2.7 Financing Mechanisms - part 1

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From the course by École Polytechnique Fédérale de Lausanne

Municipal Solid Waste Management in Developing Countries

1204 ratings

École Polytechnique Fédérale de Lausanne

Municipal Solid Waste Management in Developing Countries

1204 ratings

Have you come across large piles of garbage in neighbourhoods and streets and smelly waste disposal sites polluting the environment of low- and middle-income countries? Do you want to know what kind of sustainable solutions are appropriate to better manage waste and enhance recycling and recovery? If yes, this course is for you! This course provides you with an overview of the municipal solid waste management situation in low- and middle-income countries. It covers key elements of the waste management system, such as its technical, environmental, social, financial and institutional aspects. Besides understanding the challenges, you will be introduced to appropriate and already applied solutions through selected case studies.

From the lesson

Governance Aspects of Solid Waste Management

This week focuses on the governance aspects, also called the “soft” aspects of a municipal solid waste management system. We will explain the different stakeholders and their roles and responsibilities as well as legislative issues and financial mechanisms. ******************** SEMANA 2 - ASPECTOS DE LA GOBERNANZA DE LA GESTIÓN DE LOS RESIDUOS SÓLIDOS: Esta semana se centra en los aspectos de la gobernanza, los también llamados aspectos "blandos" de un sistema de gestión municipal de residuos sólidos. Explicaremos cuáles son las diferentes partes interesadas o involucradas, y sus funciones y responsabilidades, así como los asuntos de carácter legislativo y los mecanismos financieros. ******************** SEMAINE 3 - ASPECTS DE GOUVERNANCE DE LA GESTION DES DÉCHETS SOLIDES: Cette semaine met l'accent sur les aspects de gouvernance, aussi appelés les aspects " doux " d'un système de gestion des déchets solides municipaux. Nous expliquerons les différents acteurs et leurs rôles et responsabilités ainsi que les questions législatives et les mécanismes financiers.

2.1 Policies and legislation11:42

2.2 The role of the public sector11:07

2.3 The role of the private sector11:31

2.4 Integrating the informal sector12:59

2.5 The Role of Community Members12:46

2.6 Public Awareness Campaigns - Case study India10:53

2.7 Financing Mechanisms - part 19:06

2.8 Financing mechanisms - part 29:55

2.9 Key messages Week 23:53

Meet the Instructors

Dr. Christian Zurbrügg

Sanitation, Water and Solid Waste for Development / Eawag
Imanol Zabaleta

Sanitation, Water and Solid Waste for Development / Eawag
Félix Schmidt

Sanitary Engineering, Water and Waste Management / EPFL

Hi. This module and the next one will deal about money. Did you ever ask yourself which

money flows in solid waste management systems exist? In this first module we

will learn and we will discuss the main costs of solid waste management services

and various methods to finance investment costs. Whereas in the next

module we will mainly talk about operation and maintenance costs. The very

first thing, the main responsible for the solid waste management service of the

city needs to know in order to take cost effective decisions, are the total costs

of providing a good service,

considering all the physical elements. Based on this, we can assess how to

improve the cost efficiency and what it might cost to improve the service.

Unfortunately very rarely are the costs fully known. Often the costs are shared by multiple actors

or there is not a separate municipal budget for solid waste management costs

and money comes from different sources. Or part of the allotted budget is used

for other expenses. In any case, in solid waste management we distinguish two

types of costs: investment costs also called capital costs and operation and

maintenance costs also called recurrent costs. There are however externalities

which are often not quantified in economic terms that are also considered

hidden costs. What are these externalities? If there is inadequate or

no solid waste management, there are also costs and these are called externalities.

For instance, the death of animals eating waste or grazing on contaminated land.

Public health impacts: The externalities can be associated to the cost of

buying medicine or visiting the doctor or even the loss of revenues by not

being able to work,

water contamination and the costs of having to clean that water or the costs

of finding another more expensive clean water source, impact on tourism and

economy in general.

According to the recently published "Global Waste Management Outlook Report",

the cost of these externalities can represent 20 to 50$ per capita

per year or even more. Expanding waste collection coverage or upgrading

disposal facilities costs are a fraction of that. It is cheaper for the society

to manage its waste now in an environmentally sound manner than to carry on

polluting the environment and then trying to clean it up later. If that is even

possible.

Ok. But now back to the costs in terms of expenditures by the municipality or the

organization providing the service of solid waste management, which are

investment costs and operation and maintenance costs. These costs are paid

from different money sources. Let's have a look to each of them separately. What

do we mean by investment costs? Investment costs, also called capital

costs, are all those related to developing and constructing

infrastructure or large equipment. There are five main financial sources for this

costs. These are national government, local government, local or international

financial institutions, which are most of the times

banks or the private sector, donors, or a combination of this. The money received

can either be a grant, which are non-repairable funds or loans, which need to

be paid back. Let's briefly describe each of these options.

National government funding is a very important source of investment finances.

For example, for the People's Republic of China, municipal solid waste management

infrastructure has been a priority since 2000. Or in India the Jawaharlal

National Urban Renewal Mission launched by the central government and envisages

an investment of 20 billion US$. Local governments can also invest in

solid wastes management services, after raising funds from

local sources of income. These could be taxes such as the property tax fees such

as parking fees or reserves for instance. Reserves are portions of

current revenues, which were saved for financing future investment. Ideally,

most investment costs should be financed through this use of reserves. However,

this is not the case, as it requires good planning. Another way to obtain finances

for capital investments is to raise funds through the issuance of bonds.

Often local and national governments have other priorities than providing

waste services for the limited budgets. So municipalities often need borrowings,

also called loans, which are lend by local banks or international financial

institutions. Some of the most active international financial institutions in

solid waste management investments are the World Bank, the Asian Development Bank and

the Inter American Development Bank which many of you might have heard of. For you

to have an idea of the amounts that are being invested here, it may be helpful to

know that 4 billion US$ were invested in solid waste management

services between 2003 and 2012 globally. This might sound like a lot. However it

represents approximately 0.3% of the overall development finance. It's a

tiny portion. In terms of the population of the countries receiving Solid Waste

Management Development Finance in 2012, this equates 0.09$ per

capita. Much less than per capita levels of 2.43$ in the water and

sanitation sector and 31$ of development finance overall. Not every

municipality is eligible for these loans. The World Bank for instance estimates

that of the 500 largest cities in the developing world, only 4% are credit worthy.

in international capital markets. Grant-funded support is the other key

element of Development Cooperation amounting to an estimated 1.2 billion

dollars between 2003

and 2012. These funds are free of interest costs. However, the donor financing often

comes with requirements such as achieving full cost recovery or using

public-private partnerships or other private financing schemes. Experience

also shows that free money also has risks that cities need to be aware of.

When money comes easily, facilities are often oversized, affecting considerably

the operation and maintenance costs. Or investments are made into technologies

which do not fit with the local climate condition or waste characteristics. For

instance, building an incineration plant where municipal solid waste management

is predominantly wet and has low calorific value or obtaining compactor trucks for

a city with unpaved and narrow streets with high waste density. The cost of

operating and maintaining these three vehicles is often several

times higher than operating a more appropriate but maybe not sophisticated vehicle,

such as the one shown on the right. When will the private sector be involved in

investing? They will only do this if they can recover their investments and earn

profit or if they can use the secondary products and/or energy obtained from

waste. Let me give you two examples: in 2008, the industry group called the

Indian Tobacco Company based in Coimbatore invested in waste collection

in order to secure reliable supplies for paper. Or the second example is based in

Cape Town, where due to the demand for compost from source separated green

waste on behalf of the farms, a farmer runs still the biggest existing composting installation.

In this module we learned about the total cost ofproviding solid waste management services.

Knowing this cost is really important. These are investment costs, operation and

maintenance costs, which will be covered in the next module, and externalities.

Furthermore, we also saw the most common sources that exist to cover investment

costs, which are coming from national government, local governments, local and

international financing institutions, donors and the private sector.

For those interested in deepening the topic, we recommend

these two key readings, which are downloadable for free from the internet.

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