Hi! This is the second module on financial mechanisms. In the first module we saw what types of costs there are existing in solid waste management and we described in detail the most common sources to cover investment costs. In this second part, we will explain what are the most common sources for operation and maintenance costs. Let's start! Operation and maintenance costs, also called recurrent costs occur at every step of the solid waste management system and can represent up to 60 to 70% of the total costs. These are: cost of labor, fuel, energy revenue collection, administration, capacity building and customer care. Do you have an idea of how much collecting a ton of waste costs approximately in your city? Or the tipping fee per tonne in the landfill? Let's have a look to some of these figures. This table shows some approximate figures of operational and maintenance costs in four income bands. Check how collection is much more expensive than disposal or composting. Check also how sanitary landfills cost four to five times more than open dumping. The money required to cover the costs is called revenues, which mainly come from public sources. Public financing systems have two main downsides. On the one hand, they are vulnerable to political factors and national economic problems. In Bangalore, India and Managua, Nicaragua for example, fees are being kept low due to political reasons rather than affordability issues. On the second hand, public services are often not looking for profit, but are rather runned as a cost center. We distinguish three main sources of revenues, national government, local government, end users which can be the residents themselves or private enterprises. The national governments often assigne grants and subside to supplement local revenues, since in most municipalities in developing countries these are insufficient to cover all the operation and maintenance costs. This is a case in Cameroon, where the national government subsidizes 85% of the operation and maintenance costs. Local governments obtain their revenues from a variety of sources, such as property taxes often based on the property size, as it happens in Belo Horizonte Brazil, Delhi India, Dhaka Bangladesh or from other municipal fees, parking fees, for instance and fines, as it happens in Ghorahi Nepal and Quezon City Philippines. Depending on the tax money to cover the cost of municipal solid waste management is often difficult, because as mentioned before, tax money is needed for a large variety of urban services and it requires hard negotiations to get the amounts needed. But also tax recovery is often difficult, given the inadequate property systems in rapidly urbanizing cities with expanding informal settlements where actually only a small proportion of the residents actually pay taxes. Besides payment of waste service through property taxes might be suitable if it is clearly stipulated that certain portion of the tax is earmarked to cover the cost of such service as it is a case in Bamako Mali and Bangalore India. Ok, so we now saw that national and local governments can put money, but users can also be charged directly for the service. This is called direct charging. This is done in many cities such as CaneteNepal Peru, Kunming China, Lusaka Zambia or Nairobi in Kenya. These charges can be sent to the users on a weekly, monthly or yearly basis or directly charged after the collection crew collects the waste as shown in the pictures. User charges have the advantage that they can raise public awareness about the real cost of the service and they tend to make the service accountable. User charges can either be a flat rate. Everybody pays the same. Attached to other utility bills, water bill, sanitation, phone, security, electricity bill, which increases willingness to pay and reduces billing costs. Or related to the quantity of waste discarded, which may serve as incentive for waste prevention. This is also called pay as you throw. As a general principle any increase in fees needs to be credible and connected to real improvements in the waste management service, that are well communicated to the citizens and actually perceived as such by them. Otherwise users may choose to stop payment.Let's say for example they promised to increase collection frequency from once per month to once per week. If this never happens, users would never pay on a weekly basis. But if it does, they will probably be willing to do so. In any case, generally collection of user charges for waste services is extremely low. Not everyone is willing to pay or able to pay. Consequently three very important aspects need to be considered. Affordability, cost recovery and willingness to pay. How much can people afford for waste management services in developing countries? It has been suggested that a practical upper limit for affordable waste management costs is 1% of per capita income level. In low and middle-income countries with income levels below 1000$ per capita per year, these works out to be around 10$ or less per capita per year. It comes as no surprise that some low- and middle-income countries set their user charges below full cost recovery rates. Cross subsidizing could be an option to solve this. User charges allow cross subsidizing between high income areas and low income areas. This happens in Moshi Tanzania and Couretipe Mauritius, for example. That brings us to the next question: How much of the operational and maintenance costs should be covered by user charges? Should they cover 100% of the service or 50%? Only the collection service? Or collection and disposal? Or treatment as well? These decisions should be taken based on the availability of other revenue sources and the affordability of the citizens. In the case of not willing to pay, collecting direct user charges may require an efficient enforcement mechanism. It is difficult to just stop the service for those that do not pay, because then they litter and that would affect all the others who are paying. This is the aspect of a public good, we're all affected if one does not comply. Combining bills with other utility bills allows to make effective sanctions in the case of non-payment. Linking waste fee collection to electricity bills was successfully implemented in Greece, Grenada and Jordan, but contested in court and overruled in Egypt. Are there other alternatives to raise revenues other than the public financing? Yes, there are! Let me give you four examples. The first one is profit sharing in public-private partnerships, the second one is extended producer responsibility, about which you can find a lot of literature on the internet. The third one is clean development mechanisms established by the Kyoto Protocol, which allowed to trade carbon credits between different infrastructure installations or institutions. However the Kyoto Protocol expired at the end of 2015, therefore all this carbon trading also expired. And the fourth one is reselling recyclables. In most cases resource recovery activities represent net costs to the municipalities. However, when led to the informal sector or the private sector, sometimes they could make profit and saving costs to the municipality. In this module we learned the main financial sources to cover the operation and maintenance costs of solid waste services. These are national government, local government, through taxes and fees, and the users who are charged user charges. These can be flat combined with other utility bills or to the amount to be disposed, also called pay as you throw. Regarding user charges there are two important aspects to consider. The affordability of the charges and the willingness to pay and possible enforcement mechanisms and finally, the cost recovery aspect is also very important and this should be established once all the previous aspects are known. How much of the operation and maintenance costs will be covered from the revenues. And from which revenues. How are waste management service costs paid in your city? Why don't you share it with us. Write it down into the forum. I'm sure that many of your colleagues following this course will be as interested as we are to read about your city. Do you pay monthly bills? Do you pay directly to the collectors once they come to pick your waste? Do you pay for also disposal facilities? How is it? Just let us know. If any of you would like to get more insights about this topic, we recommend the following two key readings, which can be found on the internet and are downloadable for free.
