20120823 wash cost ghana ppt at mole tamale (2)

August 23, 2012 MOLE Conference Tamale


Outline

Capital Maintenance Expenditure (CapManEx)

What is CapManEx?

Why is CapManEx important?

What is the magnitude of CapManEx?

Financing CapManEx

Financing options

Existing practices for addressing CapManEx

Innovative Options for the future


WASHCost project


Capital Maintenance Expenditure

Capital Maintenance Expenditure (CapManEx) is the occasional expenditure on asset renewal, replacement and rehabilitation to ensures the same level of service when the initial expenditure of the asset was incurred

Examples of CapManEx include the cost of replacing a motor on a pump or the pump rods/rising main of a hand pump; flushing a borehole which no longer delivers the desired flow; cleaning/re-excavating the base of a hand-dug well, cleaning a water tank, etc.


Life cycle cost components

Capital expenditure

Operational and minor

maintenance expenditure

Capital maintenance expenditure

Direct support costs

Indirect support cost

Costs of capital


Why is CapManEx important

Capital Maintenance Expenditure (CapManEx) is important to keep the assets/facilities in a good state through renewal, replacement and rehabilitation.

The CapManEx on WASH facilities, often after some years of operation, ensures the same level of service that the initial users of the assets received when the initial expenditure of the asset was incurred.

Inadequate CapManEx?

The cost of failure – 20 countries in sub-Saharan Africa

Investment

loss in

sub-

Saharan

Africa of

between

US$ 1.2 to

1.3 billion

over 20

years

Information Collated by Peter Harvey, UNICEF Zambia, May 2007

36% Ghana?

-~30% of rural non-functional at the time of visit (point systems)

- ~ 77% sub-standard service (point-systems)

- ~ 41% sub-standard (small-towns)

(source: WASHCost)

CapManEx?


What is the magnitude of CapManEx

CapManEx measurement are usually based on the actual expenditure, which is different from the ideal or what it should be to deliver sustainable services

Therefore we have to compare cost

against services


0

1

2

3

4

5

6

7

8

water point system Small towns piped system

Co

st p

er

pe

rso

n p

er

year

in U

S $

Recurrent cost per technology for water US$ (2009)

CoC

ExpDS

CapManEx

OpEx

CapEx per capita - WPS US$ 40 and Piped scheme US$ 80

Cost per technology


Magnitude of CapManEx

Capital Maintenance Expenditure per person for small towns is about 5 times that of point systems

CapManEx for water point systems ranges from US$ 0.1 to US$ 1 per capita per year

CapManEx for small towns water systems ranges from US$ 0.5 to US$ 7 per capita per year


Financing CapManEx

There are three main ways for financing CapManEx. These are tariffs, taxes and transfers.

Tariffs are from the direct user fees

Taxes from the central or local government’

Transfers from donors etc


Policy framework for CapManEx

Model Bye-laws (2008)

The WSDBs are to establish at least three accounts which shall be designated as follows: 1) Operational Account;2) Capital Account; and 3) Sanitation Account.

The Capital Account is to be used for major repairs, expansions and replacements and not for routine operation and maintenance.

WSDBs are to make monthly payments of at least 20% of net monthly revenue into the capital account.

In addition MMDA’s may allocate funds annually from its budgetary allocation to the capital account.


Policy framework for CapManEx

CWSA WATER TARIFFCOMPONENTS

1.Water Production Expenses

2.Distribution Expenses

3.Routine maintenance

4.Repair Work(by staff and private maintenance contracts 5.Water Quality Monitoring

6.Tariff Collection Expenses (vendors) < = 20% of total tariff 7.Replacement Cost 20% of (1-6) total

8.Rehabilitation and Expansion 5% of (1-6) total

9.Sanitation Fund 8% of (1-6) total

10. Contingency 2% of (1-6) total Source: CWSA 2011


Existing practices for CapManEx

Well performing systems addresses CapManEx from tariffs (savings from water sales)

Water systems relying on Govt. or donors for capital maintenance usually have long down time. Systems often breakdown and are unable to deliver sustainable WASH services

Pooling funds from a number of water systems has been tried in the three Northern Regions. After many years the pooled funding arrangement is not adequately addresing the CapManEx financing needs.


Innovative financing options

Two innovative financing options that are under discussion in the sector are insurance and pooled funding.

Both financing mechanisms allow the WASH systems to make regular payments towards addressing future CapManEx requirement.


Experience of pooled funding

The ASWSDB started in the three Northern Regions of Ghana in 1995. Donors (CIDA, World Bank) provided the seed money for starting the reserve fund. The provision of loans to member WSDBs to address CapManEx started 2001

The experience revealed the following:

Slow pace of recovery of loans given out

Inadequate accountability relationship/mechanisms between the stakeholders (checks and balances)


Stakeholder views on pooled funding

Some stakeholders are pointed out that if the seed money for the fund would be provided by sources other than the WSDBs, then with prudent fund management, it could work

Some stakeholders are of the view that the current arrangement of WSDBs to save towards CapManEx water sales if enforced by the MMDAs would be a better approach in addressing CapManEx


Stakeholder views on pooled funding

WSDBs interviewed expressed mixed views:

could work if the seed money for the fund is provided by government (MMDAs or donors).

Will be willing to contribute resources to the fund if only member WS (WSDBs) are solvent

The association of Technical Managers of small towns water schemes of Ghana are in favour of pooled funding as it fits into the objectives of their association. They however mentioned the need to ensure proper accountability of the funds.


Conclusion

The well performing water system have mostly relied on their tariffs to address CapManEx.

The dependence on funds from government and donors for CapManEx is often adhoc and has serious adverse consequence of service delivery.

Two potential options for financing CapManEx are insurance and pooled funding. Stakeholders believe that the options are good but need to be well designed especially the pooled funding with adequate checks and balance to ensure that well managed systems do not subsidise poor performing systems


recommendations

The feasibility of insuring indispensable components of water systems should be explored with reputable insurance companies in Ghana.

20120823 wash cost ghana ppt at mole tamale (2)

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