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.
Dr. Christian Zurbrügg
Imanol Zabaleta
Félix Schmidt
