FINANCIAL MANAGEMENT IN WATSAN SECTOR
Submitted by-Kanika Saxena2014PCE5084
INTRODUCTION
o Water Supply needs to have a sound financial basis
o Most systems are underfunded, with dire consequences for users, especially the poorest
o Every organization aspires to produce a realistic balance between the demand and supply of finance and promoting the financial sustainability of the sector
o This quest involves looking beyond money to service standards and quality, efficiency in provision, and how governance of the sector needs to change.
ABOUT OECD
• THE OECD IS A UNIQUE FORUM WHERE THE GOVERNMENTS OF 30 DEMOCRACIES WORK FOR THE ENVIRONMENTAL CHALLENGES
• THE OECD MEMBER COUNTRIES ARE: AUSTRALIA, AUSTRIA, BELGIUM, CANADA, THE CZECH REPUBLIC, DENMARK, FINLAND, FRANCE, GERMANY, GREECE, HUNGARY, ICELAND, IRELAND, ITALY, JAPAN, KOREA, LUXEMBOURG, MEXICO, THE NETHERLANDS, NEW ZEALAND, NORWAY, POLAND, PORTUGAL, THE SLOVAK REPUBLIC, SPAIN, SWEDEN, SWITZERLAND, TURKEY, THE UNITED KINGDOM AND THE UNITED STATES
• THE COMMISSION OF THE EUROPEAN COMMUNITIES TAKES PART IN THE WORK OF THE OECD
• THEY HAVE LOW COST DECENTRALIZED SOLUTIONS
WSS FINANCING: KEY FACTORS
DISTINCTIVE FEATURESCOMPARED WITH OTHER NETWORKED PUBLIC SERVICES SUCH AS ELECTRICITY, GAS, AND TELECOMMUNICATIONS, WATER IS MORE CAPITAL-INTENSIVE, UNDER-FINANCED, LESS PROFITABLE AND LESS APPEALING TO PRIVATE CAPITAL AND COMMERCIAL FINANCE. IT IS ALSO MORE HEAVILY POLITICIZED.
SIZE OF FINANCING TASKTHERE IS GREAT SCOPE FOR EFFICIENCY SAVINGS. THERE IS AN URGENT NEED TO DOWNSCALE AND OPTIMIZE THE PRESENT INFRASTRUCTURE.
IN ARMENIA THE PRESENT INFRASTRUCTURE IS OVER-SIZED, NEEDS RENOVATION AND MUCH MORE MAINTENANCE. THERE IS A HIGH COST OF OPERATING THE SYSTEM, INVOLVING EXCESSIVE VOLUMES OF WATER BEING DISTRIBUTED, MUCH OF IT LOST AND WASTED.
Cotnd…
Cost structure of WSS systems
WSS for rural districts and urban peripheral and informal areas has a different cost structure. The amount and type of finance required by WSS is determined by its cost structure. The amount and type of finance required by WSS is determined by its cost structure. Centralized water distribution, as in an urban area, typically requires infrastructure with a high fixed capital cost, but a relatively low operating cost.
Demographic Drivers
According to the UN‟s latest projections, the world’s population is expected to increase by 2.5 billion by 2050. For sanitation it is projected that 692 million urban and 1698 million rural people will remain without improved sanitary facilities by 2015, even after the monumental efforts that are assumed to be made before that date.
FINDING SOURCES OF FINANCE
Existing sources of financeThe main sources of funds for capital investment in WSS were thought to be: domestic public sector 65-70%; domestic private sector 5%; international donor agencies and International Financial Institutions (IFIs). 10-15%; and international private companies 10-15%.
The 3Ts: tariffs, taxes and transfersTariffs and taxes are mostly used sources of finance.
Market-based financeMarket-based finance includes loans, bonds or equity. While the role of the 3Ts is to close the financing gap, the role of market-based finance is to bridge the financing gap.
SUSTAINABLE FINANCING
1. Governance : Though finance may be a necessary, it is not a sufficient condition for successful implementation. Recent reports on water financing have devoted much space to the question of water governance.
2. The concept of sustainable financing : Sustainable financing is the product of several strands like keeping the costs of WSS within reasonable and affordable bounds, by maximizing the efficiency of service delivery and maximizing the basic sources of revenue (3Ts) and using these as appropriate to raise market based finance, within what is affordable.
3. Constraints and options : Different countries have different social contracts between citizens as taxpayers, citizens as consumers, civil society representatives, private profit-seeking businesses, and their political leaders and state agencies, all of which influences how their water services are paid for and funded.
THE ROLE OF STRATEGIC FINANCIAL PLANNINGSFP comprises three basic elements, an approach through dialogue around clearly stated issues, a methodology for illustrating the interactions between the main variables in the decision and the implications of choices made, and a product such as a financing strategy, regularly updated, which can be linked into annual budgets or medium-term expenditure frameworks.
Uganda’s subsidy policy for the water sector
• For urban water there is in principle no subsidy but for small towns a full capital subsidy is available
• Tariffs are intended to recover the full cost of O&M
• For rural water supply around 2% community contribution is expected for capital items
• For sanitation no subsidy is offered to households, but school toilets, public latrines and hygiene promotion are fully subsidized.
MANAGING COSTS: TOWARDS EFFICIENT OPERATION AND AFFORDABLE INVESTMENTS
1. Improving efficiency
Common to all the options considered here is the scope for improving the efficiency of services, so as to bring down their costs to an affordable level.
2. Tailoring ambitions
Infrastructure development targets need to be realistically defined, to make them affordable for the population and for public budgets. Other important decisions, related to these basic parameters, concern type of facility and installation, the mode of construction, phasing of development, choice of implementation partners, delivery models, etc.
SHARED FACILITIES IN DHARAVI, MUMBAI
Dharavi, in a district of Mumbai is one of Asia’s biggest slums. In one typical area, Shiva Shakti Nagar, there is one water tap for every ten houses. Houses are too small to have individual latrines or toilets, and residents use a block of 16 public latrines, serving 300 hutments (about 3000 people). Each visit to this toilet costs one rupee. Residents start queuing for these toilets early in the morning
ETHIOPIA: STRATEGIC FINANCIAL PLANNING
The Financing Strategy (FS) was completed in 2007. Although its main achievements have been in the realm of process rather than more tangible outcomes, some key initiatives have resulted from it, namely:
• Establishing the annual Multi-Stakeholder Forum (MSF)
• Designing a WASH Capacity Building POOL fund
• Strengthening monitoring and evaluation (M&E)
• Increasing accountability to stakeholders
• Emphasizing hygiene and sanitation
• linking financial to physical reporting
FUTURE WORK
• Help developing country governments to incorporate WSS plans more effectively
• Expand the scope of SFP to the broader agenda like quality and quantity
• Analysis of the political economy of reforms, namely the timing, sequence, content and prioritization of different reform steps
• Produce a policy document for donors on strategic financial planning on the basis of the current report.
Thanks
