Presentation by Rafal Stanek

1. COST ESTIMATION AND LINK WITH
MTEF (MEDIUM-TERM EXPENDITURE
FRAMEWORK)
Rafał Stanek
SST-CONSULT /Kommunalkredit Public Consulting
Promoting Clean Urban Public Transport in Kazakhstan:
Designing a Green Investment Programme
14 December 2016, Astana

2. • Introduction to programme costing
• Three methods of programme
costing:
–bottom-up
–average unit costs
–top-down
• Financial flows, METF and one year
budget
Structure of the presentation

3. • Correct estimation of the costs of
implementation of an environmental
programme is crucial for the success of
future implementation
• No single theoretical methodology can be
used for costing of environmental
programmes
• A number of internationally recognised
good practices in this field do exist
Major methods of environmental
programme costing

4. • Bottom-up: by collecting information
from the field (prospective investors, such
as local governments, utilities, etc.)
• Using Average Unit Costs
• Top-down: by imposing rules and
procedures that ensure that only projects
within a specific (scope, costs,
environmental effect) margin are
implemented
Estimating the costs of an
environmental programme

5. • For example, local governments are asked to
provide detailed information (investment
costs, period of implementation) on specific
projects
• This method has a very high accuracy:
information on projects under preparation is
collected
• Local governments, however, may
overestimate the scope – need for
verification
Bottom-up

6. Costs of the national programme
Verification
Aggregation
on the
regional level
Aggregation
on the
regional level
Beneficiary /for example municipal/ level - investments and its
cost
Bottom-up

7. • Polish National Programme for Municipal
Waste Water Treatment prepared to implement
EU Directive 91/271/EEC of 21 May 1991 on
urban wastewater treatment
• Local governments proposed the scope, which
was then negotiated with the central government
• Very broad definitions of agglomeration and local
governments tended to ensure that every
settlement was put into the programme
Bottom-up - example

8. • Total costs of the implementation of the
Urban Wastewater Directive in Poland
–The National Programme for Municipal
Waste Water Treatment 2003: PLN 35
billion
–Update 2005: PLN 42.6 billion
–Update 2010: PLN 31.9 billion
–Update 2015: PLN 55.963 billion was spent
by the end of 2014 and there is a need for
additional PLN 29 billion
Bottom-up - example

9. • Easy to use, but prone to high inaccuracy
• For example:
– 30% of the country's population is connected
to the sewage system
– If we want to achieve a target of a 90%
connection rate, we need to multiply 60% of
the population by the unit cost of building
sewage systems with WWTPs
Total outlays for the
programme
=
Population to be
connected
Unit costs to connect
one person
*
Average unit costs

10. Total outlays for the
programme
=
Number of new
LPG buses
Average unit costs of
LPG bus
*
Number of new
CNG buses
Average unit costs of
CNG bus
*
Number of new
EURO6 diesel
buses
Average unit costs of
modern diesel bus
*
+
+
Average unit costs

11. • When the wastewater infrastructure is partially built
(sewer mains and WWTPs are in place), expanding the
system by building sewerage connections may cost less
than the average
• If the sewer network is constructed in high density
areas first, however, expanding it to areas with lower
population density may cost more than the average
• When energy efficiency projects are promoted for
several years, the most cost-effective are usually those
projects implemented at the beginning. Projects in later
years, in turn, may cost more than the average
Average versus marginal costs

12. • Easy to calculate, but highly inaccurate
• Sometimes marginal unit costs should be used instead of
average unit costs
• To increase accuracy, it is necessary to break down
components into small types of projects, such as:
– WWTP: small, medium-sized, large
– sewer network in: flat urban area, flat rural area, hilly urban area, in
hilly rural area
– or even more detail
– Only then: estimate the unit costs for each type
• Problems occur when scope of the programme is changed
due to political pressure
Average unit costs - conclusions

13. • Programme promoter decides on relatively
small margin of the projects' scope and
costs
• Programme may contain a number of
types of projects, but the programme
promoter needs to know the details on
each type of project
• Programme is usually prepared after
conducting research or implementing pilot
projects
Top-down

14. Costs of the national programme and project
parameters are decided by the programme promoter
Beneficiary level
Application forms
Top-down

15. • Example of solar collectors:
• Polish EcoFund (debt-for-environment swap, programme
now closed):
– Maximum grant per unit: 250 EUR/m2
– Annual limit: EUR 2.5 million EUR
– Grant limit of up to 40% of the project costs
• Polish National Environmental Fund:
– Maximum project costs 600 EUR/m2
– Up to 1.5 m2 per person
– Grant limit of up to 45% of project costs
• Very detailed definition what projects costs may include
Top-down

16. • Every good method to implement programmes
consisting of many replicable projects
• Good to implement programmes where programme
promoter subsidizes only part of the project costs
• Programme costing requires good and detailed
knowledge about potential projects – research or pilot
projects first
• Projects outside the range set by programme promoter
are lost, even if they would be useful in achieving targets
• Cheapest projects are implemented first, thus
procedures require update after a few years
Top-down

17. • Regardless the method used for programme costing, when the
total budget is agreed, we need to see how to disburse the
budget over the years
• This can be done looking at several constrains:
– availability of the public support over the years (for example, we will
have available maximum 5 billion tenge per year
– Market readiness to deliver goods needed for programme
implementation (if average bus production in the country is 300, we
cannot estimate replacement of 500 buses in the first year of the
programme implementation)
– Readiness of beneficiaries to implement the programme – the market
study shall estimate how many project beneficiaries are ready to
implement such projects per year (could vary from year to year due to
better market penetration)
Financial flows

18. • When possible disbursement schedule is
determined and the level of the support from
the state budget is calculated (next
presentation), the programme can be
included into the Medium Term Expenditure
Framework
• Medium Term Expenditure Framework (or
multiyear budget) is a resource envelope for a
high cost government-wide programmes
Financial flows and MTEF

19. • Then, specific costs for a given year are
allocated to the annual budgets
• The monitoring of the programme
implementation also gives an input to the
annual budget allocations – for example, if not
all funds were spent in the given year, next
year allocation may take it into account plus
improvements in the programme
implementation shall be considered
MTEF and annual budget