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COST RECOVERY

Obtaining Resources to Manage a Water Supply

By Phil Bartle, PhD

Dedicated to Andrew Livingstone

Training Handout

The community must relate costs to benefits in managing a water supply facility

Nothing is for Nothing:

There is no thing (goods or service) of value that is truly free or without cost. Judging from the number of people that buy lottery tickets, many people live in a dream world believing that something can be free.

Water is not free.

Sometimes things that appear to be free have hidden costs. The hidden social cost of not bringing up children to be honest, is the social cost of having dishonest adults, eg thieves or corrupt civil servants. When a merchant sells you a device and says something to clean it is added for free, you can be sure you paid for it in the overall price. The cost of not ensuring that drinking water is uncontaminated is the cost of having greater disease in the population.

During a management training session, you the mobilizer can set up a session within which the participants list many things that may at first appear to be free, but on examination are found not to be free. This is a good lead to examining the management of a community water supply facility.

Managing a Water Supply Facility:

As part of its management of its water supply, a community must consider alternatives for cost recovery, or what methods it will use to pay first for the construction and then the regular maintenance and repair of its water supply system.

First, the community needs to list and consider various available sources of water, then list and consider various water supply technologies. Then it should calculate the construction and operational costs of each. Then it should consider how it is going to obtain resources to cover these costs. Refer to the module on Community Project Resources. It outlines for you the various sources toward which you can guide your community in obtaining resources for its projects.

Management, however, is not merely the acquisition of resources. It is decision making that finds the most effective use for acquired resources, in view of the priority needs and goals of the community.

Construction versus Operating Cost Recovery:

Constructing or rehabilitating an existing water supply facility is one thing, and it has its own cost considerations. Operations, including costs of running it, maintaining it, protecting it, and repairing it, has other cost considerations.

Building or constructing a community water supply facility can be considered a capital cost, an investment. It is usually calculated as a single, large cost. In contrast, running costs are a series of costs, including operational costs such as fuel and lubricants, maintenance costs of keeping the facility operating, protection costs against vandals, wayward cattle and careless users, and repair costs of fixing any thing which is broken in the process. For many municipalities, covering capital costs may involve obtaining a loan, and paying it off over many years.

Meanwhile, running costs, or operating costs (to cover both repair and maintenance as well as fuel) may involve charging a user fee and/or some form of taxation of the community residents. Many international donor agencies may provide capital costs for constructing a new facility, but will not fund operational costs.

When guiding a community through its management decision making, you as the mobilizer must ensure that they know the difference between capital and running costs, and that they have considered how they will meet each.

Resources:

Another document, Resource Acquisition, has outlined potential sources of project resources that can be tapped by a community.

These sources can be divided into different kinds. Donated resources, for example, are gifts, for which no return is expected. User fees, in contrast, are payments for services. A typical breakdown of these, for example, for a low income community, is as follows:

1. The capital costs of constructing a water supply facility come from a set of sources, perhaps a government grant, a donation from an international donor,and/or some fund raising activities that bring in donations from residents and well-wishers,and perhaps even a loan.


2. Running costs, in contrast, might be covered by a combination of user fees (water being sold at a token low rate), and/or some flat tax upon all residents.

You need to make this distinction so that the whole community understands the difference. The executive, with your guidance, draws up a funding plan that makes the distinction between sources, and then must obtain the approval from the whole community. Without that approval from the community (through a vote, a referendum, or a public meeting, as appropriate). the plan would lack legitimacy, and fees may become difficult to collect.

Cost Benefit Analysis:

An important exercise when calculating various options of technologies for a community water supply facility, is to examine and compare the costs and benefits of each.

For each type of water supply facility considered, a list of actual costs should be prepared. Both capital and running costs. Then the number of people who will directly benefit from the facility should be estimated. People in the community, but who are too far away from the proposed water supply site to make use of it, should not be included in this estimate.

Then, on the basis of the total capital and operating costs, divided by the number of persons served, an estimate can be made of the per capita (per person) cost. That figure can be an important fact to consider when looking at different technologies and different sources, in choosing a water supply facility. It should be done by, not for, the community.

The per capita operating cost should be compared to any fees or sales price of water that might be proposed. The per capita operating cost should be compared to any fees or sales price of water that might be proposed. For the sake of transparency, these calculations should be made available to everyone in the community, as well as to any potential and actual donors.

Calculating the financial benefits of a water supply will be much more difficult.

Certainly water will reduce disease and therefore increase productivity, but only if accompanied with sanitation facilities, behavioural changes to keep contamination and drinking water separated, and increased information of those principles. See Water and Health. To put a financial estimate on this would therefore be very difficult.

If calculations were feasible, a cost benefit analysis would compare costs per capita to benefits per capita, to produce a ratio that would tell us if the investment were worth it.

The Role of the Mobilizer:

You may be working for a project funded by an international donor, or you may be working for an agency (such as a department of your government) assigned to mobilize the community as part of a water project. Managers of such projects will expect an assessment from you. She or he needs to know that the assessment, the community project design, justifications for the investment, and other facts that contribute to decisions, must be made by the community, not by you and not by the project.

Very often, only lip service is paid to "community participation." Here is where you need to be assertive and explain that the community must make the appraisals and the decisions.

The community must not participate passively, but be intimately and centrally involved in the assessments and decision making. Your job as mobilizer, is to see that it takes place. Without that, you can forget about sustaining the project, community responsibility, empowerment and development.

Collecting Donations to Cover Costs:

© Copyright 1967, 1987, 2007 Phil Bartle
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Last update: 2012.07.26