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.
