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'Understanding septic tank emptying businesses' by Anindita Mukherjee, Prashant Arya and Shubhagato Dasgupta

CORP Seminar on ‘Understanding Informal Models of Septic Tank Emptying Services: Case Studies From Four Cities in India.’, 6 April 2018 at the Centre for Policy Research

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'Understanding septic tank emptying businesses' by Anindita Mukherjee, Prashant Arya and Shubhagato Dasgupta

  1. 1. UNDERSTANDING SMALL SCALE BUSINESS OF INFORMAL DE-SLUDGING OPERATORS A synthesis of 4 Case Studies Anindita Mukherjee, Prashant Arya and Shubhagato Dasgupta
  2. 2. SETTING THE CONTEXT 4/9/18 2 o Statutory Towns – 4,041 o Census Towns – 3,892 o Larger roster of dense villages1 – 155,056 o With increased penetration of IHHL through SBM G (67 million) & U (4.2 million) importance of providing for de-sludging facilities increasing o As India urbanises, providing for cost intensive networked solutions may not be feasible. Decentralised solutions are emerging as key priorities. 1 LDVs defined as settlements with Minimum population of 1,000 people and Population density of at least 400 person per sq. km; Source: “Towards a New Research and Policy Paradigm: An Analysis of the Sanitation Situation in Large Dense Villages” http://www.cprindia.org/research/reports/towards-new-research-and-policy-paradigm-analysis-sanitation-situation-large-dense
  3. 3. SANITATION SITUATION ACROSS SETTLEMENT TYPOLOGIES 4/9/18 3 Piped Sewer % Septic Tank % Improved Pits % Unimproved Toilets% STs CTs Remaining Villages All LDVs 36% 14% 3% 4% 37% 46% 17% 21% 5% 15% 9% 10% 4% 5% 7% 7% More than 1 million septic tanks constructed during 2017-18* under SBM G * MoDWS MIS report
  4. 4. SANITATION PROFILING Dehradun, Jaipur, Bhubaneswar and Delhi 4/9/18 CENTRE FOR POLICY RESEARCH 4
  5. 5. DEHRADUN 4/9/18 5 SBM U2: IHHL (693/1547) , PTBs/CTBs: 0 Dehradun has been declared ODF Under AMRUT3: Investment to the tune of 48 Crs. For sanitation Public or otherwise 2% OD, 1% IHHL, 97% Connected to Septic tanks or improved pits, 56% Connected to Sewerage network, 41% Connected to Others, 3% 2 http://swachhbharaturban.gov.in/dashboard/ 3 SAAPs Source: Census 2011
  6. 6. JAIPUR 4/9/18 6 SBM U2: IHHL (15885/15867) , PTBs/CTBs: 182 Jaipur has not yet been declared ODF Under AMRUT3: Investment to the tune of 275 Crs. for sanitation Connected to Sewerage network, 76% Connected to Septic tanks or improved pits, 23% Source: Census 2011
  7. 7. BHUBANESWAR 4/9/18 7 SBM U2: IHHL (9258/21252) , PTBs/CTBs: 126 Bhubaneswar has not yet been declared ODF Under AMRUT3: Investment to the tune of 6.65 Crs. For sanitation emphasis on FSTPs Connected to Septic improved pits, 59% OD, 17% Public or otherwise 3% Connected to Others, 8% Source: Census 2011
  8. 8. DELHI Two neighbourhoods 4/9/18 8 SBM U2: IHHL (380/516) , PTBs/CTBs: 19171 Delhi has been declared ODF Under AMRUT3: Investment to the tune of 431 Crs. For sanitation Name of Area Urban HHs IHHL (%) OD (%) without IHHL (%) Connected to Sewer (%) Connected to OSS (%) % HHs connected to Others Aya Nagar 6582 93.6% 6.3% 0.1% 5.2% 94.4% 0.4% Krishan Vihar 8985 NA NA NA NA NA NA Krishan Vihar Aya Nagar Source: Census 2011
  9. 9. KEY OBSERVATIONS – FOUR CASE STUDIES 4/9/18 9 oIn Delhi and Jaipur, the operations of septic tank emptiers are region specific as opposed to Bhubaneswar and Dehradun. oThe business thrives due to horizontal cartelisation which led to ­ Agreement regarding price fixation. ­ Agreement relating to market allocation. ­ Agreement relating to limiting or controlling the product and supply market, technical developments, investments etc. o The entry barriers to the market are negotiated through kinship and/or friendship o Mostly operated as a part-time enterprise o Often operators have local political clout and relative economic well-being o Non-existence of designated dumping sites, lack of regulations, keep the input costs low
  10. 10. LIST OF RISKS IN THE CURRENT OPERATING MODEL 4/9/18 10 Financial No access to institutional credit Possibility of price war due to new entrants Regulatory Not informed or equipped to access necessary clearances Risk of law enforcement and police checking Labour Availability Unsafe labour practices Public health Indiscriminate disposal of sludge Leakages and slippages from the collection vehicle Irregular/unpredictable demand trends Quality of the containment structure
  11. 11. UNDERSTANDING THE BUSINESS POTENTIAL 4/9/18 CENTRE FOR POLICY RESEARCH 11
  12. 12. DEFINING THE VARIOUS MODELS 4/9/18 CENTRE FOR POLICY RESEARCH 12 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration and other regulatory costs apply
  13. 13. ASSUMPTIONS - BASIC 4/9/18 13 o De-sludging enterprises have one revenue source- the fees charged to households and institutions. o Costs to the enterprise Capital Costs Operating Expenses Vehicle (tractor/small trucks) Fuel cost Wages Registration fees Container Maintenance fees Tipping fees licensing fees Estimated as an average of the data reported by the four case studies Calculated as an average of costs reported Annual Depreciation • vehicle@10% and • container @25% No. of Trips per day Base price per trip (INR) Business cycle 4 during non-monsoon and 7 in the rainy season 950 6 years Range of trips reported Average price reported o Inelastic demand curve for de-sludging o Other Assumptions
  14. 14. ASSUMPTIONS – MARKET ENTRY AND REGULATORY 4/9/18 14 Market Entry Entry possible at the end of year 2 Price cut possible by the new entrants of: • 25% • 50% Horizontal cartelisation possible at the end of year 3 moving the reduced price back to the initial levels 4 DJB Septic Tank Emptying Regulations, 2015. Regulatory Treatment facilities available • At a distance of 1km from city centre • At a distance of 8km from city centre Pooling possible by visiting max of 2 HHs Collusion not possible Have access to the institutional credit market: • 30% down payment • 3 year loan repayment period • Rate of interest @ 9.25% p.a. Licensing: Rs. 1000 every two years, with a one-time deposit of Rs. 10,000 in first year4 Vehicular Regulations: Commercial registration, requisite vehicle taxes, obtaining PUC and regular fitness certificates
  15. 15. DEFINING THE VARIOUS MODELS 4/9/18 15 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational Licensing, registration and other regulatory costs apply
  16. 16. MODEL 1: BASE CASE 4/9/18 16 Year Return on Investment Year 1 -42% Year 2 95% Year 3 95% Year 4 95% Year 5 56% Year 6 95%
  17. 17. DEFINING THE VARIOUS MODELS 4/9/18 17 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational Licensing, registration and other regulatory costs apply
  18. 18. 4/9/18 18 Year RoI If Price is Cut by 25% RoI If Price is Cut by 50% Year 1 -42% -42% Year 2 95% 95% Year 3 90% 83% Year 4 92% 90% Year 5 53% 49% Year 6 92% 90% MODEL 2: LOW BARRIERS TO ENTRY -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Price Undercut By 25% Price Undercut by 50%
  19. 19. DEFINING THE VARIOUS MODELS 4/9/18 19 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational Licensing, registration and other regulatory costs apply
  20. 20. 4/9/18 20 MODEL 3 (A): TREATMENT FACILITY OPERATIONAL WITHIN 1 KM Year RoI Without Pooling and unchanged price RoI Without Pooling and new price of 1450 RoI With Pooling and unchanged price RoI With Pooling and new price of 1000 Year 1 -50% -25% -44% -40% Year 2 30% 95% 82% 95% Year 3 30% 95% 82% 95% Year 4 30% 95% 82% 95% Year 5 11% 68% 48% 58% Year 6 30% 95% 82% 95% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% ReturnOnInvestment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 RoI Without Pooling and Unchanged Price RoI Without Pooling and new price of 1450 RoI With Pooling and Unchanged Price RoI With Pooling and new price of 1000
  21. 21. MODEL 3 (B): TREATMENT FACILITY OPERATIONAL WITHIN 8 KM 4/9/18 21 Year RoI Without Pooling and unchanged price RoI Without Pooling and new price of 3170 RoI Without Pooling and new price of 4000 RoI With Pooling and unchanged price RoI With Pooling and new price of 1775 RoI With Pooling and new price of 2300 Year 1 -71% -3% 26% -60% -24% -2% Year 2 -55% 50% 95% -20% 50% 95% Year 3 -55% 50% 95% -20% 50% 95% Year 4 -55% 50% 95% -20% 50% 95% Year 5 -57% 42% 84% -27% 36% 77% Year 6 -55% 50% 95% -20% 50% 95%
  22. 22. MODEL 3 (B): TREATMENT FACILITY OPERATIONAL WITHIN 8 KM 4/9/18 22 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Without Pooling: With Pooling: RoI w/o Pooling and Unchanged Price RoI w/o Pooling and price of 3170 RoI w/o Pooling and price of 4000 RoI with Pooling and unchanged price RoI with Pooling and price of 1775 RoI with Pooling and price of 2300
  23. 23. DEFINING THE VARIOUS MODELS 4/9/18 23 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational Licensing, registration and other regulatory costs apply
  24. 24. MODEL 4 (A): TREATMENT FACILITY OPERATIONAL WITHIN 1 KM; REGULATIONS INTRODUCED 4/9/18 24 Year RoI Without Pooling and Unchanged Price RoI Without Pooling and new price of 1090 RoI Without Pooling and new price of 1425 RoI With Pooling and unchanged price RoI With Pooling and new price of 1015 Year 1 -25% -13% 13% -9% -4% Year 2 10% 26% 64% 46% 54% Year 3 11% 28% 66% 48% 56% Year 4 12% 29% 68% 50% 59% Year 5 12% 29% 67% 49% 58% Year 6 31% 50% 95% 84% 95%
  25. 25. MODEL 4 (A): TREATMENT FACILITY OPERATIONAL WITHIN 1 KM; REGULATIONS INTRODUCED 4/9/18 25 -40% -20% 0% 20% 40% 60% 80% 100% 120% AxisTitle Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Without Pooling With Pooling RoI w/o Pooling and price of 1090 RoI w/o Pooling and unchanged price RoI w/o Pooling and price of 1425 RoI with Pooling and unchanged price RoI with Pooling and price of 1015
  26. 26. MODEL 4 (B): TREATMENT FACILITY OPERATIONAL WITHIN 8 KM; REGULATIONS INTRODUCED 4/9/18 26 Year RoI Without Pooling and Unchanged Price RoI Without Pooling and new price of 3160 RoI Without Pooling and new price of 4100 RoI With Pooling and Unchanged Price RoI With Pooling and new price of 1780 RoI With Pooling and new price of 2300 Year 1 -64% 20% 56% -45% -24% -2% Year 2 -58% 41% 83% -28% 50% 95% Year 3 -57% 41% 84% -27% 50% 95% Year 4 -57% 42% 85% -27% 50% 95% Year 5 -57% 42% 84% -27% 36% 77% Year 6 -55% 50% 95% -19% 50% 95%
  27. 27. MODEL 4 (B): TREATMENT FACILITY OPERATIONAL WITHIN 8 KM; REGULATIONS INTRODUCED 4/9/18 27 -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Without Pooling With Pooling RoI w/o Pooling and Unchanged Price RoI w/o Pooling and price of 3160 RoI w/o Pooling and price of 4100 RoI with Pooling and unchanged price RoI with Pooling and price of 1780 RoI with Pooling and price of 2300
  28. 28. DEFINING THE VARIOUS MODELS 4/9/18 28 Base Case: a) High Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs FSTP Model: a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) No licensing or other regulatory costs FSTP + Regulations a) High Barriers to Entry b) Treatment Facility (FSTP) operational c) Licensing, registration costs and other regulatory costs apply Low Entry Barrier Model: a) No Barriers to Entry b) Treatment facilities unavailable c) No licensing or other regulatory costs Consolidated Model a) No Barriers to Entry b) Treatment Facility (FSTP) operational Licensing, registration and other regulatory costs apply
  29. 29. MODEL 5: TREATMENT FACILITY OPERATIONAL WITHIN 1 KM; REGULATIONS INTRODUCED; LOW BARRIERS TO ENTRY 4/9/18 29 Year RoI Without Pooling and Price of 1425 RoI Without Pooling and Price Undercut by 25% RoI Without Pooling and price undercut by 50% RoI With Pooling and Price of 1015 RoI With Pooling and Price Undercut by 25% RoI With Pooling and Price undercut by 50% Year 1 13% 13% 13% -4% -4% -4% Year 2 64% 64% 64% 54% 54% 54% Year 3 66% 9% -37% 56% 17% -22% Year 4 68% 18% -25% 59% 19% -21% Year 5 67% 18% -26% 58% 18% -21% Year 6 95% 37% -13% 95% 46% -3%
  30. 30. MODEL 5: TREATMENT FACILITY OPERATIONAL WITHIN 1 KM; REGULATIONS INTRODUCED; LOW BARRIERS TO ENTRY 4/9/18 30 -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% ReturnonInvestment Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Without Pooling With Pooling RoI w/o Pooling and price of 1425 RoI w/o Pooling and price undercut by 25% RoI with Pooling and price of 1015 RoI with Pooling and price undercut by 25% RoI with Pooling and price undercut by 50% RoI w/o Pooling and price undercut by 50%
  31. 31. ANALYZING VARIABILITY ACROSS MODELS: THE ‘NEARBY FSTP’ CASE 4/9/18 31 950 1450 1000 1425 1015 ₹ 0 ₹ 200 ₹ 400 ₹ 600 ₹ 800 ₹ 1,000 ₹ 1,200 ₹ 1,400 ₹ 1,600 ₹ - ₹ 200,000.00 ₹ 400,000.00 ₹ 600,000.00 ₹ 800,000.00 ₹ 1,000,000.00 ₹ 1,200,000.00 Base Case Nearby FSTP w/o Pooling Nearby FSTP With Pooling Nearby FSTP in A Regulated Market w/o Pooling Nearby FSTP in A Regulated Market with Pooling Price Profit Axis Title Profit Price
  32. 32. ANALYZING VARIABILITY ACROSS MODELS: THE ‘FAR FSTP’ CASE 4/9/18 32 950 4000 2300 4100 2300 ₹0 ₹500 ₹1,000 ₹1,500 ₹2,000 ₹2,500 ₹3,000 ₹3,500 ₹4,000 ₹4,500 ₹ - ₹ 500,000.00 ₹ 1,000,000.00 ₹ 1,500,000.00 ₹ 2,000,000.00 ₹ 2,500,000.00 ₹ 3,000,000.00 Base Case Far FSTP w/o Pooling Far FSTP With Pooling Far FSTP in A Regulated Market w/o Pooling Far FSTP in A Regulated Market with Pooling Price Profit Profit Price
  33. 33. CONCLUSIONS 4/9/18 33 o If regulations are driven by public good perspective, is it at the expense of these enterprises? o Is it more useful for the consumers to have different set of service providers – Government as well as private? o Is differential pricing the way ahead? § Among HHs – f(plot size)? Plot size as a proxy for economic status in cities? § Among institutional buildings – hotels, hospitals, shopping complexes, schools and colleges? § Based on the distance to be travelled for the treatment facility? o Should locating the treatment facility be a f(city size, urbanisation prospect, no. of households dependent on OSS and future plans to cover the city under networked solutions) ? o Scheduled may decrease cost – is it implementable? o Is pooling for economic benefit the way forward? o Is ‘uberisation’ of the de-sludging services able to stabilise the prices? o Should the regulations come in at one go, or incrementally?
  34. 34. THANK YOU 4/9/18 CENTRE FOR POLICY RESEARCH 34

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