Decision-Making Model for Tariff Assessment in CWIS

4 Poster Track: Applied Research » 5 Financial aspects in FSM

Speaker: Wolfgang Clauss

Summary – for publication in conference brochure:

This poster presents a tool for the determination of sanitation tariffs that was developed as part of a Comprehensive Faecal Sludge Management Plan for the City of Jambi, Indonesia. The model helped evaluate the fundamental economic and financial issues affecting the implementation of the septage management plan in Jambi and proved a useful tool for the discussions with the city government, helping to deliver a better understanding about:

·       Estimated investment and operating cost profile

·       Estimated revenues

·       Resulting cash flows

·       Need for subsidies

·       Investment capital required

Introduction, methods, results and discussion:

The model was developed in the framework of the ADB and Australian Aid-funded Capacity Development Technical Assistance (CDTA) program of the Metropolitan Sanitation Management Investment Project (MSMIP), using funds available from the Water Financing Partnership Facility (WFPF) provided by the Bill & Melinda Gates Foundation.

The MSMIP was designed to construct a limited scale centralized wastewater collection and treatment system serving ±10,000 properties and ±40,000 properties through regular septic tank desludging services.

The model includes a number of input variables:

·       Population

·       Time horizon

·       On-site and off-site service coverage targets

·       Human resources

·       Material resources

·       Operational efficiency

·       User tariffs

·       Financial parameters (debt, depreciation, etc.)

Proposed user tariffs used in the model are based on a review of wastewater tariffs currently applied in other cities in Indonesia which are considered to be a realistic estimate of affordability.

The model also assumes a certain progression of human and material resources deployed during a 5-year septage management programme implementation to achieve coverage of 40,000 households, the organization and staffing recommended for the Service Delivery Organization and the equipment required. The investment cost for the upgrading of existing septic tanks and installation of new ones is not included in the model.

The model is intended to:

·       Test different tariffs and find out service income and subsidy required -> local budget planning and socialisation activities.

·       Understand operational cost components and their variability to inform cost recovery policies and funding needs

·       Compare scenarios of combined or differentiated onsite/offsite tariffs

The model consists of a set of linked MS Excel spreadsheets facilitating various inputs for key variables simulating different scenarios.

Results for the case of Jambi:

The septage service is marginally financially viable in the long term with the average user fees assumed (sewer connections Rp25,000 per month for households and Rp40,000 for commercial properties, Rp250,000 per desludging service) and the investment and operating costs modelled. EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) becomes positive only in year 5; when depreciation is taken into account (EBIT) the service falls into long-term deficit.

To cover the operating costs -compensating the difference between service costs and fees collected- and make the service sustainable, the LG would need to provide an additional Rp4,866 million over the 5-year period (see supporting material).

The total funding needs to implement the 5-year SMP amount to Rp10,452 million, equivalent to approximately 0.6% of the local government budget for the year 2020. The resulting wastewater service coverage at the end of year 5 would be 40% of the city, including the off-site users (see supporting material).

Conclusions and implications:

The model is specifically covering off-site and on-site wastewater management efforts. Main conclusions are:

With user tariffs considered to be affordable for both off-site and on-site services, apart from investments in infrastructure, local governments will have to provide substantial subsidies during the initial years of operations;

In the long term, revenues from on-site services can substantially cross-subsidize operations of centralized systems.

Policy makers and executing agencies must know the answers to critical questions about funding before moving on with the plan, among others:

·       Investment required for different coverage targets

·       Cost to operate the service

·       Subsidy required for different levels of tariff

·       Variables that determine the long-term continuity

·       Where and how can the private sector contribute

Relevant references:

Organization & Financing of Wastewater Services in the City of Jambi. TRTA-8666-INO – INDONESIA Capacity Development Technical Assistance Metropolitan Sanitation Management Investment Project
Jakarta May 2019
Comprehensive Septage Management Planning in Indonesia: a Case Study in the City of Jambi
ADB Knowledge Events
18 September 2019; https://events.development.asia/materials/20190918/comprehensive-septage-management-planning-indonesia-case-study-city-jambi-2019
Final Jambi Septage Management Plan Report
ADB Knowledge Event
18 September 2019; https://events.development.asia/materials/20190918/final-jambi-smp-preparation-report-2019

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