Module 4: Financial Aspects of SWM

How much does your city spend on MSW (Municipal Solid Waste) services?

Are waste-related programs, infrastructure, and equipment unaffordable or unsustainable due to lack of
funds?

How can your city gain better access to finance?

Financing is one of the key problems faced in the solid waste management sectore as... municipalities
often have competing priorities, such as education, healthcre and roads.

This module addresses the financing aspects of solid waste management to address areas like:

Keeping cities clean, collecting garbage on time, treating and disposes of waste safely.

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Welcome to the course solid waste management. You are in the module financial aspects of SWM.

How to use this module

There are 6 tutorial topics in this module followed by a module and assessment. You can study the
tutorial topics in any order. But following given sequence will give you a better learning experience.

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Getting started
Ever wondered what life is like working in and living near an unauthorized dump? Take a 360 degree
look at an unauthorized dump. You can move left or right.
Uncollected waste and unauthorized dumping are common in low-income countries partly because
cities cannot afford proper collection and sophisticated disposal technologies.

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About this module

This module focuses on various concepts related to financing solid waste management.

Learning goals
Read the learning goals of this module before proceeding. It will take you about an hour to complete
this module.

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Basic principles of SWM financing

Do you think users are willing to pay for both waste collection as well as waste disposal services? What
are the common factors of solid waste financing in both developing and developed countries?
Let's learn about some basic principles that generally hold true for solid waste financing in both
developing and developed countries.

Market and policy drivers along SWM chain

Take a look at these slides to understand how the market and policy drivers are related along the solid
waste management chain.

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Knowledge check
Here's a question for you. Match policy drivers to the appropriate SWM chain components and select
I'm Done.

Determining cost of a solid waste service

It is difficult to determine total costs of a service especially in low-income countries, because of reasons
like no separate budget, various sources of money, and costs being borne by multiple parties.
Costs can be generally divided into capital or capex and recurring or opex costs.

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Obtaining investment funding

Most cities, even in high-income countries, don't necessarily have the funds to invest in large projects.
Then how do cities get investment costs for solid waste management projects?
Cities can raise capital for the SWM projects through a combination of sources as shown by the
adjoining image. Let's look at each of these sources in detail.

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Knowledge check
Here's a question for you on costs of SWM. Identify the type of cost for each description and select I'm
Done.

Investments in SWM
It is very difficult for a city in a developing country to get investment funds for SWM projects. Do you
know why? The following facts can help you in understanding.

About 50% of investments in SWM globally are made by local governments, 20% is subsidized by
national governments, and between 10 to 25% is invested by the private sector. Investments in SWM
infrastructure and services are low in developing countries. The global average is close to 0.1%. !!!

With an existing global annual shortfall of at least 40 billion USD, MSW budgets will need to at least
triple over the next 20 years. Most of this funding is needed for operating MSW services, rather than for
capital investments.

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Investments in SWM: Challenges

Now, let's view the reasons why it is very difficult for a city in a developing country to get investment
funds for SWM projects.

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Operations and maintenance (O&M) costs

O & M costs can be direct or hidden. In some cases, where the local government contracts out waste
management services, it acts as a "client" of the operator of the service. Let's look at each different O &
M cost and what it covers.

 salaries
 maintnance
 fuel
 utilities
 replace
 disposal
 feedstock

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 insurance
 marketing
 repair
 overhead cost
 emergency preparedness
 training
 administrative
 monitoring
 taxes
 customer care
 environmental audit
 revenue collection

 tendering
 monitoring
 contract negotiation
 monitoring
 administration
 revenue collection

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Obtaining O&M funding

Operating costs can often make up 60 to 70% of total waste management costs and are very crucial for
the success of an SWM project. It is important to plan the source of O& M costs at the start of an SWM
project to ensure its sustainability.

Capital, operating and maintenance costs of SWM

Study these slides to understand the capital, operating, and maintenance costs of SWM.

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Incineration>ALL
AD>Landfill
Sanitary Landfill<ALL
After closure cost of landfill is high

Cost of MSW:
L-I contries= 19%
M-I countries=11%
H-I countries= 4%

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Knowledge check
Here's a question for you on various costs involved in MSW. Identify which of the sentences are true and
select I’m Done.

Costs of inaction: What’s your take?

The economic costs of improper waste management to society are much greater than the financial costs
of environmentally sound waste management. Can you identify some of the costs of inaction from the
following list?

Cost of Inaction=
$20-$50/person/year
Upgraded SWM cost-
$5-$7/person/year

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Important cost considerations

Here are some important considerations to keep in mind regarding MSW costs.

Financial sustainability of SWM systems

Financial sustainability of a SWM project means being able to pay for infrastructure and assets as well as
future operational, maintenance, and replacement needs. Ways to improve financial sustainability of an
SWM project include cost recovery and economic instruments.

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Important points to consider

Willingness to pay, affordability, and quality of service all affect the financial sustainability of a SWM
project.

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Ways to improve financial sustainability of SWM: Cost recovery

An SWM project can be sustained only when there is reliable, regularized, and adequate cash flow.
Cost-recovery mechanisms can generate a huge part of the financial requirements if planned properly.

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Cost recovery mechanisms explained

Here are some cost-recovery mechanisms along the solid waste management chain.

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Success of volume –based waste fees in the republic of Korea

The Republic of Korea is one of the leading countries in the world to initiate a volume-based waste fee
policy, which has resulted in a significant increase in the recycling rate and a corresponding decrease in
land filling rates. Go through the case study and think about the questions shown here.

Knowledge check
Here is a question on generating revenues for SWM for your to answer. You have been asked to advise
the CEO of an incineration plant on how to generate revenues. Which of the following options will you
suggest?

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Ways to improve financial sustainability of SWM: Economic instruments

There are a number of economic instruments that can incentivize reduction or recycling of waste, invest
in better infrastructure, and promote green investment and innovation.
There are various economic instruments or tools that can improve cost recover.

Economic instruments: Product take-back – Extended Producer Responsibility (EPR)

Do you know what EPR is? Extended producer responsibility (EPR) is "extending the producers"
responsibility to the post-consumer stage of a product life cycle. Study these slides to learn more about
EPR.

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Economic instruments: Product take-back – Deposit refund system

A deposit refund system is another economic instrument that works by adding an extra charge to a
product, a charge that is partially or completely refunded when the product is returned. Let's find out
the advantages of a deposit refund system with the help of an example.

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Types of economic instruments: Taxes

Taxes can help manage some solid waste management costs. There are two types of taxes specifically
related to SWM that are commonly levied around the world-product taxes and tourism taxes.

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Economic instruments: Incentives – Feed –in tariffs

Feed-in tariffs can also be used as an incentive to recover cost. Check an example showing how feed-in
tariffs work for electricity generated from waste-to-energy facilities.

Involvement of private sector in SWM

Is the private sector involved in MSW activities in your city? How can private sector participation be
increased? Let's understand how private sector can participate in SWM activities.

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Public-Private Partnerships (PPP)

A PPP is basically a long-term agreement between a government body and a private party to provide a
public asset or service, in which the private party is assigned a set of responsibilities, and remuneration
is based on performance. Some common forms of public-private partnerships are contractual,
concessionary, lease, and via open competition.

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PPP worldwide
PPP is gaining popularity around the world, and high-income countries have gained considerable
experience with PPPs in various sectors.

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Example of PPP in MSW

The city of Wenzhou in China has used PPP for municipal solid waste treatment with great success.
Here's how this partnership worked.

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Knowledge check
Here's a question for you to answer before moving on to the next topic. In which of the following
components of the SWM chain can the private sector get involved?

Funding mechanisms for MSW

Mechanisms to fund an SWM project include results-based financing, the World Bank's program for
results approach, performance-based private-public participation, green bonds, carbon finance, and
micro-finance.

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Funding mechanisms: Results-Based Finance (RBF)

RBF is a form of donor financing, based on the achievement of a pre-determined output and
independent verification of that output. Here's an example of how RBF works in the health sector.

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RBF Instruments
To choose an appropriate RBF instrument, it is necessary to understand its use and purpose.

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Global Partnership for Result-Based Approaches (GPRBA)

Global Partnership for Results-Based Approaches or GPRBA, is a World Bank program funded by various
donors. Study the slides to learn more about GPRBA. GPRBA funds
designs,
demonstates,
documents for
basic services in
developing
countires.basic
services are:
Health, Water &
sanitation,
education, SWM,
Energy ,
Telecom

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Funding mechanisms: World Bank’s PFORR approach

Program-for-Results, a World Bank program financing instrument, uses a country's own institutions and
processes and links disbursement of funds directly to the achievement of specific program results.

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Wrold Banks PforR is available to all member countries which uses existing institutions to link finance to performance
achievement for specific project.
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Funding mechanisms: Performance-based PPP

Performance-based PPP is a results-based financing tool, where contracts are drawn between cities and
private services providers such that disbursements are made only if pre-agreed-upon targets are met
and verified.

Funding mechanisms: Green bonds

Green bonds are a financial tool used to attract new investors and capital for low-carbon, climate-
resilient infrastructure investments.

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Funding mechanisms: Carbon finance

Carbon finance or climate finance broadly refers to investments in climate change mitigation and the
creation of financial instruments such as carbon credits that are tradable on the carbon market.

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Funding mechanisms: Microfinance

Micro-finance, or small-scale finance, is a category of financial services that provides financial services in
the form of a business loan or insurance or a funds transfer services to people excluded from the
traditional banking system.

Knowledge check
Here's a question on funding mechanisms for you to answer before finishing this topic. Which of the
following statements are true about funding mechanisms?

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Key learning points

You have reached the end of the module. Here are the key points covered in the module.

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