 33 Typically, investment costs for the landfill are required for the following: ● Land acquisition ● Establishment of auxiliary infrastructure: access road, electricity supply, water supply, sewer, discharge of infiltrate. It should be noted that external infrastruc- ture costs could be significant and should be considered at an early stage during the site selection process. ● Landfill base preparation: excavations, filling, compaction, leveling, and so on. ● Installation of landfill bottom sealing system: for example, compacted clay, syn- thetic geomembrane. ● Site infrastructure: fence and gate of the site, internal roads, parking areas, tem- porary roads during operational phase. ● Buildings: administrative building, workshops, garages. ● Dewatering rainwater: surface water trenches, sewer systems, manholes, and so on. ● Leachate collection and treatment: for example, drainage pipes, aerial drainage, shafts, pumps, measurement equipment, reservoirs, lagoons, wastewater treat- ment plant for infiltrate/sanitary wastewater, settlement tank, and separating ves- sel for vehicle washing place. ● Landfill gas collection and management on site: for example, gas collecting pipes, gas drainage, gas wells, gas collecting stations, gas flare, and, if appropriate, equipment for utilization of landfill gas ● Surface capping ● Monitoring wells and equipment ● Machinery, for example, waste compactors, front loaders, bulldozers, trucks, sweeping machine ● Other: transformer and electricity works on site, external lighting, water reservoirs and fire protection equipment, and so on ● Engineering and supervision during construction. It should be pointed out that landfills are constructed in stages (landfill cells) and the investment costs appear over the whole life of the site and are not limited to the initial investment. The cost estimate should consider the different periods when in- vestments occur: ● Initial investment, usually related to site development, common site infrastructure and construction of first landfill cell(s) ● Investments into second and following cells ● Investment for continues upgrade and expansion of gas collection system ● Costs related to progressive implementation of closure (which normally takes place immediately after commissioning of a new cell), as well as aftercare costs ● Gas collection costs appearing over the whole life of the landfill ● Costs for closure and aftercare related to lifetime of individual cells ● Costs for supply and replacement of equipment. 34 3. Cost factors for the main elements of the waste management system The following operating costs should be considered when developing costs estimates: ● Personnel costs, including social and health insurances ● Maintenance costs, usually defined as percentage of initial value of asset ● Consumables: fuel, electricity, others ● Leachate treatment and landfill gas management facilities operation and mainte- nance costs ● Costs for treatment and discharge of infiltrate and wastewater ● Monitoring costs ● Aftercare costs ● Insurance costs ● Administrative costs. 3.3.1 Examples for landfill cost estimates Landfill costs can typically be disaggregated into the following components: ● Acquisition costs ● Capital expenditure and development costs ● Operating costs ● Restoration ● Aftercare costs. Unit costs are affected by fill rates and the total capacity/lifespan. The two togeth- er effectively determine the period over which waste is accepted and, thereby, the depreciation period for capital. Total capacity determines the projected quantity of waste accepted over the lifetime which can be used as the basis for effectively gen- erating a fund to support aftercare expenditure. Acquisition costs can vary significantly between sites. In some cases, the site may be acquired outright for a fee, in others, a royalty may be paid or the site may be leased. It is difficult to generalize about the costs of acquisition and much depends on the landowner in determining these costs. Capital expenditure and development costs are affected by the national legislation in terms of the requirement for landfill base as well as the geology of the site, the site’s proximity to sensitive aquifers, and so on. Operating costs for landfills can be small, while restoration costs are determined more on an area basis than on quantity of material accepted. The regime regarding aftercare potentially becomes extremely important. This re- quires adequate financial provisions to be made by the operator to cover the costs of aftercare. Respective national legislation or competent authorities can require (im- plicitly) funds of differing magnitude to cover these costs. Presumably, those who take a more precautionary approach will require greater provisions (to cover eventualities) than others. This means that the costs of the fund which operators have to generate over the operational life of the site will vary, with consequences for unit costs. Given these points, differences in unit costs are affected by the following factors: ● Land acquisition ● Technical requirement and level of engineering standards (potentially affected by geology/proximity to sensitive aquifers) Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 35 ● Scale of the landfill (total void space, average deposition heigh) ● The rate at which the landfill is filled ● Costs for waste compaction and daily cover ● Requirements for gas collection, and where this occurs, the offsetting revenues from sales of energy ● Cost for treatment for leachate ● Financial provisions/aftercare ● Landfill taxes (if applied). At the initial planning stages, the primary task is determining the required size of the landfill site which is the basis for preparing cost estimates. If no concrete site is con- sidered, the preliminary estimate is prepared based on projections for the quantities to be landfilled, the required lifetime of the landfill, assumed periods of operation and number of individual landfill cells, planned density of deposited waste depending on landfill capacity, and envisaged compaction equipment to be used.22 The calculation of the required volume of individual cells and landfill is based on the assumption that the final shape of the site will resemble a truncated pyramid. The dimensions of indi- vidual cells are calculated for the required waste quantities, based on dimensions at the bottom of the cell, the maximum deposition height, and maximum allowed slope of 1:3. Once space required for the landfill cells is determined, additional space re- quirements should be determined for administrative buildings, garages, workshops, internal roads, parking areas, weighbridge area, reservoirs, lagoons, wastewater treatment plant, gas management facilities, green areas, and so on. The majority of construction costs associated with the landfill cell are proportional to the space, pe- rimeter length, and length or volume of the specific item. At later planning and design stages when potential site characteristics are known, volumetric analysis should be updated and the cost estimates need to be adjusted for the actual size, topography, geology, hydrogeology and other site-specific char- acteristics. The most uncertain part in the preliminary cost estimates is how to assess the invest- ment requirements and operating costs for leachate treatment on site. The quantity of leachate depends on the quantity and composition of deposited waste, the cli- mate conditions on site and particularly rainfall, the technology of the landfilling, the material cover applied, and daily routines on site. Under these circumstances, the leachate quantities and characteristics could differ significantly between landfills of the same size. The leachate treatment costs also depend on the characteristics of treated wastewater that must be achieved according to local legal requirements and whether the treated wastewater will be discharged into the water body or designat- ed for further treatment in the municipal wastewater treatment system. There are different technologies applied for leachate treatment and different combinations of treatment methods used.23 If climatic conditions and leachate quantities allow, 22 The density of compacted waste depends on waste characteristics, composition and type/weight of equipment used. For small landfill sites where a bulldozer or light (~20 tonnes) compactor is used, waste density of 0.6 to 0.7 tonnes/m3 is achieved. Medium size compactors (~30 tonnes) can achieve waste density of 0.7 to 0.8 tonnes/m³ and heavy heavy compactors (~40 tonnes) can achieve density of 0.9 to 1.0 tonnes/m³. 23 The most common leachate treatment technologies include (a) anaerobic-anoxic-aerobic (A2O) treatment following pretreatment and NH4 removal, (n) membrane bioreactor (MBR); (c) combi- nation of biological treatment with oxygen injection, single-stage ultra filtration followed by acti- vated carbon adsorption; and (d) reverse osmosis (RO) method, following some pretreatment for maximum solids removal. Aerated (evaporation) ponds are also commonly used for leachate treat- ment sometimes combined with leachate recirculation into landfill body. 36 3. Cost factors for the main elements of the waste management system part of leachate could be evaporated or recirculated into the landfill body. It should be also considered that leachate quantities change over the lifetime and aftercare period. If there is no clear view about leachate treatment technology to be used, the preliminary cost estimates are provided as percentage of overall investment costs (20–35 percent) by extrapolating the costs of existing landfill site with comparable characteristics or calculated based on unit costs for treatment of 1 m3 of leachate. The landfill costs demonstrate significant economies of scale because most of the landfill costs (landfill base, drainage, and landfill cover) are proportional to the area occupied. The large-capacity landfills allow higher average deposition height to be achieved and more waste to be deposited per unit area occupied. Table 11 shows a comparison of cost estimates prepared for landfills of different siz- es corresponding to the five sample municipalities (CAs) considered above in Section 2.3. The costs estimates are prepared for 30 years lifetime of the landfill and 5 years operating time of each landfill cell. The initial investments include the establishment of common site infrastructure (to be used over entire lifetime) such as administra- tive building and workshops, access road, weighbridge, utilities supply, and the con- struction of the first landfill cell. The investment costs also include the stationary equipment and mobile vehicles required for normal landfill operation. Investments required for construction of subsequent landfill cells, cells’ closure, landfill gas drain- age, and treatment occur over the landfill operation period and are not included in the initial investments. Table 11: Initial investment requirements and annual operating costs for landfills with different capacities Landfill Landfill Landfill Landfill Landfill Item Unit example 1 example 2 example 3 example 4 example 5 Main characteristics Population served Residents 1,000,000 250,000 100,000 50,000 10,000 Landfill capacity Tonnes/year 400,000 100,000 40,000 20,000 4,000 Lifetime of individual cells Years 5 5 5 5 5 Maximum deposition height Meters 25.0 18.0 12.0 8.0 5.0 Average deposition height Meters 16.4 11.3 8.5 6.5 4.3 Density of deposited waste Tonnes/m³ 1.0 1.0 0.9 0.9 0.8 Surface of first cell Thousand m² 114.3 44.0 8.4 7.3 6.3 Volume of first cell Thousand m³ 1,880 498 229 116 27 Access road Meters 500 500 500 500 500 Internal roads m² 14,800 9,800 4,700 3,290 1,740 Personnel Number 51 13 10 5.5 4 Equipment Excavator Pcs. 1 1 1 1 1 Water truck Pcs. 1 1 1 0 0 Landfill waste compactor (45 tonnes) Pcs. 1 0 0 0 0 Landfill waste compactor small (30 tonnes) Pcs. 1 1 0 0 0 Bucket loader Pcs. 2 1 0 0 0 Bulldozer Pcs. 2 1 2 1 1 Front loader Pcs. 0 0 0 0 0 Truck (tip-lorry) Pcs. 2 1 1 0 0 Street sweeper Pcs. 0 0 0 0 0 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 37 Table 11: Initial investment requirements and annual operating costs for landfills with different capacities (cont.) Landfill Landfill Landfill Landfill Landfill Item Unit example 1 example 2 example 3 example 4 example 5 Pick-up Pcs. 1 1 0 0 0 Cars Pcs. 1 1 1 1 1 Investment costs Access road, internal roads $ thousand 460 369 277 252 224 Landfill cell excavation works and sealing system $ thousand 3,423 1,339 816 545 194 Surface water management $ thousand 1,084 625 419 344 183 Aerial drainage and leachate collection $ thousand 3,395 1,472 932 657 274 Leachate treatment plant $ thousand 2,568 1,284 642 385 - Fence and gate $ thousand 152 105 87 76 55 Water supply $ thousand 64 64 64 64 64 Garage $ thousand 123 77 46 15 15 Administrative and service buildings $ thousand 497 215 121 78 20 Other investments on site $ thousand 723 342 240 214 182 Contingencies (10%) $ thousand 1,249 589 364 263 121 Mobilization (5%) $ thousand 687 324 200 144 67 Engineering and supervision (5%) $ thousand 698 321 197 140 59 Total construction costs $ thousand 15,123 7,127 4,407 3,178 1,458 Equipment and machinery $ thousand 3,995 1,995 1,369 669 474 Initial investment costs $ thousand 19,118 9,120 5,776 3,847 1,933 Operating costs Personnel $ thousand 358 84 65 35 24 Maintenance $ thousand 804 398 263 141 87 Consumables 24 $ thousand 1,872 514 289 142 49 Leachate treatment $ thousand 171 66 41 27 9 Other costs (monitoring, landfill gas management) $ thousand 189 84 58 45 27 Administration $ thousand 323 125 75 46 22 Taxes, permits, and insurances $ thousand 37 13 8 4 2 Annual operating costs (year 1) 25 $ thousand 3,753 1,283 800 440 220 It should also be considered that a significant part of investment costs occur over the operation period. Table 12 presents an example on how the landfill investment and operating costs develop over the operating period for a landfill cell with an an- nual capacity of 400,000 tonnes. It should be noted that specific elements of landfill cost estimates are the costs for closure and aftercare. These costs occur after the operation period of the individual landfill but must be considered during the operat- ing phase. In the given example, the costs for closure of landfill cell 1 that physically occur in year 6 are distributed equally over the operating period from year 1 to year 5. Such approach can be considered similar to depreciation in advance and respective provisions for future investments should be made when calculating the annual costs. The operating costs also increase over the operating period due to increased leach- ate quantities and closure of individual cells. 24 Costs for supply of soil for daily cover not included. 25 The annual operating costs vary over the landfill operation period due to variations in quantities of deposited waste, quantities of generated leach- ate, costs for the aftercare of closed cells, and so on. When annual operating costs are shown, they indicate the specific reference year. 38 3. Cost factors for the main elements of the waste management system Table 12: Landfill investment costs, depreciation and operating costs over lifetime ($ thousand) Years Item 0 1 2 3 4 5 6 7 8 9 10 11 12 Investment costs  Ground — — — — — — — — — — — — — Buildings and infrastructure 4,113 — — — — — 193 — — — 1,432 — — Works Cell 1 8,358 — — — — — — — — — — — — Closure Cell 126 — — — — — — 3,378 — — — — — — Works Cell 2 — — — — — 8,705 — — — — — — — Closure Cell 2 — — — — — — — — — — — 3,496 — Works Cell 3 — — — — — — — — — — 7,479 — — Closure Cell 3 — — — — — — — — — — — — — Mechanical 2,653 — — — — 13 — — — — 39 — — Vehicles 3,995 — — — — — — — — — 3,995 — — Total Investment 19,119 — — — — 8,718 3,571 — — — 12,945 3,496 — Depreciation Buildings, infrastructure  137 137 137 137 137 144 144 144 144 191 191 191 Civil works Cell 1  1,672 1,672 1,672 1,672 1,672 — — — — — — — Civil works closure Cell 1 676 676 676 676 676 — — — — — — — Civil works Cell 2  — — — — — 1,741 1,741 1,741 1,741 1,741 — — Civil works closure Cell 2  — — — — — 699 699 699 699 699 — — Civil works Cell 3  — — — — — — — — — — 1,496 1,496 Civil works closure Cell 3  — — — — — — — — — — 775 775 Mechanical  177 177 177 177 178 178 178 178 178 180 180 180 Vehicles  400 400 400 400 400 400 400 400 400 400 400 400 Total depreciation  3,061 3,061 3,061 3,061 3,062 3,161 3,161 3,161 3,161 3,211 3,042 3,042 Landfill operating costs  3,753 3,773 3,793 3,813 3,992 4,238 4,259 4,280 4,301 4,419 4,642 4,663 The unit costs per tonne of waste deposited for landfills with the sample capacities as presented in Table 11 are shown in Figure 6. These were calculated as AIC over 12- year period at 5 percent discount rate. As can be seen from Figure 6, the unit costs per tonne of deposited waste increase significantly for landfill sites with small capacity. For that reason, the landfills for smaller population centers are built as regional facilities serving large number of residents across population centers. In some countries, there exist requirements for the minimum number of residents served by a landfill site or minimum waste quantities received. In principle, construc- tion of landfills serving less than 200,000 residents should be avoided. Such requirements are correct in principle but should not be applied as a general rule. In specific cases, due to difficult climate conditions or bad road network, the construc- tion of smaller landfills could be economically justified. An optimal balance has to be achieved between the increased waste collection and transportation costs and the re- duced disposal costs due to economies of scale associated with larger regional landfill. 26 In addition to the cell cover, costs include aerial gas drainage and gas flare. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 39 Figure 6: Unit costs per tonne of waste landfilled at sites with different capacities 160 140 120 100 80 costs s Operating cost 60 Investment costs 40 20 0 400,000 100,000 40,000 20,000 4,000 Box 7: Tips ● Significant economies of scale exist with the increasing of landfill capacity. ● The typical landfill costs for municipal waste are in the range of $12–$30/tonne of deposited waste, assuming full cost recovery. Higher unit costs are possible if landfill has relatively small capacity that in principle should be avoided. ● The landfill site selection should allow for minimum 20 years operation and preferably possibilities for additional site extension should be available. ● The costs for establishment of additional auxiliary infrastructure such as access roads, electricity supply, and discharge of wastewater could comprise a significant part of overall investment value and should be among the criteria for site selection. ● The landfill design should envisage staged construction with typical lifetime of individual cells of 5–7 years. Landfill cell capacity for longer periods (above 10 years) could also be constructed if investment funding is available. ● Following the initial investment, significant investment costs are incurred over the landfill lifetime for construction of new cells, landfill gas collection, treatment and/or utilization, treatment to increase leachate quantities, closure and aftercare of old land- fill cells, equipment replacement, and so on. ● Certain technologies such as gas flares should be made after the initial construction and once the site is operational to establish the appropriate size and type of installation. ● Achieving maximum compaction of deposited waste and minimizing leachate generation are the key factors to keep costs as projected. 40 3. Cost factors for the main elements of the waste management system 3.4 Separate collection of recyclables Box 8: Main mistakes when planning separate collection system ● Overoptimistic projections of recycling potential of input waste, that is, the amount of recyclable fractions is considerably over- estimated. ● Separate waste collection is not supported with appropriate communication and awareness-raising campaign and the number of participating residents is below that was projected and/or quantity and quality of collected materials remains low. ● Overoptimistic projections for capture/source separation rates and household participation rates. This can be partly compen- sated by additional public awareness measures. ● The proposed separate collection system cannot deliver the assumed/planned separate collection rates. ● Impact of informal sector collection not considered. In case of significant presence of informal waste pickers, the majority of valuable waste fractions will be removed prior to entering the collection system or from within the installed collection infrastruc- ture. In such cases, the quantity and value of the separately collected fractions could be significantly reduced. ● Higher contamination of the separately collected fractions than initially planned. ● Different densities of separately collected fractions not considered when planning the number of necessary containers, collec- tion vehicles, and collection frequencies. ● No precise information about recyclable waste generated from different sources, for example, how quantities are split between the households and commercial/industrial sector not allowing proper planning of the separate collection system. ● Overestimated potential revenues from the sales of recyclable waste commodities resulting from separately collected waste. As a result, the separate waste collection system is not sufficiently financed due to the difference between planned and actual costs and revenues. ● Underestimated logistic challenges of multiplying waste/recyclable streams to manage. ● Organizational challenges for local authorities to shift from closed waste management system to running a recycling business that requires market assessment, commercial arrangements for sales of separated materials, and so on. Benefits of recycling are now a well-established fact. In terms of both economic and environmental benefits, recycling ● Saves energy and reduces greenhouse gas emissions; ● Conserves valuable resources and reduces the need to extract new raw materials; ● Increases economic security by relying on domestic source of materials; ● Stimulates the development of greener technologies; ● Reduces the need for new landfills and incinerators; ● Creates jobs in the recycling and manufacturing industries; and ● Stimulated research and development (R&D) and innovation.27 The separate collection of municipal waste is usually focused on the so-called ‘dry’ recyclables—paper, cardboard, plastics, metal, and glass—based on the significant quantities of these categories within the municipal waste stream and their recycling potential. Other waste fractions such as textile and WEEE can also be collected for recycling. The quality of the collected materials is an important aspect for a successful recy- cling system. Both the demand and the value of recycled materials are directly linked to the way these materials were initially collected. 27 GIZ. 2022. Guideline on Separate Waste Collection and Sorting of Recyclable Municipal Waste. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 41 There is a direct correlation between separate collection and ‘high-quality recycling’. Due to their inherent characteristics, most waste fractions lose quality when collect- ed in a mixed manner and thus become contaminated. High-quality recycling is gen- erally understood to be the reprocessing of waste into materials which have a similar or higher economic value compared to the products or applications from which the waste originates.28 Separate collection of recyclable waste should be planned for households and for similar waste with commercial and industrial origin. Commercial and industrial es- tablishments often remove transport and group packaging from the goods sold and recyclable wastes are generated in significant quantities. At the same time, the es- tablished on-site separation procedures and practices supported with training of personnel can provide good quality of collected material. The collection schemes and cost structures are in principle different for commercial sector and for house- holds. The reason is that recyclable waste at commercial sites is generated in big quantities that require different methods for storage and/or compaction equipment to be used on site. When designing separate waste collection, the following should be considered: ● The population density and standard of living, for example, a certain solution can be appropriate in areas with multistorey buildings and an alternative collection system could provide benefits in areas with family houses. ● The type of collection method and whether different methods should be applied in different parts of the area, that is, bring systems such as recycling centers and collection points with containers or curbside systems using individual bins/con- tainers or plastic bags. ● The different collection methods result in different quantities and quality of col- lected waste fractions. These should be addressed in the collection rates planned to be achieved once the separate collection system is established and when as- sessing the percentage of contamination in separate collected fractions. ● It should also be considered that household participation in separate collection schemes is crucial for their success. The communication and public awareness measures in combination with incentive schemes could have strong impact on the achieved results. The key planning elements should generally cover the following: ● The geographical area to be provided with separate collection ● Time frame for implementation ● If applicable, the separate collection and recycling targets to be achieved ● The separately collected fractions ● Type of separate collection system used: container types and volumes, collection vehicles, collection frequency considered. Density of separately collected waste fractions ● The planned capture rates for different materials and also lower and upper limit for collection by weight, in kilograms, per inhabitant and per year ● Expected contamination of the collected fractions ● Distance to the sorting facility. 28 Guidance for separate collection of municipal waste, document prepared by EY, PlanMiljØ, ACR+, RWA and Öko-Institut for the European Commission, April 2020. 42 3. Cost factors for the main elements of the waste management system 3.4.1 Examples for separate waste collection cost estimates Basically, there are two main forms of separate waste collection: door-to-door (curbside) collection and bring system. Both types of collection schemes have been successfully implemented in different cities. The decision whether to implement drop-off or curbside collection schemes depends mainly on the collection rates to be achieved but is also linked with how the residual waste collection is organized, the tariff system in place, people’s behavior, presence of informal sector collection, and a number of other factors. There are few general rules which should be considered when deciding about the type of system to be rolled out: ● The bring systems require more efforts from citizens to reach the containers and discard sorted fractions. In bring systems, the person discarding waste is anony- mous and relatively high level of impurities and even residual waste must be ex- pected. In practice that means a lower public participation compared to curbside systems, lower amounts collected, and higher amounts of sorting rejects obtained. ● The curbside collection systems achieve higher collection rates compared to the bring systems but they are more expensive. The quality of the collected materials is higher in case of curbside collection. ● In general, curbside collection needs to be applied in case recycling and recovery targets cannot be achieved via the drop-off system or when there is limited time available to convince residents to participate in the separate collection system. ● Once a curbside system is established using individual bins or plastic bags, it may be difficult to switch to a drop-off system collection and convince people to walk longer distances to discard their waste. ● The same applies for the number of sorted fractions. Once people get used to dis- carding plastics, paper, and metals together into one bin, it is difficult to convince them to start sorting these materials separately and placing them into separate bins. Another important decision to be taken is the container types to be used. The size of the container affects quantity, composition (quality), volume, weight, and the unit size of waste collected.29 Table 13 provides examples for sizing of different types of separate collection systems for an urban area with 70,000 residents in a municipality with a total population of 100,000 residents.30 In all considered examples, packaging waste glass is collected separately from other fractions. The reason is that broken glass if mixed with other recyclable materials creates risks for the workers in the sorting plants, additional sorting posts are needed, and could potentially lead to contamination of the other separated materials. The following alternatives for separate waste collection are presented: ● Alternative 1 (A1): 3 colored 1.1 m3 plastic euro containers with wheels—one for pa- per and cardboard (blue), one for plastics and metals (yellow), and one for glass packaging (green).31 ● Alternative 2 (A2): 3 colored 1.5 m3 Igloo containers with bottom emptying—one for paper and cardboard, one for plastics and metals, and one for glass packaging 29 GIZ. 2022. Guideline on Separate Waste Collection and Sorting of Recyclable Municipal Waste 30 The number of residents is the same as in the case examples for urban areas with collection of mixed/residual municipal waste. 31 The colors of separate collection containers are indicative. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 43 ● Alternative 3 (A3): Comingled mixed recyclables collection in 1.1 m3 plastic euro container with wheels. Usually referred to dry/wet collection system where all re- cyclables are collected in one container (dry bin) and all residual waste collected in second container (wet bin). Only costs for collection of dry bin considered. ● Alternative 4 (A4): Comingled collection of paper and cardboard, plastics, and met- als in 1.1 m3 plastic euro containers with wheels; second 1.5 m3 Igloo container used for collection of glass packaging waste. ● Alternative 5 (A5): Comingled door-to-door collection of paper and cardboard, plastics, and metals in individual 240 liter plastic bins with wheels; bring collection system for glass packaging waste using 1.5 m3 Igloo containers. ● Alternative 6 (A6): Door-to-door collection of paper and cardboard, plastics, and metals with 120 liter plastic bags; bring collection system for glass packaging waste using 1.5 m3 Igloo containers. In all considered alternatives except in Alternative 3, the glass packaging waste is collected separately from other recyclable materials. The reason is that broken glass creates risks for the personnel in the sorting facility and also leads to contamination of plastic and paper fractions which should be avoided. Table 13: Calculating quantities of separately collected waste and the number of required containers and vehicles for different separate waste collection alternatives Alternatives Item Unit A1 A2 A3 A4 A5 A6 Residents provided with separate collection services Residents 70,000 70,000 70,000 70,000 70,000 70,000 Household waste generated Tonnes 22,599 22,599 22,599 22,599 22,599 22,599 kg/capita/year 322.8 322.8 322.8 322.8 322.8 322.8 Separate collection rate per capita32 % of generated 13.0 13.0 13.0 13.0 19.4 19.4 Paper % of generated 50 50 50 50 70 70 Cardboard % of generated 50 50 50 50 70 70 Plastics % of generated 30 30 30 30 50 50 Glass % of generated 50 50 50 50 50 50 Metals % of generated 30 30 30 30 50 50 Separate collection rate per capita kg/capita/year 42.0 42.0 42.0 42.0 60.0 60.0 Paper kg/capita/year 7.3 7.3 7.3 7.3 10.3 10.3 Cardboard kg/capita/year 13.6 13.6 13.6 13.6 19.1 19.1 Plastics kg/capita/year 11.6 11.6 11.6 11.6 19.4 19.4 Glass kg/capita/year 6.5 6.5 6.5 6.5 6.5 6.5 Metals kg/capita/year 2.9 2.9 2.9 2.9 4.8 4.8 Municipal waste separately collected Tonnes 3,672 3,379 3,819 3,672 4,624 4,624 Waste separately collected Tonnes 2,938 2,938 2,938 2,938 4,203 4,203 Paper Tonnes 514 514 514 514 720 720 Cardboard Tonnes 955 955 955 955 1,337 1,337 Plastics Tonnes 814 814 814 814 1,356 1,356 Glass Tonnes 452 452 452 452 452 452 32 20 percent higher collection rate was assumed for door-to-door collection schemes in Alternative 5 and Alternative 6. Significant variations in the achieved collection rates could be observed depending on residents’ participation rates and presence of informal sector. 44 3. Cost factors for the main elements of the waste management system Table 13: Calculating quantities of separately collected waste and the number of required containers and vehicles for different separate waste collection alternatives (cont.) Alternatives Item Unit A1 A2 A3 A4 A5 A6 Metals Tonnes 203 203 203 203 339 339 Residues (other waste) Tonnes 734 441 881 734 420 420 Residues % 25 15 30 25 10 10 Waste density in containers/bags  Plastic bag kg/m³           127 Dry bin33 kg/m³     151 131 109 n.a. Blue bin34 kg/m³ 148 140         Yellow bin 35 kg/m³ 91 78         Green bin 36  kg/m³ 288 292   288 295 295 Density of containers’ sets placed   Dry bin Residents/container     195 293 7   Blue bin Residents/container 354 449         Yellow bin Residents/container 354 449         Green bin Residents/container 354 449   464 464 464 Total number of containers installed  Dry bin Pcs.     359 239 10,606   Blue bin Pcs. 198 156         Yellow bin Pcs. 198 156         Green bin Pcs. 198 156   151 151 151 Number of 120 liter plastic bags required Pcs.           394,376 Containers’ volume  Dry bin m³     1.1 1.1 0.24   Blue bin m³ 1.1 1.5         Yellow bin m³ 1.1 1.5         Green bin m³ 1.1 1.5   1.5 1.5 1.5 Collection frequency  Plastic bags Times/year           26 Dry bin Times/year     104 104 26   Blue bin Times/year 104 104         Yellow bin Times/year 104 104         Green bin Times/year 18 12   12 12 12 Collection trucks required (including reserve) Pcs. 1.7 2.6 2.4 2.0 4.1 1.8 Collection trucks running Pcs. 1.4 2.2 2 1.7 3.5 1.5 New trucks to be purchased Pcs. 2.0 3.0 3 2.0 4.2 2.2 Total number of containers required Pcs. 594 468 359 390 10,757 151 Total number of containers to be purchased Pcs. 634 499 377 410 11,295 159 (including reserve) 33 Refers to container used for comingled collection of recyclable materials. 34 Refers to container used for separate collection of paper and cardboard waste. 35 Refers to container used for separate collection of plastic and metal waste. 36 Refers to container used for separate collection of glass packaging waste. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 45 The summary of estimated costs for the above separate collection systems is provid- ed in Table 14. The costs for communication and awareness raising are not included. Table 14: Sample cost estimates for different separate waste collection alternatives Alternatives Item Unit A1 A2 A3 A4 A5 A6 Investments $ thousand 487 1,027 394 506 1,386 414 Containers $ thousand 231 427 137 227 851 136 Trucks $ thousand 257 600 257 279 535 279 Operating costs 37 $ thousand 115 140 129 104 203 172 Personnel costs $ thousand 36 33 49 33 73 37 Fuel costs $ thousand 30 27 30 23 38 28 Plastic bags $ thousand 63 Other consumables $ thousand 4 4 4 3 6 1 Maintenance $ thousand 20 41 18 20 36 19 Other costs and markup $ thousand 19 22 21 17 32 18 Insurance $ thousand 6 14 5 7 18 6 Depreciation $ thousand 59 121 45 60 175 47 Containers $ thousand 33 61 20 32 122 19 Trucks and vehicles $ thousand 26 60 26 28 54 28 Costs per container lifted38   Dry bin $/lifting     4.66 5.17 1.24   Blue bin $/lifting 3.7 8.1         Yellow bin $/lifting 3.5 5.7         Green bin $/lifting 6.7 19.5   19.6 19.6 19.6 Costs per resident served Plastic bags $/resident/year           2.6 Dry bin $/resident/year     2.5 1.8 4.9   Blue bin $/resident/year 1.1 1.9         Yellow bin $/resident/year 1.0 1.3         Green bin $/resident/year 0.3 0.5   0.5 0.5 0.5 Total annual costs $/resident/year 2.5 3.7 2.5 2.3 5.4 3.1 Average unit operating cost $/tonne 31.3 41.4 33.7 28.2 44.0 37.3 Average unit depreciation cost $/tonne 16.0 35.8 11.9 16.4 37.9 10.2 Average unit annual costs 39 $/tonne 47.2 77.2 45.5 44.6 81.9 47.5 37 Public awareness costs not included in estimates. Usually more than 10 percent of operating costs until collection system is settled and required participation achieved. 38 The operating costs, depreciation, and unit costs per container and residents served refer to first year of operation. The costs increase with the increase of quantities of separately collected waste. 39 The presented costs per tonne are average figures. The costs differ considerably between the collected recyclable waste fractions. Significant deviations are also possible in case of differences in waste composition and capture rates. 46 3. Cost factors for the main elements of the waste management system The presented average annual unit costs are calculated per tonne of separately collected waste.40 These unit costs are significantly higher compared to unit collection costs for mixed municipal waste for the same size of settlement (see Table 3 for collection using 1.1 m3 containers with wheels). The reasons are the lower density of recyclable waste—such as paper, cardboard, and plastics—compared to municipal waste, the smaller quantities collected, and differences in collection frequencies and equipment used. In the provided example, the separate collection system based on standard 1.1 m3 containers and requiring separation of waste in only two fractions (dry and wet) has the lowest implementation costs, followed by a similar scheme where an additional container is installed for glass packaging. Nevertheless, it must be pointed out that such a collection scheme is often difficult to implement and good coordination with collection of residual waste is required. Applying dry/wet collection scheme often results in high contamination of dry fraction if households are not convinced to sep- arate waste at source. Collection schemes using individual plastic bins have the highest implementation costs but result in higher quantities and good quality of collected materials. The sep- arate collection scheme with plastic bags has the lowest investment requirements but high operating costs for the purchasing of plastic bags. It also requires strict collection schedule to be followed to prevent bags with waste from staying on the streets. Separate collection schemes where residents bring the sorted materials against payment to buy-back recycling centers could also be used.41 Such buy-back centers usually operate on a commercial basis and mainly focus on high-value materials such as metal scrap, paper and cardboard, polyethylene terephthalate (PET) bottles, clear plastic foils, and some high-value rigid plastics. The buy-back centers may rely on in- formal waste pickers that deliver waste against payment, while participation of other residents is often low. Similar to other waste management operations, economies of scale exist when orga- nizing separate collection of recyclable waste. For that reason, recycling programs are usually focused on large urban settlements and then extended to neighboring areas. 40 Unit costs for collection of individual recycling fractions (for example, paper and cardboard, and glass) could differ significantly from the average and between materials due to different densities, frequency of collection, and collection equipment used. 41 Not considered in the present guidelines. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 47 Box 9: Tips ● The success of the separate collection system depends to a large extent on public participation. Appropriate and continuous communication and public awareness measures should be implemented to motivate residents to separate at source. ● The separate collection and sorting of household recyclable waste is a net cost activity, that is, the revenues from the sales of recyclable material are often lower than the combined costs for separate collection and sorting. For that reason, economic instruments and/or EPR schemes may be needed to provide additional financing and guarantee sustainable operations. ● The separate collection costs per capita served in urban areas are expected in the range of $2.5–$5.0 per resident per year. The costs per capita served in rural areas are considerably higher due to the smaller waste quantities generated/collected and higher transportation distances. These costs do not include the public awareness costs that reasonably should be in the range of $0.5–$1.5 per capita at least in the first years of operation or until the separate collection system is fully settled. ● The costs per tonne of recyclable waste collected are different for the different materials/fractions and could vary consider- ably depending on quantities collected, residents’ participation, and the achieved capture rate. ● The separate collection costs must be calculated individually for each separately collected fraction. ● Performance indicators for separate collection should be established at the beginning of implementing the separate col- lection system. Usually these include container volume provided per capita, quantities collected per capita, and collection costs. ● The role of the informal sector should be considered because it could have a significant impact on the quantity and quality of recyclable waste collected and therefore on the costs and revenues of the entire system. ● Similar to residual municipal waste collection, the number of containers and container sites used should be selected in a way that indicative maximum walking distance from the entrance of a living premise to the container site does not exceed 100 m. In the case of bring system, when possible, the separate collection containers should be installed at the same container sites with containers for mixed/residual waste collection or nearby. ● Separate collection of recyclable waste from households and from commercial, industrial, and administrative establish- ments requires different technical solutions and cost structures. The collection of commercial recyclable waste in large ur- ban areas, if organized properly, should be financially viable at least for cardboard and plastic foils. The reason is that good quality materials are generated in large quantities. ● Implementation of pilot projects to test different collection systems could be appropriate before scaling up to a large number of residents. All data collected during the pilot projects need to be measured and documented. ● Once separate collection is introduced, continuous readjustments could be necessary until desired separate collection effi- ciency is achieved. 3.4.2 Sorting of separately collected fractions The separately collected recyclable waste fractions have to be further separated and processed in sorting facilities to meet the requirements of recycling plants.42 The sorting facilities are usually established for separately collected paper and card- board, different kinds of plastic waste, and metal packaging. The simplest sorting fa- cilities comprise of manual picking station and baling presses that could be provided in different configurations and capacities. Small sites equipped with vertical baling press are usually intended for processing small quantities of 30–60 tonnes of waste per month and are served by few workers, while large sorting plants could process several thousand tonnes per month and have higher personnel requirements. Small recycling centers usually require less than 1,000 m2 space small hall or shelter and the only installed equipment is a vertical baler. The waste is fed manually in the 42 The facilities designated to separate recyclables are usually called sorting facilities or MRFs. These could be ‘clean’ MRF for sorting of separately collected waste fractions or ‘dirty’ MRF for separation of mixed/residual municipal waste. 48 3. Cost factors for the main elements of the waste management system Box 10: Main mistakes when planning sorting facilities for separately collected waste ● Inappropriate capacity of the sorting facility. The capacity could be too small for the quantity of input waste fractions, for example, due to high quantities of material assumed to be separated by worker at the sorting line or insufficient number of sorting lines. In the opposite case, the installed sorting capacity is overestimated, and the facility could process much higher quantities than actually delivered on site. ● Suboptimal design of sorting facility, that is, the number of sorted fractions is not properly selected and does not correspond to the separate collection system applied; inappropriate equipment used; the sorting facility is not capable of meeting the planned capacity requirements; additional manipulations on site are required and bring additional costs. ● Insufficient appreciation and planning (physical and financial) for the management of rejected materials and their transport to disposal, resulting in residual waste accumulation on site. Design requirements are not initially considered (for example, providing appropriate working conditions through ventilation and exchange of air in sorting cabins, labor safety require- ments, and fire protection requirements) that result in additional costs. ● No proper decision on the separated fractions, for example, separation of foils by color can increase the revenues from sales and additional separation operations are required. ● The separated fractions do not meet the quality requirements of the recycling industry. ● Inappropriately selected compaction equipment is being used. ● No market assessment for recyclables collected and no robust long-term offtake arrangements. baler that limits the processed waste quantities to less than 2–3 tonnes/day. Such facilities usually deal with high-value recyclables such as cardboard, PET bottles, or clean plastic foils. The size of the bale in this case is small and often the bale unit weight is 40–60 kg. Such bales are loaded manually to transportation vehicles and thus cannot weigh more. Vertical balers with higher compaction force exist, but in this case specialized loading equipment should be available on site. The large sorting facilities are usually specialized in separation of specific recycling commodities where one facility could deal only with wastepaper and cardboard where- as waste plastics and glass are designated to separate installations. The feeding of waste into the sorting cabin is mechanized using different kind of loaders, feeding systems, and conveyor belts. The feeding and compaction of waste is also automated using large volume channel presses. Over the last two decades there has been a ten- dency for increased use of specialized equipment, optical sorting, and automation of the sorting process, especially for separation of different kinds of rigid plastics. The separate collection and sorting of glass should be analyzed independently. In many countries there is no glass industry developed and the recycling possibilities are limited. Typically, the separately collected glass fraction requires a special sort- ing/treatment plant with a significant input capacity of 50,000 tonnes and above separately collected glass packaging to be economically justified. To organize sup- plies for such plant capacity, the separate collection system should cover at least 1 million residents and more. The initial investment for establishing such type of glass treatment facility typically exceeds $4 million and treatment costs per tonne of input material exceed $30. Due to the relatively low value of glass material, the availability of glass recycling factory within 200–500 km from treatment site could be a limiting factor because of high transportation costs. Solutions for use of waste glass in the production of concrete and construction materials are often considered as alterna- tive to traditional recycling. The optimal design of a sorting plant depends on the following main factors: ● Type of waste received Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 49 ● Quantity of waste ● Quality requirements applied toward output fractions ● Financial resources available ● Site characteristics and logistics considerations ● Desired flexibility with regard to quantity and quality of input waste and require- ments toward output fractions. The development of a cost estimate for a sorting facility comprises the following steps: ● Define the type and quantities of input waste fractions. ● Define the number and type of sorted waste fractions, the required sorting effi- ciency, and the projected quantities for each output fraction. ● Define the required open and closed storage areas for input waste fraction and separated recyclable commodities, for example, for how many days storage should be provided and what are the maximum waste quantities to be stored on site. ● Define the working days per year and number of working shifts. ● Define the number of processing lines required depending on number and compo- sition of input waste fractions and their quantities. ● Define the number of separated fractions and separation technology for each pro- cessing line. ● Confirm the markets for materials and quality and packaging requirements of the markets. ● Prepare the indicative list of stationary and mobile equipment according to assumed technical concept. ● Estimate the length of conveyor belts required based on the selected equipment. ● Estimate the space required for installing equipment and conveyor belts consider- ing the indicative equipment dimensions and sufficient maneuvering space for the mobile equipment and equipment access. ● Estimate the space requirements for internal roads, open storages, pavements, and parking areas. ● Estimate the personnel requirements. ● Define the required area for administrative buildings, garages, and maintenance shops. ● Define the requirements for utilities supply (electricity, freshwater, discharge of wastewater). The main operating costs for a sorting facility comprise the following: ● Personnel costs: salaries, social and health insurance, personnel protective equip- ment. ● Maintenances costs: usually defined as a percentage of the initial value for the dif- ferent categories of assets. ● Consumables: electricity and diesel consumption depending on the type, operat- ing hours, and unit consumption of selected equipment and/or per tonne of input waste/output fraction. ● Cost for storage, transportation, and disposal of sorting residues. ● Insurances, administrative costs, and overheads—usually provided as a percent- age of the direct operating costs. 50 3. Cost factors for the main elements of the waste management system Summary data for two sample sorting facilities with different input capacities of separately collected waste are shown in Table 15. The first one has an annual capaci- ty of 10,000 tonnes/year that roughly corresponds to a municipality with 100,000 res- idents,43 while the second example is for a large installation with capacity of 150,000 tonnes/year that will be required if all separately collected waste from the five con- sidered municipalities44 with total population of 1,410,000 residents is separated at one centralized facility. Table 15: Sample cost estimates for waste sorting plants for separately collected waste Parameters Unit Facility 1 Facility 2 Capacity 45 Tonnes 10,000 150,000 Working shifts per day Number 1 2 Working days per week Number 5 7 Number of processing lines Number 1 2 Required site area m² 2,800 6,400 Operating personnel Number 32 260 Investment costs Ground $ thousand - - Civil works $ thousand 783 1,778 Mechanical equipment $ thousand 455 2,052 Vehicles $ thousand 132 283 Others $ thousand 31 99 Total $ thousand 1,402 4,212 Depreciation $ thousand 74 239 Unit depreciation cost $/tonne input waste 7.2 1.6 Operating costs Personnel costs (gross values, including social security and health insurance) $ thousand/year 161 1,250 Maintenance and repair $ thousand/year 58 193 Consumables $ thousand/year Electricity $ thousand/year 27 297 Diesel $ thousand/year 27 293 Miscellaneous $ thousand/year 2 24 Transport of residues to landfill $ thousand/year 4 60 Administration $ thousand/year 16 102 Insurances $ thousand/year 3 20 Total operating costs $ thousand/year 298 2,239 Unit operating costs $/tonne input waste 29.0 14.9 Annual costs 46 $ thousand/year 372 2,478 Unit annual costs $/tonne input waste 36.2 16.5 43 Assumed 100 percent coverage of urban population of 70,000 residents and 70 percent coverage of rural population of 30,000 residents. 44 Municipalities with 10,000 residents, 50,000 residents, 100,000 residents, 250,000 residents, and 1,000,000 residents. 45 No glass treatment envisaged in both facilities for comparison and only storage costs included. 46 Revenues from the sales of materials not considered. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 51 Box 11: Tips ● Significant economies of scale exist with the increase of sorting capacity. Construction of small size installation processing only few tonnes of recyclable waste per day should be avoided. It should also be noted that better sales prices can be achieved for larger quantities of recyclable materials. ● If properly designed, the revenues from the sales of recyclables should considerably exceed the sorting costs but in most cases will still not be sufficient to cover the combined separate collection and sorting costs. ● Performance indicators for sorting efficiency should be established at the beginning of operations. Typically, these include quantity of separated materials per unit input waste (sorting efficiency), costs per tonne of separated material, revenues per tonne of separated material, and others. ● The market demand, quality requirements, and purchasing prices for different types of recyclable waste commodities define the optimal sorted fractions. ● The market for recyclable waste is dynamic and significant price fluctuations could be observed even within short periods. ● The use of low-cost equipment and facilities is not always the most efficient economic solution. ● Separate collection and sorting systems should be focused on separation of high-quality recyclable materials. Comingled recycling of low-value and contaminated waste should not be considered as sustainable long-term solution. ● Public authorities usually have limited experience and knowledge about the markets of recyclable waste commodities. That of- ten results in nonoptimal operation of the facility, excessive costs, and reduced revenues from the sales of separated materials. ● If separate collection and sorting of household recyclable waste is organized and operated by public authorities, often a parallel system collecting recyclables from commercial and industrial sources is operated by the private sector. The coordi- nation and combination of these two systems in sorting and processing of collected waste could lead to cost optimization as large amounts of waste could be processed in a combined facility. The costs analysis shows that unit costs per tonne of input waste and per tonne of separated material are considerably lower for the larger sorting facility. The costs for sorting of separately collected fractions are in principle lower than revenues from the sales of separated recyclables. Nevertheless, the revenues from sales of recycla- bles are not sufficient to cover the combined separate collection and sorting costs for household waste. The costs and potential revenues from recyclables should be considered together as shown in Chapter 7. 3.5 Composting of waste Box 12: Main mistakes when planning separate collection and composting of green waste ● Alternative separate collection systems and composting concepts and technologies are not sufficiently analyzed at feasibil- ity stage. ● The implemented separate collection system for green/biowaste is not delivering the initially projected quantities. ● Contamination of collected green/biowaste is not considered. ● The composting site is not capable of achieving the initially planned capacity. Seasonal variations in green waste quantities are not considered. ● The composting process takes longer time than initially planned. ● Projected revenues and demand for compost are much lower (or not in place at all) than initially planned. ● The purchased equipment is not appropriate for the quantities of green waste received on site. ● The produced compost does not meet planned quality requirements. ● Insufficient appreciation of the variety and mix of feedstocks and conditions required to create good compost and/or the multidisciplinary regulatory requirements (that is, waste, agriculture, planning, and so on) and marketing needs to ensure that composting is viable. 52 3. Cost factors for the main elements of the waste management system The biological process of composting involves the breakdown of organic materials by microorganisms. This is a natural biological degradation process where waste is bro- ken down into carbon dioxide, water, nitrates, and sulfates by bacteria that live in an oxygen-rich environment (aerobic). Hence, plant materials such as grass clippings, leaves, and branches are transformed into a useful organic soil improver through a microbiological process. The composting process comprises of the following two phases: ● Active composting phase. Two main processes occur during this phase: intensive decomposition and transformation. The intensive decomposition, referred to also as sanitization, is characterized by high temperature within the piles, whereby the temperature reaches up to 70°C. This stage is mainly promoted by thermophilic microorganisms. This is a process of intense mineralization and loss of water; most of the emissions are linked to this phase. Some form of turning/rotation for aeration of the material should be conducted regularly to prevent temperatures from exceeding 70°C. Aeration also supplies oxygen to keep the microorganisms alive and reduces carbon dioxide, methane formation, and water content of the material. The intensive decomposition is followed by a process of transforma- tion, during which the rate of degradation decreases and metabolites start to be formed. The temperature drops to 30°C–55°C. ● Maturation/curing phase. During the maturation phase of the compost, a humus mass is formed. The temperature is lower than 45°C. The process is characterized by reduced transformation and formation of new compounds. During this phase, the lignin compounds are degraded and the material is gradually stabilized.47 The composting activities aim at achieving diversion of organic waste from land- filling and return of valuable organic fraction for reuse.48 Types of wastes that are suitable for composting include the following: ● Green waste. Waste coming from public spaces such as parks and cemeteries or private gardens (such as grass, tree and shrub pruning, and flowers). ● Market waste. Fruit and vegetable residues from markets. ● Organic waste from agriculture. Waste from food and animal feed processing or the processing of agricultural products for other purposes. ● Food waste includes both cooked and raw materials left over after the preparation and consumption of human food. The source of origin can be either households or establishments such as restaurants, canteens, and bars. ● Sludge from municipal wastewater treatment plants. To be accepted for com- posting, the sludge should comply with the limit values for heavy metals in accor- dance with existing legal provisions. 49 Different composting technologies such as the following are used: ● Static pile - a compost pile, which is formed and then left completely unturned. It is typically constructed on the ground without any equipment or piping for aeration underneath.50 ● Open windrows - composting is done in so-called windrows, which may have a tri- angular or trapezoid cross-section, and are agitated or turned on a regular basis. 47 GIZ. 2022. Guideline on Composting of Organic Waste in Albania. 48 Ibid. 49 Ibid. 50 Ibid. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 53 ● Aerated piles - in aerated piles, also called aerated static piles (ASPs), aeration is conducted by air blower/suction ventilation system through aeration pipes, or ductwork, placed at the base of the piles. ● In-vessels - there are many different types of in-vessel composting (IVC) systems, including fixed, portable, and non-rigid vessels.51 IVC systems are enclosed sys- tems that may involve the following: Typically, large-scale rectangular vessels made from concrete or steel. Depending on the technology applied, they can be opened (when continuous process is applied) or closed (for batch systems). When continuous, moving Tunnels floors may be used to move the material. In such cases, loading conveyors are usually used for feeding the mate- rial. In batch systems, the material feeding is often conducted by front-end loaders. There are a multitude of containerized systems—fixed, portable, varying capacities, requiring forced aeration, or Containers agitated. Almost all containerized composting systems have integrated control systems that monitor tempera- ture and other control parameters and manage water addition. These are enclosed composting systems where the material is placed in long bays or extended beds (made either from concrete or steel). Mixing is achieved by special turning appliances. During the turning process, material is Bays/Beds moved along the length of the bay in a continuous flow. The continuous process allows for fresh material to enter the vessel without getting into contact with the material that has already been treated inside. Aeration is typically supplied from the floor of the vessel with a forced aeration system. A composting system using a large rotating drum which, similar to bays/beds system, most often adopts a con- tinuous process whereby material is agitated and aerated as it moves along the drum, allowing for the biological Rotating drum decomposition process to proceed. Mixing, aeration, and agitation is achieved by means of air vents and plates on the sides of the drum. A composting system where the material is fed into the top of the sealed vessel on a continuous basis. Compost- ing process takes place while the material moves down through the silo. There is a flexibility in designing such Silos systems. A system may consist of several vessels each with a single compartment. Alternatively, single larger (vertical towers) vessel is used with several compartments. Silos may be perforated to allow aeration during decomposition or to use forced aeration systems. During its retention time, the material moves down the vessel under gravity and is usually removed by augers.52 Source: GIZ. 2022. Guideline on Composting of Organic Waste in Albania. Apart from composting installations, home composting (on-site composting) is per- formed by people in their own garden or house and the resulting compost is used for their own farming and landscaping purposes. In the most ordinary way, the process of home composting requires simply piling up green waste. The decomposition pro- cess is aided by shredding plants and branches from trees. To speed the process of decomposition, proper aeration should be ensured by regularly turning the mixture. Kitchen waste could also be added to the process though only selected food waste products are suitable. Dairy products and meat should be avoided as they attract rats and other vermin. Home composting can be facilitated by use of special devices. These devices (home composters) are stable (usually made of recycled plastic) and have an operational period of 7–10 years. A home composting unit can also be made from wood, or other materials, and can be simple and inexpensive. For collection of green waste from households, the most common collection meth- ods are public drop-off sites, scheduled curbside collection, or collection with in- dividual bins, sometimes together with other biowaste such as vegetable and fruit residues. If not composted on the site of generation, the green waste is transported 51 Ibid. 52 Ibid. 54 3. Cost factors for the main elements of the waste management system to a composting facility. To reduce the transport cost, mobile chippers or shredders could be used to increase the density of the transported green waste.53 Chippers vary widely in their capacity and can be self-propelled or power take-off (PTO) driven. The key considerations when planning a composting system are ● Whether to give priority to home composting or to implement separate collection of green waste and other biowaste; ● Whether to implement centralized composting installation for all green waste col- lected from service area or smaller decentralized sites will be more appropriate; and ● What type of composting technology, equipment, and site design requirements will be optimal for the type and quantities in the specific case. In general, home composting is the appropriate solution for rural areas while com- posting installations usually serve more densely populated areas. Centralized large-scale facilities usually accept several thousand tonnes of waste per year while decentralized small sites can treat a few hundred tonnes of waste close to the place of generation. If the decentralized model is applied, usually mobile equipment is used for shredding, turning, or sieving, which can also be shared be- tween more than one facility. The choice of the system depends on land availability, the quantities of green waste generated, and their distribution within the planning area, how the maintenance of public green areas is organized, the applied collection scheme for the green waste and related costs, already available equipment, technical requirements applied to- ward composting sites, and so on. In many countries no special requirements exist for composting sites accepting less than 200–300 tonnes/year and composting can be done directly on agricultural land. Such decentralized models reduce consider- ably the investment costs for construction of composting site and no costs are in- curred for collection and treatment of leachate. The selection of composting technology depends on the type and quantities of input waste, the legal requirements in place, climate conditions, site characteristics, and other conditions. While open windrow composting and aerated piles are well-proven technologies for green and market waste, the presence of food waste in the input material requires utilizing closed composting systems to properly manage emissions and odors. The main capital investments at composting site relate to the following: ● Reception zone and storage of the input material.54 For large sites, entrance area with weighbridge could be provided ● Area for shredding and mixing the materials could be designated as separate zone or within the storage area ● Areas for intense composting and for maturation of the composted material55 53 Density up to approximately 0.35 tonnes/m³. 54 The carbon-rich slow degrading branches and wood chips from trimming can be stored there for 30-day period. The nitrogen-rich fast degrading trimmed grass should be stored for not more than 24 hours. Grass and leaves should be stored separately from the branches and wood chips. If pres- ent, unwanted nonorganic materials should be removed by hand. 55 For windrow composting, both the active composting and curing phases could take place at the same windrows. The partially composted waste after the IVC process is often composted in the open air (as a secondary composting phase) and involves cooling and stabilization of microbial ac- tivities. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 55 ● Area for sieving the final product (if not performed directly in the maturation zone) ● Area for storage of the produced compost, covered by metal sheet roof construc- tion ● Hardstand area for mechanical equipment, usually covered by portal framed roof structure ● Reservoir or tank farm for the collected surface water and leachate from the in- tense composting area (which can be used for irrigating the piles or windrows) ● Office container or small administrative building ● Fire safety equipment ● Other site infrastructure: fence and gate, parking areas, utilities supplies, access road (if relevant) ● Equipment used for shredding, transportation and loading operations on site, windrow turning, and sieving of produced compost ● Other equipment: small fuel station (alternatively mobile diesel refuelling vehicle), compost packing station (if relevant for large quantities) ● Process monitoring and laboratory equipment. The following factors have serious impacts on costs: ● Legal requirements toward composting site—for large-capacity sites, composting directly on land is not allowed and civil works for site establishment will be required ● Size of the windrows and windrow turning equipment used ● Composting time ● Seasonal changes in green waste quantities—the site should be dimensioned with a significant reserve to process peak quantities ● Composting technology ● The type of composting site pavement: compacted clay, concrete, or asphalt ● Requirements for odor management and the treatment of process air—the air dis- charged through ventilation systems in case of IVC usually cannot be discharged directly and treatment with biofilter could be required ● Compost leachate treatment requirements—if compost leachate cannot be fully reused within the compost process, windrow covers or composting roofed areas could be needed to minimize the leachate quantity and treatment costs. Different technologies require different time to produce compost that affects the area required. Table 16: Sample time required for intensive composting and maturation phases for different composting technologies Parameter Windrows Aerated piles IVC in containers IVC in tunnels Active composting phase 4 to 6 weeks 4 to 6 weeks 3 to 4 weeks About 3 weeks Turning required Once a week 3 times in total Depends on the system No turning Maturation phase 6 to 8 weeks 2 to 4 weeks About 4 weeks 4 to 6 weeks Source: GIZ. 2022. Guideline on Composting of Organic Waste in Albania. In addition to site infrastructure costs, other significant expenditures are related to stationary and mobile equipment used. The main equipment for open windrow com- 56 3. Cost factors for the main elements of the waste management system posting includes shredders and chippers for input material, compost turning equip- ment (specialized windrow turners or tractor towing appliances), sieves for compost refining, front loaders, tractors, and other auxiliary equipment. Selection of equip- ment is highly dependent on the quantities of waste to be composted and the size of the available area. Open windrow composting requires large areas due to the relatively long process of decomposition of the organic material. Depending on equipment used, composting plants of same capacity could have different sizes based on different dimensions of the windrows. The width at the bottom of windrow typically varies between 2.5 m and 6 m. The height at the top of the windrow is usually 1.0–1.5 m but could also be considerably bigger in case of a wider base. The length of the windrows is decided according to the dimensions of the composting site and quantities of received waste and is usually within the range of 20–50 m. Windrow lengths shorter than 45 m should be used if composting technology envisages the use of windrow cover. Using larger windrow turners leads to smaller site requirements due to the increased cross-section dimensions of the windrow and reduced space between windrows but have higher investment and operating costs. Composting of green waste in large windrows could also cause operational difficulties due to possible creation of anaer- obic conditions within the windrow. For ASP systems, both size and shape are often dependent on site-specific require- ments and land availability. However, if land availability is a constraint and piles need to be formed with maximum height and width, mechanical winders are available too, which, however, will increase the capital and operation costs. All IVC systems are characterized by the following similarities in terms of equipment and automation: ● In-built systems for automated control of the process, regarding monitoring and control of temperature and moisture and capture of exhaust air emissions ● Dedicated aeration systems ● Management of odors. Although the composting process is conducted in enclosed systems, IVC systems still require auxiliary equipment for their operations. Shredder, front-end loader, and sieve will still need to be procured or made available for operating an IVC facility.56 Capital costs can be divided into three main categories: site development, process- ing equipment (both stationary and mobile), and process monitoring equipment. Site development costs are dependent on the selected technology of composting. For example, turning windrows with a tractor-pulled turner require larger sites (due to required space between windrows for the tractor), whereas a purpose-built windrow straddling turner will require significantly less space. Operating costs include noncapital-related costs, such as labor, fuel, electricity, maintenance of equipment, and administration. Labor costs are the main cost item in open windrow composting (between 45 percent and 50 percent of total operating costs), followed by equipment maintenance and fuel (both between 25 percent and 30 percent of total operating costs). In forced aeration composting, electricity used for aeration purposes is usually 10–15 percent of the operating costs (however, this operational cost is mainly offset by the reduced requirement for turning at the ac- tive composting stage and therefore reduced equipment maintenance and fuel cost 56 GIZ. 2022. Guideline on Composting of Organic Waste in Albania. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 57 compared to non-aerated windrow composting). In enclosed composting systems, such as IVC and containers, electricity is 57the main cost item—about 30 percent of the overall operating costs—which typically exceeds labor costs. Sample cost estimates for green waste open windrow composting sites of different capacities are summarized in Table 17. The indicated capacities roughly correspond to minimum quantities of green waste expected to be collected in public areas in municipalities with 1,000,000 residents (Facility 1), 250,000 residents (Facility 2), and 100,000 residents (Facility 3).58 Additional examples of Facility 1a and Facility 2a are provided where windrows are covered with semipermeable cover to prevent leachate generation and keep moisture in windrows. Table 17: Sample cost estimates for green waste windrow composting plants with different capacities Description Unit Facility 1 Facility 1a Facility 2 Facility 2a Facility 3 Facility 3a Annual quantity of green Tonnes/year 13,500 13,500 3,400 3,400 1,350 1,350 waste received Average daily quantity of Tonnes/day 36.9 36.9 9.2 9.2 3.7 3.7 green waste Average daily quantity in Tonnes/day 73.8 73.8 18.5 18.5 7.4 7.4 peak months Composting time59 Weeks 12 12 12 12 12 12 Land required m² 7,500 7,500 2,500 2,500 1,150 — Windrows Turning equipment60 Windrow Windrow Tractor Tractor Tractor Tractor turner turner with PTO with PTO with PTO with PTO and towing and towing and towing and towing appliance appliance appliance61 appliance Site pavement type Asphalt Asphalt Asphalt Asphalt Asphalt Land Windrow cover None Membrane None Membrane None None Windrow height Meter 1.9 1.9 1.5 1.5 1.5 1.5 Width at top of windrow Meter 1.0 1.0 1.0 1.0 1.0 1.0 Width at bottom of Meter 4.7 4.7 4.0 4.0 3.0 3.0 windrow Width between 2 windrows Meter 1.0 1.0 1.562 1.5 1.5 - Traversal surface m² 5.42 5.42 4.13 4.13 3.00 3.00 57 Ibid. 58 The indicated quantities of green waste refer only to green waste from the maintenance of public parks, gardens, and other public areas. Such quantities could differ considerably for municipali- ties/cities of similar size due to climatic conditions, density of construction, level of maintenance, and many other factors. The quantities will be considerably higher if green waste from areas with family houses is separately collected. 59 Not separated between intensive composting phase (4 weeks) and maturation (8 weeks). 60 There are potential cost savings from reduced turning and watering needs as well as reduced com- posting time when using membranes, aeration, and so on, that are not considered in these alterna- tives. 61 Bigger distance between windrows required in case of tractor and towing appliance compared to self-propelled turner. 62 3.0 m between two windrows. 58 3. Cost factors for the main elements of the waste management system Table 17: Sample cost estimates for green waste windrow composting plants with different capacities (cont.) Description Unit Facility 1 Facility 1a Facility 2 Facility 2a Facility 3 Facility 3a Length of windrow Meter 40 40 40 40 40 40 Volume of 1 windrow m³ 217 217 165 165 120 120 Medium density kg/m³ 0.5 0.5 0.5 0.5 0.5 0.5 Number of windrows Number 22 22 7 7 4 4 required Staff 8 8 6 6 363 3 Investment Costs Ground $ thousand - - - - - Civil works $ thousand 330 330 143 143 85 Machinery $ thousand 817 817 355 355 216 32 Vehicles $ thousand 686 782 294 325 163 154 Engineering, commission- $ thousand 92 96 40 41 23 ing, contingencies Total investment costs $ thousand 1,926 2,026 832 865 488 186 Depreciation $ thousand 174 185 75 79 44 19 Unit depreciation costs $/tonne 12.9 13.7 22.2 23.2 32.7 13.8 Operating costs             Maintenance and repair $ thousand 121 131 52 55 30 24 Staff $ thousand 55 55 37 37 16 16 Consumables $ thousand 112 112 32 32 18 25 Administration $ thousand 46 48 20 20 11 9 Insurances $ thousand 5 5 2 2 1 1 Total operating cost $ thousand 340 352 142 146 77 74 Unit operating costs $/tonne 25.2 26.1 41.9 43.0 56.8 55.1 Total annual costs $ thousand 515 537 218 225 121 93 Unit annual costs $/tonne 38.1 39.8 64.0 66.2 89.5 68.9 Revenues compost 64 $ thousand 20 20 5 5 2 2 Net annual costs after $ thousand 495 517 213 220 119 91 revenues Annual unit costs $/tonne 36.7 38.3 62.6 64.7 88.1 67.5 In the above examples, compost windrows are operated on open sites. If the site should be partly or fully covered by shelter, additional costs should be envisaged al- though some cost savings would be made during operations through reduced wa- tering needs from having sufficient cover. On the other hand, composting facilities (particularly small to medium facilities) can often be located on and operated by companies employed in other sectors such as agriculture or aggregate processing. 63 The indicated staff numbers could be part-time employed or shared with other municipal operations. 64 Revenues calculated for unit price of $3/tonne compost. Significantly higher revenues could be achieved in case market exists for good quality compost. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 59 In such cases equipment and staff employed to operate the composting facility are often shared by the existing activities, and thus labor and equipment would be part- time employed in composting with only a percentage of depreciation and staff time accounted for in the composting operation, making the cost/tonne less than that presented here. As can be seen from Table 17, the unit costs per tonne of input waste are considerably higher for the two smaller composting installations and for selected technology and equipment. Some costs savings could eventually be achieved if cheaper site pave- ment is used or less productive and low-cost equipment for shredding or windrow turning is available or if mobile equipment can be shared by two or more sites. As alternative to Facility 3, an option showing mobile composting equipment propelled by a tractor PTO is shown (Facility 3a). In this case, compost windrows are situated directly at agricultural land at several decentralized sites. Lack of site infrastructure costs allows for partial cost reduction. Enclosed composting technologies can be used for composting of green waste and are also appropriate for other biowaste. While enclosed systems are more suitable for food waste, it is also possible to compost food waste in open windrows, especially combined with green waste. However, it is recommended that post-consumer food waste is only composted by this means when collected through a separated source collection service and where the facility has mechanisms to control emissions (that is, biofilter with negative air suction through windrow) and robust procedures to en- sure the elimination of pathogens. For comparison, Table 18 presents summary cost estimates for composting installa- tions using IVC in tunnels and ASP technologies for intensive phase, with open wind- rows used for compost maturation. The examples are provided for installations with capacities of 13,500 tonnes/year and 45,000 tonnes/year. Table 18: Sample cost estimates for biowaste closed composting installation in tunnels Description Unit Facility 4 Facility 5 Facility 6 Facility 7 Installation capacity Tonne/year 13,500 13,500 45,000 45,000 Average daily quantity of biowaste Tonne/day 36.9 36.9 123.3 123.3 Intense composting phase Intense composting technology Tunnels Aerated beds Tunnels Aerated beds Intense composting time Weeks 2.9 3.6 2.9 3.6 Tunnels/beds dimensions  Meter 4.0 × 5.6 × 20.0  2.5 × 8.0 × 35.5 4.0 × 5.6 × 20.0  3.0 × 8.0 × 35.5 (weight × height × length) Volume of 1 tunnel/bed m³ 448 710 448 852 Number of tunnels/beds required Number 4 3 13 8 Maturation phase Maturation technology Open Open Open Open windrows windrows windrows windrows Maturation time Weeks 7 7 7 7 Windrow dimensions Meter 1.9 × 4.7 × 40.0 1.9 × 4.7 × 50.0 2.4 × 6.3 × 50.0 1.9 × 4.7 × 50.0 (height × bottom width × length) Windrow traversal surface m² 5.42 5.42 9.40 5.42 Volume of 1 windrow m³ 217 318 470 318 Number of windrows required Number 14 11 21 35 60 3. Cost factors for the main elements of the waste management system Table 18: Sample cost estimates for biowaste closed composting installation in tunnels (cont.) Description Unit Facility 4 Facility 5 Facility 6 Facility 7 Land required 65 m² 5,950 6,950 13,300 18,300 Number of operating staff Persons 10 8 17 14 Investment costs 0 Ground $ thousand - - - Civil works $ thousand 675 513 1,676 1,992 Machinery $ thousand 899 730 2,360 1,711 Vehicles and mobile equipment $ thousand 556 636 1,030 1,063 Engineering, commissioning, $ thousand 262 228 636 571 contingencies Total investment costs $ thousand 2,393 2,106 5,703 5,337 Depreciation $ thousand/year 164 154 380 344 Unit depreciation cost $/tonne 12.2 11.4 8.4 7.6 Operating costs         Maintenance and repair $ thousand/year 180 65 407 135 Staff $ thousand/year 66 54 112 82 Consumables $ thousand/year 119 116 381 223 Administration $ thousand/year 53 24 128 45 Insurances $ thousand/year 12 5 28 9 Total operating cost $ thousand/year 430 263 1,057 494 Unit operating costs $/tonne 31.8 19.5 23.5 11 Total annual costs $ thousand/year 594 417 1,437 838 Unit annual costs $/tonne 44.0 30.9 31.9 18.6 Revenues compost 66 $ thousand/year 20 20 65 65 Net costs after revenues $ thousand/year 575 397 1,373 773 Average unit costs $/tonne 42.7 29.5 30.5 17.2 The IVC facilities, in principle, have higher costs compared to windrow and ASP com- posting sites with same capacities. On the other hand, they require smaller installa- tion space and provide better opportunities for odor management, considering that all process air from tunnels is designated to treatment. As mentioned above, the IVC could also be used for composting of food waste that could be problematic in case of open windrow technology. 65 These areas represent the minimum area required. Additional area may be required for receiving, shredding, and storing green waste and bagging and storing product. Value added product such a raised bed mix that incorporates clay and other additives also requires additional space not ac- counted for. 66 Revenues calculated for unit price of $3/tonne compost. Significantly higher revenues could be achieved in case market exists for good quality compost. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 61 Box 13: Tips ● Composting installations could be implemented in various sizes and capacities and different technologies exist depending on the input biowaste. ● It is not economically viable to transport green waste to large distances and therefore composting is best organized close to the place where waste is generated. Consequently, decentralized solutions should always be analyzed and compared as alternative to a large, centralized composting facility. ● Promotion of home composting could be a good and less costly solution for municipalities in rural areas and semi-urban areas with family houses. ● Windrow composting installations demonstrate significant economies of scale and larger facilities processing several thou- sand tonnes per year have lower unit costs. ● Composting process requires control of moisture content, and water source should be available on site. ● Composting is a lengthy process and open composting sites require significant size of land. ● The possible technical solutions and equipment used could vary significantly even for composting sites that have same ca- pacity and employ similar technology. ● Compost revenues depend on quality, demand, and available outlets. The revenues from compost sales could be significant if compost quality is guaranteed by recognized certification scheme. On the other hand, there are many examples where markets do not exist and no revenue is generated. ● Although composting is a relatively simple process, it takes a trained technician and appropriate resources to ensure the cor- rect feedstock mix and processes are performed to produce a high-grade marketable product. Composting is often regarded as a simple waste process that is allocated to an existing waste management facility operator rather than having a competent and motivated operator brought in. This should be avoided and the operator model should be aligned to the processing needs. 3.6 Anaerobic digestion (AD) ● Box Uncertain quantities and composition of14: Main input issues when planning AD facilities biowaste ● Significant contamination of input biowaste that requires additional treatment on site ● The implemented separate collection system for green/biowaste not delivering the initially project quantities ● The conditions and costs for connection to electricity grid (in case of electricity production) not sufficiently well analyzed during site selection and feasibility stage ● Lack of market for digestate/compost produced ● The O&M of complex AD facility requires availability of qualified personnel and specific skills. AD is a technology for controlled anaerobic treatment of biodegradable waste used to transform the organic matter contained in the waste into biogas and digestate valuable as an organic fertilizer or soil improver. In municipal waste management, the AD is mainly used for recovery of separately collected biowaste. It is also used by industries to handle wastes high in chemical oxygen demand (COD) and as a treat- ment process for sewage sludge after aerobic wastewater treatment. The produc- tion of biogas from controlled AD is one of the principal advantages of the process: it is a renewable energy source that can be used to produce electricity, heat, and fuel (gaseous or liquefied).67 The characteristics of the feedstock have significant impact on the AD process and therefore on the biogas yield and the digestate quality. For instance, high metal con- centrations in the feedstock can be toxic to methanogenic bacteria. The volatile sol- 67 Best Available Techniques (BAT) Reference Document for Waste Treatment, 2018, 62 3. Cost factors for the main elements of the waste management system ids content will affect the extent to which the process needs to be monitored to avoid the damaging effect of overloading. One of the main limits of AD is its inability to degrade lignin (a major component of wood). This is in contrast with the process of aerobic treatment (composting).68 Three digestions technologies are most commonly used: ● Wet digestion: Solid biowaste is mixed with process water or with liquid waste to provide a diluted feedstock for feeding into the digester. Liquid biowaste can be used directly. In other cases, wet AD plants feed solid waste directly (solid feed- er with conveyor screws) into the digester and the dry matter content is adjusted within the digester. ● Dry continuous digestion: The digestion vessel is semicontinuously fed with sub- strate containing 15–40 percent dry matter. There are vertical and horizontal di- gesters. ● Dry batch digestion: A batch is inoculated with digestate from another reactor and left to digest without further mixing. Leachate is recirculated to improve the con- tact between locally formed organic acids and methane forming bacteria.69 The main types of digesters are as follows: ● Vertical digesters with an agitator (typically used in wet digestion facilities) ● Horizontal digesters with a slow transport agitator using plug-flow technology (used in dry digestion facilities) ● Vertical digesters with no mixing using plug-flow technology (used in dry digestion facilities) ● Box or percolation digesters (used in dry batch digestion facilities). The mixing systems used in the digesters can be (a) mechanical, by means of agita- tors; (b) hydraulic, by means of pumps that recirculate the su strate; and (c) pneumat- ic, by recirculating biogas in the digester.70 Figure 7 summarizes the AD process. It is obvious from the description of technology in Box 15 that significant cost vari- ations are possible depending on capacity, input material, pretreatment processes applied, and selected treatment technology. The AD plans can be of different capacities starting from several hundred tonnes per year to hundreds of thousands of tonnes per year. In some lower-income countries, AD is applied at small scale where large number of small facilities are used by one or several households to produce small quantities of gas used for cooking. 68 Ibid. 69 Ibid. 70 Ibid. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 63 Figure 7: AD process Waste input Process options Reception Weighing ● Flat bunker Recessed bunker Scrap Pretreatment ● ● Tank storage Exhaust air ● Shredding ● Sorting Residues Preparation Material separation ● Sieving ● Wet processing Exhaust air ● Magnetic separation ● Mixing with process water Pretreatment ● Heating ● Aerobic pretreatment ● Single-stage or two-stage digestion Digestion ● Wet or dry digestion ● Mesophilic or thermophilic process ● Continuous or batch operation Compost ● Hygienisation Material separation Digestate Residues Finalisation ● Post maturation ● Customisation Exhaust air Excess water ● Condensate capture Biogas collection Biogas ● Desulphurisation Energy ● Methane enrichment Source: Best Available Techniques (BAT) Reference Document for Waste Treatment, 2018. Box 15: Use of digestate and biogas produced in AD facilities The nutrients previously contained in the feedstock remain in the digestate. Only carbon, hydrogen, oxygen (as part of CO2) and, in marginal quantities, nitrogen and sulfur can leave the process within the gas phase. Therefore, the feedstocks used directly determine the composition of the generated digestate. The nutrient content is predominantly described by the nitrogen, phos- phorus, potassium, and organic carbon content. A clean biodegradable feedstock will increase the quality of the digestate, which later can be used as organic fertilizer or soil improver in agriculture, either in a liquid form (about 5–15 percent dry matter) such as manure; or in a semisolid form (10–30 percent) such as peat, or it can be further upgraded for example, by composting, drying; and/or pelletizing in landscaping and horticulture as well as in private gardens. The common practice for digestate pro- duced from AD treatment of separately collected biowaste is post-composting. Depending on the composition of input biowaste, the energy recovered could result in production of 0.4–0.9 MJ electricity per tonne of waste treated. In addition, combined heat and power (CHP) plants may generate a similar quantity of heat. Total solid residuals depending on waste are 0.3–0.6 tonnes per tonne of input. Biogas generation can vary significantly, for example, in one plant volumes ranged from 80 Nm³ to 120 Nm³ per tonne depending on the waste input. End uses for biogas include burning in a simple boiler to generate heat or use in an engine with a generator to produce power. The most common biogas use is CHP generation to produce both heat and power. Heat is most effectively used on site or locally whereas power can be used on site or transferred to the main electricity grid. Alternatively, biogas can be upgraded, which requires the removal of carbon dioxide and other contaminant gases, to generate biomethane. The addition of propane to biomethane may also be required to achieve the required gas calorific value. Biomethane can be injected into the natural gas distribution network, for conversion to heat or power at the point of offtake or used as a transport fuel. While biogas upgrading may be more efficient in terms of energy utilization, it is also significantly more costly, and biogas upgrading options are not generally viewed as viable for a small-scale AD application. AD processes may be used to directly treat separately collected biowaste. The inclusion of other feedstocks to separately col- lected biowaste, such as sewage sludge, alters the resulting digestate. However, it is important to note that the mixing of bio- waste with these feedstocks can improve both the environmental and economic aspects of the process and has already been adopted in a number of plants (particularly, co-digestion with slurries and manure at small-scale farm-based plants). Source: Best Available Techniques (BAT) Reference Document for Waste Treatment, p. 353, 354. 64 3. Cost factors for the main elements of the waste management system Table 19 shows summary cost data for AD plants with capacity of 130,00071 tonnes of separately collected biowaste per year (Facility 1) and with capacity of 22,00072 tonnes per year (Facility 2). Costs for separate collection of biowaste are not included. Table 19: Sample cost estimates for AD facilities with different treatment capacity Description Unit Quantity Facility 1 Facility 2 Annual quantity of biowaste received Tonne/year 115,000 22,000 Average daily quantity of biowaste Tonne/day 314 60 Fraction after pretreatment and separation of impurities % 95% 95% Land required m² 22,000 10,500 Operating staff Persons 31 24 Investment costs     Ground $ thousand — — Civil works $ thousand 4,182 1,527 Machinery $ thousand 28,079 8,624 Vehicles and mobile equipment $ thousand 590 390 Engineering, commissioning, contingencies $ thousand 9,940 3,143 Total investment costs $ thousand 42,791 13,685 Depreciation $ thousand/year 2,733 874 Operation cost $ thousand/year 3,248 1,040 Maintenance and repair $ thousand/year 1,786 572 Personnel costs $ thousand/year 272 140 Consumables $ thousand/year 437 88 Administration $ thousand/year 523 167 Insurances $ thousand/year 230 74 Total annual costs $ thousand/year 5,981 1,915 Revenues electricity and heat produced73 $ thousand/year 3,517 643 Net costs after revenues $ thousand/year 2,464 1,272 Average net unit costs $/tonne 21.5 57.8 AD is an expensive technology with high investment and operating costs that considerably exceed the costs for aerobic treatment (composting) for the same installed capacity. The high costs are compensated to a large extent by the revenues from the sales of electricity produced or gas provided to public network, though this is only possible for large capacity installations. The revenues could be considerably higher if preferential tariff applies for electricity produced from renewable sources. It should also be noted that other solutions for treatment of biowaste could be available at lower costs compared to AD, for example, black soldier fly (BSF) farming technologies for processing food waste, particularly in tropical and subtropical climates where temperature-controlled facilities are not required. 71 Corresponds to 50 percent of food waste generated in the five sample municipalities considered with total population of 1,410,000 residents. 72 Corresponds to 50 percent of food waste generated in a sample municipality with population of 250,000 residents. 73 Calculated for electricity price of $0.085/kWh without bonuses. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 65 Box 16: Tips ● The construction of AD facility requires well-functioning separate collection system of biowaste to guarantee the feedstock. ● Combined AD facility to receive other feedstock such as animal manure and residues from food processing industry in addi- tion to separately collected biowaste could considerably improve the plant economy. ● Appropriate pretreatment of input biowaste is required to remove plastic bags and other impurities not desirable for the process. ● The conditions and possible technical solutions for the connection to electricity grid should be carefully assessed during the project feasibility stage. 3.7 Sorting and MBT of residual waste Box 17: Main mistakes when planning treatment of residual municipal waste ● Uncertain quantities and composition of input biowaste ● Uncertain quantities, composition, and granulometry of input residual waste ● Overoptimistic projections of recycling potential of input waste and capture/separation rates achieved, for example, 12 per- cent of plastic content in input waste does not mean that all of it could be separated for recycling ● Poor understanding of market demand for RDF and quality requirements imposed by final recipients ● Revenue projections for the sales of recyclable materials that are optimistic and, for example, do not consider the lower quality of separated materials from mixed waste compared with separate collection systems. ● Inappropriate sorting concept that results in additional on-site contamination of separated recyclable waste materials, for example, size reduction of input waste with high food waste content is likely to contaminate additionally the paper and plastic fractions ● The separated recyclable fractions do not meet the quality requirements of the recycling industry ● The RDF produced do not meet the quality requirements of recovery installation ● Suboptimal design of the treatment facility that results in additional manipulations on site and/or nonoperational periods and consequently additional costs ● High contamination of the CLO in case of MBT that does not allow its further use (where relevant or allowed by national leg- islation) ● Future changes in legal requirements not considered at the planning stage (for example, possible ban on use of CLO from MBT in agriculture, new separate collection requirements that reduce the recycling potential of residual waste). The separation facilities for mixed/residual municipal waste apply mechanical treatment methods such as shredding, sorting, and screening to separate recyclable waste fraction and produce RDF. Such sorting facilities often referred to as MRFs could be ‘dirty’ MRF for separating mixed/residual waste or ‘clean’ MRF74 for sorting separately collected fractions. Some ‘dirty’ MRFs could also be designed to additionally accept separately collected waste fractions. It should be noted that recyclables recovered from mixed waste are of much lower quality than those from source-segregated waste due to greater levels of mixing and increased potential for contamination with other materials. 74 Considered in Section 3.4 66 3. Cost factors for the main elements of the waste management system Figure 8: Sample diagram for a municipal waste sorting plant delivery delivery bulky household delivery waste waste recyclables shredder coarse fraction screen drum fine fraction middle fraction light fraction air separator heavy fraction manual sorting recycable materials without RDF option air sorting heavy fraction light fraction magnetic separator magnetic separator ferrous materials manual sorting glass non ferrous separator non ferrous materials granulator landfill material RDF RDF OPTION Source: Feasibility study for construction of sorting plant in Grodno, Belarus, World Bank. Prepared by Eptisa, RWA Group, u.e.c. Berlin. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 67 The most common waste preparation and sorting techniques are summarized in Table 20. Table 20: Main waste preparation and sorting techniques Separation property/ Technique principle Materials targeted Key concerns Shredder Rotating knives or hooks Mixed waste May be physically damaged rotate at a slow speed with Bulky waste by large, strong objects, high torque. The shearing exclusion of pressurized action tears or cuts most containers, materials shredding too fine early can result in excessive contamination of the CLO fraction. Bag Splitter A gentler shredder used Mixed waste No size reduction, may be to split plastic bags while damaged by large strong leaving the majority of the objects waste intact Trommels and Screens Size Oversize - paper, plastic Air containment and cleaning Small - organics, glass, fines Manual Separation Visual examination Plastics, contaminants, Ethics of role, health and oversize safety issues Magnetic Separation Magnetic properties Ferrous metals Proven technique Eddy Current Separation Electrical conductivity Nonferrous metals Proven technique Air Classification Weight Light - plastics, paper Air cleaning Heavy - stones, glass Ballistic Separation Density and elasticity Light - plastics, paper Heavy Rates of throughput - stones, glass Optical Separation Diffraction Specific plastic polymers Rates of throughput Source: Mechanical Biological Treatment of Municipal Solid Waste, Prepared by Enviros Consulting Limited on be- half of DEFRA, 2007. Some of the considerations that affect the design requirements and costs for the sorting/MBT plant include the following: ● Plant working days per year and number of working shifts have a significant impact. ● Number of processing lines: A decisive role for design of the processing lines is the quantity of waste that has to be treated per hour. In general, a one-line configura- tion can handle up to 30 tonnes per hour. If the amount of waste exceeds a certain point, the limiting parts of the process line or, if necessary, the whole line has to be doubled. Limiting parts can be machines (for example, shredder and air separa- tor) as well as a manual sorting line. Besides, higher throughput by adding multiple processing lines has the advantage of not causing the whole plant to shut down if there is any disturbance in a machine. Therefore, the plant’s availability grows with the number of lines. ● Screen fractions: No matter what kind of sieving machine is used (for example, screen drum and vibration screen) it can be designed with one or more different hole diameters. In general, either a screen with one perforation or with two perfo- 68 3. Cost factors for the main elements of the waste management system rations is used.75 The efficiency of a screen with one perforation is higher, that is, less fine fraction material is discharged with the overflow. This means that if the overflow is intended to be RDF material, a better quality is produced. On the other hand, a processing line designed with three fractions means a requirement for two sieves in a row if sieves with only one perforation are used. In that case, the invest- ment costs are higher and more space is required. ● Sorting technology (manual/automatic): A main aspect on whether to apply a man- ual sorting line or an automatic sorting system is the interaction between invest- ment and operational costs. The installation of a manual separation system is limited to a sorting cabin with exhaust air treatment and a capture system for the separated fractions. Automatic sorting systems such as near-infrared technique (NIR) require complex equipment (sensor technology and compressor unit); how- ever, they only work with low material height and limited particle size on the con- veyor belts. Manual sorting results in an increased sorting capacity, yet the quality of the gathered materials is reduced.76 In contrast, the automatic system is able to distinguish between different types of plastic (for example, PET, PE, PS, PVC), paper, wood, and so on. It requires higher initial investments but it is less labor intensive and higher revenues can be achieved. ● Quality requirements for RDF produced.77 The level of preparation that the output fractions need to achieve depends on the purchase agreements with the custom- ers and possible steps of preparation in other preparation plants. This applies to RDF as well as other recycled materials. The requirements toward RDF also affect transportation costs. MBT implies that besides the processing steps used in sorting plants, additional bio- logical treatment and mechanical processes apply. MBT is composed of a number of different mechanical and biological process steps which can be modified and combined to meet different objectives. In general, there are four different types of MBT, each of which can be with or without additional sort- ing plant for recyclables: ● MBT, producing high-calorific RDF and a biotreated fraction for landfill, with or with- out production of CLO.78 Further in the text, this technology is referred as MBT1. The biological treatment processes used in MBT1 are similar to composting. Due to potential biological contaminations and odors, the intense biological treatment phase should be enclosed and open treatment is not typically allowed. RDF is the current prevalent term used for fuel produced from combustible waste in MBT facilities. Potential outlets for the RDF are cement kilns, purpose-built in- cinerators with power and heat output (CHP), co-firing with coal at power stations, and industrial-intensive users for power and heat or both based on CHP facilities. CLO, also sometimes referred to as ‘stabilized biowaste’, is usually the term used for an output using an aerobic process such as IVC in MBT plant. The potential ap- plications of this output are dependent upon its quality and legislative and market conditions. CLO has the potential to be used as a source of organic matter to im- prove certain low-quality soil, for example, in the restoration of brown field sites, or for landfill cap restoration, or just landfilled, requiring less volume and generat- 75 GIZ. 2025. “Guideline on Separate Waste Collection and Sorting of Recyclable Municipal Waste.” 76 Ibid. 77 The quality requirements for RDF are usually defined by final users. Typical parameters to con- trol include particle size, moisture content, and heating value. Limit values for content of chlorine, heavy metals, and other substances should be observed. 78 The production of CLO requires biological treatment to minimum 8 weeks. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 69 ing fewer methane emissions than landfilling of the original, untreated waste. CLO is not the same as a source-segregated waste derived ‘compost’ or ‘soil improver’ which will contain much less contamination and has a wider range of applications. ● MBT designated to maximum RDF production and minimum quantity of treatment residues designated to landfill. Such facilities are usually using bio-drying as treat- ment method and further in the text is referred as MBT2. The purpose of this technology is to maximize the RDF production. The mechanical treatment of input waste is organized in a similar way like in MRF and MBT1. The bi- ological treatment is designated to stabilize the material and reduce the moisture content instead of producing CLO. Following the biological treatment, the major part of combustible fraction con- tained in the dried waste is isolated using different separation techniques. The treatment residues containing mainly mineral fraction are designated to landfill. ● Biological pretreatment before landfilling, sometimes called biological stabilization. The purpose of such biological treatment is to reduce to some extent the waste quantities designated to landfilling and mainly to reduce the landfill gas generation and contamination of leachate. Such reduction is due to treatment losses from biodegradation processes where the organic matter is partly converted to CO2 and water. Considering that neither CLO nor RDF is produced, the achieved reduction in quantities of landfilled municipal waste is considerably lower compared to the previous two types of MBT processes (not discussed further in this document). ● Pretreatment before incineration plant (not discussed further in this document since WtE facilities are outside the scope of these guidelines). The last two technologies are not considered below due to limitations in their imple- mentation. The design of the municipal waste treatment plant should be consistent with the fol- lowing: ● Type of waste ● Quantity of waste ● Quality requirements of output fractions ● Existing legal requirements and expected future developments ● Financial resources available ● Flexibility to future changes in waste quantities and composition ● Considerations for logistics of output fractions ● Site characteristics. As a result, the optimal type among the possible design types has to be chosen. The main capital investments for sorting/MBT plant needed for the following infra- structure include the following: ● Site infrastructure: internal site roads, paved areas, parking areas, site fence, and gate ● Administrative buildings, garage for mobile equipment, maintenance shops ● Entrance area with weighbridge ● Reception zone and storage of the input material. 70 3. Cost factors for the main elements of the waste management system ● Industrial hall for mechanical treatment part sized according to selected treat- ment concept and equipment ● Storages for final outputs (separated recyclable waste, RDF, and CLO) and, when relevant, loading stations ● Industrial hall and constructions for biological treatment; ● Stationary equipment such as shredders, screens, sieves, compaction equipment and related metal constructions, stairs, and conveyor belts ● Mobile equipment such as loaders, excavators, forklifts ● Site electrical command and distribution ● Process automation ● Ventilation and exhaust air treatment equipment and facilities ● Fire safety system ● Utilities supplies, access road (if relevant) ● Wastewater treatment plant ● Process monitoring and laboratory equipment ● Other equipment: small fuel station (alternatively mobile diesel refuelling vehicle) ● Installation and commissioning. Sample cost estimates of a residual waste sorting plant and two main MBT technol- ogies are summarized in Table 21. The selected capacity of the installations in the considered examples corresponds to the quantities of residual waste generated in all sample municipalities with total population of 1,410,000 residents. Table 21: Sample cost estimates for residual waste sorting facility (MRF) and MBT plants Facility type MBT with bio-drying MRF with RDF MBT with RDF and and maximum RDF Parameter Unit production CLO (MBT1) (MBT2) Municipal waste input Tonnes/day 1,240 1,240 1,240 Installation capacity Tonnes/year 460,000 460,000 460,000 Shifts working 2 2 2 Intense biological treatment type None Tunnel Tunnel Maturation technology None Windrow Intense biological treatment time Weeks — 4 3 Maturation time Weeks — 6 Waste separated for recycling 26,100 26,100 26,100 RDF high heating value (large size fraction) 79 Tonnes 47,900 54,900 54,900 RDF low heating value (small size fraction) 80 Tonnes — 108,000 79 Refers to RDF produced out of large and/or medium size fraction following mechanical separation, containing large percentage of plastics, paper/cardboard, and textile. 80 Refers to RDF produced from small size fraction following mechanical separation and subsequent biological treatment through biological stabilization or biological/physical drying. It has lower heating value compared to RDF produced out of large size fraction due to the presence of signifi- cant quantities of pretreated biowaste, contained in the small size fraction. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 71 Table 21: Sample cost estimates for residual waste sorting facility (MRF) and MBT plants (cont.) Facility type MBT with bio-drying MRF with RDF MBT with RDF and and maximum RDF Parameter Unit production CLO (MBT1) (MBT2) CLO 90,000 — Pretreated waste to landfill 378,000 114,000 91,000 Site requirements m² 13,400 117,000 60,400 Investment costs Ground $ thousand — — — Civil works $ thousand 2,860 25,120 20,297 Machinery $ thousand 7,026 41,617 44,617 Vehicles $ thousand 685 2,795 1,855 Engineering, commissioning, contingencies $ thousand 2,957 18,900 18,708 Total Investment costs $ thousand 13,528 88,432 85,477 Depreciation $ thousand/year 760 4,710 4,647 Unit depreciation costs $/tonne 1.7 10.4 10.3 Operating costs Maintenance and repair $ thousand/year 627 3,640 3,626 Staff $ thousand/year 512 786 746 Consumables $ thousand/year 1,134 1,644 2,352 Transport of residues to landfill $ thousand/year 729 220 175 Administration $ thousand/year 310 1,034 1,089 Insurances and taxes $ thousand/year 31 103 109 Operating costs $ thousand/year 3,343 7,428 8,096 Unit operating costs $/tonne 7.4 16.4 17.9 Total annual costs $ thousand/year 4,103 12,139 12,743 Unit annual costs $/tonne 9.1 26.8 28.2 The above costs estimates do not consider the revenues from the sales of recy- clables and the revenues/costs from the sale of RDF or CLO. It must be noted that although CLO from MBT facilities shares a similar processing as compost, the two outputs should not be confused. CLO is generally not suitable for land application and therefore should not be confused with source-separated green or food waste com- post. CLO rarely has a marketable sales value and the value is in stabilizing the mate- rial to make it relatively inactive and therefore cheaper to transport and manage in a landfill (producing less gas and leachate, requires less compaction work, and results in less landfill settlement). The potential revenues from RDF produced depend on the achieved quality characteristics and in particular its heating value, moisture content, and particle size. Additional requirements apply for concentrations of heavy metals and other substances. Significant RDF price variations can be observed in different countries and between different users. Revenues can be expected only for high heat- ing value and dry material, while for lower RDF grades the price could be negative. 72 3. Cost factors for the main elements of the waste management system It should be noted that RDF is not a standard fuel and environmental requirement for waste incineration and co-incineration must apply. Some recyclables could also be separated from the residual waste entering MBT but their quality is considerably lower than these separated at source. Often there is no market for such contaminated materials and potential revenues are considerably lower. Sorting/MRF has considerably lower implementation costs but does not provide significant reduction of waste quantities designated for landfilling. The comparison shows comparable costs for the two sample MBT technologies considered. Change in the selected treatment method or output requirements could have a significant impact on costs. MBT1 and MBT2 examples refer to completely enclosed treatment plants where the ventilation and treatment of exhaust gases is properly organized. The climate con- ditions in many LICs and MICs allow installation of equipment in open covered areas that could reduce considerably the costs for construction. More simplified treatment concepts could also be considered when limited funds are available. Two additional examples for simplified MBT plants of same capacity are presented to demonstrate possible cost reduction. In these examples, the industrial halls are replaced with shelters and biofilters and other equipment for treatment of exhaust gases are re- moved; ventilation is limited only to sorting cabins; the MBT tunnels are replaced with open ASPs; and some of the expensive equipment modules (optical sorting and eddy current separators) used to produce RDF are removed. The initial investments for such simplified facilities are estimated to $41.1 million for MBT1a and $32.5 million for MBT2a while the unit costs are approximately $20/tonne input waste. Table 22: Sample cost estimates for MBT facilities based on simplified treatment/low-cost concepts MBT1a (simplified) - MBT MBT2a (simplified) - MBT Parameter Unit with RDF and CLO with RDF Municipal waste input Tonnes/day 1,240 1,240 Installation capacity Tonnes/year 460,000 460,000 Shifts working 2 2 Intense biological treatment type ASP ASP Maturation technology Windrow Intense biological treatment time Weeks 2.9 2.9 Maturation time Weeks 7 Waste separated for recycling 26,100 26,100 RDF high heating value81 (large size fraction) Tonnes 54,900 54,900 RDF low heating value (small size fraction) 82 Tonnes — 108,000 CLO 90,000 — 81 Refers to RDF produced out of large and/or medium size fraction following mechanical separation, containing large percentage of plastics, paper/cardboard, and textile. 82 Refers to RDF produced from small size fraction following mechanical separation and subsequent biological treatment through biological stabilization or biological/physical drying. It has lower heating value compared to RDF produced out of large size fraction due to the presence of signifi- cant quantities of pretreated biowaste, contained in the small size fraction. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 73 Table 22: Sample cost estimates for MBT facilities based on simplified treatment/low-cost concepts (cont.) MBT1a (simplified) - MBT MBT2a (simplified) - MBT Parameter Unit with RDF and CLO with RDF Pretreated waste to landfill 114,000 91,000 Site requirements m² 122,000 58,100 Investment costs Ground $ thousand — — Civil works $ thousand 4,203 2,924 Machinery $ thousand 19,936 15,023 Vehicles $ thousand 8,316 7,886 Engineering, commissioning, contingencies $ thousand 8,918 7,005 Total investment costs $ thousand 41,373 32,837 Depreciation $ thousand/year 2,687 2,191 Unit depreciation costs $/tonne 5.8 4.8 Operating costs Maintenance and repair $ thousand/year 2,709 2,289 Staff $ thousand/year 893 852 Consumables $ thousand/year 1,933 3,044 Transport of residues to landfill $ thousand/year 219 173 Administration $ thousand/year 736 691 Insurances and taxes $ thousand/year 74 69 Operating costs $ thousand/year 6,564 7,118 Unit operating costs $/tonne 14.3 15.5 Total annual costs $ thousand/year 9,251 9,309 Unit annual costs $/tonne 20.1 20.2 As shown in the above table, the simplified treatment concepts and lower-cost solu- tions result in reduced treatment costs. However, it should also be noted that cost reduction is achieved as a result of removing some process equipment, applying low- er standards for emissions and odor reduction from installation, relaxing labor safety requirements, and so on. As a result, such low-cost solutions have some disadvan- tages compared to ‘standard design’ facilities and may not be capable of providing the same operational characteristics, flexibility to changes in input waste quantities, and composition and quality of output products. The investments costs for establishment of a waste treatment facility can vary sig- nificantly depending on the selected technology, desired plant flexibility to chang- es in input waste composition and quantities, labor safety standard, fire protection measures, and requirements for the output fractions and emissions discarded from installations. The level of automation in the applied technology also has a major im- pact on investment and operating costs. 74 3. Cost factors for the main elements of the waste management system Box 18: Tips ● More advanced treatment options usually mean higher implementation costs. ● The materials separated for recycling from mixed municipal waste are of lower quality than the separately collected recycla- bles and demand and market prices for such materials will be lower. ● RDF producers should meet the requirements of final recovery plants that could vary significantly with regard to size, heavy metal content, heating value, and moisture. ● Revenues from the sales of RDF are not certain and price could be negative if quality requirements are not met. ● Changes in legal requirements could affect the long-term viability of applied technology, for example, if new requirements on CLO are introduced. ● Only proven treatment technologies with significant track record must be considered. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 75 Costs of the entire waste management system Box 19: Main mistakes when planning an overall waste management system ● Not all elements of the system and different waste management operations are taken into account, for example, separate waste collection may be planned without considering how collection of residual waste is organized. ● Investment in waste treatment and disposal infrastructure serving individual settlements in a municipality without looking for regional impact and potential benefits from economies of scale in case of common provision of services at the regional level. ● Overestimated revenues from the construction of treatment facilities for municipal waste and expectations that waste treat- ment will bring revenues for local authorities. ● Implementation costs for improvement of waste management system and impact on service tariffs not sufficiently analyzed before taking investment decision. 4.1 Individual versus regional provision of services and the effect of economies of scale Regional waste management planning involves making choices between building several (smaller) waste recovery or disposal facilities usually serving an individual settlement or a municipality or a single (larger) regional treatment site serving sev- eral neighboring municipalities. As noted, if we consider landfill planning, significant economies of scale associat- ed with larger sites can have a major impact on total waste management costs per tonne of waste collected and on the cost per household, as reflected in the tariff. As the affordability of waste management services is a critical element in the de- cision-making process, optimizing landfill size to maximize potential economies of scale and minimize costs is a key objective of the analysis. Many other factors must also be considered, of which collection, transport, and transfer systems and costs are particularly significant. To demonstrate this, an example is provided that compares the construction of in- dividual landfills for each of the different-sized sample municipalities considered in Section 2.3, with total population of 1,410,000 residents, with the construction of a single regional landfill serving all municipalities. For simplicity of analysis, it is as- sumed that all waste collected in the municipalities will be disposed of to landfill. The calculations are prepared for an average distance of 25 km between the municipal centers and disposal site and only waste collection and disposal costs are consid- ered. Unit costs per tonne of waste collected and disposed of are shown in Figure 9. 76 4. Costs of the entire waste management system Figure 9: Unit costs per tonne of waste generated for individual and a shared landfill 200.00 180.00 160.00 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - 1,000,000 250,000 100,000 50,000 10,000 Residents served In this example, the construction of a regional landfill is clearly more beneficial to all municipalities involved. In practice, the waste management planning deals with much more complicated waste management systems where various collection, sep- arate collection, recovery, and disposal options have to be analyzed as presented in the following section. 4.2 The effect on costs of changing waste management objectives The purpose of this analysis is to formulate and compare several separate collection and treatment options for a regional municipal waste management system serving all sample municipalities considered in the previous sections with a total population of 1,410,000 residents. The following alternatives are compared: ● Alternative 1. The first alternative provides basic municipal waste collection ser- vices where all collected municipal waste is disposed of to a central regional land- fill. ● Alternative 2. In the second alternative, additional services are introduced and sep- arate collection of recyclable waste such as paper and cardboard, plastics, glass, and metals are provided, covering 100 percent of residents living in urban areas and 70 percent of residents living in rural areas in all municipalities. The separately col- lected waste quantities are delivered to a centralized regional sorting facility. In ad- dition, composting of green waste collected from public parks and green areas is organized at the municipal level. All residual/mixed municipal waste collected in the municipalities is collected and delivered to a regional landfill. The reduced quantities of waste designated to landfilling compared with the previous alternative are con- sidered when calculating the necessary landfill capacity and costs. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 77 ● Alternative 3. The third alternative retains the waste collection, separate collec- tion, and composting elements considered in Alternative 2 but all residual mixed waste collected is designated to a centralized sorting facility (MRF) where addi- tional recyclables are separated and RDF is produced. In the MRF, the input waste is separated following size reduction into two waste fractions by size using rotat- ing screens. The large size fraction is then fed into sorting cabins where recycla- bles are separated manually. The remaining combustible materials from the large size fraction are removed using air separators and following additional size reduc- tion and removal of impurities, RDF is produced. The RDF produced from the large size fraction is further referred to as high heating value RDF. The entire small size fraction is designated to landfilling. ● Alternative 4. In the fourth alternative, the MRF is upgraded to MBT with a CLO plant like the one considered in Section 3.7. Two variants of Alternative 4 are con- sidered. In Alternative 4a, the entire mechanical part and intensive phase of bi- ological treatment is installed in closed industrial buildings and covered area is provided for windrows. Respective ventilation equipment and cleaning of exhaust from enclosed areas are envisaged. The input waste into the MBT plant is sepa- rated in a similar way like in the MRF used in Alternative 3. The small size fraction is designated to biological treatment that is similar to composting. The inten- sive biological treatment is provided in tunnels followed by a maturation phase in windrows. Following biological treatment, CLO is produced using size reduction, sieving, and separation (requiring significant time of 8–10 weeks). The treatment residues are designated to landfill. The alternative provides additional reduction of quantities of waste landfilled due to treatment losses during biological treatment (mainly CO2 and H2O) and CLO produced. Alternative 4b has treatment steps similar to Alternative 4a. For cost reduction, the mechanical part is installed under shelter and not completely enclosed. Respec- tive ventilation and exhaust air treatment are reduced. The intensive biological treatment is held in ASP beds and some of the RDF processing steps such as re- moval of nonferrous metals by Eddy current separators, optical sorting, and vibrat- ing screens are not used. The maturation is implemented in an open site. ● Alternative 5. In this alternative, the MBT CLO plant is replaced with MBT RDF plant. The change treatment technology’s main objective is to maximize the pro- duction of RDF and ensure no CLO is produced. The mechanical treatment part of the MBT plant is similar to Alternative 4 and provides separation of recyclables and RDF from the large size fraction. The small size fraction is designated to biological drying in beds/tunnels for 15–20 days. The duration of biological treatment is much shorter than that in Alternative 4. Similar to the previous alternative, two variants are presented with regard to treatment concept as considered in Section 3.7. Alternative 5a is for an entirely closed plant, while Alternative 5b provides a low- er-cost solution where the process equipment is installed under shelter and some of the RDF processing steps such as removal of nonferrous metals by Eddy current separators, optical sorting, and vibrating screens are not used. Following the approach explained in Chapter 3, detailed mass balances and cost es- timates are prepared separately for the different waste operations included for each municipality and for the whole waste management system. Figure 10 presents the mass balance of all waste generated in the five notional mu- nicipalities for the different alternatives during the first year of operation. 78 4. Costs of the entire waste management system Figure 10: Mass balance and comparison of different waste management alternatives Mass balance comparsion of different alternatives, tonnes 600,000 500,000 Treatment losses MBT CLO 400,000 RDF Recycling from 300,000 treatment of mixed residual waste 200,000 Recycling separate collection 100,000 Composting 0 4 2 3 5 1 e e e e e iv iv iv iv iv at at at at at rn rn rn rn rn te te te te te Al Al Al Al Al Note: Treatment losses indicate loss of H2O and CO2 due to the biological treatment in MBT. Same mass balances assumed for variants of Alternative 4 and Alternative 5. As shown in the figure, separate collection of recyclable waste and composting of green waste in the second alternative reduce waste to be landfilled by 12.9 percent. Additional reduction of landfill waste to 70.3 percent of municipal waste generated will be achieved if mixed waste is designated to sorting/MRF facility. The construc- tion of MBT under the last two alternatives results in more considerable reduction of landfill waste. The achieved recycling rates and percentage of municipal waste designated to landfill under different alternatives are presented in Table 23. Table 23: Recycling rate and percentage of waste landfilled for different alternatives Alternative   1 2 3 4 5 Landfill rate (%) 100 87.1 70.3 23.6 19.1 Recycling rate (%) 0 12.9 19.3 35.183 19.3 Note: In addition to recycling and landfilling, the difference to 100 percent is assigned to RDF produced and treat- ment losses in MBT process. The investment requirements increase with the extension of separate collection system and application of more advanced treatment technologies for residual/mixed municipal waste. Comparison of initial investments for the different alternatives considered is show Figure 11. 83 Including CLO. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 79 Figure 11: Estimated initial investment costs for different waste management alternatives DUCs per waste management operation for the different waste management alter- natives are summarized in Table 24.84 Of note is that the replacement cost of equip- ment is included in the investment cost. Note: The presented DUCs (AICs) calculated per tonne of waste generated are rela- tive unit costs. They show the contribution that the unit cost of a system component makes to total system unit costs relative to the unit cost contributions of all other components measured against the same base (for example, per tonne of total waste generated). For Alternative 1, these costs are equal to absolute unit costs per waste management operation (for example, costs per tonne collected, costs per tonne of waste landfilled). For other alternatives, the absolute unit costs per waste manage- ment function are higher than relative values. See explanations in Chapter 5. The analysis shows that total unit costs per tonne of waste generated considerably increase with the establishment of separate waste collection and composting and increase further with the implementation of more advanced treatment for residu- al waste such as MRF and MBT. The alternatives with construction of MBT have the highest unit implementation costs. If revenues from the sales of recyclables are con- sidered, the cost increase is partly compensated, and the resulting net costs show smaller differences between alternatives.85 Such a conclusion should be interpreted with caution because the revenues are not guaranteed and are influenced by many factors as explained in Chapter 7. 84 The calculated investment costs consider the initial investments, other investments occurring over the planning period of 12 years, the investment costs for replacement of equipment, and re- sidual value of assets in the end of the planning period. 85 The conclusion is only valid if assumed separate collection capture rates and quantities of recycla- bles are achieved and for the assumed prices of recyclable commodities. 80 4. Costs of the entire waste management system Table 24: Comparison of DUCs per tonne of waste generated for different waste management alternatives (AIC) Alternative Alternative Alternative Alternative 4a Alternative Alternative Alternative Waste management operation 1 2 3 (RDF + LF) (RDF+CLO) 4b 5 (RDF) 5b Separate collection Investment costs — 2.31 2.31 2.31 2.31 2.31 2.31 Operating costs — 5.22 5.22 5.22 5.22 5.22 5.22 Total separate collection costs — 7.53 7.53 7.53 7.53 7.53 7.53 Residual collection Investment costs 9.07 7.86 7.86 7.86 7.86 7.86 7.86 Operating costs 24.11 20.69 20.69 20.69 20.69 20.69 20.69 Total residual collection costs 33.18 28.55 28.55 28.55 28.55 28.55 28.55 Green waste collection and composting Investment costs — 0.88 0.88 0.88 0.88 0.88 0.88 Operating costs — 1.94 1.94 1.94 1.94 1.94 1.94 Total green waste composting — 2.82 2.82 2.82 2.82 2.82 2.82 costs Sorting plant’s separately collected waste Investment costs — 0.69 0.69 0.69 0.69 0.69 0.69 Operating costs — 2.38 2.38 2.38 2.38 2.38 2.38 Total sorting plant costs — 3.07 3.07 3.07 3.07 3.07 3.07 Residual waste treatment Investment costs — 2.31 15.07 7.61 14.82 6.14 Operating costs — 6.43 14.28 12.13 15.67 13.23 Total treatment plant costs — 8.74 29.35 19.74 30.50 19.36 Landfill Investment costs 8.40 8.04 6.82 3.69 3.69 3.40 3.40 Operating costs 8.99 8.57 7.49 3.06 3.06 2.76 2.76 Total landfill costs 17.39 16.61 14.31 6.75 6.75 6.15 6.15 Totals Total investment costs86 17.47 19.79 20.88 30.51 23.05 29.97 21.28 Total operating costs 33.10 38.80 44.15 47.57 45.42 48.66 46.21 Total gross costs 87 50.57 58.59 65.02 78.08 68.46 78.63 67.49 86 Does not include land acquisition costs for any alternatives, which can have a significant impact. 87 The potential revenues from the sales of recyclables, compost, RDF, and/or CLO not considered. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 81 Figure 12 summarizes the total unit costs and revenues for the different scenarios. As it can be seen from the analysis, significant cost differences exist between the different waste management alternatives and achieving higher recycling and landfill diversion rates is in principle more expensive. Figure 12: Estimated unit costs per tonne of waste generated for different waste management alternatives Comparison of discounted unit costs, discounted revenues and net costs, $/tonne waste generated 90.00 78.08 78.63 80.00 68.46 67.49 70.0 0 65.02 58.59 60.00 50.57 50.00 40.00 Total unit costs 30.00 20.00 s Net cost 10.0 0 0.00 4b 4a 5b 5a e2 e3 e1 e e e e iv iv iv iv iv iv iv at at at at at at at rn rn rn rn rn rn rn te te te te te te te Al Al Al Al Al Al Al Box 20: Tips ● The waste management operations are interdependent and an understanding of the costs of the entire waste management system is required. ● Low initial investment does not always mean lowest unit costs. ● More advanced treatment options and technical solutions usually mean higher waste management costs. ● Potential benefits of economy of scale in establishing common treatment and disposal facilities serving several neighboring municipalities should be assessed and common benefits identified at the planning stage. ● Achieving the same technical and quality standards means comparable costs. Waste management investment costs do not depend significantly on the personnel costs and wages. It is not correct to assume that investment in advanced treatment technologies could be implemented much cheaper in countries with lower income. Low-cost solutions usually mean compro- mise with environmental standards/risks, performance standards/product quality, or labor safety. ● The investment decisions should be based on competent technical expertise, supported by detailed and reliable cost esti- mates, and not on unproven opinions and expectation. ● It must be noted that social and political aspects affect the availability of land for various facilities and the public acceptance of certain technologies over others can be swayed by perceived and not factual risks, which also influences the availability of options. Additionally, it must be acknowledged that systems such as MBT and energy from waste are never stand-alone and always require landfills for residual waste and/or rejects and off-takes for heat, electricity, recyclables, and so on. Landfills, on the other hand, tend to be more independent as the fail-safe last option. These and other nonfinancial considerations require to be factored into financial decision-making. 82 5. AIC analysis for municipal waste management AIC analysis for municipal waste management As noted earlier, cost calculations are notional for illustrative purposes only, should be interpreted within the assumptions and unit rates used for their calculations, and should not be considered applicable across the board. Local conditions, technical and technology specifications, markets, and even cultural and social norms influ- ence waste management and its costs and should be considered along with local unit rates when costing a specific system. 5.1 Introductory comments Earlier chapters have focused on the direct costs of municipal waste management components and shown how those costs vary with differences in scale. Chapters 5 to 7 introduce some financial techniques that are readily applicable to many situa- tions: understanding the financial dynamics of the waste system; evaluating techni- cal options and their cost implications for tariffs and revenue; assessing the financial viability of schemes to collect, sort, and sell recyclable materials; and undertaking longer-term planning, budgeting, and tariff analysis. The chapters illustrate how unit cost analysis is a key tool for systematically analyzing and comparing the costs of municipal waste system options and components. A primary focus is on unit costs and the insights they bring to effective financial management: translating an uneven cash flow into an equivalent even revenue flow; defining a common tariff to encompass the full costs of all waste components com- bined; and defining a uniform gate fee for material accepted to an MRF plant even if full plant capacity is progressively phased in over time. Other relevant issues covered are the competing objectives of affordability and financial viability; recyclable mate- rial sales, risk, avoided costs, and credits; and understanding the difference between fixed and variable costs. Chapters 5 to 7 take as an example Alternative 2 presented in Chapter 4 and draw on analysis undertaken with the cost model for each municipality/CA defined by popu- lation size (CA 1, 1,000,000; CA 2, 250,000; CA 3, 100,000; CA 4, 50,000; CA 5, 10,000) and for five waste management functions (separate collection, residual waste col- lection, composting green waste, sorting separately collected material, and landfill operations). Waste and material flows are as per earlier chapters: the populations remain fixed over the planning period whereas per capita waste generation rises at 1 percent a year. Net cash flows, AICs per tonne and per capita, and their equiva- lent annual revenue flows are estimated. Unit costs of separately collected waste and recyclable materials sorted are assessed. Examples from the cash flow analysis are provided throughout the chapters in the form of summary tables and charts to illustrate unit costs and differences arising from scale. The data used and examples provided in the main text relate primarily to a notional CA consisting of the populations of all five CAs. A summary of data and unit cost outcomes relevant to each of the five catchments has also been prepared and is in- cluded in Annex 1. It provides more detail and examples of techniques described in the text and analysis at different levels, for example, to establish the contribution op- erating costs (and their individual components) made toward total system unit costs. The time-period of analysis of the type introduced here depends on the nature of the project being considered. If it is a complex regional waste management system, then Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 83 planning periods of 15–20 years are realistic. If it is a simple municipal waste collection project consisting of landfill disposal and limited recycling, a period of 10 years may be appropriate. With modern computers, the analysis can be extended over much longer time periods, but the reliability of data inputs and assumptions made over such periods can be poor. The current analysis is based on a 12-year planning period. The analysis is carried out in the constant values of a specific year—typically the year in which the analysis is being undertaken. The current analysis is undertaken in constant 2022 values. Price adjustments are made over time only if the real price of an input has increased (the rising price of energy in recent times is an example88). Adjustments are not made for general price inflation. The discount rate used for analysis of this kind is typically defined by the government. A typical rate for a project conducted in constant values is 5 percent, which is the rate used for the current analysis. A thorough assessment of the physical flows of a project is crucial. Physical flows typically consist of the populations served (for example, number of households or citizens) and waste and material flows. Provision should be factored in as necessary for projected increases in populations and household numbers—the national statis- tics agency is likely to publish such estimates. Growth in per capita waste generated (perhaps reflecting rising real income levels) and from a growing population should also be recognized (if reliable data are available). The effects of changes to current waste and material flows must also be recognized. For example, plans to introduce a waste transfer system to divert waste from small municipal landfills to a larger, more distant regional landfill can have profound conse- quences for the cost dynamics of waste collection services, transport systems, and landfill disposal. Detailed analysis of the waste and material flows is required, ideally reflected in mass balance diagrams. Material flows analysis is key to defining total capacity requirements and the type, scale, number, and costs of plant and equip- ment needed to operate the system efficiently over the planning period. Unit cost calculations are based on a cash flow model linked to the cost model on which the earlier chapters are based. The model does not need to be complex but should ideally be constructed and managed by staff having a good grasp of Excel and the project to be analyzed. Physical inputs are the populations served (residents and/ or households) and material flows (waste flows, recyclable material flows, and prod- uct sales). A clear understanding of the timing of such flows is important. Financial inputs from the cost analysis are investment costs (from which depreciation, residu- al value, and ROI are calculated as needed) and operating cost components. 5.2 AIC approach to calculating annual revenue requirements and tariffs The analysis is undertaken using the techniques of DCF analysis,89 an extension of which is AIC analysis. AIC analysis enables the full costs of service provision to be allocated over the planning period pro rata to the quantity of waste (or recyclable material) managed each year. The aim is to define a revenue flow which has a PV equal to the PV of the net cash flow, that is, a discounted revenue flow which is equal to the discounted cost flow, and hence covers projected costs in full.90 AIC analysis is a powerful and versatile tool that can readily assist in the financial assessment of municipal waste systems. It can assist waste practitioners in 88 All prices and costs used in the analysis remain constant, without adjustment. 89 An overview of DCF analysis (including the concept of PV) is given in Annex 2. The concept of AIC analysis is outlined in Annex 3. Summary descriptions are also given in the Glossary. 90 The concepts are explained in greater detail in the following sections. 84 5. AIC analysis for municipal waste management ● Understanding the financial structure, dynamics, and constraints of the waste system; ● Evaluating system options and the cost consequences of introducing new system components; ● Identifying the net costs or revenue from the sale of separately collected recycla- ble materials; and ● Undertaking longer-term systems planning, budgeting, and tariff analysis. (Note that revenues from product sales are not included at this point in the analy- sis. This is because sales revenues are far more uncertain than estimates of system costs or tariff revenues. They should be included in the analysis but should not be regarded as definite for feasibility study purposes unless a high level of confidence underpins them [such as successful pilot trials or binding material purchase con- tracts]. Product sales are considered further in Chapter 7.) AIC techniques can be used without complex modelling to give rapid information on unit costs/tariffs with only limited investment, operating cost, and physical flow data. AIC relates directly to financial and physical flows (for example, tonnes of waste, citizens) over a planning period and draws on the DCF concepts of discounting, PV, and residual value. The approach transforms an irregular cost flow into an equivalent regular revenue flow. The AIC is a unique value which when applied uniformly to a physical flow generates a revenue flow having a PV equal to that of the cost flow. AIC is calculated from system costs and waste quantities by dividing the PV of the cost flow by the PV of the physical flow. The steps taken to calculate the AIC and equivalent annual revenue requirements are to ● Calculate the net cash flow; ● Calculate the PV of the net cash flow; ● Define the quantity of waste generated91 annually over the planning period; ● Calculate the PV of the waste flow; ● Calculate the AIC/tonne of waste; and ● Calculate the annual revenue requirement. Each step is addressed below. 5.2.1 Calculate the net cash flow The net cash flow is the bottom line of the cost analysis from which AICs, annual revenue requirements, and tariffs are ultimately calculated. Net cash flow (before accounting for product sales) is calculated as ● Annual investment expenditure, plus; ● Annual operating cost, minus; and ● Residual value92 of the assets created by the investments. 91 Note that the term waste generated is used here to mean the totality of waste material collected (residual waste and separately collected waste collected for recycling). The distinction between the terms waste generated and residual waste collected is significant. 92 Residual value is the value remaining in a physical asset at the close of the planning period: net cash flow is ‘net’ of any residual value. It is the value of an asset after subtracting depreciation from the investment expenditure. Residual value is recognized as income in the final year of the planning period. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 85 Table 25 illustrates the cost components of the net cash flow: the PV of the waste flow, the PV of the net cash flow, and the AIC per tonne of waste generated as calculated from them. Costs shown in the table relate to the total populations, waste flows, and financial flows of the five waste CAs combined. The PV of the net cash flow is the discounted value of the total costs incurred (investment costs and operating costs93 net of residual value) over the planning period. Table 25: Components of the net cash flow (based on the combined CAs) Total system PV of waste PV of cost generated component AIC Cost component Million tonnes $, millions $/tonne Net cash flow 4.83 283 58.6 Investments 4.83 117 24.3 Operating costs 4.83 187 38.8 Residual value 4.83 −22 −4.5 Note that the AICs in the table are calculated as the PV of the costs (shown for the total net cash flow and for its individual cost components) divided by the PV of the discounted waste flow.94 It can also be seen that the PVs of the waste flows on which each AIC is based are the same for each cost component ($4.83 million). This is an important factor, as AICs calculated from the same material base (for example, per tonne of total waste generated95) can be totalled together. The AICs for the three cost components sum to the total AIC of the net cash flow. Similarly, the PVs of the three cost components sum to the total PV of the net cash flow. These concepts are ex- panded below. It follows that the PV of the net cash flow must also be the PV of the revenue flow needed to cover the costs in full. The net cash flow is typically irregular, combining capital costs of long-lived assets with annual operating costs. The aim is, therefore, 60,000 40,000 US$ ‘000 20,000 – 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 (20,000) (40,000) Years Net cash flow Annual investment costs Annual operating costs Residual value 93 Accounting-based operating costs, specifically depreciation and ROI, are not accounted for in DCF analysis (as including them would be to double count investment costs and residual value). 94 Justification for discounting a physical flow (such as waste) is given at the end of Annex 3. 95 This could also be the PV of total waste collected. 86 5. AIC analysis for municipal waste management to transform the uneven net cash flow into an equivalent regular annual revenue flow, the PV of which is the same as that of the net cash flow. The two cash flows are equiv- alent in the sense that their PVs are equal (but whose cash flows are quite different). Figure 13 illustrates the uneven nature of the net cash flow and its cost flow compo- nents (including residual value). The data are from analysis of CA 1. Figure 13: Net cash flow and cost components Figure 13 shows the three components of the net cash flow calculation and the net cash flow profile itself. Note that residual value is recognized in the final year of the planning period (from which it can be discounted to define its PV). The uneven profile of the investment expenditure is clear and is reflected in the net cash flow. Annual operating costs grow progressively over the period with rising per capita waste gen- eration, giving a slightly upward trend line. Section 5.2.4 explains how an uneven net cash flow can be translated into an equivalent annual revenue requirement. The cost flow contributions to the net cash flow are shown at their highest category level (that is, total investment costs, total operating costs, and total residual value.) Note that the unit cost analysis described in this document can be conducted at any subordinate cost level to estimate its unit cost per tonne. Examples include invest- ment categories (civil works, building construction, plant and equipment, and so on.) and operational categories (labor costs, maintenance costs, fuel, energy costs, and so on.) In fact, any activity that can be related usefully to a physical flow. 5.2.2 Define the quantity of waste generated annually over the planning period The quantity of waste generated is as defined in the cost analysis. The discounted value of the waste flow is calculated in the same way as for a financial flow (see An- nex 3 for a justification for discounting physical quantities in this way). The PV of the waste flow is one of the two parameters from which the AIC is calculated, the other is the PV of the net cash flow. 5.2.3 Calculate the AIC per tonne of waste generated The PV of the net cash flow is also the PV of the revenue needed to fund the waste services on a financially sustainable basis. Calculating the annual revenue require- ment depends on first calculating the AIC of the net cash flow. This simply involves dividing the PV of the net cash flow by the PV of the relevant waste flow, giving a fixed unit cost per tonne of waste over the planning period. Table 26 introduces some key concepts of AIC analysis: ● It broadens the analysis to the combined and individual components of the waste system. ● It shows the PVs of the waste flows for the combined system and its individual components. ● It shows the equivalent PVs for the net cash flows. ● It introduces two types of AIC, one relative and one absolute. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 87 Table 26: Net cash flow by waste component: AIC by waste generated (AIC 1) and actual waste (AIC 2) Combined total of all catchments PV of waste flows PV of net cash flows AIC 1 (Relative) AIC 2 (Absolute) Real discount rate: 5% Component Million tonnes $, millions $/tonne $/tonne Combined system of all catchments 4.83 283 59 Separately collected material 0.58 36 8 62 Sorting separately collected material 0.10 15 3 25 Residual mixed waste collection 4.19 138 29 33 Green waste composted 0.16 13 3 82 Landfill 4.19 80 17 19 Key points: ● The AIC of the combined catchments is $59/tonne of total waste generated. It is calculated as the PV of total cash flow ($283 million) divided by the PV of total waste generated (4.83 million tonnes) = $59/tonne of waste generated over the planning period. ● Note that the sum of the AICs (Column AIC 1) calculated for the five functional com- ponents is also $59/tonne of total waste generated. ● For example, the AIC for residual mixed waste collection is $29/tonne of total waste generated, calculated as the PV of the cash flow ($138 million) divided by the PV of total waste generated (4.8 million tonnes). ● This outcome illustrates an important characteristic of AIC theory: AICs of waste components calculated from a common physical base (for example, total waste generated) are additive. This enables the relative contribution of each waste com- ponent to total costs to be defined. ● AICs calculated in column AIC 2 relate the costs of each individual waste function to the quantity of material managed by that function. They are absolute. They cannot be added together, as each relates to a different physical base. ● By providing data on the actual cost per tonne of material managed AICs provide valuable data for waste management planning and a basis for setting gate fees (for example, for landfill) or for setting fees for services provided by local authorities to commercial clients. Relative and absolute costs per tonne are considered further in Section 5.2.5. Fur- ther details on AIC analysis are set out in Annex 3 and in the Glossary. 5.2.4 Calculate the annual revenue requirement The annual revenue requirement refers to the revenue needed annually over the plan- ning period to cover system costs in full. This does not mean that costs must be re- covered in full from user charges but that any gap between the revenue requirement and revenue from user charges must be covered by other sources of funds (such as municipal transfers). It is important to know the total costs in full before deciding on a project and how those costs are to be funded. The annual revenue requirement for AIC purposes is defined pro rata to the annual waste quantities generated over the planning period. It is calculated by multiplying the relevant waste flow (for example, quantity of waste generated each year) by the 88 5. AIC analysis for municipal waste management AIC (the unit cost per tonne of total waste generated). It creates an annual revenue flow with a PV equal to that of the annual net cash flow.96 That is, one which covers the costs in full. The difference between the net cash flow and the revenue flow lies in the way costs are distributed over time, as illustrated in Figure 14. Figure 14: Net cash flow and equivalent annual revenue requirement compared Net cash flow Annual revenue requirements The key point is that the two cash flows have identical PVs. The PV of the smoother annual revenue profile is identical to that of the uneven net cash flow. Note the rising trend in the annual revenue requirement: this recognizes the progressive rise in per capita waste generation and how it is reflected in the annual revenue requirement generated by the AIC. 5.2.5 Absolute and relative AICs AIC analysis techniques can be used to provide estimates of absolute and relative unit costs: ● By function, such as the direct cost per tonne of material sorted at an MRF plant (a measure of the absolute or actual unit cost of the function or activity per tonne of material managed) ● By the contribution the unit cost of a system component makes to total system unit costs relative to the unit cost contributions of all other components measured against the same base (for example, per tonne of total waste generated). For example, the AIC of separately collected material processed through an MRF plant is defined by dividing the PV of the MRF net cash flow by the PV of the MRF materials flow. That is, AIC = PV (MRF Net Cash Flow) / PV (MRF Materials Flow). It is an example of the absolute cost per tonne of operating the MRF plant, measured in $/tonne of separately collected material processed through the plant. 96 Note that an AIC can be calculated for any cash flow having a matching material flow (for example, $/tonne of plastic sent to a recycling yard or $/household or person served). Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 89 We might also want to know the cost of operating the MRF plant relative to another material flow, such as the total waste generated by the waste system. This is calcu- lated by dividing the PV of the MRF net cash flow by the PV of total waste generated. It is an indicator of the relative contribution made by the MRF plant to total costs. That is, AIC = PV (MRF Net Cash Flow) / PV (Total Waste Generated). AICs shown in column AIC 2 of Table 26 relate the total costs of each individual waste function to the quantity of material managed by each function. They are absolute unit costs and cannot be totalled together as each relates to a different physical base. For example, the sum of the AIC 2 of $33/tonne of residual waste collected and the AIC 2 of $25/tonne of recyclable waste sorted is therefore meaningless as they are derived from different physical bases. By providing data on the actual cost per tonne of material managed by a specific function AICs contribute valuable informa- tion to managers when planning systems, providing a basis for setting gate fees (for example, for landfill disposal or MRF plant) or for setting fees for services provided by local authorities to commercial clients. AICs calculated on the same physical base are additive (as per Table 26, column AIC 1). Here, the AIC for the entire system of $59/tonne of waste generated is equal to the sum of the AICs calculated for each of the waste activities from the same base. For example, the AIC of the separate collection service of $8/tonne of waste generated can be added to the AIC of residual waste service of $29/tonne of waste generated to give a combined total of $37/tonne of waste generated. This contributes 63 percent of the total system unit cost of $59/tonne of waste generated (an outcome which may be of interest to the management team). Unit costs calculated using the AIC approach are a powerful basis for comparing system costs, both in absolute terms (waste component costs allocated pro rata to specific material quantity managed by each component) and in relative terms (waste component costs allocated against a common base), from which the relative con- tribution made by each function to total system costs can be gauged. Table 27 to 31 summarizes outcomes of the unit cost analysis. Table 27 illustrates the relative and absolute unit cost outcomes for a notional system consisting of the five CAs combined. That is, the calculations are based on the combined waste flows and the combined investment97 and operating cost flows. Table 27 shows that the total unit cost (AIC 1) of the notional system is $59/tonne of total municipal waste generated. Table 27 shows the relative contributions made by each of the waste management functions to the average unit cost per tonne of waste generated: ● Residual waste collection: $29/tonne of total waste generated, 49 percent ● Separate collection of recyclable material: $8/tonne of total waste generated, 14 percent ● Sorted material: $3/tonne of total waste generated, 5 percent98 ● Composting green waste: $3/tonne of total waste generated, 5 percent ● Landfill: $17/tonne of total waste generated, 29 percent 97 Net of residual values. 98 The unit cost for separate collection of recyclable material of $8/tonne of total waste generated plus for sorting of separately collected material of $3/tonne of total waste generated gives a com- bined unit cost of separate collection and sorting of $11/tonne of total waste generated (19 percent of total system costs). 90 5. AIC analysis for municipal waste management ● Total system: $59/tonne of total waste generated, 100 percent. Also shown are unit costs measured in absolute terms, the actual costs per tonne of material managed by each function: ● Residual waste collection: $33/tonne of residual waste collected ● Separate collection of recyclable material: $62/tonne of separately collected ma- terial ● Sorted material: $25/tonne of separately collected material99 ● Separately collected + sorted material: $87/tonne of recyclable waste collected ● Composting green waste: $82/tonne of waste composted ● Landfill: $19/tonne of waste disposed of to a landfill. Table 27: Unit cost (AIC) per tonne of total waste generated and per tonne managed by function $/tonne AICs calculated per tonne of Separately Separately collected collected Residual Waste Total waste recyclable material waste Green waste disposed of Waste function generated material sorted100 collected composted to landfill (Relative) (Absolute) Separate collection of recyclable material 8 62 Sorting of separately collected material 3 25 Residual mixed waste collection 29 33 Composting green waste 3 82 Landfill 17 19 Total municipal waste 59 Significant differences can exist between absolute and relative AICs for some func- tions, whereas for others they are small. For example, the difference between the relative AIC for residual mixed waste collection of $29/tonne of total waste gener- ated compares closely to an absolute AIC of $33/tonne of waste collected. This is because the amount of residual waste collected ($4.2 million) is a relatively large pro- portion (88 percent) of total waste generated ($4.8 million) and hence the difference between the two waste flows over which total costs are allocated is small. On the other hand, the difference between the absolute AIC for green waste com- posted of $82/tonne of waste composted is high relative to a small AIC of $3/tonne of total waste generated. The reason for this is that the quantity of waste composted is small relative to total waste generated (3 percent) and hence the relative costs of composting are small when allocated across total waste generated. The absolute cost per tonne of material composted is, however, high because the actual costs of composting are inherently expensive. 99 The AIC of $87/tonne of separate waste collected and sorted is the combined cost of separate collection of recyclable material ($62/tonne of separate waste collected) and sorting of the sep- arately collected materials ($25/tonne of separate waste collected). The two can be summed as they are both calculated against the same base (separate waste collected). 100 Note that AICs for separately collected recyclable material and recyclable material sorted are each calculated per tonne of recyclable material collected (the amount sorted being the same as the amount collected). This means that they are additive, giving a total AIC for recyclable collection and sorting of $87/tonne of recyclable material collected. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 91 Table 28 summarizes the relative AICs calculated for each activity and catchment. The final column shows the relative AICs for the notional combined CA (as per Tables 26 and 27). Table 28: Waste function unit costs defined as the AIC per tonne of total municipal waste generated $/tonne; 5% discount rate AIC defined by function and CA relative to a common waste flow Waste function CA 1 CA 2 CA 3 CA 4 CA 5 Combined CA Separate collection of recyclable material 8.0 8.0 8.3 8.6 18.9 7.5 Sorting of separately collected material 3.1 3.1 3.1 3.1 3.1 3.1 Collection of residual waste 27.2 31.1 32.3 32.0 44.6 28.6 Composting of green waste 2.3 3.4 4.5 4.3 14.3 2.8 Landfill 16.6 16.6 16.6 16.6 16.6 16.6 Total municipal waste 56.4 62.2 64.8 64.6 97.5 58.6 The AICs in Table 28 are shown in Table 29 as a share of the total AIC for each CA. This gives insights into the relative contributions made by each waste management function to total expenditures. Table 29: Contribution of each function to total costs by CA (%) $/tonne; 5% discount rate CA Waste function CA 1 CA 2 CA 3 CA 4 CA 5 Total combined CA Separate collection of recyclable material 13 13 13 13 19 13 Sorting of separately collected material 5 5 5 5 3 5 Collection of residual waste 48 50 50 50 46 49 Composting of green waste 4 5 7 7 15 5 Landfill 29 27 26 26 17 28 Total municipal waste 100 100 100 100 100 100 Comparing the PVs of the net cash flows of individual waste functions is another ap- proach to gauging their costs over the planning period, as indicated in Table 30. The PVs are indicators of the total costs of each component in each CA. Note that the proportions attributed to the PVs are identical to those shown in Table 29 for their equivalent AICs. Table 30: Comparing waste function costs relative to the PVs of net cash flows $ million; 5% discount rate CA Waste function CA 1 CA 2 CA 3 CA 4 CA 5 Combined CA Separate collection of recyclable material 24.6 6.8 2.8 1.5 0.6 36.4 Sorting of separately collected material 10.5 2.6 1.1 0.5 0.1 14.8 Collection of residual waste 93.2 26.6 11.1 5.5 1.5 137.9 Composting of green waste 7.8 2.9 1.6 0.7 0.5 13.5 Landfill 56.9 14.2 5.7 2.8 0.6 80.2 Total municipal waste 193.1 53.2 22.2 11.1 3.3 282.8 92 5. AIC analysis for municipal waste management Table 31 summarizes the AICs for each function calculated as the unit cost per tonne of material managed. Table 31: AICs per tonne of waste managed by each function Function costs defined as the AIC per tonne of waste managed by each function $/tonne; 5% discount rate AIC per tonne defined as the actual cost per tonne of material managed Waste function CA 1 CA 2 CA 3 CA 4 CA 5 Combined CA Separate collection of recyclable material 59.3 65.8 68.6 71.0 156.3 62.2 Sorting of separately collected material 25.4 25.4 25.4 25.4 25.4 25.4 Collection of residual waste 31.4 35.8 37.3 36.9 51.5 32.9 Composting of green waste 67.4 99.5 134.4 126.4 424.1 82.4 Landfill 19.2 19.2 19.2 19.2 19.1 19.2 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 93 Approaches to estimating residential waste management tariffs The analysis of unit costs to this point has been based entirely on municipal waste quantities measured in tonnes. This chapter outlines three approaches to calculate residential waste management tariffs, two based on AIC analysis and the third on TA techniques. Each approach results in different revenue flows, unit costs, and indica- tive tariffs. Indicative tariffs are calculated per citizen. The PVs of the two AIC-based approaches are identical and that of the TA-based approach, while not identical, can realistically be taken to cover system costs in full. The approaches and their implica- tions for unit costs, revenue allocations, and indicative tariffs are described in Sec- tions 6.1, 6.2, and 6.3, respectively. They are compared in Section 6.4.101 Note that the chapter refers to ‘indicative tariffs’ rather than simply to ‘tariffs’. Rea- sons for this are as follows: ● Unit costs (per tonne, citizen or household) referred to do not include costs such as value added tax (VAT). VAT is commonly levied on municipal charges. When levied, it should be treated as a cost in preparing affordability and financial sustainability analysis (Section 6.6). ● The unit cost approach to tariff setting does not necessarily comply with a coun- try’s legal requirements or government policy on cost recovery and tariffs. The unit costs calculated are, nevertheless, indicative of the tariff levels necessary to cover waste costs in full in any year (but exclusive of any taxes or charges added by the government). 6.1 Calculating indicative tariffs per capita as an extension of the AIC per tonne approach This approach to calculating tariffs per capita102 is practically the same as that outlined to this point, where waste quantity is used as the physical base for calculating the AIC and for allocating costs over the planning period via the annual revenue requirement. The only difference is to divide the annual revenue requirement by the annual population to calculate indicative annual tariffs per capita. The steps taken to calculate indicative residential tariffs using this approach are as follows: 1. Establish the annual net cash flow (investment costs + operational costs − resid- ual asset value) and calculate its PV. 2. Establish the relevant waste103 flow and calculate its PV. 3. Divide the PV of the net cash flow by the PV of the waste flow to calculate the AIC/tonne of waste generated. 4. Multiply the annual waste flow by the AIC/tonne to define an equivalent annual revenue requirement. 5. Divide the annual revenue requirement by the annual population to calculate indicative annual tariffs per capita.104 Note that Sections 6.1, 6.2, and 6.3 relate to costs only. Product sales and their effects on system 101 net revenues are considered in Chapter 7. Or per household. 102 Or material flow. 103 Note: The indicative annual tariff per person is equivalent to the AIC per tonne multiplied by the 104 waste generation per capita in each year. 94 6. Approaches to estimating residential waste management tariffs Annual per capita charges estimated this way account for any projected changes over the planning period in both waste generation per capita and population num- bers (both of which typically increase the quantity of waste generated annually). The unit cost per tonne of waste—the AIC—remains constant over the assessment period, whereas fees per capita (or households) increase with rising waste generation per capita. The approach is the most versatile of the three approaches described in this and the following two chapters as it can account for both a rising population and ris- ing waste generation per capita. The approach is suited to systems and tariff planning when realistic information is available on projected service demand (population growth and waste generation per capita) and on planned system capacity utilization constraints (for example, the de- sign capacities of collection vehicles or sorting plant are sufficient to meet the pro- jections of rising waste generation per capita and population). Figure 15 shows the outcomes of analysis to define tariffs per capita. It relates to CA 1, which has a population of 1 million (assumed to remain constant over the anal- ysis period) and a starting level of waste generation of 367,826 tonnes, projected to grow at 1 percent per capita per year over the planning period. An AIC of $56/tonne of waste generated is calculated by dividing the PV of the net cash flow ($193 million) by the PV of the waste generation flow (3.43 million tonnes). This is the constant hor- izontal blue line shown in the chart. Figure 15: Tariffs per capita calculated using AIC per tonne as base The AIC per tonne of waste generated is used to calculate the annual revenue re- quirement, which is the product of the AIC per tonne and annual waste quantities in tonnes. The PV of the annual revenue requirement is then identical to that of the net cash flow. The annual revenue requirement is then divided by the annual population (held constant over the planning period) to give a starting indicative tariff of $23/ capita in 2022, rising to $26/capita in 2033 (indicated by the red line on the chart). The rise in the tariff profile results from increasing waste generation per capita (see also Table 32). The approach leads to lower tariffs in earlier years and to higher tariffs in later years, reflecting the user pays principle (rising waste quantity generated per capita). Figure 15 also illustrates that the unit cost per tonne of waste managed (the AIC) is constant over time. Annual tonnage-based user charges would be calculated as the Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 95 product of the quantity of waste generated and the fixed (AIC) cost per tonne of waste generated.105 Table 32 summarizes the equivalent AICs per tonne of waste generated and the in- dicative tariff ranges per citizen over the planning period for each CA and waste man- agement component. Note that the AICs per tonne and tariffs per citizen for each CA sum to the totals for the combined system. This is because the AICs and tariff ranges for each waste function are calculated against the same base (tonnes per total waste generated and total citizen numbers receiving services). Table 32: Unit costs per tonne and per capita: calculations based on AIC per tonne of waste generated $; 5% discount rate CA Waste function CA 1 CA 2 CA 3 CA 4 CA 5 Combined CA Combined system AIC per tonne 56.4 62.1 64.9 64.6 97.5 58.6 Tariff per citizen 20.7–23.1 22.8–25.7 23.9–26.6 23.8–26.5 35.9–40.0 21.5–24.0 Separate collection AIC per tonne 7.2 8.0 8.3 8.6 18.9 7.5 Tariff per citizen 2.6–2.9 2.9–3.3 3.1–3.4 3.2–3.5 7.0–7.8 2.8–3.1 Sorting plant AIC per tonne 3.1 3.1 3.1 3.1 3.1 3.1 Tariff per citizen 1.1–1.3 1.1–1.3 1.1–1.3 1.1–1.3 1.1–1.3 1.1–1.3 Residual waste collected AIC per tonne 27.2 31.1 32.3 32.0 44.6 28.6 Tariff per citizen 10.0–11.2 11.4–12.7 11.9–13.3 11.8–13.1 16.4–18.3 10.5–11.7 Green waste composted AIC per tonne 2.3 3.4 4.5 4.3 14.3 2.8 Tariff per citizen 0.8–0.9 1.2–1.4 1.7–1.9 1.6–1.8 5.3–5.9 1.0–1.1 Landfill AIC per tonne 16.6 16.6 16.6 16.6 16.6 16.6 Tariff per citizen 6.1–6.8 6.1–6.8 6.1–6.8 6.1–6.8 6.1–6.8 6.1–6.8 6.2 Calculating indicative tariffs per capita using an AIC per capita approach An alternative approach to estimating an indicative tariff per capita is to calculate it directly by dividing the PV of the net cash flow by the PV of the flow of service users, giving a constant AIC per capita. Applying the AIC per capita to the resident flow then defines an annual revenue requirement from which a variable charge per tonne is calculated which declines with increasing waste generation. The annual revenue re- quirement has a PV equal to that of the net cash flow and allocates costs proportion- ally to resident numbers over the planning period. The approach is almost a mirror image of the first approach described above. 105 The analysis assumes that adequate plant equipment capacity requirements are built into the sys- tem design. 96 6. Approaches to estimating residential waste management tariffs The steps involved are as follows: 1. Establish the annual net cash flow. 2. Define the annual number (flow) of resident users over the planning period and calculate its PV. 3. Calculate the AIC per capita: divide the PV of the net cash flow by the PV of the resident flow. 4. The AIC per capita is the constant indicative tariff per citizen over the planning period. 5. Define the annual revenue requirement: multiply resident numbers by the AIC per capita. 6. The PV of the annual revenue requirement is equal to that of the net cash flow. 7. Divide the annual revenue requirement by the waste flow to define the variable unit costs per tonne of waste generated over the planning period. Figure 16 illustrates outcomes from the approach. It shows the constant AIC of $21.8 per capita and a declining revenue per tonne, from $59.2/tonne to $53.1/tonne. The decline in revenue per tonne is a function of the financial dynamics: ● The annual revenue required is derived from the constant AIC per capita over the planning period. Users pay the same tariff regardless of the amount of waste gen- erated per citizen. ● The revenue generated each year is fixed per capita.106 ● Consequently, as the quantity of waste generated rises revenue per tonne falls. Figure 16: AIC per capita tariff and unit cost per tonne based on AIC per capita approach US$ Years Figure 17 compares the constant AIC per capita tariff (as highlighted above in blue) with the variable tariff per capita from Section 6.1 and illustrated in Figure 16.107 106 Note that the AIC per capita is constant whether or not the population served is projected to re- main constant or to rise over the planning period. 107 Note the scale differences between Figures 16 and 17. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 97 Figure 17: Comparing per capita tariff profiles for two AIC approaches The fixed annual tariff per capita profile (shown in blue) results in all residents being charged the same amount over the planning period. The AIC per capita is $21.8. The variable tariff profile from Figure 17 starts from a lower bound of $20.9 per resident and rises to $23.1 per resident in the final year of the planning period. The PVs of the two revenue streams are identical and each covers costs in full. The difference is that the AIC per capita approach relates only to resident numbers and does not consider changes in per capita waste generation. That is, system costs are allocated pro rata to the number of citizens receiving services each year. The AIC per tonne approach allocates system costs pro rata against waste quantities, the outcome of which is that tariffs start at a lower rate and become progressively higher with rising per capita waste generation. The revenue requirement is allocated pro rata to the total number of residents served. Charges per capita estimated this way reflect variations in population num- bers but do not account for variations in waste generation per capita. Residents pay the same charge each year even though the amount of waste they generate is ris- ing; this means that residents in earlier years effectively subsidize residents in lat- er years. It also means that the amount of revenue collected per resident reflects a declining amount of revenue per tonne of waste managed (as rising per capita waste generation is not matched by rising charges to users). 6.3 Traditional accounting approach to tariff setting A third approach based on TA concepts is often used for setting tariffs in a specific year with only limited consideration given to future service demand or capacity con- straints. But it is also commonly used for assessing existing services or planning new ones over time. The net cash flow on which the analysis is based is defined as the sum of the follow- ing accounting costs:108 ● Net Cash Flow = Operating Costs + Depreciation + Return on Investment (ROI) 108 Note that the three parameters (annual operating costs, depreciation, and ROI) are the accounting equivalents to the parameters used to calculate the AIC (annual operating costs, investment costs less residual value, and the discount rate). 98 6. Approaches to estimating residential waste management tariffs The net cash flow defines the annual revenue requirement from which tariffs are cal- culated directly. Operating costs are same as the AIC analysis and depreciation and ROI are each derived from investment costs as per the AIC analysis. The components of the net cash flow are illustrated in Figure 18. Figure 18: Components of the TA cost flow The annual domestic tariff is calculated by dividing the net cash flow (which is also the annual revenue requirement) by the number of residents (or households). ● Tariff Per Resident = [Depreciation + Return on Capital + O&M Costs] / [Number of Residents] The equivalent revenue requirement per tonne of waste is calculated by dividing the annual revenue requirement by the quantity of waste generated each year. That is, ● Revenue Per Tonne = [Depreciation + Return on Capital + O&M Costs] / [Tonnes of Waste] Depreciation (the return of investment) is usually calculated annually for each asset by dividing its initial (non-depreciated) value by its projected economic life. The an- nual rate of ROI is calculated by multiplying the average value109 of depreciated assets by the rate of return.110 A key factor to note is that the revenue flow is erratic. This results from the ROI falling as the value of the asset base on which it is calculated falls (the ROI effect111). The ROI effect is seen in Figure 19, both in the ROI cost and the net cash flow profiles. It is shown in more detail in Figure 20. 109 The average value of a depreciated asset is taken to be the average of the opening and closing values in a specific year (that is, the average of the asset’s value before and after depreciation is recognized in that year). 110 The required ROI is taken to be the same as the discount rate employed in the AIC ap- proach. 111 The ROI effect results from the falling accounting value of an asset as it becomes progressively depreciated. Once an asset becomes fully depreciated it is replaced and the investment, depreci- ation, and ROI cycle starts again. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 99 Figure 19: The ROI effect Figure 20 illustrates the erratic profile of the residual waste collection component of the CA 1 waste management system. Note that the figure is based on a scenario of both a constant population and a constant rate of waste generation per capita over the planning period. This has been done to illustrate the ROI effect which can other- wise be disguised if other waste management dynamics are in play. Figure 20: TA-based tariff profile It is important to note that investment costs allocated via the depreciation provi- sion are determined purely by time112 and not by the level of demand for the services (waste generated or population served). In a situation of projected rising population or per capita waste generation (or both), the approach results in higher costs per tonne or per person in earlier years than in later years. Not only does this conflict with objectives such as the user- and polluter-pays principles, it also defeats the aim to 112 The value of an asset is typically recovered by the depreciation provision in equal amounts over the asset’s life and is unrelated to population size or waste generation per capita. 100 6. Approaches to estimating residential waste management tariffs increase tariffs over time as services become increasingly more affordable through income growth. Figure 20 illustrates the TA-based tariff profile estimated for the total CA 1 system. It is also calculated for a scenario of constant population and constant waste genera- tion per capita. Waste management costs consist primarily of fixed investment and operational costs. Growing populations and rising waste generation per capita therefore lead to falling residential tariffs and unit costs per tonne over time.113 This, coupled with the ROI effect, makes cost recovery and tariff planning over time based on the TA ap- proach a complicated and uncertain exercise. Summary of problems with the TA approach: ● The approach implicitly assumes that accounting costs for one year should be covered by user charges in that year (for example, investment costs are allocated equally over time by the depreciation provision). ● Annual revenue requirements and tariffs calculated from them are unrelated to the level of service demand (waste quantity collected) in each year. ● Annual tariff and revenue flows can be erratic over time (ROI effect). ● Tariffs per capita fall over time with rising resident numbers as fixed annual ac- counting costs are spread pro rata over an increasing number of residents. ● Tariffs are not responsive to rising levels of waste generation per capita over time. ● Unit costs per tonne are erratic and fall relative to rising waste quantities over time. The above constraints suggest that the approach should not be used for medium- to long-term strategic and financial planning. Refer to Annex 4 for further details on the TA approach. 6.4 Comparison of AIC and TA approaches Both the AIC per tonne and the TA approaches define an annual revenue flow that covers total costs in full. They differ in the way investment costs are recognized. This is in turn reflected in the way annual revenue requirements are defined and in the tar- iff profiles created from them. To recap, the AIC per tonne approach is based on the estimated annual investment costs, the residual value of the assets created by the investments, annual operating costs, and the discount rate used to discount future cash flows to their PVs. The TA approach is based on depreciation of the assets cre- ated by the investments, the financial return on those investments, annual operating costs, and the relevant rate for calculating the ROI (taken to be equal to that of the discount rate). Identical revenue streams are generated in PV terms, but the timing of the revenue flows that give rise to those PVs is significantly different. The TA approach leads to erratic and falling tariffs over the planning period whereas the AIC approach results in progressively rising tariffs consistent with rising pop- ulations and increasing waste generation per capita. Note, however, that the AIC approach depends critically on the availability of accurate data on current and pro- jected population numbers, per capita waste generation, and per capita incomes. 113 It is assumed that demand for the services remains within the design capacity constraints of the system. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 101 6.5 Value of AIC analysis to waste systems analysis and tariff planning The AIC approach to calculating unit costs, tariffs, and the annual revenue required to cover system costs is versatile and readily applicable to many situations. It can provide powerful insights into system costs and enables cost recovery revenues to be fairly allocated against service use. A key feature is that future population and waste generation conditions are recognized today when estimating unit costs, an- nual revenue requirements, and tariffs for tomorrow. Costs are covered in full, and a steady and predictable revenue stream is generated over the planning period. Outcomes of the analysis can be used to answer several questions: are the proposed services affordable to users and the municipality; are they financially viable; is exter- nal grant funding needed; does the scope and scale of the system envisaged need to be reexamined? 6.6 Affordability and financial sustainability 6.6.1 Affordability Affordability relates to the ability of users to pay for services. The affordability of mu- nicipal waste services is the maximum share of average monthly income that house- holds should realistically be expected to spend on waste management services (the affordability constraint). Affordability can also be expressed as the proportion of waste management costs in total average household expenditure. Using household expenditure rather than household income can give more accurate information, as household income data rarely capture all sources of revenue. This is particularly the case in less developed countries, where informal activity can contribute a substan- tial share of household income. Global good practice is to set household waste tariffs up to a threshold value equiv- alent to 1 percent of average household income (sometimes within a range of 0.75 percent to 1.5 percent). This effectively sets an upper limit (or constraint) on the share of average per capita or household income to be allocated for waste services. Using this yardstick, the assumption is made that charges set up to 1 percent of av- erage household income will be affordable to most households, including those with incomes lower than the average. The approach does not mean that each household should be charged 1 percent of its specific household income or that charges should be set at 1 percent of the lowest levels of household income. Note that the 1 percent yardstick is a particularly useful parameter against which to gauge the affordability of current tariffs. Calculating the affordable tariff per capita (or per household) depends on having reli- able estimates of average per capita income (and of average household size if tariffs are to be charged per household114). The affordable tariff per capita or per household is simply calculated as 1 percent of average per capita or household income.115 Understanding the reliability and limitations of the data used in making affordability decisions is crucial to the future viability of the services dependent on them. Evi- dence shows that a project which is affordable in one part of a country may not be 114 Average household size refers to the average number of occupants per household. 115 Charges may not be affordable to some vulnerable households on particularly low incomes. Such households should qualify for social assistance. 102 6. Approaches to estimating residential waste management tariffs affordable in another.116 This reveals the need for a thorough socioeconomic analysis to define the scope, scale, costs, and financing of municipal or regional waste ser- vices. This is necessary if the services are to be appropriate, affordable, and finan- cially viable. An example from a recent analysis undertaken at the country level in a low- to mid- dle-income economy illustrates the process: ● Average annual income per capita per year: $2,100 ● Current waste tariff per capita per year: $3 ● Current waste tariff as a % of average income: 0.14 percent ● Potential tariff at 1 percent of average per capita income per year: $21. An implication of this result is that current tariffs could be raised seven times be- fore the affordability threshold is reached. Although simplified, the example demon- strates the analytical process. In practice, the analysis focuses on the specific financial conditions at the project location and may possibly differentiate tariffs be- tween urban and rural areas. The significance of this for systems development and financial planning can be seen in the context of the affordability of the charges. Note that financial conditions in the area of the analysis may not be appropriate for defining domestic waste management tariffs as outlined above. The approach im- plicitly assumes that income distribution in the study area lends itself to using aver- age income per capita as the base for estimating waste tariffs. The extent to which it is conducive can be considered in the context of the Gini coefficient. The Gini coefficient is a commonly used measure of income distribution: the higher the Gini coefficient the greater the gap between the incomes of a country’s richest and poorest people.117 The Gini coefficient is important because it helps identify high levels of income inequality. The coefficient can hypothetically range between a Gini score of 0 (absolute equality with every person earning the same amount) to a Gini score of 100 (absolute inequality whereby one person earns all the income in a nation and the rest earn zero). The World Bank publishes Gini coefficients for most countries, which rise from a low figure of 25 (Slovenia, 2018) to a high figure of 63 (South Africa, 2014). The example above derives from a country with Gini coefficient of 36—a low coefficient indicating a high level of income equality and a perfect example for applying the affordability criterion. Countries with high Gini coefficients have high levels of income inequality for which the affordability approach is unlikely to be appropriate and for which alter- native mechanisms for defining and implementing cost recovery systems for domes- tic waste services will be needed.118 6.6.2 Financial sustainability The second constraint is the need to ensure the financial viability of the services. Financial viability means always having some cash in the bank. What happens if net cash flow in one year is negative (outgoings exceed incomings)? This depends on whether positive cumulative cash reserves at the start of the year are sufficient to offset any deficit for that year. Annual net cash flow is defined as annual cash in- 116 Note that when comparing the assessed affordable tariff with the proposed tariff, the tariff should reflect the full cost to be funded by users, including VAT or other supplementary charges if appro- priate. 117 https://worldpopulationreview.com/country-rankings/gini-coefficient-by-country. 118 Examples can be found in the World Bank publication ‘Bridging the Gap.’ Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 103 flows minus annual cash outflows (money in and money out). A financial sustainability rule is therefore that cumulative net cash flow should be positive for all years. Cash inflows comprise user charges, municipal transfers, municipal taxes, grant funds, loan funds, private equity, and income from the sale of recovered materials. Cash outflows comprise investment expenditures, O&M expenditures, debt service obli- gations, contractual obligations to the private sector, and other such cash outlays. The matter of financial sustainability only arises if the services are planned to be managed on a commercial basis, where proper budgeting and accounting proce- dures are put in place and funds are set aside to meet liabilities when they become due. Such a discipline is needed if waste services are to be efficiently maintained and financed over time. It does not mean that households should be charged for the full costs of the services—setting charges at rates that achieve partial cost recovery is common—but that the balance of costs to be funded by municipal transfers or other funding sources must be budgeted and accounted for accordingly in advance. Many countries have introduced earmarked municipal taxes or charges to fund the operational costs of household waste services and quite commonly a mix of the two. Typically, though, cost recovery policy is incomplete. It is common for tariffs to be set to raise sufficient revenue to cover a specific funding objective (for example, to cover direct cash operating expenditures) but with the balance of cash outlays to be covered in an ad hoc and unbudgeted way from the municipal budget. This situation was remarked upon in the South African Municipal Solid Waste Tariff Strategy, May 2012 as follows: “If such an approach [a combination of property rates and user charges] is adopted it should be formalised, i.e., an explicit proportion of the rates revenue should be set aside for solid waste services based on a well-presented indication of the costs of public waste management services. At present, this combined approach is applied by many municipalities on an ad hoc basis as the general rates account is used to subsidise any deficit accruing on the solid waste account. This approach, where any deficit (whether coming from public or private services or simply from poor man- agement) is automatically funded out of the rates account, provides no efficiency incentives and should not be regarded as an acceptable tariff structure.” 6.6.3 Fixed and variable costs Municipal waste management costs are largely fixed: costs incurred irrespective of the amount of waste collected or treated (within the constraints imposed by the installed capacity of the equipment being used). Fixed and variable costs cannot al- ways be differentiated clearly, but typically fixed costs of municipal waste services constitute 60–80 percent of total costs, and the less technically advanced systems bear the larger share of fixed costs. Fixed costs are recurring costs: payments related to time and regularity rather than to the quantity of waste collected or treated (for example, services such as lease costs, accounting and billing, the purchase and supply of waste containers, labor costs, maintenance costs, fuel costs, depreciation costs, utility bills, and insurance). They are costs that must be funded regardless of the amount of waste being collect- ed or treated. Variable costs relate directly to the quantity of waste being handled: landfill gate fees are an example. The high fixed cost component of municipal waste costs has important implications for waste charging schemes and other aspects of municipal waste management, such as for determining the costs avoided if a proportion of the residual waste flow is diverted to a separate recycling scheme. 104 6. Approaches to estimating residential waste management tariffs 6.6.4 Fixed costs and municipal waste charging systems The traditional form of charging is to charge all households a single fixed fee regard- less of the level of service used (the fee has no effect on the amount of waste put out for collection). It serves the objective of creating a largely stable and predictable revenue stream. In more recent years, some towns and cities began to introduce charges based entirely on the weight or volume of waste put out for collection, which is an incentive for households to reduce the amount of waste they generate and/or to increase the amount of waste separately set out for recycling. The effect of a charging scheme based on users being charged a total fee per unit (for example, per kg) of waste collected is that a fall in the amount of waste presented for collection results in an equivalent fall in the amount of revenue collected. This out- come is perverse, as reducing the amount of waste collected leads to the avoidance of only the variable component of the total unit cost. The fixed cost component is unchanged and must still be covered by revenues. This outcome can be illustrated by a simple example. Assume the following: ● A weight-based charging scheme based entirely on a fee per kg of waste collected ● Fixed costs are 70 percent and variable costs are 30 percent of the cost of total waste collected ● A container presented for collection contains 20 percent less waste by weight than it did last week. The total cost of collecting the waste is 6 percent less than it was in the previous week. Why? ● 70 percent of the cost of emptying the bin is fixed (it remains the same as the week before) ● A 20 percent reduction in waste quantity results in a proportionate fall of 20 per- cent in the variable cost share (30 percent) of total costs (that is, 20% × 30% = 6%) ● The total cost does not fall by 20 percent but by the marginal cost reduction of 6 percent of the total ● The customer receives a 20 percent reduction in his/her bill ● Net revenue falls by 14 percent (a 20 percent saving to the customer minus 6 per- cent of variable cost avoided). In summary, the cost structure of municipal waste services dictates that a stable revenue stream cannot be achieved if the charging mechanism depends entirely on a variable charge base (waste quantity or citizen-based charges). That is why hybrid charging schemes have evolved in recent years to combine a large fixed, non-service dependent component with a smaller variable service-dependent component based on the level of usage. The fixed fee reflects the recovery of costs already incurred in providing the services, regardless of whether a household uses them or not (fixed costs). The fixed fee is less a payment for using the service and more a payment for being provided with the opportunity to do so. The variable component refers to the actual costs avoided. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 105 Revenue from sales of separately collected and sorted material This section begins by setting out some of the commercial factors to consider when planning a separate materials collection and recycling scheme. The second part out- lines an analytical approach to estimating the financial viability of such schemes. 7.1 Commercial considerations regarding separate collection of recyclable waste A key objective of many local municipalities is to recover value from materials con- tained in the waste stream. Although separation at source is increasingly becoming a legal requirement, implicit in this is a desire to generate profits which can contrib- ute to the costs of the wider waste management system. Waste management strat- egies typically include components to separately collect, sort, and market recyclable waste. The revenue projected from the sale of these materials has accordingly been included as part of the sources of funds proposed to finance municipal waste ser- vices. The materials recovery and sales component is part of the total municipal waste management system, its costs form part of total system costs, and its sales reve- nues contribute to the total revenue needed to cover system costs in full. The mate- rials recovery and sales system is assessed below from the perspective of a separate, stand-alone commercial entity. This is followed by a general commentary on the fi- nancial viability of material recovery schemes together with some summary notes to help guide decision-making in this area. It should be remembered that collecting recyclable materials separately avoids the need to gather and dispose of them to landfill. That is, mixed waste collection and landfill disposal costs are reduced. These avoided costs should be fully recognized when assessing the net costs of the materials recovery system. But note that the full costs of service provision are not avoided if material is diverted from the residual waste stream to the separate collection of recyclable material. This situation arises because the fixed costs of waste services range from 60 to 80 percent of the full costs of service provision. Only the variable component of system costs is potentially avoidable. This is developed further in Section 7.3.2 and under the heading ‘Residual waste collection costs avoided and credited to the separate waste collection service’ in the same section. Revenue from the sale of recyclable materials is subject to two main risks: (a) the quantity of recoverable material in the separately collected waste and (b) the mar- kets for the materials recovered. Unless driven by mandatory obligations, materials recovery systems should be implemented when there is a high level of confidence that (a) a realistic and predictable supply of recoverable material is available for col- lection and (b) proven markets exist for the recovered materials. Concern over waste composition comes from an awareness that informal collectors can often retrieve a large share of the valuable material before it can be formally col- lected. If this is the case, then the material quantities on which the sorting plant ca- pacity and the sales analysis are based may be unrealistic. This factor is crucial to the assessment of any materials recovery scheme. Data on the composition of the waste stream available for formal collection are generally poor. 106 7. Revenue from sales of separately collected and sorted material Markets for materials recovered from municipal waste are often poorly developed, with assumptions on product markets, sales potential, and selling prices being speculative and uncertain. A reliable market analysis of the potential for recyclable material sales should be undertaken in the planning phase. The prices of recyclable waste commodities also vary considerably over time. As an example, the following two charts show changes in average market prices for two of the most commonly recycled plastics in Germany over the last two years. Figure 21: Variations in prices of waste plastics for PET and low-density polyethylene (LDPE) bales Importantly, it should be recognized that municipal waste management is a net cost activity. The extensive systems of waste material recovery found in wealthier coun- tries today are a result of legislation that imposes strict and binding waste manage- ment targets on local authorities. As part of its program of measures to achieve these targets, the UK government currently levies a landfill tax of £97 ($125) on each tonne of waste disposed of to a landfill (in addition to the full cost recovery charges charged by the landfill operators). The tax acts as an incentive for municipalities to find waste treatment and disposal routes that are environmentally preferable to landfill. Placing a tax on landfill makes these alternative routes relatively more financially attractive. Municipal waste management is a net cost activity (as, in general, is the separate collection and sorting component). Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 107 The tax has led to a range of recycling, composting, and other waste treatment facil- ities being offered by private waste management firms as lower-cost alternatives to landfill. Firms are motivated by the opportunity to earn a profit on their investments. The cost of these services (including profit) is covered by the fees the firms charge municipalities for using them. These costs, in turn, are funded by charges municipal- ities levy on households and businesses. Municipalities rarely make a profit. Munici- pal authorities should not seek to establish waste treatment facilities in anticipation of creating incremental revenues for the municipality. Investment in such facilities should be made after thorough analysis of material availability, technical systems and costs, markets, prices, and risks. Ideally, investments in separate collection and sorting should be made if the commer- cial conditions surrounding the investments are predictable and realistic: that the ma- terial input is available and market conditions demonstrate a viable market. That is, the venture is commercially sound and the commercial activities will break even. 7.2 Revenue and cost flows associated with product sales The following analysis assesses the prospective financial performance of a separate material collection and recycling scheme. It draws on waste and material flows, reve- nue flows, and cost flows introduced in earlier chapters. It is based on a hypothetical waste CA defined by the combined populations of the five CAs. The analysis relies on material quantities, PVs, and unit costs calculated using the AIC approach. The combined catchment has a population of 1.41 million residents and generates 6.6 million tonnes (PV of 4.8 million tonnes) of waste over the planning period. Residual (mixed) waste collected and landfilled is 5.7 million tonnes (PV of 4.2 million tonnes). The PVs and AICs of relevant waste and material flows are as follows: ● Residual waste collection costs of PV $137.9 million and AIC of $32.9/tonne of re- sidual waste collected ● Separate collection costs of PV $36.4 million and AIC of $76.0/tonne of material sold ● Recyclable material sorting costs of PV $14.8 million and AIC of $31.0/tonne of ma- terial sold (recycled) ● Landfill costs of PV $80.2 million and AIC of $19.2/tonne of waste disposed of to a landfill ● Total material sales have a PV of $29.1 million over the planning period and an aver- age AIC of $60.8/tonne of material sold (see Table 33 and analysis below). Separately collected and sorted waste of 0.81 million tonnes (PV of 0.58 million tonnes) is divided into the sale of 0.67 million tonnes of recyclable material (PV of 0.48 million tonnes) and the disposal to landfill of 0.15 million tonnes of residual sort- ing waste (PV of 0.11 million tonnes). 7.3 Revenue flows Two potential sources of revenue for funding a commercially viable municipal sepa- rate collection and recyclable sorting scheme are as follows: ● Revenue from the sale of recyclable material ● Revenue credited to the separate collection and sorting scheme from the costs avoided by the residual waste service (reduced volumes of waste collected and landfilled).119 119 Revenue credited to the separate material collection and sorting service for costs avoided by the residual waste service is considered following the analysis below of the direct costs incurred. 108 7. Revenue from sales of separately collected and sorted material 7.3.1 Revenue generated from the sale of recyclable materials Recyclable materials collected are paper and card, plastic, and metal. The quantity collected, the quantities sorted and sold to recycling entities, the selling prices and revenues generated over the planning period are set out in Table 33. The data relate to a notional catchment defined by the combined data inputs and findings for the five catchments. Also shown are the average incremental revenues calculated per tonne of material sold. These show the contribution made to total revenue per tonne of each material type. Importantly, they enable unit revenues to be compared directly with unit costs when calculated as costs per tonne of material sold. Costs incurred in generating the sales revenue are covered in the Section 7.4. Table 33: Parameters contributing to revenue analysis Revenue Separately Total collected Total material revenue from PV of revenue AIC of total Material type materials sold Sales price sales from sales material sold Million tonnes Million tonnes $/tonne $ million $ million $/tonne120 Paper and card 0.44 0.35 50 17.5 12.6 26.2 Plastics 0.23 0.18 100 18.2 13.1 27.3 Metals 0.06 0.05 100 4.8 3.5 7.2 Total 0.73 0.58 40.5 29.1 60.8 The average AIC per tonne of material sold is $60.8. It is the sum of the AICs calcu- lated for each material type. They can be summed in this way because of their com- mon material base (tonnes of total material sold). The figure can also be calculated by dividing the PV of total sales revenue ($29.1 million) by the PV of total recyclable material sales (0.48 million tonnes121), giving an average revenue of $60.8/tonne of material sold. 7.3.2 Residual waste collection costs avoided and credited as revenue to the separate waste collection service The costs avoided by reducing the quantity of residual waste collected and landfilled constitute a potential revenue credit to separate collection and sorting activities. It can be argued that the revenue credited should reflect the full unit cost per tonne of residual waste service.122 This assumption can be wrong, with the costs avoided frequently being confined to the variable component of total costs123 (of which the avoidance of landfill costs is an example). If the analysis is being prepared for a pre- existing system into which a recyclable material collection and sorting service is to be introduced, then it is only the variable component of current costs that is affected by diverting waste from the residual waste service to the new recycling service.124 120 AICs in the final column of Table 33 are calculated as the PV of revenues from sales (for example, $12.6 million from paper and card sales) divided by the PV of the total quantity of material sold (0.48 million tonnes), giving an AIC of $26.2/tonne of total material sold. 121 Section 7.2 refers (final paragraph). 122 That is, the avoided cost should be calculated as the quantity of waste diverted to separate collec- tion multiplied by the full cost per tonne of providing the residual waste services. 123 Please refer to Section 6.6.3 for an outline of fixed and variable costs in municipal waste services. 124 If an entirely new waste management service is to be introduced, and services are to be prepared for both residual waste collection and secondary recyclable material collection, then it is unlikely that the issue of avoided costs between the two services will arise. The services will be designed to achieve optimal outcomes for route design, service frequency, equipment capacity require- ments, and financial commitments. The question of avoided costs is only likely to arise if, in the future, major changes to current material flow arrangements are planned. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 109 As noted in Section 6.6.3, fixed costs typically constitute 60 to 80 percent of the total costs of municipal waste services, and less technically advanced systems are char- acterized by larger shares of fixed costs. The following analysis assumes that fixed costs are 70 percent of total costs and variable costs 30 percent. The total amount of waste diverted from the residual waste flow of 0.81 million tonnes has a PV of 0.58 million tonnes. The full cost of managing this quantity of residual waste is PV $11.1 million (PV 0.58 million tonnes × $19.2/tonne125 of waste landfilled). Of this, fixed costs are PV $7.8 million (70 percent) and variable costs PV $3.3 million (30 percent). The PV of the costs potentially avoided is therefore $3.3 million which, expressed per tonne of material sold, is equivalent to a revenue of $6.9/tonne (PV $3.3 million / PV 0.48 million tonnes). In summary, the costs potentially avoided by the residual waste collection service of PV $3.3 million are equivalent to a revenue of $6.9/tonne of material sold. 7.4 Costs incurred in generating the sales revenue Costs relevant to sales revenue are as follows: ● The cost of separate waste collection and sorting plant operations ● The cost of sorting plant residues disposed of to a landfill. 7.4.1 The costs of separate waste collection and sorting plant operations The costs of separate collection over the planning period have a PV of $36.4 million and an AIC of $76.0/tonne of material sold. Sorting costs have a PV of $14.8 million and an AIC of $31.0/tonne of material sold. As the AICs are calculated using a common base (tonnes of material sold), they can be added together. The combined total cost of separate collection and sorting therefore has a PV of $51.2 million, with an AIC of $107.0/tonne of material sold. These figures are calculated as follows: ● The PVs of the net cost cash flows for separate collection and sorting are $36.4 million and $14.8 million, respectively. ● The AICs of the two functions are calculated by dividing their PVs by the PV of the quantity of material sold (0.48 million tonnes). That is, $36.4 million / 0.48 million tonnes (= $76.0/tonne sold) and $14.8 million / 0.48 million tonnes (= $31.0/tonne sold). ● The totals combined are $51.2 million (PV) and an average of $107/tonne sold (AIC).126 Equivalent outcomes (rounded) for each CA are set out in Table 34. 7.4.2 The unit costs of landfill The total amount of waste landfilled over the planning period is 5.7 million tonnes (PV 4.2 million tonnes). The total cost of landfill operations has a PV of $80.2 million and an AIC per tonne of waste landfilled of $19.2/tonne ($80.2 million / 4.2 million tonnes). The total quantity of waste separately collected and sorted is 0.82 million tonnes (PV 0.59 million tonnes). Of this, 0.67 million tonnes (PV 0.48 million tonnes) is sold for recycling and 0.15 million tonnes (PV 0.11 million tonnes) consists of sorting plant res- idues disposed of to a landfill. 125 See Section 7.2. 126 As the two AICs are calculated from the same base (tonnes of waste sold) they are additive, giving a total AIC for the two functions of $107/tonne sold. 110 7. Revenue from sales of separately collected and sorted material Table 34: AICs per tonne of waste managed by each function $/tonne; 5% discount rate Function costs defined as the AIC per tonne of recyclable material sold Recycling function CA 1 CA 2 CA 3 CA 4 CA 5 Combined CA Separate collection of recyclable material $ PV (million) 25 7 3 1.5 0.6 36 $ AIC/tonne sold 72 80 84 87 191 76 Sorting of separately collected material $ PV (million) 11 3 1 0.5 0.1 15 $ AIC/tonne sold 31 31 31 31 31 31 Combined totals $ PV (million) 35 9 4 2 1 51 $ AIC/tonne sold 103 111 115 118 222 107 Waste generated from the sorting plant is 2.6 percent of total waste landfilled (PV 0.11 million tonnes / PV 4.2 million tonnes). The share of total landfill costs attributable to sorting operations is therefore PV $2.1 million ($80.2 million × 2.6 percent). As the AICs calculated above for the cost and revenue analysis are defined per tonne of material sold, the unit costs of the landfill component should be defined in the same terms. This is done by dividing the PV of the landfill costs incurred by the sorting plant (PV $2.1 million) by the PV of the quantity of material sold (0.48 million tonnes). This gives a unit cost of $4.4/tonne of material sold and compares to a cost of $19.2/tonne of the sorting waste landfilled. The difference between the two AICs arises from the PV of the landfill costs (PV $2.1 million) being allocated across two different bases: the larger quantity of recyclable material sold (0.48 million tonnes) and the smaller quantity of waste material landfilled (0.11 million tonnes). The calcu- lations are as follows: PV $2.1 million / 0.48 million tonnes = $4.4/tonne of recyclable material sold; and PV $2.1 million / 0.11 million tonnes of material landfilled = $19.2/ tonne of waste landfilled. In summary, the PV of landfill costs attributable to the separate collection and sort- ing activity is $2.1 million and is equivalent to an AIC of $4.4/tonne of material sold. 7.4.3 Total costs incurred in generating the sales revenue: Total costs incurred in generating the sales revenue are as follows: ● Separate waste collection: PV $36.4 million; AIC $76.0/tonne of material sold ● Sorting plant operations: PV $14.8 million; AIC $31.0/tonne of material sold ● Sorting plant residues to landfill: PV $2.1 million; AIC $4.4/tonne of material sold ● Total costs: PV of $53.3 million and an AIC of $111.0/tonne of material sold. 7.5 Summary of material sales outcomes Table 35 summarizes the findings. Total revenue of PV $32.4 million (product sales of PV $29.1 million and avoided residual waste and disposal costs of PV $3.3 million) covers 61 percent of costs of PV $53.3 million, leaving a deficit of PV $20.9 million to be funded from other revenue sources. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 111 Expressed in unit terms, the average revenue generated from product sales plus credits for avoided costs by the residual waste collection and disposal service127 of $67.7/tonne cover 61 percent of the total unit cost of $111.4/tonne of material sold. The balance of $43.7/tonne of material sold must be funded from other sources. Table 35: Summary of revenues and costs associated with product sales PV AIC $ per tonne of material separately $ per tonne of $, millions collected and sorted material sold Revenues Relative Actual Total of product sales 29.1 49.8 60.8 Collection and disposal costs avoided by residual waste operators 3.3 5.6 6.9 Total revenue 32.4 55.4 67.7 Costs Separate waste collection 36.4 62.3 76.0 Sorting plant operations 14.8 25.4 31.0 Sorting plant residues disposed of to landfill 2.1 3.6 4.4 Total costs 53.3 91.3 111.4 Net revenue −20.9 −35.9 −43.7 The costs and revenues of recyclable collection, sorting, and sales can be placed in perspective by comparing them with the costs of residual waste collection and dis- posal. ● The full cost of residual waste collection and disposal over the planning period is PV $218.2 million (waste collection: PV $137.9 million; disposal: PV $80.2 million). The quantity of waste collected and disposed of is PV 4.19 million tonnes, giving a combined unit cost of $52.1/tonne of residual waste collected (PV of $218.2 million / 4.19 million tonnes). The unit cost is allocated as $32.9/tonne residual waste col- lected and $19.2/tonne of residual waste landfilled.128 ● The cost of collecting and sorting recyclable material for sale is PV $53.3 million, allocated as separate collection: PV $36.4 million; sorting plant operations: PV $14.8 million; sorting plant residues disposed of to a landfill: PV $2.1 million. The quantity of recyclable material collected is PV 0.58 million tonnes, giving a unit cost of $91.9/tonne of total recyclable material collected (PV of $53.3 million / 0.58 million tonnes). ● The unit cost of recyclable material collected, sorted, and sold is $91.9/tonne, which is significantly more than the unit cost of residual waste collection and dis- posal of $52.1/tonne ($32.9 collection and $19.2 disposal).129 After factoring in sales revenues of PV $32.4 million,130 the net cost of recyclable sales to the municipal waste system is PV $20.9 million Note that revenues include credits of PV $3.3 million for costs avoided by the residual waste collec- 127 tion and disposal service. The assumption is made that all residual waste collected is landfilled. 128 The unit costs of the two functions can be realistically compared as they both involve the collection 129 of municipal waste and its final disposal either to landfill or to recycling plants. Including collection and disposal costs of PV $3.4 million avoided by residual waste operators (re- 130 fer Section 7.3.2). 112 7. Revenue from sales of separately collected and sorted material ● The net cost of PV $20.9 million constitutes an incremental increase in current total domestic waste system costs. It represents a net cost of $35.9/tonne of recy- clable material collected (PV $20.9 million / PV 0.58 million tons) or $4.3/tonne of total waste generated (PV $20.9 million / PV 4.83 million tonnes), refer to Table 36. ● These outcomes should be considered within the context of the comments made in Section 7.1. Table 36 summarizes the total cost and revenue flows for the combined waste man- agement system consisting of CAs 1 to 5. Table 36: Summary of cost and revenue flows estimated for the combined system AIC AIC PV relative actual $ per tonne of material $ per tonne of waste separately collected $, millions generated and sorted Revenues from recyclable material sales Total from product sales 29.1 6.0 49.8 Collection & disposal costs avoided by residual waste operators 3.3 0.7 5.6 Total revenues 32.4 6.7 55.4 Costs of recyclable material sales Separate waste collection 36.4 7.5 62.3 Sorting plant operations 14.8 3.1 25.4 Sorting plant residues disposed of to landfill 2.1 0.4 3.6 Total recyclable material costs 53.3 11.0 91.3 Net recyclable material costs after revenues 20.9 4.3 35.9 Other system costs Residual waste collected 137.9 28.6 32.9 Landfill 80.2 16.6 19.2 Composting green waste 13.5 2.8 Total other costs 231.6 48.0 Total all costs 284.9 59.0 Total costs net of sales revenues 252.5 53.3 Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 113 Summary comments: ● The analysis indicates that revenue from the separate collection, sorting, and sales service is insufficient to cover the direct costs incurred in providing the service. The PV of total recyclable material costs of $53.3 million exceeds total revenues of PV $32.4 million by PV $20.9 million, a shortfall in revenue equivalent to 65 percent of sales revenues. ● Sales revenue of $6.7/tonne of total waste generated over the study period com- pares to costs incurred of $11.0/tonne of waste generated, a net cost to the re- cycling program of $4.3/tonne of waste generated (equivalent to $43.7/tonne of material sold131). ● Total revenues of PV $32.4 million include a transfer of PV $3.3 million to the re- cycling service from the residual waste collection and disposal service. This re- flects costs avoided by the residual waste service from the diversion of waste to the recycling program. The transfer constitutes 14 percent of total revenue and is equivalent to $0.7/tonne of total system waste generated. ● Other system costs of PV $231.6 million consist of residual waste collection (PV $137.9 million), landfill disposal (PV $80.2 million), and green waste composting (PV $13.5 million). ● Total system costs including materials collection, sorting/ and sales are $284.9 million, equivalent to $59.0/tonne of waste generated. Total cost net of total reve- nue is PV $252.5 million, $53.3/tonne of waste generated. 131 Net revenue PV of minus $20.9 million divided by PV of total material sold of PV 0.478 million tonnes. 114 Annex 1. Unit costs and assumption used for preparing cost estimates Annex 1: Unit costs and assumption used for preparing cost estimates The following parameters and unit costs have been used for developing cost estimates: Item Value Units Assumptions Waste composition Food waste 44.20 % Paper 4.55 % Cardboard 8.45 % Plastics 12.00 % Textile 4.00 % Rubber 0.30 % Leather 0.20 % Green waste 7.80 % Wood 0.50 % Glass 4.00 % Metals 3.00 % Inert 10.50 % Hazardous waste 0.50 % Waste generation rates 132 Urban areas 365.0 kg/capita/year Rural areas 326.6 kg/capita/year Lifetime of assets Civil works 30 Years Civil works landfill administrative buildings and common infrastructure - related to lifetime Years of landfill 30 Civil work individual landfill cell 5 Years Mechanical (low wear and tear) 15 Years Mechanical (normal wear and tear) 10 Years Vehicles 10 Years Containers and bins 7 Years Other assets 5 Years Maintenance and repair Civil works 1 % Mechanical (normal wear and tear) 3 % Mechanical (high wear and tear) 6 % Vehicles 10 % Assumed household waste generation rate of 0.85 kg per day per capita; 15 percent similar waste from commercial, administrative, and industrial 132 origin in urban areas; 5 percent similar waste in rural areas. The generation rate applies for the first year of analysis. 1 percent annual increase in generation rate assumed over the planning period. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 115 Annex 1: Unit costs and assumption used for preparing cost estimates (cont.) Item Value Units Assumptions (cont.) Staff Staff working weeks/year 46 Weeks/year Staff working days/week 5 Days/week Staff working hours/day 8 Hours/day Sick leave 5% of total working days Staff working days/year 219 Days/year Other Discount factor 5 % Exchange rate €1 = 1.07 $ Unit costs Personnel costs 133 Facility Manager 15,240 $/year Deputy Facility Manager 12,192 $/year Head of Department 9,754 $/year Deputy Head of Department, Head of sector 8,534 $/year Senior specialist (engineer, economist, accountant) 8,534 $/year Foreman 7,925 $/year Head of storage 7,315 $/year Office assistant, administrative personnel 6,096 $/year Skilled worker 7,315 $/year Trained worker 5,486 $/year Driver 7,925 $/year Supervisor in collection 6,096 $/year Porter 5,486 $/year Unskilled staff 4,267 $/year Unskilled sorters 4,267 $/year Consumables Electricity 0.087 $/kWh Freshwater 1 $/m³ LFO 328 $/tonne Diesel 1.3 $/l Disposal/discharge of residues Leachate treatment 5.0 $/m³ Wastewater treatment 2 $/m³ Transport of residues to landfill 1.93 $/tonne Presented as gross annual costs for the company, assuming 27 percent social and health security payments 133 116 Annex 1. Unit costs and assumption used for preparing cost estimates Annex 1: Unit costs and assumption used for preparing cost estimates (cont.) Item Value Units Unit costs (cont.) Revenues Electricity 0.06 $/kWh Power from Renewable sources 0.21 $/kWh Paper/Cardboard 50 $/tonne Plastics 100 $/tonne Paper/Cardboard from sorting plant 30 $/tonne Plastics from sorting plant 60 $/tonne Glass 0 $/tonne Metal 100 $/tonne Compost 3 $/tonne RDF 0 $/tonne Civil works Excavations and earthworks 5.14 $/m³ Concrete Wall 295.32 $/m³ Access Road 385.20 $/m Internal roads heavy traffic 44.94 $/m² Pavement Parking 17.98 $/m² Fence 64.20 $/m Offices, workshop 449.40 $/m² Industrial hall normal construction 385.20 $/m² Steel construction shelters and covered areas 268 $/m² Landfill sealing system 23.11 $/m² Landfill surface capping 19 $/m² Delivery, spreading of landfill drainage layer (gravel) 15 $/m³ Surface water trench 6 $/m Sewer for rainwater 257 $/m Manholes for sewer 1,926 $/pc Leachate drainage pipes 321 $/m Aerial drainage for leachate system 6 $/m² Leachate shafts 38,520 $/pc Leachate pipe outside landfill 39 $/m Excavation pond, geosynthetic liner, complete 8 $/m³ Protective sand bedding and concrete plates for evaporation pond 13 $/m³ Amount measuring leachate 6,420 $/pc Gate 5,264 $/pc Water supply 64,200 $ lumpsum Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 117 Annex 1: Unit costs and assumption used for preparing cost estimates (cont.) Item Value Units Unit costs (cont.) Civil works (cont.) Wastewater treatment plant for leachate134 1,284,000 $/pc Settlement tank and separating vessel for petrol washing place 9,630 $/pc Pump 6,420 $/pc Tubes and pipes for pump 6,420 $ lumpsum Gas collecting pipes 141 $/m Gas collecting stations (underground collecting stations) 102,720 $/pc Gas collecting station with flare 1,500 m3/h 192,600 $/pc Gravel bedding for gas collection pipe 17 $/m³ Gas wells 642 $/m Pump house 6,420 $/pc Power supply (transformer, and so on) 77,040 $ lumpsum Cable tunnel 26 $/m Grading and compaction of plant and paved areas 3 $/m² Grassing, seeding, tree plantation 14 $/m² Drainage of surface water 3 $/m² Amenity block 51,360 $/pc Septic tank 257 $/m³ Filling station 20,544 $/pc Site lighting 1 $/m² Machinery and equipment Belt conveyors and accessories 4,280 $/m Reception crane 160,500 $/pc Magnetic separator 48,150 $/pc Eddy current separator 205,440 $/pc Sieve 267,500 $/pc Trommel screen 342,400 $/pc Air classifier 267,500 $/pc Ballistic classifier 363,800 $/pc Picking station 256,800 $/pc Automated channel press with feeding lines 321,000 $/pc Vertical baler 26,750 $/pc Glass crushing and cleaning line 1,605,000 $/pc Depending on leachate quantity and quality (landfill capacity/surface, rainfall, quantity of waste deposited, operating procedures) and applied 134 wastewater treatment technology. The figure is indicative for landfill accepting 100,000 tonnes of municipal waste per year. 118 Annex 1. Unit costs and assumption used for preparing cost estimates Annex 1: Unit costs and assumption used for preparing cost estimates (cont.) Item Value Units Unit costs (cont.) Machinery and equipment (cont.) Shredding unit 1 642,000 $/pc Shredding unit 2 385,200 $/pc Ventilation unit - mechanical part 42 $/m² Filter for exhaust gases 102,720 $/pc Biofilter 10 $/m² Stationary compactor for transfer station 267,500 $/pc Reception bunker for the compactor (steel construction) 25,680 $/pc Rail system for feeding containers to the compactor (for transfer station) 7,704 $/pc Civil works pumping station 3,210 $/pc Compost refining screen 171,200 $/pc Fire protection (MRF, MBT) 64,200 $/pc Communication facilities 12,840 $/pc Laboratory equipment (compost, MBT) 25,680 $/pc Equipment maintenance shop 6,420 $/pc Office equipment and furniture 1,284 $/person Weighbridge 23,112 $/pc Landfill monitoring and aftercare Landfill gaz infrared analyzer 12,840 $/pc Meteo station 9,630 $/pc Monitoring costs 17,719 $/landfill cell per year Mobile equipment Grader 150,000 $/pc Excavator 200,000 $/pc Water Truck 100,000 $/pc Landfill waste compactor (45 tonnes) 1,100,000 $/pc Landfill waste compactor small (30 tonnes) 750,000 $/pc Bulldozer 450,000 $/pc Bucket loader for landfill 300,000 $/pc Wheel Loader 100,000 $/pc Tipper truck for landfill 150,000 $/pc Roll-off tipper 109,140 $/pc Street Sweeper 95,658 $/pc Waste collection vehicle sideloader with compaction, collection vehicle with crane 215,712 $/pc Rear-end loading waste collection vehicle with compaction (21 m³) 160,500 $/pc Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 119 Annex 1: Unit costs and assumption used for preparing cost estimates (cont.) Item Value Units Unit costs (cont.) Mobile equipment (cont.) Rear-end loading waste collection vehicle with compaction (16 m3) 128,400 $/pc Rear-end loading waste collection vehicle with compaction (8 m³) 80,250 $/pc Container cleaning vehicle 128,400 $/pc Forklift 32,100 $/pc Car 19,260 $/pc Pickup 25,680 $/pc Compost turning machine, tractor PTO 53,500 $/pc Windrow turner 1 695,500 $/pc Windrow turner 2 481,500 $/pc Windrow turner 3 321,000 $/pc Windrow turner 4 214,000 $/pc Shredder 1 535,000 $/pc Shredder 2 374,500 $/pc Shredder 3 192,600 $/pc Small chipper 32,100 $/pc Compost refining screen 1 256,800 $/pc Compost refining screen 2 149,800 $/pc Small compost screen 10,700 $/pc Tractor 96,300 $/pc Tractor trailer 19,260 $/pc Mobile water tank with pump 6,420 $/pc Semipermeable membrane for compost windrow cover 18 $/m2 Tires 2,568 $ per set of tires Containers Containers 1,100 liter metal 642 $/container Containers 1,100 liter plastic 364 $/container Bin 120/240 liter 64 $/container Container slab135 — $/container Roll-off container 4,622 $/container Igloo container separate collection fiber glass 1.5 m³ 856 $/container Metal stationary container 2.2 m³ 910 $/container No construction costs for container slabs included in cost estimates. 135 120 Annex 2: Discounted cash flow analysis (DCF) Preparing a project in the municipal waste sector entails identifying and comparing Annex 2: alternative ways of achieving the desired project objectives. As project alternatives have different cost profiles (involving different cash outlays on capital and operating Discounted cash expenditures over the planning period), a tool is needed to compare these different flow analysis (DCF) cash flows between the options being examined. This is done using DCF analysis, a technique that translates a future uneven cash flow into a single PV. DCF analy- sis is used in various aspects of project evaluation, including comparing options for meeting policy objectives, estimating the unit costs of waste systems and system components, and estimating the annual revenue required for full cost recovery over time. To use DCF analysis effectively, it is necessary to have a good understanding of the underlying cash flows, the time value of money, the time frame of the analysis and the appropriate discount rate to be used. Cash flows consist of cash expenditures (cash outflows) and cash incomes (cash in- flows). In the cost analysis, we are mainly dealing with cash outflows (expenditures). Cash flows should be incremental to the current system, arising solely on account of the project. Existing costs (such as office overheads) should not be included: only incremental changes to those costs should be included (for example, an increase in office overheads). Costs that would be incurred irrespective of whether the project goes ahead or not should not be included, nor should costs already incurred. Only the direct capital investment and operating expenditures incurred over the planning period should be used in the DCF analysis. These are the actual cash out- lays incurred in purchasing the equipment, materials, and labor needed to construct, operate, and maintain the service. They do not include expenditures associated with financing the project (for example, debt service charges) or accounting provisions (such as depreciation or provisions for amortizing liabilities incurred after plant closure). Capital expenditures include land purchase, site development, buildings, infrastruc- ture, plant and equipment, licenses, patents, and other preproduction expenses and permits. Incremental operating expenditures include labor costs, vehicle fuel, other energy requirements, raw materials, chemicals, utilities, repairs and maintenance, administrative costs, and insurance. Only future costs should be included in the financial cash flow. Costs that have al- ready been incurred or which are committed regardless of the investment decision made are not relevant and should be excluded. Reinvestment costs (expenditures to replace assets with economic lives shorter than the planning period) should be in- cluded in the year in which they are incurred. The expected value remaining in an asset at the end of the planning period is called its residual value and should be included as an income in the project cash flow. It is usually regarded as the non-depreciated value of the initial or replaced assets and is entered in the final year of the planning period. The residual value is then discounted to determine its PV in today’s terms. Future cash inflows and outflows should be presented in constant values. That is, they should reflect the prices prevailing in the year in which the analysis is being un- dertaken. Adjustments made in future years should only reflect projected changes in the real prices of goods and services (for example, in wage rates or the price of en- ergy); price changes brought about solely as a result of general price inflation should be ignored. VAT should be excluded from DCF analysis. It is well known for those in- volved in project development to underestimate costs and overestimate revenues. In practice, costs tend to rise and revenues to fall, and care should be taken to ensure Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 121 that costs are based on realistic assessments and that bias—particularly optimism bias—is avoided. The ‘time value of money’ is the concept that money held today is worth more than the same amount of money received in the future: future cash flows are discounted to estimate their equivalent values today (that is, their PV). PV is the value of a cash flow discounted to a common reference point in time (also known as ‘today’s’ value). The discount rate reflects the ‘opportunity cost of capital’, a measure of the oppor- tunity foregone by using scarce capital resources in the project rather than in an alternative use. It reflects both the value of the risk-free investment opportunities foregone by the decision to invest in the project (depositing the funds in a deposit ac- count, for example) and the relative risk characteristics of the project. The discount rate to be used for public projects is commonly specified by the national authorities. Rates of 3.5–5.0 percent in real terms are typical, although they can be significantly higher in countries with tightly constrained capital resources. Cost-Effectiveness Analysis (CEA) (also known as Least-Cost Analysis)136 is a technique which uses PV alone to compare the financial costs of projects that have identical outcomes (for example, the quantity of waste collected or treated) but which have different investment and operating cost profiles (possibly higher or lower investment costs and higher or lower operating costs).137 For example, CEA can be used to compare two regional landfill location options that achieve the same environmental goals but cannot be used to compare an incineration plant with a composting plant (for which the environmental outcomes are different). AIC analysis—a variant of CEA—can overcome this restriction. Cost-effectiveness is measured as the PV of the relevant project cost flow. Options are compared and the one with the lowest PV is referred to as the least-cost option. The least-cost approach is closely related to the more powerful concept of AIC analy- sis and has the important advantage of being able to calculate and compare systems according to their unit costs (see below). 136 An example of the cost-effectiveness approach is its use in defining the least-cost way of meeting specified standards or legislation. Legislative compliance usually has an element of prescription to it, where regulations and standards (or where an environmental goal has been set by national policy or international agreement) must be complied with but where it is not necessary to show that the benefits of doing so outweigh the costs. 137 Least-cost analysis gives us the least-cost method of achieving a specific objective but says noth- ing about whether a project is financially viable or not (or whether it adds economic value to soci- ety). 122 Annex 3: AIC analysis (unit cost analysis) Overview Annex 3: AIC The PV of a future cash flow is a useful measure for comparing the cost-effective- analysis ness of alternative strategies that provide identical levels of service. It cannot, how- (unit cost analysis) ever, be used for alternative strategies that provide different levels of service. To make up for this, an extension of CEA known as AIC analysis is used to compare alter- native strategies that provide different levels of service. It is a principal tool used in the evaluation of alternative waste management strategies. It takes account of both the PV of the cashflow and the PV of the waste (or other material) flow. The AIC—the average $/tonne calculated over the planning period—is the single factor differenti- ating AIC analysis from CEA. AIC analysis is a simple concept and powerful tool for comparing projects according to their unit costs (for example, $/tonne of waste treated). It enables comparisons to be made between the costs of fundamentally different projects. For example, between the unit costs of a waste incineration plant with those of a composting plant or be- tween the waste collection and landfill components of a waste management system. It enables the economies of scale of increasingly higher capacities of processing plant to be defined. It provides a sound basis for assessing the affordability of a proposed strat- egy, and for defining the average tariff needed to achieve full cost recovery from users. The strength of the AIC analysis is that it enables an uneven cost flow (a) to be re- duced to a single PV which can (b) be converted into an equivalent smooth revenue flow which covers the uneven cost flow in full. AIC is the uniform unit cost (cost/ tonne) which when applied to the annual waste flow will generate a revenue flow hav- ing a PV equal to that of the cost flow. That is, the unit cost is an estimate of the uni- form tariff which will recover costs in full when applied to the relevant waste stream. It enables the investment and operational costs incurred over the planning period to be allocated relative to the quantity of waste managed each year. It means that the revenue requirement in a specific year relates directly to the quantity of waste managed in that year. That is, it enables costs to be matched closely with demand. This differs from the traditional approach, whereby investment costs are allocated uniformly over time via the depreciation process without accounting for the size of the annual waste management task. This difference has important implications for unit cost and tariff setting. It can help waste practitioners to ● Understand the financial structure, dynamics and costs of their waste systems; ● Evaluate system options and the cost consequences of introducing new system components; ● Undertake longer-term systems planning, budgeting, and tariff analysis. The approach can readily be used without complex modelling to provide rapid and reliable information on unit costs, revenue requirements, and tariffs with only limited investment and operating cost data. It is one of the two approaches used for calcu- lating the annual revenue requirement and tariffs, the other being the TA approach (outlined in Section 2.4.4). Calculating AIC AIC analysis relies on the elements of DCF analysis: namely the planning period, the discount rate, the residual value of capital assets, and PV. The AIC is calculated from the PV of the resource costs (investment and operational) flows138 and the PV 138 Note that costs are resource costs, being the actual investment and O&M cash outlays. Deprecia- tion is excluded, as including it would be double counting investment costs. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 123 of waste (material) quantity flows.139 AIC has a fixed value which when applied to a relevant physical flow generates a revenue flow having a PV equal to that of the cost flow. AIC analysis enables an uneven cost flow to be transformed into an equivalent smooth quantity-based revenue flow that covers the total cost flow in full. The AIC is an indicative estimate of the full cost recovery tariff per tonne of waste collected over the planning period. AIC and the equivalent revenue stream are calculated as follows: ● Calculate the net cost cash flow for each year of the planning period140 • Net Cash Flow = Investment Costs + Operating Costs − Residual Value ● Calculate the PV of the net cash flow • PV (Net Cash Flow) ● Tabulate waste quantities to be collect- ed141 for each year of the planning period (the waste flow) ● Calculate the PV of the waste flow142 • PV (Waste Flow) ● Calculate the AIC/tonne of waste collect- ed by dividing the PV of the net cash flow by the PV of waste flow • AIC = PV (Net Cash Flow) / PV (Waste Flow) ● Calculate the equivalent annual revenue requirement as the product of the annual waste flow and the (constant value) AIC ● Calculate the PV of the annual revenue requirement cash flow. • PV (Annual Revenue Requirement Cash Flow) ● The PV of the annual revenue requirement is identical to the PV of the net cash flow. • PV (Annual Revenue Requirement Flow) = PV (Net Cash Flow) Table A3.1: Example AIC calculation and equivalent full cost recovery revenue flow Discount rate = 5% PV 1 2 3 4 5 6 7 8 Physical flow (tonnes) 553 40 50 80 100 100 100 100 100 Net cash flow (₮) 4,648 2,000 750 400 400 400 400 400 400 AIC (₮/tonne) 8.4 Equivalent revenue flow (₮) 4,648 336 420 673 841 841 841 841 841 AIC = PV (Net Cash Flow) / PV (Physical Flow) AIC = ₮ 4,648 / 553 tonnes = 8.4 ₮/tonne 139 Justification for discounting a physical flow such as waste to be provided. 140 The term ‘net cost cash flow’ is used as investment costs are net of their residual value at the end of the analysis period. 141 The waste flow can be related to any system component, such as tonnes of recyclable material or tonnes of waste disposed of to landfill. 142 Briefly explain the mathematics behind discounting a physical flow such as waste. 124 Annex 3: AIC analysis (unit cost analysis) The calculations are illustrated in the following example. Simple operational examples of AIC analysis A project entails a planning period of six years; a single investment of $10,000; an in- vestment life of eight years; waste flow at full capacity utilization of 120 tonne/year; fixed operating costs of $1,500/year; variable operating costs of $8/tonne of materi- al throughput. Two scenarios are considered: ● Scenario 1: Full plant capacity utilization from year 1 ● Scenario 2: Ramp up to full plant capacity over four years. The following tables set out the analysis for each scenario. The examples are also applied in Annex 4 when considering the TA approach. The outcomes of the two ap- proaches are compared in Annex 5. Table A3.2: Simple AIC example - fixed annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Asset life (years) 8 Waste flow 640 120 120 120 120 120 120 Investment expenditure 10,000 10,000 0 0 0 0 0 Residual value −1,959 0 0 0 0 0 2,500 Total operating costs 13,111 2,460 2,460 2,460 2,460 2,460 2,460 Fixed operating cost 7,994 1,500 1,500 1,500 1,500 1,500 1,500 Variable operating cost 5,116 960 960 960 960 960 960 Net cost cash flow 21,152 12,460 2,460 2,460 2,460 2,460 -40 AIC 33 Equivalent revenue stream 21,152 3,969 3,969 3,969 3,969 3,969 3,969 Points to note: ● A single asset is created with a life of eight years and an initial investment of $10,000. At the end of the six-year planning period, the residual value of the asset is $2,500 in year 6 and a PV of $1,959. The value remaining in the project of $1,959 is treated as a revenue flow. ● The annual waste (material) flow is constant over the period, as are annual oper- ating costs. ● The net cash flow is uneven (consisting of investment costs, operating costs, and residual value) and has a PV of $21,152. ● The AIC is calculated as $33/tonne of waste management over the planning period, dividing the PV of the net cash flow by the PV of the waste flow. ● The equivalent revenue stream is calculated as the AIC multiplied by the waste flow in each year. Note that it has a PV of $21,152 (the same as the net cash flow). Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 125 Table A3.3 reflects the same analysis but with the input material flow ramped up over the first three years after which it is constant. Table A3.3: Simple AIC example - variable annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Asset life (years) 8 Waste flow 503 40 80 100 120 120 120 Investment expenditure 10,000 10,000 0 0 0 0 0 Residual value (1,959) 0 0 0 0 0 (2,500) Total operating costs 12,021 1,820 2,140 2,300 2,460 2,460 2,460 Fixed operating cost 7,994 1,500 1,500 1,500 1,500 1,500 1,500 Variable operating cost 4,026 320 640 800 960 960 960 Net cost cash flow 20,062 11,820 2,140 2,300 2,460 2,460 (40) AIC 40 Equivalent revenue stream 20,062 1,594 3,189 3,986 4,783 4,783 4,783 Points to note: ● Material flow input starts relatively low and is gradually increased until it reaches full capacity input in year 4. ● Investment expenditures are the same, as are residual value and fixed operating costs. Variable operating costs vary according to the material inflow profile. ● The PV of the net cost cash flow is lower, owing to the lower material throughput. ● An AIC of $40/tonne is higher, also due to the lower material throughput. ● The equivalent annual revenue requirement is calculated as the product of the AIC and material flow and is again identical to the PV of the net cost cash flow. Note that the revenue stream reflects annual demand (increasing material flow). Note that dividing the PVs of the fixed and variable components of O&M costs by the PV of the waste flow gives AICs for each of the two cash flows. Together they equal the PV of the total operating cost flow. The AIC for variable O&M costs is 4,026 / 503 = $8/tonne (as expected) and for fixed O&M costs it is $16/tonne. The AIC for total investment expenditures is $10,000/$503 = $20/tonne, and for residual value it is mi- nus $3.9/tonne. Note also that the AICs of $33/tonne and $40/tonne of material managed for the two scenarios are constant across the planning period.143 For Table A3.1, it is the same each year, consistent with a constant annual demand over the planning period. The two revenue flows are illustrated in Figure A3.1. The key point is that the revenue requirement increases with increasing material flows (that is, it matches demand). These are compared with the outcomes derived using the traditional approach in Chapter 7. 143 Note that the financial numbers are in the real constant values of a specific year (year 1) and are not adjusted for inflation. 126 Annex 3: AIC analysis (unit cost analysis) Figure A3.1: Revenue flows for fixed and variable material flows (AIC approach) Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 127 The core difference between the TA and the AIC approaches to defining annual revenue requirements and equivalent tariffs lies in their treatment of investment parameters and time. The TA approach calculates the annual revenue requirement Annex 4: A and tariff directly from accounts-based data on operating costs, asset depreciation, traditional and ROI:144 Calculations in one year are independent from those in following years. accounting They are not linked by time or service demand. approach Outline of the TA approach The accounting approach calculates the annual revenue requirement as O&M costs plus depreciation (the return of investment) plus the ROI (the average of the start- ing and closing values of an asset in any particular year). These items are typically calculated each year for accounting purposes. Indicative tariffs are calculated for each year by dividing the annual revenue requirement by the total waste collected in that year ($/tonne), the size of the serviced population ($/person), or the number of households served ($/household). Allocating investment costs via the depreciation provision means they are allocated purely according to time and not the size of demand for services in each year (that is, the amount of waste collected or the size of population served). In a situation of pro- jected rising population or rising per capita waste generation (or both), the approach results in higher unit costs per tonne or per person in earlier years than in later years. Not only does this conflict with objectives such as the user- and polluter-pays prin- ciples, it also defeats the aim to increase tariffs progressively over time as they be- come increasingly more affordable through real income growth. Calculating the full cost recovery tariff and annual revenue requirement using the TA approach requires three sets of information: ● Annual O&M expenditures over the period of the analysis (usually the projected life of the landfill or other assets having the longest economic life). ● Annual depreciation (the return of capital): calculated by dividing the initial value of each asset by its economic life). Depreciation is essentially fixed over the ex- pected life of each asset. ● The annual rate of ROI: calculated as the product of the average annual value of the depreciated assets in a specific year and the rate of return. The sum of these parameters gives the annual revenue requirement for full cost re- covery. The average annual value of the depreciated asset base is taken to be the average of the annual opening and closing values of the assets. The required ROI is assumed to be the same as the discount rate employed in the AIC approach. In the TA approach the annual revenue requirement to achieve full cost recovery is calculated in each year of the analysis period. It is converted to an annual cost per tonne of waste by dividing it by the projected amount of waste managed in the rel- evant year. This can also be related directly to users in terms, for example, of the annual cost per person, per household or per unit floor area. This indicative financial tariff can then be adjusted for any additional cost items, such as VAT. 144 Note that the three parameters (annual operating costs, depreciation, and ROI) are the accounting equivalents of those used of annual operating costs, investment cash expenditures, residual value, and discount rate to define the net cash flow calculation in the AIC approach. 128 Annex 4: A traditional accounting approach Examples of the TA Approach The following is an example of the calculations made using the TA approach. Table A4.1: Simple TA example - fixed annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Asset life (years) 8 Waste flow (tonne) 640 120 120 120 120 120 120 Investment expenditure 10,000 10,000 0 0 0 0 0 Depreciation 6,662 1,250 1,250 1,250 1,250 1,250 1,250 Starting asset value 10,000 8,750 7,500 6,250 5,000 3,750 Ending asset value 8,750 7,500 6,250 5,000 3,750 2,500 Average asset value 9,375 8,125 6,875 5,625 4,375 3,125 ROI 1,713 469 406 344 281 219 156 Total operating costs 13,111 2,460 2,460 2,460 2,460 2,460 2,460 Fixed operating cost 7,994 1,500 1,500 1,500 1,500 1,500 1,500 Variable operating cost 5,116 960 960 960 960 960 960 Revenue requirement 21,485 4,179 4,116 4,054 3,991 3,929 3,866 Annual cost/tonne 35 34 34 33 33 32 Points to note: ● Waste (material) flows, investment expenditure, and asset life are as per Table A4.1 and Table A4.2, as are fixed and variable operating costs. ● The revenue requirement is calculated annually as depreciation plus ROI plus op- erating costs. ● The ROI is calculated as the rate of return required multiplied by the annual aver- age asset value. ● The annual revenue requirement falls over the planning period. This results from falling average asset values and the resulting lower annual ROI (prior to asset re- placement). ● The unit cost per tonne of waste managed is calculated by dividing the annual rev- enue requirement by the annual quantity of material managed. The unit cost per tonne falls in tandem with the fall in the annual revenue requirement. ● Note also that the annual cost per capita (or per household) is calculated as the annual revenue requirement divided by number of residents served (taken to be constant in the above). Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 129 Table A4.2: Simple TA example - variable annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Asset life (years) 8 Waste flow (tonnes) 503 40 80 100 120 120 120 Investment expenditure 10,000 10,000 0 0 0 0 0 Depreciation 6,662 1,250 1,250 1,250 1,250 1,250 1,250 Starting asset value 10,000 8,750 7,500 6,250 5,000 3,750 Ending asset value 8,750 7,500 6,250 5,000 3,750 2,500 Average asset value 9,375 8,125 6,875 5,625 4,375 3,125 ROI 1,713 469 406 344 281 219 156 Total operating costs 12,021 1,820 2,140 2,300 2,460 2,460 2,460 Fixed operating cost 7,994 1,500 1,500 1,500 1,500 1,500 1,500 Variable operating cost 4,026 320 640 800 960 960 960 Revenue requirement 20,395 3,539 3,796 3,894 3,991 3,929 3,866 Annual cost/tonne 88 47 39 33 33 32 In this scenario, material throughput is ramped up progressively each year as out- lined in Table A4.2. Points to note: ● Investment expenditures, depreciation, average asset values, and ROI are un- changed from Table A4 - 1. ● Differences in input data between the two tables are (i) the material flows and (ii) the variable operating costs (which are linked to material quantity). ● The PV of the annual revenue requirements of $20,395 is $1,090 lower than the equivalent PV figure of $21,485 calculated in Table A4.1. This is entirely due to low- er variable operating costs. ● Note that the annual revenue requirement first increases as material throughput is ramped up to full capacity (years 1 to 3) but then falls over years 4 to 6 when full capacity has been achieved (as also demonstrated in Table A4.1). ● The major difference arises in the calculation of the annual costs per tonne in years 1, 2, and 3. The figure of $88 calculated for year 1 results from the accounting costs on which it is based ($3,539) being unrelated to the quantity of material being managed (40 tonnes as compared to a full capacity throughput of 120 tonnes). This is a major failing of the approach: costs are not allocated according to demand.145 These outcomes are illustrated in the Figure A4.1 and A4.2. 145 The same issue arises if the annual cost per capita (or household) is calculated. 130 Annex 4: A traditional accounting approach Figure A4.1: Unit costs for fixed and variable material flows (TA approach) The outlying figure of $88 per tonne distorts the scale of the diagram above insofar as the progressively declining annual cost per tonne of the fixed waste flow scenario (in blue) is not easily seen. This applies equally to the final three years of the variable waste flow scenario (in orange). The following chart illustrates ● The progressively declining revenue requirement in the fixed waste flow example (Scenario 1); ● The progressively rising revenue requirement of the variable waste flow example (Scenario 2) over the first three years as material input is being ramped up, after which it declines (as per Scenario 1). Figure A4.2: Revenue flows for fixed and variable material flows (TA approach) Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 131 Problems with the TA Approach Problems associated with the TA approach: ● The approach is based on annual capital accounting and operating costs and is unrelated to service demand (waste quantity collected per year). ● It is undertaken on an annual basis and relates only to time (depreciation and ROI are calculated annually) and not to waste quantity or population size. ● It implies that the accounting costs incurred in one year (such as depreciation) should be recovered in that year: this does not necessarily apply. ● It is erratic, leading to volatility in tariffs and revenue flows (see Figure A4.3). ● It provides little scope for flexibility in tariff setting. ● It does not help with longer-term strategic and financial planning. Figure A4.3: Cost per tonne (TA approach) TA approach: Cost per ton 39 38 37 36 Costs per ton ($) 35 34 33 32 31 30 29 1 2 3 4 5 6 7 8 9 10 11 The chart shows a typical profile of unit costs per tonne when the TA approach is used to calculate it. 132 Annex 5: Comparing the AIC and TA approaches This annex compares the unit cost, revenue and tariff outcomes using the AIC and Annex 5: Comparing accounting approaches. The examples are based on identical waste flows, invest- ment and operating costs, and planning time frames. The following outcomes are the AIC and TA identical in all situations: approaches ● Arithmetic average cost per tonne calculated over the planning period ● Arithmetic average tariff per capita calculated over the planning period ● The PV of the resultant revenue streams. The difference between the approaches is the way costs are allocated and the effect of this on tariffs over the planning period. Table A5.1: Comparison of AIC and TA approaches: Fixed annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Asset life (years) 8 Waste flow (tonnes) 640 120 120 120 120 120 120 AIC approach Investment expenditure 10,000 10,000 0 0 0 0 0 Residual value −1,959 0 0 0 0 0 −2,500 Total operating costs 13,111 2,460 2,460 2,460 2,460 2,460 2,460 Net cost cash flow 21,152 12,460 2,460 2,460 2,460 2,460 −40 AIC/tonne 33 33 33 33 33 33 33 Equivalent revenue stream 21,152 3,969 3,969 3,969 3,969 3,969 3,969 TA approach Depreciation 6,662 1,250 1,250 1,250 1,250 1,250 1,250 ROI 1,713 469 406 344 281 219 156 Total operating costs 13,111 2,460 2,460 2,460 2,460 2,460 2,460 Revenue requirement 21,485 4,179 4,116 4,054 3,991 3,929 3,866 Annual cost/tonne 35 34 34 33 33 32 The example relates to a system of fixed annual waste flows. The AIC approach first calculates the net cost cash flow. From this AIC/tonne is calculated by dividing the PV of the net cost cash flow by the PV of the Waste Flow. The AIC is then used to calcu- late the annual revenue requirement, a revenue flow having a PV which is identical to that of the net cost cash flow and covers the net costs in full. The TA approach sepa- rately calculates the annual revenue requirement for each year and estimates from it the average cost per tonne of waste managed each year. Unit costs are calculated by dividing the annual revenue requirement by the annual quantity of waste managed. Al- though not identical, the TA approach leads to a PV of the annual revenue requirement ($21,485) which comes close to that of the AIC approach ($21,152). Applied properly, the approaches can realistically be considered identical in this respect. They differ with respect to the allocation of the revenue requirement over the plan- ning period and the value of the AIC/Annual cost per tonne. First, the AIC/tonne is a unique number applicable to each tonne of waste managed across the planning period. It is calculated as $33/tonne of waste. In contrast, with the TA approach, the unit cost per tonne of waste varies across the planning period, falling from a high figure of $35/tonne in year 1 to a low figure of $32 in year 6. Similarly, the annual rev- Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 133 enue requirement under the AIC approach of $3,969 is the same across the planning period; this is realistic, as the number is calculated from two constants, the AIC and the quantity of waste managed. The figure of $4,179 calculated for year 1 under the TA approach is the highest of the annual figures, falling to $3,866 in year 6. These are perverse outcomes of the TA approach. Table A5.2: Comparison of AIC and TA approaches - Variable annual waste flow Units: $; discount rate: 5% PV 1 2 3 4 5 6 Waste flow (tonnes) 503 40 80 100 120 120 120 AIC approach Investment expenditure 10,000 10,000 0 0 0 0 0 Residual value −1,959 0 0 0 0 0 −2,500 Total operating costs 12,021 1,820 2,140 2,300 2,460 2,460 2,460 Net cost cash flow 20,062 11,820 2,140 2,300 2,460 2,460 (40) AIC 40 40 40 40 40 40 40 Equivalent revenue stream 20,062 1,594 3,189 3,986 4,783 4,783 4,783 TA approach Waste flow (tonnes) 503 40 80 100 120 120 120 Depreciation 6,662 1,250 1,250 1,250 1,250 1,250 1,250 ROI 1,713 469 406 344 281 219 156 Total operating costs 12,021 1,820 2,140 2,300 2,460 2,460 2,460 Revenue requirement 20,395 3,539 3,796 3,894 3,991 3,929 3,866 Annual cost/tonne 88 47 39 33 33 32 Table A5.2 relates to a system of variable annual material flows. Here, an AIC of $40 is calculated with the AIC approach. It is larger than that of $33 for the fixed waste flow, a difference resulting from a significant reduction in total waste managed but only a relatively small reduction in total costs owing to the high fixed cost element of total costs. The revenue stream is a relatively low figure ($1,594) as it is the product of a fixed AIC and a low volume of waste managed. Regarding the TA approach, the annual revenue requirement of $3,539 in year 1 ini- tially grows until full capacity is reached in year 4, after which it starts to fall. Note that the revenue requirement estimated for year 1 of $3,539 is more than double that of $1,594 calculated with the AIC approach. Again, a perverse outcome of the TA ap- proach is the high annual costs per tonne of $88, $47, and $39 in years 1 to 3. This is due to a low volume of material being treated while the accounting costs of depreci- ation and ROI remain unchanged with only a relatively small fall in variable operating costs. That is, a large cost must be covered by a small quantity of material being managed. 134 Annex 5: Comparing the AIC and TA approaches Summary: Why the AIC approach is important ● Fairly allocates costs against service use ● Takes account of projected future population and waste generation dynamics in calculating tariffs today ● Recovers costs in full over the planning period ● Generates a steady and predictable revenue stream ● Starts from a lower tariff base than accounting-based schemes ● Generates an identical revenue stream in PV terms when compared to the ac- counting-based approach ● It is versatile and can be very easy to apply. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 135 Two constraints should be considered when assessing household waste tariffs: their affordability for users and their ability to sustain the services financially over time. System planners face two pressures: to keep tariffs lower for affordability and Annex 6: to keep them higher for financial sustainability. Usually, two separate tariff assess- Affordability ments are made: one to define an affordable tariff profile (and its associated reve- and financial nue stream) and another to define the tariffs needed to satisfy the minimum revenue requirement for financial sustainability. The affordability assessment is undertaken sustainability independently from system costs whereas the financial sustainability assessment depends on costs. Affordable tariff policy tends to pull tariffs down and financial sustainability tariff policy tends to push them up. The tensions inherent in these goals feed back into system financing and, ultimately, into how the waste management system itself is defined. A funding gap between the two shows how grant funding (or other additional funding supports, such as municipal transfers) may be needed to fill the gap between the affordable and full cost recovery tariff paths. Alternatively, it might be necessary to redefine the scope, scale, and costs of the project. The affordability assessment draws on the socioeconomic parameters of the com- munity being served and is unrelated to the proposed strategy and its costs. As- sumptions underpinning the assessment are codified at the end of the section as a set of decision rules to be used when calculating the affordable tariff. Decision Rules The aim is to define a tariff and financing structure that enables both tariff con- straints to be met, an aim which decision rules can be set to achieve: ● Decision rules help define the input parameters needed to establish household waste tariffs that are socially affordable and acceptable. They help define an af- fordable revenue stream. ● Decision rules help define the minimum revenue needed each year to achieve sys- tem financial sustainability. They help define the tariffs needed to satisfy this con- straint. Example decision rules for assessing the affordability of municipal waste services: ● Define the average household (or per capita) income and projections to be used in the analysis; ● Define an affordability ratio for municipal waste tariffs relative to average house- hold income; ● Define an appropriate starting tariff to initiate the future tariff evolution process; ● Define a realistic period over which the affordable tariff is to be achieved; and/or ● Define the maximum permissible annual real rate of increase in tariffs; ● Define the correct treatment of VAT on waste management tariffs; ● Ensure that tariffs do not exceed the affordability ratio (which is expected to re- main constant as average incomes rise); ● Ensure that tariffs do not exceed the full cost recovery tariff. Example decision rules for assessing the financial sustainability of household waste services: ● Grants funds to be used (if available) to achieve the financial sustainability objec- tives while keeping tariffs affordable to users. 136 Annex 5: Comparing the AIC and TA approaches ● Grants should ideally be used only once to part fund the initial investment require- ments. ● Asset replacement to be funded from commercial and municipal sources (retained municipal earnings, loans or private sector contributions). ● Tariffs to cover—at a minimum—O&M costs (excluding depreciation) in full from the start of operations. ● Tariffs to cover 100 percent of depreciation on replaced assets. ● Cumulative net cash flow to be positive in all years. Affordability, financial sustainability, and grant fund availability determine the scope, scale, and timing of implementing a realistic and achievable waste management strategy. Careful consideration of these factors can allow realistic targets to be set for achieving specific municipal waste management goals. Responsible authorities should define (a) the bounds of a socially affordable and politically acceptable tariff and its structure; (b) how the minimum annual revenue requirement is to be calculat- ed (thereby defining the full cost recovery tariff); and (c) the sources and availabili- ty of grant funds (including budgeted municipal transfers). In the absence of grant funds, the scope, scale, and costs of the strategy will need to be scaled down to sat- isfy the affordability and financial sustainability criteria. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 137 AIC analysis AIC analysis is an extension of DCF analysis that is widely used in the preparation Glossary of cost of resource-based projects in sectors such as water, forestry, energy, mining, and waste management. It enables an uneven cost flow to be converted into an equiv- categories, types alent smooth revenue flow which covers the uneven cost flow in full. It involves the and tools used in following steps: municipal solid ● Calculate the PV of the cost flow. waste management ● Divide the PV of the cost flow by the PV of the waste material flow to generate an AIC (a unit cost/tonne). ● Multiply the annual waste flow by the AIC to generate an even revenue flow having a PV equal to that of the cost flow. The AIC is an indicator of the uniform tariff which would cover costs in full when ap- plied to the relevant waste stream over time (before taxes, such as VAT). It enables the investment and operational costs incurred over the assessment period to be allo- cated relative to the quantity of waste managed in each year. That is, the cost recov- ery revenue requirement in a specific year relates directly to the quantity of waste managed in that year. Debt Service If the waste management services are financed partly by debt, then provision must be made to service the loan from the annual revenue requirement. Debt service in- cludes two (main) cost components: repayment (return) of the principal amount an- nually over a defined payment period and interest payments made on the amount of loan outstanding. The close similarity between the two loan service components and the terms depreciation (return of investment) and ROI should be noted. The current report does not cover system financing. Depreciation Depreciation—the return of investment—is an approach to allocating capital outlays over the projected life of an acquired capital asset. It is a measure of the annual value of the asset used up in system operations for each year of its expected life. Depreci- ation is commonly calculated using the simple ‘straight-line’ method of dividing the initial capital outlay by the useful life of the asset, resulting in an equal provision for depreciation each year. The approach is ideal if the asset is expected to be operated broadly at its design capacity over its expected life but less so if, for example, ca- pacity utilization is expected to vary significantly from year to year or if full capacity utilization is not expected to be reached until later in the asset’s life. Under these circumstances, the AIC approach of allocating asset costs against projected mate- rial throughput (such as progressively ramping up the capacity utilization of an MRF plant) should be considered.146 Depreciation is not a cash flow item as it does not involve an expenditure of funds. It is an accounting procedure that enables the value of an asset to be allocated over its expected life for tax or accounts reporting purposes and which can be recovered from users through the tariff structure. It should not be included in DCF analysis (as it is not a cash flow item). It is, however, included in the calculation of the annual reve- nue requirement when using the TA approach to unit cost and tariff setting. Estimates of depreciation are needed to calculate residual value in DCF and AIC cal- culations and are a key parameter in the TA approach to annual tariff calculations. 146 The AIC approach is described in this document. 138 Annex 5: Comparing the AIC and TA approaches Direct costs Municipal waste management costs can be divided into their direct and indirect costs components. The direct component relates to the costs incurred in physically providing the services: the costs of acquiring the capital equipment on which the services depend (such as refuse collection vehicles or a materials recovery plant) and the costs incurred in operating that equipment (for example, labor, fuel, main- tenance). Direct costs are costs that are clearly and exclusively associated with the physical activity of SWM. Direct costs are typically a significantly larger component of total costs than the indirect component. The direct cost component can be di- vided into a fixed cost component and a variable cost component. Variable costs vary according to the quantity of material produced. At 65–80 percent, the fixed cost component is typically higher than the variable cost component. Discounted cash flow (DCF) analysis DCF analysis is a tool used by financial analysts and project managers to evaluate the viability of a commercial venture or asset projected to create a financial flow over time. More broadly, it is a method to calculate the PV (today) of a projected future cash flow over time. It is based on the principle of the time value of money, whereby the PV of an asset is equal to the sum of all projected future cash inflows or outflows discounted to the present by the time value of money or discount rate. Fixed costs Fixed costs are costs that are independent of volume and are not linked to the amount of waste collected or treated. They are constant whatever the level of operations (within the capacity constraints of the installed capacity). Examples are rent and lease costs, depreciation, amortization, salaries, utility bills, fuel costs, insurance, and loan repayments. These are recurring costs and are hence based on time rather than on the quantity of waste collected or treated (for example, interest, labor and insurance costs are typically paid per month or year). Fixed costs must be funded regardless of the amount of waste collected and cannot be rapidly adjusted in response to a reduction in waste collection tonnage. Fixed costs can also be categorized as indirect or overhead costs. The high fixed cost component characteristic of municipal waste services is a powerful constraint on municipalities wishing to introduce quantity-based tariffs. This important aspect is considered in greater detail in the main text. Indirect costs Indirect costs are costs which relate only indirectly to the physical activity of provid- ing municipal waste services. They relate to costs incurred in providing the support services on which the technical operations depend. They can include personnel, ac- counting and payroll, legal, financial control and management, purchasing, fee col- lection, data processing, records management, and executive oversight (the mayor’s salary and office expenses). Indirect costs typically constitute a significantly smaller component of total costs than the direct component. Investment expenditures Investment expenditures of primary interest to this document are initial investment expenditures and reinvestment expenditures necessary to replace assets at the end of their useful economic lives. Future investments planned to expand the scope of services are not considered within the scope of the current material. The main investment categories represented in municipal waste management sys- tems are as follows: ● Collection infrastructure (vehicles, bins, offices, and maintenance facilities) ● Transfer facilities (transfer stations, storage capacity, and haulage vehicles) Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 139 ● Treatment facilities (sorting plants, composting plant, and equipment) ● Disposal facilities (landfill and equipment). The main asset categories for depreciation purposes are typically: ● Waste containers 3–7 years life ● Vehicles 7–10 years life ● Plant and equipment 10–15 years life ● Civil works 20–40 years life (normally limited by facility life). Investment expenditures should include land purchases, planning and design fees, and supervision costs incurred during construction and implementation. Waste management systems are characterized by ● Periodic replacement of plant and equipment (for example, waste collection bins, waste haulage vehicles, plant, and equipment) ● Periodic closure147 of landfill cells and the construction of subsequent cells ● Closure and long-term care of the landfill site itself at the end of its operational period. These costs are reflected in a continuous flow of investment expenditures over the life of the waste management system. They can be high and should be recognized and planned during the feasibility and financial planning stages. They have a major impact on the annual revenue required to operate the system on a financially sustain- able basis and consequently on the size of user charges. Landfill and landfill cell closure costs should be recognized and paid for by users in advance over the life of the cell or landfill. This reflects the user pays principle that costs should be borne by those who give rise to the costs. For example, the need for landfill cell closure is created by the users who deposit waste into and use up the capacity of the landfill cell. Liabilities Most capital assets are created at a point in time and are then progressively used up in future years over the assets’ life. A collection truck is an example. For such an asset, annual depreciation (as described above) is used in the calculation of annual system costs, budgets, unit costs and tariffs. Note that liabilities (future cash outlays148 or expenditure obligations) created as the result of current operations must also be accounted for. The need to finance the clo- sure of a landfill cell is an example. The act of operating a landfill cell creates the fu- ture liability of having to close it. The future costs of closing the cell are thus directly attributable to current users and should be recognized in the current tariff structure accordingly. Similarly, employee retirement benefits, such as pensions and health care, are future outlays obligated by current employee services. A future outlay can be converted into a cost using the established financial technique of amortization. Amortization refers to any process of liquidating a debt over time. The amortization of future outlays for landfill closure and post-closure care recog- nizes that cost over the period of landfill operation. The costs of investments in landfill cell closure should be borne by the users of the cell being 147 closed. That is, they should be covered by the users of the cell in advance of it being closed. This key factor is often not recognized in waste management planning. A future outlay is an expenditure of cash in the future that is obligated by current or prior activities. 148 140 Glossary of cost categories, types and tools used in municipal solid waste management That is, future expenditures incurred to close the initial landfill cell are directly attribut- able to the waste generators which deposited waste into the cell. In a full cost recovery policy, provision for current users to fund such liabilities would be made through the tariff mechanism. Similarly, future expenditures to rehabilitate and monitor a landfill at the end of its life should also be funded in advance by all landfill users over its operating life according to the amount of waste each has disposed of to the site. In this process, provision is made through the tariff mechanism to accumulate suf- ficient funds to finance a liability when it becomes due. This is achieved by including in the cost analysis annual provisions which, when accumulated over the life of the liability, generate sufficient funds to liquidate the liability. Unlike depreciation—by which the value of an investment is recovered over its projected life—prepayments are collected in advance of the investment expenditure. Such provisions should be recognized in the calculation of the annual revenue requirement and reflected in the average tariff. This is particularly important when planning the tariff in the early years of strate- gy implementation, where provision should be made at a minimum to generate the funds needed to close the first landfill cell from the users of that cell. Ideally, provi- sion should also be put in place for landfill closure and its post-closure monitoring and care. O&M Costs Operating costs are the recurrent costs incurred over relatively short periods of time (less than one year) in operating and maintaining the assets of a business. They typi- cally include the following: ● Personnel wages and salaries (including overheads) ● Building, vehicle, and equipment maintenance ● Material and energy costs: power, fuel, chemicals, and similar materials ● Rent, leases, insurance, and licences ● Contract services ● Operational overheads and administrative expenses. Maintenance costs are sometimes shown as a percentage of the initial investment cost of the asset being maintained. Estimates such as these might be used at the system planning stage, although other sources of information (such as from the bid- ding documents of prospective third-party partners, from the practical experience of senior staff, or from consulting engineers) might also be used at the planning stage. Practical experience and data gained during the operational phases of similar systems should however be drawn upon wherever possible. O&M costs are typically adjusted over the operational period for annual changes in the amount of waste being managed and for real increases in the cost of labor. Fac- tors such as these can result in large increases in operating costs (before inflation) over the planning, investment and operational periods. Values used when projecting O&M costs should be realistic, drawing on a range of po- tential sources. These include existing operational experience (current and projected future labor costs, for example); plant and equipment manufacturers’ specifications and guidance; informed judgment of advisers and operators; local and international experience; publicly available material. The objective must be to provide a realistic assessment of future costs—it should not be to minimize costs unreasonably to jus- tify a preferred outcome. Municipal Solid Waste Cost Calculation Technical Guidelines for Low- and Middle-Income Countries 141 Overhead costs Overhead costs are the management and support costs a municipality incurs in pro- viding municipal SWM services. The costs of management and labor support should be fully accounted for, together with a proportionate share of office costs (for exam- ple, rent, office equipment, and utilities) incurred. They are effectively a subset of indirect costs. Present Value The current value of a future stream of cash flows given a specific discount rate (or rate of return). See Annex 2 on DCF analysis. Residual Value of Investment (Capital) Assets ‘Residual value’ is the value remaining of an asset in the final year of the assessment period after taking depreciation up to that point into account. It is the value of the unused portion of a capital investment and is treated as a project revenue or ben- efit when calculating the net cash flow. For example, landfill plant and equipment and collection vehicles may retain some economic value at the end of the period. Residual value is a revenue component and not a cost component. Recognizing it in the cash flow effectively adds back the unused value of the assets. Residual value is calculated as the starting value of the assets (investments) minus the depreciation accrued at the end of the assessment period. The residual value of assets after depreciation is entered into the final year of the analysis period and is a key factor in net cash flow calculations based on DCF analy- sis. It is calculated as the difference between total investments over the analysis pe- riod and total depreciation over the same period. It represents the remaining value of the assets and is added back as a revenue input at the end of the assessment period. Return on Investment ROI is a project cost—a cost that must be recovered if investors are to be compen- sated for investing in a project (and if resources are to be attracted to the project). It is included in the calculation of the annual revenue requirement when using the TA approach to unit cost and tariff setting. It is not included in the AIC approach, as the discount plays this role there. The ROI is calculated as a percentage of the average value of an asset for each year of the asset life. The opening value of an asset is equal to its closing value in the previous year. The closing value of an asset is calculated as the opening value plus investment expenditure in the current year minus depreciation in the current year. The ROI is calculated as the average value (opening value plus closing value divided by 2) multiplied by the expected ROI. ROI in this analysis is taken to be the same as the discount rate used in DCF analysis. Transfer payments Transfer payments are funds provided by local, state, or national governments to part-fund the investment and operating costs of the waste management services being provided. They are also known as municipal transfers or subsidies. They are sources of grant funding. International grant funding could also be considered to fall into this category. Variable costs Variable costs are costs that change as the volume changes. A key example of this is landfill gate fees, where the total charge varies directly with the quantity of waste disposed of. This important aspect is considered in the main text.