In the department of Cochabamba, Bolivia, Water For People (WFP) is working with municipalities towards Everyone Forever. This means providing water and sanitation services for the entire population in these municipalities, and that there services are sustainable. To get to this state it is important that all costs related to the delivery of services are taken into account. This includes costs for implementation of infrastructure, costs for operation and maintenance, costs related to administration and costs to replace the infrastructure. All these costs need to be financed. And the finances need to be planned.
Such financial planning is needed in order to:
- Mobilize funding for the investments needed to reach full coverage.
- Identify possible funding gaps or risks for financial sustainability. Communities, through tariffs, should cover such recurrent costs, in reality often at most the operation and maintenance costs are covered, and hardly any replacement costs. In such case, a financing gap occurs that needs to be filled, often by municipalities.
- Budget for support activities. Municipalities have a role to play to support the water committees in their management tasks, trough for example technical assistance and monitoring. These activities need to be budgeted for.
Although this sounds logical, financial planning is a complex activity, as it requires an estimation of the frequency of replacements, not only of recently built systems but also of existing systems. It also requires knowledge on the type and amount of savings of the Water and Sanitation Committees (Comités de Agua y Saneamiento (CAPyS)) for the realisation of replacements and requires and of the support the municipalities give to the Water and Sanitation Committees.
To get the numbers right, a number of tools are needed that can analyse costs related to each category and can generate some sort of municipal balance sheet. IRC and Aguaconsult have worked with support Water For People to develop such a set of tools, which were validated in two municipalities: Tiraque and Araní.
Life-cycle costs and infrastructure asset management
The set of tools is based on two key conceptual frameworks: 1) life-cycle costs and 2) infrastructure asset management. Life-cycle costs refers to all the costs that are incurred in the various phase in the life-cycle of a water services; from the implementation of the infrastructure, to its operation and maintenance, and eventual replacement. The different cost-component we take into account in costing water and sanitation services:
- Capital expenditure – hardware and software (CapEx):the initial investment in the development of a water or sanitation system, referring to both the investment costs into infrastructure as well as costs related to the mobilisation of the community;
- Operating and minor maintenance expenditure (OpEx):recurrent (regular, ongoing) expenditure on labour (salary for staff) , costs for management (transport, fuel), energy and chemicals, materials, and minor repairs of the infrastructure;
- Capital maintenance expenditure (CapManEx): expenditure on asset renewal, replacement and rehabilitation of the infrastructure;
- Expenditure on direct support (ExpDS):expenditure on both pre- and post-construction support activities directed to local-level stakeholders, users or user groups;
- if certain costs are left out, this sooner or later is reflected in a reduced level of service and poor sustainability.
The other two cost categories – expenditure on indirect support and cost of capital – are not further explained here, as they are normally assumed at national level, and therefore not considered in this assignment.
Infrastructure asset management is an approach to optimize the costs of installing and maintaining infrastructure so that it keeps on providing an adequate service level. This implies:
- Maintaining an up-to-date register of all assets in an area;
- Defining the service levels to be provided;
- Understanding how assets fails (e.g. a slow deterioration or sudden failure).
Based on this, one can make a projection of when and how to replace certain assets. Combining this information with life-cycle cost data allows then projecting at which moments in time replacements of rehabilitations need to happen and what that would cost.
The set of tools
The set consists of five tools, each one related to a particular cost category. Combining the results of the first four tools, one can apply the fifth tool to identify investment needs and possible funding gaps (see Figure below).
The tools are:
- Tool #1, register of communities and assets. This is the only tool that is not a costing tool as such. It serves to identify the communities and asset that will need new investments or replacements in the next few years. This register, in combination with the cost data from the other tools, allows reaching the eventual synthesis.
- Tool #2, historial investment. This tool's purpose is to identify unit reference costs for different types of investment projects (new systems, expansions, replacements and for different types of technologies), by disaggregating past investment data.
- Tool #3, AtWhatCost. This tool is to be applied at the level of an individual water committee. It allows analysing the income and expenditure of a water committee over a longer time-period. Based on that, different scenarios can be assessed to improve the cost management of the water committee. For example, one can assess the need to increase operational expenditure if that currently is insufficient, or to change tariffs to come to a break-even point. It also allows assessing whether a water committee can cover eventual replacement costs.
- Tool #4, for direct support costs. This assesses whether a municipality is dedicating sufficient funding for the direct support activities it is supposed to carry out, such as monitoring, supervision, technical assistance to water committees and coordination.
- Tool #5, the municipal financial sustainability scorecard, is the synthesis tool. It presents the total financial resources that are required over a period of ten years to reach to everyone, and to ensure that the services are sustainable. It uses the input data from the register of communities and assets, and unit costs from tool #2 to estimate the investments required in new systems, expansions and replacement. It uses data from AtWhatCost to estimate a realistic percentage of community contribution towards capital replacements. And it uses the gap between actual and ideal support costs, to identify the additional funding that needs to be mobilized to fill that gap.
Each tool is developed in Excel, as the software that is most commonly understood and in use among municipal officers, and is downloadable below (in Spanish only). It also would allow municipal staff to further develop the tools and add functionalities. Within each tool a summary instruction sheet is included. The resource section also contains a guideline document with more detailed instructions for the use of the tools (in Spanish only).
The set of tools was developed as part of an assignment for Water For People that took place under under the framework of the project "Construyendo el Ecosistema de Negocios de Agua y Saneamiento en Cochabamba, Bolivia", which is financed by the Multilateral Investment Fund of the Interamerican Development Bank Group.