2021/162

Impact Investing for Scaling of Fecal Sludge Treatment Technology in eThekwini, South Africa

2 Service Delivery for Low-Income Communities » 2 Service Delivery Innovations

Speaker: Dr. Jeremy Gorelick


Summary – for publication in conference brochure:


This paper presents a case study for the application of an innovative technical solution and impact financing for disposal of latrine sludge.  The Latrine Dehydration and Pasteurization (LaDePa) treatment technology provides a solution for sanitation providers to provide services to poor communities reliant on pit latrines. The social benefits of the LaDePa technology make it attractive for social impact investors. Drawing on expertise from across the development, finance and industry sectors, industry-specific investors aim to support and catalyze new and additional types of investment in sectors like sanitation that lag behind many others in accessing finance.


Introduction, methods, results and discussion:


The pit latrine provides the cheapest minimally acceptable sanitation service in eThekwini Municipality, South Africa. These dry onsite sanitation systems do not require the expense of water to dispose of urine and feces but fill over time requiring emptying and disposal of fecal sludge. Disposal of untreated fecal sludge poses human health risks and impacts to water resources.  However, conventional treatment is not feasible as latrine sludge is an odorous, sticky paste with a solids content in the region of 30%, which is not suitable for disposal through a conventional sewage treatment works. 

In response to these challenges, eThekwini has opted to implement the LaDePa treatment technology.  The LaDePa technology uses infrared thermal treatment which destroys the pathogens and renders the material safe for handling and disposal. As such, it can be freely disposed of by use as a soil additive on agricultural fields.  This results in reduced human health impacts, reduced transport and disposal costs for the Municipality, improved agricultural production, and reduced impacts on limited hazardous material landfill capacity.  Ultimately, the use of the LaDePa technology allows eThekwini Municipality to continue to provide latrine emptying and disposal services, which is critical to ensuring adequate basic sanitation for 170,000 poor people.

Significant investment has gone into the development of the LaDePa technology; however, additional funding will be required to manufacture additional units necessary to scale the technology. The technology provider will need to secure external financing to fund manufacturing costs which will be repaid from payment by the municipality.

As the LaDePa technology is relatively new and has not been deployed at scale, many investors will see substantial risks investing in an emerging technology.  Given the current weak financial status of South African municipalities and related poor creditworthiness ratings, there is also significant payment risk.  As a result, the technology provider has been unable to secure financing from domestic commercial banks and needed support from alternative sources.

In contrast to domestic financial institutions that lack sector expertise, social impact investment funds focused on water and sanitation solutions have stepped in to fill the financing gap.  These funds are particularly attracted to these alternatives, which promote emerging pro-poor technologies with clear environmental and circular economy benefits, in contrast to traditional sludge treatment approaches that consider sludge as a waste output rather than a valued input.  One such fund, the Water Unite Impact Investment Vehicle (WUIIV), has allocated 4.5 million rand (approximately $250,000) to cover the costs of the fabrication and delivery of the LaDePa treatment technology to eThekwini.  The WUIIV, capitalized by a mix of funding from institutional investors and corporate donors, offers more competitive terms (lower interest rates, longer time horizons) than the commercial banking sector in return for strong performance on a double bottom line basis, namely considering a blend of financial returns and social impact. To facilitate this investment, the USAID-funded WASH-FIN program has provided technical assistance including preparation of business plans and financial models.


Conclusions and implications:


The case study demonstrates how increased scaling of the LaDePa treatment technology in eThekwini addresses disposal risks, one of the key challenges of fecal sludge management. It shows how sector-specific social impact funds can provide access to financing for higher risk investments in emerging technologies based on business plans reliant on revenues from entities with payment risks.  The case study also demonstrates how technical assistance provided by international development partners can facilitate these investments.

The LaDePa treatment technology financed by social impact funding can be replicated for sanitation service providers across sub-Saharan Africa where communities are reliant on pit latrines for basic sanitation. Improved treatment of fecal sludge prior to disposal can improve human health and protect water resources. 


Relevant references:


Harrison
J & Wilson D (2012). Towards sustainable pit latrine management through LaDePa. Sustainable Sanitation Practice(13). 25-32
IRC. (2017). How can impact investment address the multi-million dollar financing gap in the water sector? Retrieved from IRC WASH website.
Septien
S; Singh
A.; Mirara
S.; Teba
L.; Velkushanova
K; and Buckley
C (2018). ‘LaDePa’ process for the drying and pasteurization of faecal sludge from VIP latrines using infrared radiation. South African Journal of Chemical Engineering
147-158.
Still
D & Foxon
K (2012). Tackling the Challenges of Full Pit Latrines. Pretoria: Water Research Commission.


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