NEWSlINK 23752 A' Water and / Sanitation - Program _ An International partnership to help the poor gain sustained access to improved water supply and sanitation services Shehr Ki Duniya - Municipal Management Series South Asia Region Costing Basic Services for the Urban Poor In el terms, prcapita expenditure for Water, Sanitation and Drainage Expenditure in services in 1996-97 compared to 1991-92 Four Cities of Southern Punjab has decreased by almost 50% for sanitation and 35%- 75% for drainage. . The provision of essential urban services like water, sanitation and drainage (WS&D] - _-~ _--~ Is defined as a compulsory function to be performed by the urban local councils Actual expenditure reported does not include under the Punjab Local Government Ordinance 1979. depreciation, overhead costs, capital costs orinterestsonloans.ExceptforSadiqabad, Financial sustainability of these services is one of the main problems being faced electricity expenses have not been included. by service delivery agencies. This is true for both supply-driven and demand-responsive l projects as the most important information required to recover costs and determine user fees, is the cost per unit of service. Present practices in service delivery agencies In four cities, expenditure for repair & and the current arrangements for the flow of funds to the city make it difficult to muintenance on water, sanitation & calculate the actual cost per unit of service provision. drainage was shown under six different budget heads. The nature of the information provided and the manner in which it is reported varies _ across the four municipal committees (MCs), despite the fact that all are required to .-- --------- ------ --- ---- - follow a similar prescribed format. This NEWSLINK addresses the question: Do MCs Cost recovery forwater supply dunng 1991- know what they are spending on municipal services? And highlights current trends 921to 1996-97 ranged between 6-13% in in expenditure and cost recovery, cost estimation practices and suggests some MC: Khanpur, 9-24% in MC DGKhan, 20- improvements in their financial management practices. 43% in MC Sadiqabad and 27-71% in MC RYKhan. Khonpur RYKhan Sadiqabod DGKhon - ~ Foundedin IOldest town ofi This publication - one of a' series- is based on the I Fn I RYKhan Distt 1751 1925 i 1476 Wo6king Paper 'A Comparative Analysis of the i -- .------ - Municipal Finance ofFourCities in Southern Puniab" Population (1998 census) 1 117,764 l 228,479 141,509 188;149 The Working Paper contains a detailed examination j Pj I Population growth rate ! of the post six years actual revenues and (1981-1998 306% 388% 478% 367% expenditures of the four municipalities Khonpur, _ __ ..... - L.. Rahim Yar Khan (RYKhonJ, Sadiqabad and Dera 1 Water Supply Ghozi Khan (DGKhan). It is part of preparatory --Water connections i i work for a municipal strengthening! Strategic ( (MC record/ Nos) 1 1,731 12,200 10,864 1 9,957 Sanritation Approach pilot being undertaken by the __-- ------- _-_- Water cnd Sanitation Progrom - South Asic and Population covered the2 Local Government and Rural Development (8 persons per HH) 1 12% 43% 61% 42% Department, Government of the Punjab Seweage Dra inag -S ewfera g e/ D rai naug e Sewerage Coverage - Issue 2 *: December 1999 (of population) 70% 75% 60 ' 40% EXPENDITURE ON WATER, SANITATION AND DRAINAGE Expenditure in Constant I MC's CURRENT EXPENDITURE 11 WHAT DOES THIS EXPENDITURE 1991-92 Rs ON WATER SUPPLY, MEAN IN PER CAPITA TERMS? aKPUR *RYK °SDO ADGK SANITATION AND DRAINAGE In real terms, the per capita expenditure on MC WaterSupply With the exception of water supply water supply, except for MC Sadiqabad, Who Rs expenditure in Sadiqabad, all other has decreased. The per capita expenditure WS&D expenditure in these four MCs on sanitation has decreased during 1991- 6 \ ,, ) has shown a severe downward trend 92 to 1 996-97 by an identical 50% at all 5 \;g,,, in constant terms (see box) Even this the four MCs, while per capita expenditure 4. expenditure is probably an under- on drainage has decreased by 35% to 75% 3 \ estimate (see following page) The in different cities. Per capita expenditure 2 way in which "actual" expenditure is does not reflect efficiency (or quality of reported in the budget makes it difficult s i i . - --- ~~~~~to distinguish1 between recurrent and sevc)iinritcopionfpr catisti s bewendu rcurrent and connection expenditure of water supply in °b' capital expenditure incurred for the 1 996-97 in these four MCs is used as a . Xqq sqzooq sq qprovision of WS&D services Expenditure on water excludes fire proxy indicator for efficiency it reveals a brigade and street watering costs; large variation: Rs. 1,435 in Khanpur, MC Sanitation drainage includes sewerage, and, Rs. 260 in RYKhan, Rs. 1,267 in Sadiqabad M12i on R, sanitation includes management solid and Rs. 337 in DGKhan o waste management c Ill COMPONENTS OF Per Capita Expenditure in Constant 1991-92 Rs - -EXPENDITURE ON PROVISION nKPUR *RYK OSDQ ADGK 6.>9_ , , , \ r OF SERVICES MC Drainage MC Sanitation Establishment expenses are made up of 50 70 4 .. ., G-- - ) ...... staff costs (pay and allowances) 60 2 ' Establishment as a percentage of total so l. expenditure during 1996-97 was 86% 30 o ; zqZzqs qb q at Khanpur, 90% at RYKhan and 49% 2 30 - at Sadiqabod. Establishment is the major o0 component of the expenditure on 20 MC Drainage Sanitation- it accounts for 95% of the 1 0-| MWiiion R sanitation expenditure at MC Khanpur 0 _ 0 and MC RYKhan, and 86% at MC qq ,' q ,tW q Sadiqabad. For drainage, establishment 4e . . /\ - - -consumes 91 % of the drainage expenditure at Khanpur and RYKhan, and 62% at 3. \Sadiqabad. Contingencies include administrative/ office expenditure, fuel and power, transport and communications, etc. Normally, this should include electricity 2 - costs. However, for 1 996-97, Khanpur, RYKhan and DGKhan have not paid for electricity; Sadiqabad has paid over Rs. 6 million as electricity costs, as a result pushing up their contingencies expenditure as compared to the other three MCs. 0 l~ q3 b qb b < As DGKhan has not shown the breakup of actual departmental expenditure; the q>E ,o0q qpq q b reasons for their lower expenditure in 1 996-97 compared to previous years could not be analyzed. a Actual MC Expenditure (1996-1997) In 1996-97currentRsl Water Supply Sanitation Drainage ------------ --I Kpur RYK SDQ Kpur RYK SDQ Kpur RYK SDQ Establishment 380,172 3,173,434 2,589,000 4,457,299 13,963,610 6,947,000;3,635,907 5,281,578 4,183,200 Contingencies 0 0 6,850,000 231,956 710,801 1,001,000' 210,822 464,263 275,000 Works 236,517 0 4,328,000 0 0 172,000 168,180, 0 2,269,500 Total 616,689'3,173,434 13,767,000 4,689,2551 14,674,41 11 8,120,0004,014,909 5,745,841 6,727,700 COST RECOVERY The cost recovery for 'water supply, as a percentage of revenue, at the four MCs Water Supply- Cost Recovery during the period 1991-92 to 1996-97 was 6%-13% at MC Khanpur, 9%-24% at MC MC RYKhan ARevenue 0 Cost DGKhan, 20%-43% at MC Sadiqabad, and, 27%-71 % at MC RYKhan. 4000 Th.u-dR, 3500--------- -- ---------- This is true inspite the fact that MCs do not presently know the unit cost of provision of services, and do not charge for water according to consumption; a flat rate according 3000 .......l.. to ferrule size is currently being applied. 2500 --- ------ Water rates are being recovered by the MCs (in addition MC RYK charged a Sewerage/Drainage 2000 .. --- Rate of Rs. 55,400 during 1-996-97). The recovery of water connection fee (if any) is included 1500 -- ---- ---- -- in the wfater rates. ,0 %% / As the Schedule of Arrears (Form B-1 2) is seldom completed fully (such as in RYKhan 500 .... .... --- --- and DGKhan) the budget document of the MCs do not provide a clear picture. From 0 whatever information is available, it can be deduced that recovery is poor and large . "' q5 .q e arrears have been accumulated. In Khanpur, the amount of arrears equals nine years budgeted revenues for water rates. Due to poor quality of water supply, consumers MC Sadiqabad are willing to get their supplies disconnected, even if they later resort to getting them 1MllonR reconnected illegally. In this situation recovery of arrears would appear difficult. Inf_.. DGKhan, Rs. 1 .5 million were recoverable as water rates in 1 998-99 out of total MC 2...........l arrears on all accounts of Rs. 10 million. In Sadiqabad, water-rate arrears were 0--.------------. Rs. 3.8 million in 1998-99. D In the absence of quantitative data, (quantity produced, supplied, billed, number of 4 connections of different types and sizes, number of households using one connection, etc.) a rough method has been used for an inter-city comparison of efficiency in 2 collection. This is based on the minimum rate prescribed by each MC (smallest ferrule size for residential connection). In 1995-96, in the three cities (except Sadiqabad), the actual average collection per connection is much lower compared to the minimum MC DGKhan rate laid down in the respective schedules of the MCs. The potential exists to recover 8Mti. R. higher revenues, by at the least, correct billing and collection even at the current rates. The inter-city variation in rate is apparent where a :residential supply of 1 /4" 6 . -------- ferrule size is being charged between Rs. 10 and Rs. 23 per month. The present coverage and quality of service delivery is not satisfactory and needs improvement. The state of the maintenance of water supply and sanitation systems 2. -|||- --- ---- requires immediate attention. New capital investments would be necessary, even to operate at the present condition and level of service; and, in time, to increase coverage 01 and improve the quality of services. A simple projection of revenues and expenditure Ab based on current trends does not provide estimates for the future. El MC Khonpur 12000 2 dR Water Rates Recovered BOO - - - - - - - - - - - - (Per Connection Per Monthl } _ ' ~~~~~~~~~~~RYK Sdqz DGK | 0 -|--|||---||---- ------- Number of Connections 1,731 12,200 10,864 9,957 |oo . --------|----|--- Min. water rate for residential connection IRs1 12 10 23 20 200 1995-96 (Actual Rs. 3.30 6.34 21.31 5.17 1996-97 (Actual Rs.) X 2.92 16.37 21.48 6.68 | 9 ,,5 > " .w @ ' M What is the actual expenditure on electricity compared to what is in the budget? Khanpur, RYKhan and DGKhan have not shown any expenditure on electricity consumed for water supply or drainage in 1 996-97 since no payments were made by the MCs, although these were budgeted (Rs. 0.6, (in 1996-97 current Rs) Rs. 4 and Rs. 5 million respectively). Sadiqabad, Khanpur RYKhan Sadiqabad DGKhan however, showed an actual expenditure of Rs. 6 million Water Supply , . . , ., ,, , . .... Bu~~~~~~~~~~dgette d_ 600,000i 4,000,000: 4,500,000 5,000,000 during this year. These liabilities are not reflected In in tuaieted Nl0 0 6,0,05,000 Actual NIL' NIL 6,01 3,656' NA the municipal accounts as there is no double entry nDrainage (Pumps} accounting system. However, a Schedule of Liabilities Budgeted l 400, 000_ NIL NIL: -. 470,000 (Form B-11) has to be filled in and attached to the Actual NIL NIL! NIL! NA budgets. In some MCs, the schedule for 1998-99 are not filled-in properly; they do not show any liability for electricity bills. Furthermore the notes attached to the budgets are silent about any arrears payable to WAPDA (the Mission was told that the amount in arrears is Rs. 7 million at MC DGKhan). The MC has no information in case the provincial government makes any adjustments for electricity dues from MC's shdre of Urban Immovable Property Tax. Consequently these deductions are neither shown as income (from Property Tax) nor shown as expenditure (as electricity). c Compared to budgeted expenditure, what is actually incurred on Repair and Maintenance? The table below compares expenditure actually incurred on R&M to the amount budgeted. Both the budgeted and actual expenditure are low when seen in the light of real needs. (in 1 996-97 current Rs) According to the Report of the Fact-Finding Mission in + ktnp RYKhan * Sadiq-aba:d | DGKhan Khanpur, six of the seven tubewells are in-operational; two . _pu t : out of three overhead tanks have been abandoned; and, Water Supply -Water l- 270 000 600 60,000 due to broken pipes, the water supplied is contaminated. Budgeted 270 ,. 100 _ ,_ _ ._000 . 860,000 Actual Th 236,517 39,925 430,3521 NA Te main disposal station has never worked as it has Sanitation been built by the provincial Public Health Engineering Budgeted 1 _90,000 7 90,000 785,00j___ 50,000 Directorate (PHED) at the highest point of the city and Actual 1231,956 710, 8 of'} 1,001,OOOtI NA the MC has refused to take it over from PHED due to Drainage flaws in design and construction. At Sadiqabad, the Budgeted 325,000 ! 1,091,00oj 6,439,000 4,015,654 water distribution system is damaged at places and Actual 379000 1,060,3 60 1 2,6 29,000 I NA residents complain of a foul odor in drinking water because of which they are getting their water supply disconnected. Less than 50% of disposal pumping capacity is operational. Two out of three tractors for solid waste are not operational. At DGKhan, the entire water supply network is rusted and leaking. M What is the position of capital expenditure/works? "Works" in the MC budgets includes R&M and capital expenditure. The MC constructs some works at the lane or secondary level; the cost for these is reflected in different departments in the four MCs. Most secondary, trunk and disposal systems are constructed by the provincial PHED and/ or the Housing and Physical Planning Department (H&PPD). During 1991-92 to 1996-97, six water supply and sewerage projects were undertaken from the provincial Annual Developmenrt Program (ADP) in DGKhan, two projects at Sadiqabad and one each in Khanpur and RYKhan. Provincial departments like H&PPD and PHED are provided funds under the provincial ADPs to undertake schemes in the city. The appropriateness of schere design, perceived needs of the-community, the quality of work executed, the capital cost, resources required for its R&M and cost recovery are neither discussed with th-e citizens nor is the MC involved in any meaningful manner in the process. However, the responsibility for the R&M of the schemes is shifted to the MC which is handed over these schemes for their operation. 0 FEATURES OF BUDGET PREPARATION I COMMON PRACTICES Actual Expenditure as Percentage of Budget The expenditure which MCs Year Water Supply Sanitation Drainage consider necessary to deliver Kpur RYK SDO DGK Kpurl RYK SDQ DGK Kpur RYK SDQ DGK services is reflected in their 1993-94 64 83 100 92 85 92 100 88 92 97 100 53 budget estimates: however these 1994-95 58 82 89 71 73 79 90 74 69 81 113 36 estimates are subject to further 1995-96 36 92 100 83 84 77 121 80 69 77 106 37 constraints due to current budget 1996-97 44 77 124 32 89 86 100 88 81 72 65 35 practices. Except in a few cases, roll. Staffing is not based on any standard staffing the actual expenditure incurred is much lower compared plan (e.g. sanitation staff required per 1 000 to that planned or budgeted. Revenues are used to meet the staff costs as a first charge, and any remaining employee varied between 786 in Sadiqabad to 5n8 amount is used to meet contingencies, repair and in D an. maintenance (R&M), and capital expenditure, in this In DGKhan. order of priority. In all the MCs, expenditure has to be c Contingencies are budgeted by adding an curtailed in line with revenues actually realized, the incremental value to the previous year's budgets. axe falling on R&M and capital expenditure. An eX R&M is not budgeted on the basis of actual evaluation of actual expenditure as a percentage of requirement. The capital expenditure budget is budgeted expenditure shows that severe financial determined on the basis of projected surplus. R&M constraints have forced the MCs to include only those expenditure is not shown separately. expenditures in the budgets that they hope would be e;< Annual depreciation expenses cannot be calculated covered by the resources actually generated. Some due to the single entry accounting system. Similarly, common features of the budget preparation process are there can also be no provision for replacement. highlighted below: ce The contribution of other departments and MC staff e The budgeted amount of the intergovernmental grant to support WS&D services is not considered. is very different from the receipts under this head. r The MCs do not maintain an accounting record for This is because the exact amount of grant receivable the outstanding loans and/or interest as they are is not ascertained at the time of budget preparation. required to do under the prescribed system. The e Establishment expenditure is budgeted on the provinciol government deducts interest and markup sanctioned strength of staff. This number is almost out of the municipality's dues of Urban Immovable always higher than the actual number of staff on Property Tax. o 11 INTERCITY VARIATIONS e Where are electricity, R&M, and capital expenditure/works reported in the budgets? Khqnpur- RYKhan Sadiqabod DGKhan Electricity Expenditure Water Supply Water Supply Dept. B&W Dept. Water Supply Dept. Water Supply Dept. Works Works Contingencies Contingencies Drainage Drainage Dept. B&W Dept. Drainage Dept. Works Works contingencies R&M Expenditure Water Supply Water Supply Dept. B&W Dept. Water Supply Dept. Water Supply Dept. Works Works Contingencies Contingencies & Works Sanitation Sanitation Dept. Sanitation Dept. Sanitation Dept. Sanitation Dept. Contingencies Contingencies. Contingencies Contingencies Drainage Drainage Dept. Drainage Dept. Drainage Dept. Droinage Dept. Contingencies,& Works Contingencies ,B&wworks Works Contingencies,& Works Works/Capital Expenditure Water Supply B&W Dept. B&W Dept. Water Supply Dept. Water Supply Dept. Lump-sum ADP Works Works Works Sanitation Sanitation Dept. B&W Dept. Sanitation Dept. Sanitcation Dept. Works Works Works Works Drainage Drainage Dept. B&W Dept. Drainage Dept. Drainage Dept. Works Works Works Works Building and Works (B&WI 1X1*11:14 IMPROVEMENTS IN FINANCIAL MANAGEMENT In order to design effective tariff structures, which have the right incentives to deliver services to the for the poor, MCs have to improve their understanding of the current cost of service provision. This is a prerequisite for both supply driven and demand responsive projects; projects where communities and consumers are involved in capital cost sharing at the lane or secondary levels; and to enable informed decisions regarding subsidy forr services to the poor. To avoid reductions in establishment expenditures MCs wvill have to improve their financial practices. These could be supported by creating pragmatic and realistic systems for monitoring financial performance and[proctices. These include city level monitoring through the effective implementation of the Local Government Ordinance 1 979, a legislation which envisaged active participation of the citizens in monitoring the MC performance: improved financial management within the MCs; and improved monitoring by the provincial government. Transparency is an essential requirement of good governance. Involvement of residents in almost all activities of the local council is envisaged in various sections of the legislation and related rules. This built-in monitoring system of making all decisions and changes transparently'and with active public involvement would result in a more efficient local government. e The budgetary system prescribed under the existing rules should, in the first instance, be strictly followed with all its Schedules filled in; budget prepared on need based allocation (not on incremental basis) and asset registers required under the Punjab Local Council Property Rules properly maintained and regularly updated. Monitoring and linkages between expenditures and physical indicators should be made. Comnputers should be introduced for budget preparation, monitoring and analyses of budget variances. M Financial management could be improved by steps to do the following: establish performance standards and benchmark indicators; computerize staff records, billing, demand and collection; budget analysis and monitoring; and in the long run resource related information such as land use codastre and Property Tax maps. Quantitative data - quantity of water pumped, supplied and billed, system wastage, actual number of connections, etc. should be recorded and used for financial management. This would require some managerial motivation to keep the records in the Engineering and Sanitation Departments, and to link that information to the financial management systems and the budget. M Capital/Development Works in the city - for secondary and trunk systems - are undertaken by the provincial government under their ADPs through the provincial departments/agencies. Not only should the MC be cognizant of all development works in the city, regardless of, implementation modalities and source of funding, but should take a lead role in the consultations on citizen needs and perceptions, scheme designs, quality of work, capital and R&M cost and user charges. This is absolutely essential if the MC has to accept responsibility for taking over and maintaining the system/project. c In order to provide a firm basis for user charges, (and exemptions and subsidies where essential), a unit cost of service provision should be determined; quantitative records maintained; survey for illegal water connections conducted; service network map be maintained and linked to registers, which should have a complete record of installation, R&M date and cost. In order to build on the incentives and imperatives, for improved financial management practices, being faced by MC staff there is a need to design training and capacity building programs which can upgrade their existing skills. Information from WSP-SA's publications may be freely reproduced. Proper-acknowledgments will be appreciated. This NEWSLINK is based on a Working Paper, "A Comparative Analysis of the Municipal Finance of Four Cities in Southern Punjab" (October 19991, available with the Water and Sanitation Program - South Asia. Some information has been taken from "Selection of the SSA Pilot in Southern Punjab: Report of the Fact-Finding Mission" (August 1999). Please send your comments and requests for more information to Mr. Syed Farukh Ansar, Administrative Assistant, UNDP-World Bank Water and Sanitation Program, The World Bank, 20-A, Sharah-e-Jumhuriat, G-5/1, Islamabod, Pakistan. Tel: +92-51-279 641 - 6, Extension 411; Fax 051 826 362; E-mail: wspsa@worldbank.org; website: http://wspsa@worldbonk.org An international partnership to help the poor gain sustained access to improved water supply and sonifation services, The Program's main funding partners ore the governments of Australio, Belgium, Canoda, Denmark, Germony, Italy, Luxembourg, Netherlands, Norway, Sweden, Switzerland and the United Kingdom; the United Nations Development Programme and The World Bank. Contributor: Tonawwur Ali Hyder Design & Layout: Samor Ataultah