1. IRC Symposium 2010: Pumps, Pipes and Promises
Costs, Finances and Accountability for Sustainable WASH services
Improving the robustness of
financial and economic analysis
of sanitation systems
Jonathan Parkinson and Steffen Blume
November 2010 – The Hague
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25 March 09 • Eschborn• Germany I slide 1

2. Working Group 2 - Costs & Economics
There is a lack of a consistent methodological
approach to derive comparable data for the
economic analysis of sanitation systems.
There is a need to :
 Strengthen capabilities to quantify the economic
benefits of sanitation.
 Standardise methodologies for systematic
collation of financial and economic data.
 Share data sets to allow for cross-examination and
comparison of results.
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25 March 09 • Eschborn• Germany I slide 2

3. Uses of Financial and Economic Analysis
Type of analysis
 Project design - Sound financial analysis is
fundamental for good project design.
 Sanitation programming - Financial analysis also
important to compare long term costs in order to identify
the most cost effective sanitation system.
 Policy decisions - Results from economic analysis can
play an import role in influencing political decisions about
the need to invest in improved sanitation.
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25 March 09 • Eschborn• Germany I slide 3

4. Categories of costs and benefits
1) Financial expenditures including CAPEX and OPEX,
2) Economic benefits not necessarily directly linked with the
financial expenditures
3) Broader economic benefits including those listed under
2) plus benefits located outside the area of the defined
project.
4) Indirect economic costs and benefits which cannot be
attributed to financial expenditures or revenue but can be
quantified in monetary terms.
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25 March 09 • Eschborn• Germany I slide 4

5. Types of economic benefit
 Health: the full costs of health care from an institutional
perspective.
 Productivity: income associated with lost time from caring
for the sick.
 Extended lifespan: better health leading to extended
lifespan and increased income potential.
 Education: increased attendance at school and improved
cognitive ability.
 Environment quality: increased land value due to
improved environmental conditions.
 Time benefits: as a result of closer access to a toilet and
shorter waiting times at public toilets (resulting in additional
time for work or study).
 Tourism: potential for increased revenue from tourism.
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6. Introduction to WSP study
 Comparison of 3 case studies in SSA
(Uganda, South Africa and Burkina Faso)
 Analyses included CAPEX and OPEX
 Economic cost include: health, pollution
and reuse
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25 March 09 • Eschborn• Germany I slide 6

7. Approaches to monetize the benefits of excreta reuse
Methodology
1) Market value of nutrients from excreta based
upon the value of synthetic fertilizer in the local
market.
2) Additional crop yield as empirical equation
related to nutrients contained in excreta.
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25 March 09 • Eschborn• Germany I slide 7

8. Sensitivity analysis 1:
Impact of availability of land
700
household per annum
600
kg Potatoes per
500
400
300
200
100
0
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Area of Land (ha)
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25 March 09 • Eschborn• Germany I slide 8

9. Sensitivity analysis 2:
Impact of type and market value of crop
Area of land available for reuse per household
0.2 ha 0.5 ha 1 ha
Financial
NPV
US$ US$ US$
no reuse -1376
Reuse Potato -1050 -718 -487
Maize -823 -258 -134
Economic
NPV
US$ US$ US$
no reuse -1518
Reuse Potato -1284 -1045 -879
Maize -1120 -714 -432
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25 March 09 • Eschborn• Germany I slide 9

10. Sensitivity analysis 3:
Influence of agricultural conditions
very poor poor average good ideal
0
-200
US$
-400
-600
NPV
-800
-1000
-1200
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25 March 09 • Eschborn• Germany I slide 10

11. Results 4:
Net impact of reuse on overall NPV
High Cost Toilet Low Cost Toilet
Financial NPV Economic Financial NPV Economic
NPV NPV
Household Total Household Total
UDDT Uganda -484 -607 -345 -55 -178 +111
South Africa -1217 -1376 -1518 - - -
Burkina Faso -342 -691 -560 -192 -349 -396
Pit latrine Uganda -647 -677 -492 -301 -331 -124
South Africa -1230 -1273 -1148 - - -
Burkina Faso -759 -850 -842 -336 -427 -380
Results indicate absence and/or undervaluation of health,
social and environmental benefits. Need to develop modeling
capabilities to 1) monetize improvement of water pollution
(including groundwater) costs and 2) benefits related to time
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25 March 09 • Eschborn• Germany I slide 11

12. Recommendations for model development
Excreta reuse:
 Development of standardized methodology as
economic benefits of excreta reuse is found to be
particularly complex.
 Systematic literature review (meta-analysis) of the
increased crop yields in relation to the rate of fertilizer
application.
 Empirical research for relationship between fertilizer and
increased yields for better understanding of yield from different
crops in different agricultural conditions.
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25 March 09 • Eschborn• Germany I slide 12

13. Further recommendations
Need for greater understanding on the assumptions that
are made when deriving cost and benefit data.
Use confidence grades to take into account uncertainties
related to the reliability and accuracy of data.
Differentiation of costs related to capital maintenance.
Further attention is required to monitor project support
costs
Qualitative assessment of existing facilities should be
linked to a rating system in order to arrive at more realistic,
valid and credible data set.
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25 March 09 • Eschborn• Germany I slide 13

14. Proposed cost categories for financial and economic
analysis used for a) project design, b) sanitation
programming and c) policy making
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25 March 09 • Eschborn• Germany I slide 14

15. Working Group 2 - Costs & Economics
http://www.susana.org/lang-en/working-groups/wg02
jonathan.parkinson@iwahq.org steffen.blume@gtz.de
Thanks for your attention!
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25 March 09 • Eschborn• Germany I slide 15