From IRC: Everyone Reached, Financing Remains

By: Stef Smits, Azucena Serrano and Túpac Mejía

The Municipality of Chinda in Honduras reached universal coverage with water supply. It now needs to spend up to 11.8 US$/person per year to ensure that coverage will last forever. The good news is that this amount is affordable to the municipality. Moreover, by carrying out good preventive maintenance, this amount may go down.

Chinda is a small municipality of some 6,200 inhabitants. The 15 communities that make up this municipality all have their own water supply system, most of which were developed under the umbrella of ‘Everyone, Forever’, a close collaboration between the municipality, the NGO Water For People, the communities themselves and other government entities.

Now that this has been achieved, the municipality and Water For People are addressing the implications of ensuring that these supplies last forever, especially the financial ones. This is needed, because having achieved universal coverage doesn’t mean that no more money needs to be invested in water supplies. Rather to the contrary. The municipality should consider three types of investments in ensuring sustainability of services:

  • Extensions: there may be need to extend the systems, as communities grow.
  • Replacements: communities collect tariffs in order to pay for operation and maintenance costs, but rarely for the full 100% of replacement costs. Therefore, the municipality would need step in and contribute to such costs
  • Direct support: this refers to the costs the municipality would incur in monitoring the water systems and providing technical assistance to the water committees that carry out the Operation and Maintenance works. It also refers to the costs of the municipal sectoral activities, such as formulating water and sanitation plans and by-laws.

The question is how much money the municipality will need to spend on these activities. In order to answer this question, Water For People applied a set of tools to do the costing of reaching the “Everyone, Forever” status. This tool set was developed between Water For People, IRC and Aguaconsult, with financial support from BID-FOMIN, in Bolivia, and then further adjusted to the Honduran context. The tool is based on the concept of asset management, i.e. the optimal form of maintenance of the individual infrastructure components of the water supply systems, based on their remaining useful life-time and their current maintenance status.

The first step in applying the tool is the development of an asset registry, including their current age and maintenance status. The tool then indicates which infrastructure components need regular corrective maintenance, which ones need to be replaced, and even where there is need to replace an entire system in the next 5 to 10 years. This exercise showed us that above all the intake structures and the main lines need immediate maintenance. Besides, it showed that many components of even systems would need to be fully replaced if no immediate maintenance would be done. This is for example the case of El Zapotal, whose intake and main line are already in bad shape in spite of the fact that this system was recently constructed.

The next step consisted of analysing the extent to which the communities themselves would be able to cover operation, maintenance and replacement costs. This was done using the tool AtWhatCost, focused at establishing a multi-annual income and expenditure analysis of a water committee. The result of this exercise indicated that affordable tariffs would be adequate to cover the full operation and maintenance costs, and up to 30% of the replacement costs. This implies that the remaining 70% would need to come from the municipality; or at least the municipality should carry out the fund raising for this percentage.

A this step consisted of analysing how much money the municipality already dedicates to direct support, mainly in the form of salaries of a municipal technician and his travel expenditure. In addition, a projection was made of how much the municipality would need to increase this amount in order to be able to fulfil all the roles related to water supply that the Law assigns to them. Finally, the results of the three previous steps were consolidated in the form of a projection of the investment that would need to be made in the coming 10 years. See Graph 1. As can be seen, the main investment costs are those related to replacement works, particularly in the second half of the coming decade. The latter is due to the fact that many of the water systems are not yet so old, but many parts will come to the end of their useful life in the next 10 years, if no adequate maintenance is done. It can also be seen that these replacement works are projected to come in an irregular and bulky pattern. In reality the municipality may decide to spread them out more evenly, resulting in an investment need of about HNL 1,2m/year (about 53,000 US$/year.

There is also a more steady investment need of around HNL 306,000/year (13,000 US$/year) in direct support. This support would facilitate that maintenance is duly carried out, and even to help in looking for opportunities to push some replacements further back in time, by doing adequate preventive maintenance.

IRC_Graph

In summary, maintaining universal coverage requires financing forever of some HNL 1.6m per year. The municipality should include these amounts in its budgets. But, we have some good news for the mayor and population of Chinda:

  • It should not be so difficult to mobilize the funding for replacement works. An estimated 30% of the costs of the works can come from communities via the tariffs they pay. Also, the municipality is already spending the significant amount of HNL 220,000 (9,500 US$) per year in direct support. And the municipality has also been able to contribute some 30% of investment costs of new water supply systems in the past.
  • The total amount of resources to mobilize would be HNL 1.2m (52,000 US$) per year. This represents some 11% of the total overall municipal budget of HNL 10.4m (457,000 US$) year. This is thus not an insignificant amount, but it isn’t an amount that would be outside the municipal capacity either. If the municipality would be able to prepare the replacement projects adequately and in time, it would be very well able to mobilize funds as well from central government, and hence reducing the load to the municipal budget.
  • The costs that we found are not outside the expected ranges. The total required investment is equivalent to 11.9 US$/person/year. Of these, 1.8 US$/person/year are for direct support, this being around the reference values found at international nivel for a reasonable level of support. The remaining 10.1 US$/person/year are in essence for remplacement works. The research project WASHCost found values of up to 7 US$/persons/year for this, but for much lower levels of service (smaller quantities, systems with public standposts and not with household connections, as those in Chinda).
  • Most important, however, is that in reality the amounts to be spent can be much lower. The financial projections for replacement works were made based on the scenario of maintenance not taking place adequately. If maintenance were to take place adequately, the replacement works could be better spread over the years. In order to achieve that in the medium to long term, it is key to invest in the short term in direct support, so that adequate maintenance can be organised.

These findings are not unique to Chinda, but would be common across many other rural municipalities in the country. As municipalities are getting close to universal coverage, the total value of the infrastructure assets increases, and continuous investment is needed to ensure the value of these assets is maintained. Tools such as the ones we have applied in Chinda, can support in defining the costs of maintaining the assets, and thus mobilize the financing that is needed to maintain universal coverage forever.

Our numbers are based off the following data:

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