Empowering Local Governments through Capacity Building and Knowledge Sharing
26-28 September 2013, Incheon, Republic of Korea
Dr. Kulwant Singh
Regional Advisor
Urban Basic Services Branch, UN-Habitat
1 www.unhabitat.org

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• Water Users: Households, Farmers & Businesses
Householders invest their cash, labour and materials in wells, pipes, basic sanitation and other facilities. Farmers invest large sums in tubewells, pumps and surface irrigation systems, either on their own or as members of associations and user groups. Industrial and commercial firms often develop their own water supplies and effluent treatment facilities. Some large firms even supply the general population. Users also cross-subsidise each other through paying different tariffs.
• Informal suppliers. In cities where growth has outstripped the public network, local entrepreneurs, often acting outside the law, fill the vacuum by selling water in bulk from tankers— or in containers and bottles.

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• Public water authorities and utilities fund recurrent spending and some new investment from revenues provided by user charges (gross operating cash flow), loans and sometimes public subsidies.
• Private companies, either local or foreign, providing funds from sources similar to public utilities, plus equity injection.
• Non-governmental organisations and local communities, raising funds from voluntary private contributions or grants from international agencies.
• Local banks and other financial institutions offer shortterm or medium-term loans at market rates.
• International banks and export credit agencies, providing larger volumes of finance than local sources, against corporate guarantees or project cash flow

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• International aid from multilateral and bilateral sources, available as loans on concessional terms or grants
• Multilateral financial institutions: Loans on near-market terms
• Environmental and Water and Sanitation Trust Funds
• National Central and Local governments, providing
subsidies, guarantees of loans, and proceeds of bond issues

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Main actors Value chain
Demand creation
Collection
On-site with reuse
Types of services
Promote sanitation , create demand, community organisation
On-site w/o reuse
Sewer connecti ons
•
Local governments
• CBOs, NGOs
• Households
(investors)
• Masons
•
Utilities
Transport
Partial on-site treatment
•
Pit-latrine emptiers
(manual emptying, trucks, etc)
• Utilities (sewers)
Treatment
Decentralised treatment facilities
Treatm ent
Plants
• Local governments
•
Utilities
• SSIPs
Disposal /
Re-use
Re-use
(energy, agriculture)
Environment
• Local governments
• Local farmers, etc..

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• Unrealistic plans and inadequate finance; “political considerations” given higher priority; No monitoring of Plans or implementation
• Fragmented financing channels
• Difficult to charge for an “immaterial” service, with low or unexpressed demand
• Lack of clarity on what funds should be used for
• Evidence of “wasted” hardware subsidies
• Mis-allocation of funds across the value chain: “too much” for wastewater treatment rather than basic sanitation
• On-site sanitation:
• Households are supposed to be main investors in sanitation but get limited support
• Insufficient focus on environmental impacts of poor
sanitation and associated economic losses

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• For countries to achieve economically feasible levels: Sector Expenditure to be around 2 to 3 percent of GDP.
• To enable different levels of service – Public funds should focus on basic access
• To enable rehabilitation/ augmentation in existing projects
• To contribute for the development of the financial sector through new business lines in water projects for micro-finance and domestic finance institutions

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Public-private partnership
International debt financing Domestic capital markets
Domestic tax revenue and user fees

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• Directing domestic resources and donor support to areas of greatest need and greatest impact
• Revenue transfers from central government to local authorities
• Direct access to capital markets by local authorities

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• Mobilization of financial support to bankable project and programme proposals
• Cost recovery policy
• Micro credit schemes

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e.g.: Financing on-site sanitation
Maintenance and operating costs
Maintenance and operating costs
LOWER COST
TECHNOLOGY
Capital costs
Capital costs
Household recurrent payments payments
Household capital investment
REPAYABLE
FINANCING
COSTS COSTS
Sources of funding:
Government own resources
Development Bank concessionary funding
Commercial financing, microfinance

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800
700
600
500
400
300
200
100
0
Software support / solution
Hardware subsidy / solution
Household investment / solution

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25
20
15
10
5
0
Leverage
$ private money invested/
$ public funds spent
160
140
120
100
80
60
40
20
0
Increased access/public funding
Number of facilities /
USD 1000 public funds invested

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Constraints
Affordability constraints
Limited availability of funds for domestic operators and
SSWSPs
Risk profile and difficulties in managing certain risks (e.g. political risk, foreign exchange risk)
Lack of funds at decentralised level
 Micro-finance, Output-based aid and innovative contracts


Guarantees, insurance, devaluation backstopping facility
Local-currency financing, revenue agreements
 Municipal bonds, pooled funds, revolving funds, bond banks
 Instruments to increase sub-sovereign lending
Short tenor of available financing
Under-capitalized balance sheets
Lack of understanding by external lenders and investors
Potential solutions
 Micro-finance, Output-based aid, blending grants and loans



Guarantees and equity contributions
Raising equity to strengthen the balance sheet, convertible loans, debt-equity swaps
Blending of public and private finance, credit ratings
Lack of “bankable” projects  Project preparation facilities

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• Shelter and human settlements are central to the pursuit of the water and sanitation targets of the MDGs
• Strategies for service delivery need to be differentiated to match the different types of human settlements
• Future design of human settlements should aim at mixed income settlements rather than differentiated income settlement types
• Most of the world’s people without adequate access to sustainable water and sanitation services are the poor or people who live in rural areas and small urban settlements
• Poor women and children in all types of human settlements face specific challenges in accessing clean water and adequate sanitation, and these challenges need to be better understood and appropriate remedies designed for them

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• External finance/ ODA should be grant-based, especially for delivery of service in urban centers in low-income countries.
• Operating costs in all low-income countries need to be covered through grants or other instruments like output-based aid.
• Small urban centers below the poverty line located in middle income countries may need a variety of instruments, including: o lifeline tariffs (such as those used in South Africa), o output-based loans buttressed by appropriate forms of external guarantees.
• Domestic resource mobilization should be maximized ensuring that capital and operating costs are adequately funded.
• Ensure that considerations of affordability are reconciled with the need to generate revenues from those that can afford to pay for service.
• Wherever feasible, make trunk infrastructure publicly financed

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• While ensuring the delivery of water and sanitation services is squarely the responsibility of each national government. But to be successful they will need, above all, determined leadership and the
political will that is absolutely necessary to maintain the commitment that will be needed.
• Given the record of delayed projects or initiatives that have been reversed, short duration projects, using fast track mechanisms, which begin to deliver safe and affordable water and sanitation, within the span of a political cycle can protect the interests of poor communities from the effects of political
changes, which can result from a competitive political environment.

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• Monitor trends and progress within the water supply and sanitation sector
• Build national capacity for monitoring, and
• Inform policy makers and civil society of the status of the sector.

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What do we need to know…
Understanding sanitation costs
• Software costs: including all the costs, evaluating the comparative effectiveness of software support
• Estimating lifecycle costs to guide appropriate investment
(incorporating opex and maintenance costs)
• Improve and redesign M&E frameworks so as to keep track of critical financing information
Sources of financing
• Assess drivers and constraints for investment at household level
• Explore the potential for using “innovative” financing mechanisms, such as micro-finance
• Identify how public finance can be better targeted
• Leverage other financing sources (“social investors”)
• Evaluate potential for “payments for environmental services”

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What do we need to know…
Understanding the potential for microfinance
• Micro-finance schemes have potential to leverage substantial private (hh) investments BUT limited and mixed experiences in sanitation;
• Need to understand why and how they can work to mobilize financing for MDGs with limited public funds: for households and for small-scale entrepreneurs;
Allocating financing at the right “level” based on benefits
• Where coverage is low, channeling financing to the utility may miss a large component of the “sanitation market”: financing households and small-scale entrepreneurs also to be considered
• Where coverage is high, need to better understand the potential benefits from increasing treatment levels (at the extreme, evidence of some declining returns to further tightening standards)

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• UN-HABITAT established Revolving funds, as an
Instrument of the Poor, for the construction of individual household toilets and community-managed water supply scheme in Madhya Pradesh;
• In Lao PDR, another revolving fund for water connection and latrine construction set up
• Revolving funds enable poor to avail credit for accessing
WATSAN services.
• Revolving funds also create demand for services and strengthen CBOs to actively participate to avail services and make them affordable.
Revolving
Funds

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Operational Revolving Fund for Community
Managed Water Supply Scheme (CMWSS) in India
• Demonstrate ways that how a community can be empowered/ enabled to execute and manage adequate safe drinking water as per their needs and affordability.
• Small network of Community Water and Sanitation Committees
(CWASCs) ensure water supply to the poor immediately and operates the system for a certain time
• Capital cost investment under CMWSS of Rs. 3.0 million (US$
68000)
• Providing water connection to 1200 to 1500 households
• The rapid connection (3-6 months vs. 3-6 years) of people to piped water as a means of attaining the Millennium
Development Goals
• Pay back recovery of distribution/connection costs in 3-5 years

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Institutional Responsibilities of the Partners to
Implement CMWSS Projects
UN-HABITAT
• Conceptualisation of CMWSS Projects; Social mobilisation, capacity development, communication and project management
• Coordination between Municipal Corporation (MC)/ District Urban Developmental Agency
(DUDA) and CWASC
• Monitoring and evaluation of physical and financial performance and management of the water supply projects
Municipal Corporations/ DUDA
• Project feasibility study and survey of community mobilization activities and formulation of CMWSS Projects
• Entering into cooperation agreement with UN-HABITAT for creating revolving fund
• Guiding the CWASC in designing and supervising the physical implementation and Scale up CMWSS in other slums of the city
UN-HABITAT
• Execute safe drinking water scheme for the area; Carry out billing and collection systems
• Manage operation and maintenance of water supply system
• Paying loan amount to MC/ DUDA in installments

UN-HABITAT
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Repayment of RF in installments
Households
Cooperation Agreement
MC/DUDA
Pay Connection and
Monthly user charges
Bulk water charges
Community
Water
& Sanitation
Committee
O & M Charges
Revolving Fund Disbursement
Service Provider
/ Supplier

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Location
Households
Bagra Dafai
800
Partners
Capital Cost
UN-HABITAT’s
Contribution
JMC’s Contribution
Monthly user charges
(Pro- poor approach)
Payback period
Achievement
CA with Jabalpur Municipal Corporation (JMC)
USD 53,000
USD 50,000
USD 3.000 for installation of Bulk Meter
Type of Construction • Supply water from the Polypathor tank @ 70 lpcd.
• A distribution network.
Connection Charges  As against normal connection charges of USD
34.5 and only USD 1.5 per month is taken as user charges.
 USD 2.5 per month.
36 months
The system is in operation.

Location
Households
Partner
Capital Cost
UN-HABITAT’s Contribution
GMC’s Contribution
Type of Construction
Connection Charges
Ramaji ka Pura, Islampura, Subhash Nagar
1200
CA with Gwalior Municipal Corporation (GMC)
USD 68,000
USD 45,000
USD 23,000 for laying of pipelines and installation of bulk meters
A ground level and elevated reservoir of 420
Kilolitres @ 70 litres per capita per day (lpcd) at the highest level and laying of pipelines
 USD 2.5 per household/ month for 8 months
Monthly user charges
(Pro- poor approach)
Payback period
Expenditures such as Electricity bills, telephone, conveyance to the staff, stationary etc.
 USD 2 per month
32 months
USD 62.5 per month
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Location
Households
Partner
Payback period
Achievement
Shiv Nagar, Sahin Nagar, Kamal Nagar,
Pawan Putra Nagar, Chowdhary Park colony
1200
CA with District Urban Development
Authority (DUDA), Indore
UN-HABITAT’s Contribution USD 45,000
DUDA Indore’s
Contribution
USD 22,500 for laying of pipelines and installation of bulk meters
Capital Cost
Type of Construction
USD 65,000
An elevated reservoir of 420 Kl @ 70 lpcd and laying of pipelines
Connection Charges
And
Monthly user charges
(Pro- poor approach)
 Against normal connection charges of

USD 62.5, USD 25 is being charged per household in installments of USD 5 for 5 months per household
USD 1.5 per month would be collected.
46 Months
The system is in operation

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Operational Revolving Fund for Slums
Environmental Sanitation Initiative (SESI) in India
• Integrated approach to environmental sanitation
• Focus on community-led and people centred initiatives.
• Piloting Community-based projects on Urban Environmental
Sanitation in 63 slums covering 20,000 households (100,000
Population) in Bhopal, Gwalior, Indore and Jabalpur
• Partnership with Water Aid India and four Municipal Corporations at a total cost of US$ 1.1 million
• Revolving Sanitation Fund for the Construction of Individual
Household Toilet in Urban Slums established
• Capital Cost investment under SESI Revolving Fund is Rs. 2.0 million (US$ 45000)
• Revolving funds for Individual Sanitary Toilets @ Rs. 2000 (US$
45) for 1000 units

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Table 1: Sanitation Facilities developed and the beneficiaries in 4 cities of Madhya Pradesh
Component
Demo toilet
Household toilet (Direct)
Household toilet (Levered)
Community toilet (Direct)
Community toilet (Levered)
– Municipal Corporation
Total
Units
400
3,700
1000
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Beneficiaries
(No. of People)
2,200
20,350
5,500
9,830 *
2,500
40,380
Table 2: Common facilities provided in community toilets and the beneficiaries
City Community
Toilets
Gwalior
Bhopal
Jabalpur
Indore
Total
8
2
3
2
Seats
Male Female
30
11
16
10
30
11
16
10
Bathing
Facility
Child
Friendly seats
Beneficiaries
(No. of People)
16
6
7
3
38
14
18
2
4,300
2,400
1,380
1,750
9,830

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• UN-HABITAT signed an cooperation agreement with
National Housing Bank of India for developing Revolving
Fund to Microfinance Water and Sanitation Services to the
Poorer Sections of Society in India
• Initiative commenced to leverage funds - UN-HABITAT’s contribution of US$ 375,000 will leverage US$2.5 million of NHB’s financial assistance towards micro-financing water and sanitation.
• Focus on the provision of water and sanitation facilities in the housing and habitat projects undertaken by NHB for low income households.

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• Develop a Revolving Fund to microfinance water and sanitation services to the poor in India.
• Demonstrate the approach of revolving fund for microfinancing the water and sanitation services through pilot demonstration projects for the poor in India.
• Undertake research studies on various habitat related issues including in microfinance and its role in addressing the issues relating to habitat development for the unserved and the underserved building sustainable financing systems, etc.
• Organize workshops/seminars and other capacity building activities at city/ state/ national levels in India for promoting revolving fund for water and sanitation.

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• Ensure end use of these revolving funds for water and sanitation purposes for poor households
• Utilization of funds to provide concessional loans for NHB's housing projects at national level
• Repayments received from projects will be credited back to the
Revolving Fund except for 10% of the amount for Technical Assistance by NHB
• About 9500 households are expected to be benefitted under this project
• The approximate Water Supply and Sanitation Cost per Household would be:
Cost of construction of toilet
Cost of drainage infrastructure
INR
4000
4000
Cost of water supply connection
Fee to Municipal Corporation
3000
1000
Total 12,000
USD
100
100
75
25
300

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• Projects to be implemented through MFIs/NGOs.
• A Steering Committee with officials from UN-Habitat and
NHB for project implementation and monitoring.
• NHB to receive project proposals from MFIs/NGOs.
• Project appraisal by NHB as per it's existing appraisal standards under the guidance of the Steering Committee.
• NHB to disburse funds as per it's existing disbursement procedures.
• A Revolving Fund at NHB to credit the repayments received from various borrowers and on-lend the proceeds for fresh projects

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• Few projects already under identification for 3000 toilets.
• 500,000 households expected to be covered for water and sanitation in the first 5 years.
• Programme to provide water access to 2.5 million poor people during the first five years.
• Emphasis on sustainable water and sanitation programme for the poor.
• Programme to strengthen the UN-HABITAT - NHB partnership by information through community based organisations

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• Prepared jointly by UWSEI Project and the UN-
Habitat.
• Aim at facilitating provision of individual toilet facilities for creating open defecation free cities;
• The Government of Madhya Pradesh has issued directives to all the ULBs of Madhya Pradesh to set up Revolving Sanitation Funds.

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• Capital cost investment under CMWSS of Rs.
3.0 million (US$ 68000)
• Providing water connection to 1200 to 1500 households
• Total Payback period is 32 months
• Capital Cost investment under SESI of Rs. 2.0 million (US$ 45000)
• Revolving funds for Individual Sanitary Toilets
@ Rs. 2000 (US$ 45) for 1000 units

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• UN-Habitat conducted diagnostic study in the city of
Nanjing
• In support of WAC Programme, ADB provided technical assistance to Nanjing Water Utility
• Long Term Capital Finance in Commercial Markets for the issue of Corporation Bonds of RMB 2 billion (US$
25.9 million) for water and environmental projects of
Nanjing

Ratio of treated to untreated wastewater discharged into water bodies (March 2010)
Source: UNEP/GRID-Arendal (http://maps.grida.no/go/graphic/ratio-of-wastewater-treatment1, a map by
38 treatment, sources UNEP-GPA, 2004]).

Managing Wastewater in Asia
• Around 80% of wastewater is discharged without treatment;
• For region’s health and environmental sustainability goals, following four drivers are needed:
(1) Knowledge Drive
Developing a compendium of solution options
(2) Technology Drive
Developing information briefs on different technology options
Four drivers for promoting
Asia-Pacific Wastewater
Management
(3) Financing and
Incentives Drive
(4) Awareness and Advocacy
Drive
Preparation of Knowledge products on innovative business lines for sanitation
Conducting regional and in-country sanitation dialogues
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Bottom line is to market wastewater management and reuse as an economically and financially viable business to substantially accelerate both public and private investments

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• Wastewater must be seen as a resource with potential financial returns and opportunities for green employment ;
• It is critical to move away from the high energy solutions—or no treatment at all—toward something affordable and doable ;
• Turn towards decentralized wastewater treatment systems , especially in peri-urban and coastal communities and public markets;
• Organic fertilizer from ecosan toilets has turned farmers into entrepreneurs ; whereas Biogas digesters connected to sanitation facilities produced cheap energy source in the region;
• Innovative financing mechanisms provide incentives for households to invest in on-site sanitation systems and cities to invest in wastewater management systems;
• Involve public-private partnership (PPP) for enabling environment and economic regulatory framework to reduce risks to the investment .

Partnerships for Managing Wastewater
• Household toilets only one component of the whole gamut of Sanitation ;
• Sanitation also includes wastewater conveyance, treatment, and disposal or reuse, as well as maintenance of the assets and quality of service delivery ;
• Managing wastewater does need provision of technical or engineering solutions besides understanding social, political and environmental complexities attached to it;
• Business of sanitation requires a collaborative approach among the government, private sector, civil society and communities, and within the different levels of government from central to local administrations;
• Partnerships essential for pooling the efforts and resources of the different partners to implement solution options;
• Forging effective and lasting partnerships for achieving Goals of Wastewater Management .

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