MOLE Conference Tamale

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August 23
, 2012

MOLE Conference Tamale


August 23
, 2012

MOLE Conference Tamale

Outline


Capital Maintenance Expenditure (
CapManEx
)


What is
CapManEx
?


Why is
CapManEx

important?


What is the magnitude of
CapManEx
?



Financing
CapManEx



Financing options


Existing practices for addressing
CapManEx


Innovative Options for the future



August 23
, 2012

MOLE Conference Tamale

WASHCost project


August 23
, 2012

MOLE Conference Tamale

Capital Maintenance Expenditure


Capital Maintenance Expenditure (
CapManEx
)

is the
occasional expenditure on asset renewal, replacement
and rehabilitation to ensures the same level of service
when the initial expenditure of the asset was incurred



Examples of
CapManEx

include the cost of replacing a
motor on a pump or the pump rods/rising main of a
hand pump; flushing a borehole which no longer
delivers the desired flow; cleaning/re
-
excavating the
base of a hand
-
dug well, cleaning a water tank, etc.





August 23
, 2012

MOLE Conference Tamale

Life
cycle

cost

components


Capital
expenditure

Operational and
minor
maintenance
expenditure

Capital
maintenance
expenditure

Direct support
costs

Indirect support
cost

Costs of capital



August 23
, 2012

MOLE Conference Tamale


Why is
CapManEx

important



Capital Maintenance Expenditure (
CapManEx
)

is
important to keep the assets/facilities in a good state
through renewal, replacement and rehabilitation.



The
CapManEx

on WASH facilities,

often after some
years of operation, ensures the same level of service
that the initial users of the assets received when the
initial expenditure of the asset was
incurred.







Inadequate
CapManEx
?

The cost of failure


20 countries in
sub
-
Saharan Africa


Investment
loss in
sub
-
Saharan
Africa of
between

US$ 1.2 to
1.3 billion
over 20
years


Information Collated by Peter Harvey, UNICEF Zambia, May 2007

36%

Ghana?

-
~30% of rural non
-
functional at
the time of visit (point systems)

-

~ 77% sub
-
standard service
(point
-
systems)

-

~ 41% sub
-
standard (small
-
towns)

(source:
WASHCost
)

CapManEx
?

August 23
, 2012

MOLE Conference Tamale

What is the magnitude of
CapManEx



CapManEx

measurement are
usually based on the actual
expenditure, which is different
from the ideal or what it should be
to deliver sustainable services





Therefore we have to compare
cost
against
services

August 23
, 2012

MOLE Conference Tamale

0
1
2
3
4
5
6
7
8
water point system
Small towns piped system
Cost per person per year in
US
$

Recurrent cost
per technology for
water US$ (2009)

CoC
ExpDS
CapManEx
OpEx
CapEx

per capita
-

WPS
US$
40 and Piped scheme US$ 80

Cost per technology

August 23
, 2012

MOLE Conference Tamale

Magnitude of
CapManEx


Capital Maintenance Expenditure per person for
small towns is about 5 times that of point systems



CapManEx

for water point systems ranges from US$
0.1 to
US$ 1
per capita per year



CapManEx

for small towns water systems ranges
from US$ 0.5 to
US$ 7
per capita per year



August 23
, 2012

MOLE Conference Tamale

Financing
CapManEx

There are three main ways for financing
CapManEx
.
These are tariffs, taxes and transfers.



Tariffs are from the direct user fees


Taxes from the central or local government’


Transfers from donors etc

August 23
, 2012

MOLE Conference Tamale

Policy framework for
CapManEx

Model Bye
-
laws (2008)


The WSDBs are to establish at least three accounts which shall
be designated as follows: 1) Operational Account;2) Capital
Account; and 3) Sanitation Account.


The Capital Account is to be used for major repairs, expansions
and replacements and not for routine operation and
maintenance.


WSDBs are to make monthly payments of at least 20% of net
monthly revenue into the capital account.


In addition MMDA’s
may
allocate funds annually from its
budgetary allocation to the capital account.



August 23
, 2012

MOLE Conference Tamale

Policy framework for
CapManEx

CWSA WATER

TARIFFCOMPONENTS

1.Water Production Expenses

2.Distribution Expenses

3.Routine maintenance

4.Repair Work(by staff and private maintenance
contracts

5.Water Quality Monitoring

6.Tariff Collection Expenses (vendors)

< =
20% of total tariff

7.Replacement Cost

20% of (1
-
6) total

8.Rehabilitation and Expansion

5% of (1
-
6) total

9.Sanitation Fund

8% of (1
-
6) total

10. Contingency

2% of (1
-
6) total

Source: CWSA 2011

August 23
, 2012

MOLE Conference Tamale


Existing practices for
CapManEx


Well performing systems addresses
CapManEx

from
tariffs (savings from water sales)



Water systems relying on Govt. or donors for capital
maintenance usually have long down time. Systems often
breakdown and are unable to deliver sustainable WASH
services



Pooling funds from a number of water systems has been
tried in the three Northern Regions. After many years the
pooled funding arrangement is not adequately
addresing

the
CapManEx

financing needs.


August 23
, 2012

MOLE Conference Tamale

Innovative financing options


Two innovative financing options that are under
discussion in the sector are insurance and pooled
funding.



Both financing mechanisms allow the WASH systems
to make regular payments towards addressing future
CapManEx

requirement.


August 23
, 2012

MOLE Conference Tamale

Experience of pooled funding


The

ASWSDB

started

in

the

three

Northern

Regions

of

Ghana

in

1995
.

Donors

(CIDA,

World

Bank)

provided

the

seed

money

for

starting

the

reserve

fund
.

The

provision

of

loans

to

member

WSDBs

to

address

CapManEx

started

2001



The

experience

revealed

the

following
:


Slow

pace

of

recovery

of

loans

given

out


Inadequate

accountability

relationship/mechanisms

between

the

stakeholders

(checks

and

balances)


August 23
, 2012

MOLE Conference Tamale

Stakeholder views on pooled funding


Some

stakeholders

are

pointed

out

that

if

the

seed

money

for

the

fund

would

be

provided

by

sources

other

than

the

WSDBs,

then

with

prudent

fund

management,

it

could

work



Some

stakeholders

are

of

the

view

that

the

current

arrangement

of

WSDBs

to

save

towards

CapManEx

water

sales

if

enforced

by

the

MMDAs

would

be

a

better

approach

in

addressing

CapManEx




August 23
, 2012

MOLE Conference Tamale

Stakeholder views on pooled funding


WSDBs

interviewed

expressed

mixed

views
:


could

work

if

the

seed

money

for

the

fund

is

provided

by

government

(MMDAs

or

donors)
.



Will

be

willing

to

contribute

resources

to

the

fund

if

only

member

WS

(WSDBs)

are

solvent



The

association

of

Technical

Managers

of

small

towns

water

schemes

of

Ghana

are

in

favour

of

pooled

funding

as

it

fits

into

the

objectives

of

their

association
.

They

however

mentioned

the

need

to

ensure

proper

accountability

of

the

funds
.


August 23
, 2012

MOLE Conference Tamale

Conclusion


The well performing water system have mostly relied on their
tariffs to address
CapManEx
.



The dependence on funds from government and donors for
CapManEx

is often
adhoc

and has serious adverse consequence
of service delivery.



Two potential options for financing
CapManEx

are insurance
and pooled funding. Stakeholders believe that the options are
good but need to be well designed especially the pooled
funding with adequate checks and balance to ensure that well
managed systems do not
subsidise

poor performing systems

August 23
, 2012

MOLE Conference Tamale

recommendations


The feasibility of insuring indispensable components of
water systems should be explored with reputable
insurance companies in Ghana.






August 23
, 2012

MOLE Conference Tamale