A sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low
— Oxford English Dictionary
Rural Water Services ARE Subsidized
Even the United States has subsidies for rural water services. This doesn’t make something unsustainable. However, it does create a critical need for clarity of the total cost of the services, how it is funded, and how it will continue to be funded. There also needs to be a good definition of what the costs are (CapEx vs OpEx vs CapManEx). Thankfully our friends at IRC have laid this out here.
Getting Real About the Total Costs of Services
Transparency is complex in the Sub-Saharan Africa rural water context. There are government costs for planning, monitoring, and NGOs providing services. There are many projects that are coordinated at different levels and plenty of failed projects. It’s time for the water sector to gain some clarity around the different variables in the system.
Water for Good has been focused on transparently collecting details on one section of this equation in the Central African Republic.
- CapEx – the cost of drilling a borehole and installing a pump
- OpEx – the cost for technicians, spare parts, and management to create a professional system to monitor and repair rural water hand pumps
- CapManEx – the asset replacement cost at the end of the lifespan (could be drilling a new borehole, clearing a borehole, replacing the cement slab, fully replacing the pump)
The rural water supply revenue at the local level is important, but not enough – subsidy is needed. This subsidization needs to come from philanthropy or local governments as a service to their citizens. Typically in fragile states, national ministries of finance are focused on positioning funding towards services that will increase economic development. Security, infrastructure, and roads take priority with the intent to grow the national revenue base. Rural water services generally lag behind in this context.
Let’s Talk ROI
If you were to ask yourself how you could spend your money to provide the most people with clean water for one year, you would not want to invest in a capital expenditure (CapEx) of $15,000 that will break after one year if there are no ongoing operational expenditures (OpEx) in place to keep it going. OpEx is generally less than $1USD per person for a year of reliable water access and effective monitoring. In that context, it makes little sense to increase water access without clear systems and financing to support those projects in the long run.
Who’s Talking about Costs?
Being transparent on costs reveals the financing gap. There has been increasing willingness to discuss finance and “bankability” of projects. USAID WASH-FIN, WASHBAT, GLAAS reports, IRC WASH COST, World Bank and many others bring together diverse approaches to understanding costs and leveraging new investment to achieve the SDGs.
Recently at the WEDC conference in Nakuru, Water for Good hosted a side event on this topic with FundiFix. The talk was titled, From Cost Recovery to Sustainable Financing of Rural Water Services: Evidence from FundiFix & Water for Good. Water for Good’s Adrienne Lane is currently working on a research dissertation at Oxford on this topic, with a publication of results forthcoming.
Safe Water Enterprise Working Group
There is a network of like-minded organizations who have created a working group focused around enterprise based models to provide ongoing rural water services. At the SIWI World Water Week in Stockholm, Sweden, Water for Good and these other organizations will be continuing to meet together to bring learning and harmonization to definitions and strategies for enterprise-based approaches.
Agenda for Change
Also at SIWI World Water Week, Water for Good is participating with the Agenda for Change initiative. While not exclusively about finance, these presentations and discussions focus on “systems change”. FINANCE is a key building block for systems change and sustainable service delivery in WASH. All of the Agenda for Change members are committed to working with governments to understand and plan for the lifecycle costs, including OpEx and expansion costs, in order to achieve universal, safely managed WASH services that meet user demands and acceptability.
There has been a really encouraging shift in the sector, a changing to the mentality related to costs of services. We are optimistic that this trend will continue, and we will see a stronger system develop around rural water infrastructure as a result.
Photo: Water for Good