Paper 44793 4 Operation and Maintenance Expenditure and Cost Recovery The World Bank Policy Paper extracted from the World Bank Study on Review of Effectiveness of Rural Water Supply Schemes in India, June 2008 June 2008 Operation and Maintenance Expenditure and Cost Recovery T he operation and maintenance (O&M) Figure 1 Gap Between Actual and Good Practice expenditures incurred on rural water (Design Performance) O&M Cost supply schemes in India is commonly much less than required and this has serious implications on their performance. This is one of the major findings of the 10-state study on the Effectiveness of Rural Water Supply Schemes undertaken by the World Bank at the request of the Government of India. The study also analyzed the issue of cost recovery, which is generally low, but differs across states, among technologies, and between demand-driven and supply-driven schemes. Expenditure on O&M Source: Scheme survey data. A comparison of actual expenditure on O&M in piped water supply schemes with the `good half the normative cost of the scheme. Evidently, practice (design performance) O&M cost'1 not enough is being spent on the O&M of piped shows that the former is only about a half of the water schemes. The implication of insufficient latter on an average (Figure 1). In some cases expenditure on the O&M is that the schemes (8 percent schemes), the gap between the actual operate significantly below their capacity. While O&M expenditure and the good practice O&M the design supply is in the range of 40 to 70 lpcd expenditure is more than 80 percent. Similarly, a (liters per capita per day) or higher, the actual comparison of the actual O&M cost of piped consumption of water from the schemes made by water supply schemes with cost norms (varying households is mostly in the range of 20 to across states) shows that in about 60 percent of 30 lpcd or lower. the schemes, the actual O&M cost is less than The annual expenditure on minor repair and 1The good practice (design performance) O&M cost is defined as the cost that schemes would maintenance as a proportion of the total capital incur, if they run properly to meet the design LPCD level, provide water supply regularly, and carry out proper maintenance of the system. cost of a scheme should be about 2.5 percent for 2 Paper 4 Expenditur Operation Figure 2 Level of Maintenance of Piped Water Schemes (Data for Eight States Combined) e and and Maintenance Cost Source: Scheme survey data. Recovery proper scheme maintenance, but it is about schedule maintenance. The majority of the 1.3 percent for single village schemes on an schemes reported that adequate maintenance average, and the corresponding figure for multi was not being done, and about one-fifth reported village schemes is still lower at about 0.4 percent. serious or somewhat serious neglect of The scheme survey reveals that about 45 percent maintenance (Figure 2). of the piped water supply schemes are carrying out breakdown maintenance, rather than The operation and maintenance expenditures incurred on rural water supply schemes in India is commonly much less than required and this has serious implications on their performance The situation is much the same for handpump schemes. The norm for the expenditure on the repair and maintenance of handpumps may be taken as Rs 1,600 to Rs 3,000 per handpump per year, or higher, depending on the local condition. The average expenditure being incurred in various states is commonly below this range, indicating that adequate maintenance of the handpump is not being done. This has led to frequent breakdowns of handpump schemes. This is also responsible for many handpumps getting defunct before completing their useful life. The survey of handpumps undertaken in the 10-state study reveals that handpumps were not 3 Paper 4 Expenditur Operation functional, on an average, for 18 days in a year in Kerala, while it is worst in West Bengal followed Uttar Pradesh, 15 days in a year in West Bengal, by Tamil Nadu, Orissa, Andhra Pradesh, and and 12 days in a year in Orissa. According to the Uttarakhand. In West Bengal, Tamil Nadu, preliminary results of the Habitation Survey Orissa, and Andhra Pradesh, the average cost undertaken in 2003, about 28 percent spot recovery of piped water schemes ranges from sources are defunct in Kerala. This proportion 1 percent to 21 percent. A comparison across in some of the other states covered in the study is types of schemes reveals that the level of O&M 17 percent for Tamil Nadu, 14 percent for cost recovery is higher in mini water schemes Maharashtra and Karnataka, and 10 percent for (58 percent) and low in multi village and regional Uttarakhand. Information from other sources2 schemes (37 percent) (Figure 3). e and indicates that in Karnataka, 19 percent of the handpumps are defunct. It needs to be emphasized that the O&M and expenditure incurred for piped water schemes Cost Recovery is much less than the requirement for the proper Maintenance maintenance of schemes. Accordingly, the In handpump schemes, there is hardly any cost revenue realized from the households is fairly low Cost recovery. In piped water supply schemes, the in relation to good practice (design performance) extent of O&M cost recovery is on an average O&M costs, that is, the expenditure on the O&M about 46 percent. The recovery of the O&M cost needed for the proper functioning of schemes. is relatively higher in community-managed schemes at an average of 71 percent, and lower On an average, the O&M cost recovery is in government/public utility-managed schemes, 46 percent of the actual O&M expenditure Recovery at about 21 percent. In Gram Panchayat- incurred, but only 27 percent of the good managed schemes, the average cost recovery is practice O&M. The revenue realization is also about 52 percent. State-wise, the cost recovery is low in comparison to the O&M cost norms (this best in Punjab, followed by Maharashtra and is evident since the actual O&M incurred is 2Rural Water Supply and Sanitation: A status report, Karnataka Rural Water Supply and Sanitation Agency, Rural Development and Panchayati Raj Department, Government of Karnataka, 2004. 4 4 Paper 4 Paper 4 Expenditur Operation Figure 3 O&M Cost Recovery in Piped Water Supply Schemes e and and Maintenance Cost Recovery Source: Survey data for piped water supply schemes. commonly less than the norm). In multi village similar in West Bengal and Orissa. Piped water schemes, for instance, the O&M cost norm is is accessed predominantly through standposts about Rs 60 per household per month whereas rather than private connections, and about the revenue realization is on an average about Rs 11 per month. Cost recovery bears a positive The low recovery of cost is not due relationship with the amount of expenditure to unaffordability, but has much to do incurred on O&M (Figure 4). Survey data reveal with household reluctance to pay and that the average expenditure on the O&M is the inability of the scheme about Rs 27 per household per month in piped management to collect the charges water schemes that collect less than Rs 10 per households on average. It is Rs 36 per household per month for piped water schemes that collect more than Rs 30 per household. The low recovery of cost is not due to 80 percent of standpost users in Orissa and unaffordability, but has much to do with more than 95 percent of standpost users in household reluctance to pay and the inability of West Bengal are not charged. In the survey, the the scheme management to collect the charges. management of various piped water supply The fact that standpost users are not charged at schemes expressed the opinion that for all in many piped water supply schemes is also generating more revenue, collection efficiency responsible for low cost recovery. In Tamil Nadu needs to be improved and charges should be and Andhra Pradesh, most rural households imposed on standpost users. access water supply through a standpost (or mini water tank). About 80 percent of such household Policy Direction in Tamil Nadu and about 90 percent of such households in Andhra Pradesh are not charged The low expenditure on the O&M of water for water. The consequence is obviously a low supply schemes can be traced to inadequate fund recovery of the O&M cost. The situation is allocation and low cost recovery from beneficiary 5 5 households. Obviously, this calls for The desirable state to achieve is greater efforts at cost recovery and the one in which the O&M cost needs allocation of more funds for the to be properly assessed and fully maintenance of schemes so that their recovered through user charges. useful life can be extended. To improve State-wise, uniform cost sharing operations as well as cost recovery, the principles need to be worked out ownership of single village schemes Figure 4 Revenue Collection and the O&M Expenditure per Household, Piped Water Schemes achieve is one in which the O&M cost needs to be properly assessed and fully recovered through user charges. State-wise, uniform cost sharing principles need to be worked out, irrespective of types of programs or sources of financing. For high cost schemes, it is not necessary, nor desirable, to recover fully the O&M cost through user charges. Rather, a transparent criteria needs to be developed to determine `affordable' contributions, including a criteria for socially disadvantaged groups. should be handed over to the Panchayati Raj The O&M requirements in excess to affordable Institutions (PRIs) and/or user committees, after contributions should be provided through a proper rehabilitation, and their O&M costs transparent state subsidy scheme. should be recovered from user charges. To ensure the success of such ownership transfers, training should be provided to the PRIs on technical, accounting, and procurement procedures. This Report has been prepared by Smita Misra (Sr. Economist, SASDU, Similarly, multi village schemes and regional World Bank), the Task Manager of this study. schemes may be unbundled into smaller schemes The study was carried out under the overall guidance of Sonia Hammam, at the village level and the responsibility handed Sector Manager, Water and Urban, SASSD, World Bank. Data analysis has over to the Gram Panchayat/village community been undertaken by Professor B.N. Goldar and his research team at the with contractual agreements and performance Institute of Economic Growth, Delhi and the consumer survey was carried out by the ORG Centre for Social Research (a division of A.C. Nielsen improvement targets between user groups and ORG MARG Pvt Ltd). Comments and inputs at various stages of the bulk water providers. The desirable state to preparation from the following World Bank persons are gratefully acknowledged: Michael Carter, Rachid Benmessaoud, Clive G. Harris, Alain R. Locussol, Francis Ato Brown, Alexander E. Bakalian, Oscar E. Alvarado, G.V. Abhyankar, R.R. Mohan, S. Satish, N.V.V. Raghava, and Policy Papers Catherine J. Revels (WSP-SA). Special thanks are due to the Department of Economic Affairs, Ministry of Finance, the Department of Drinking Water This is one of the six policy papers that have been prepared on the basis of the Supply, Ministry of Rural Development, and the Rajiv Gandhi National World Bank study on Review of Effectiveness of Rural Water Supply Schemes in Drinking Water Mission for their interest and collaboration in the study. India (June 2008). These policy papers, published along with the Report, are on the Comments and data inputs during the preparation of the Report are following themes: gratefully acknowledged from R.P. Singh and M. Nagaraju (DEA), Paper 1: Willingness of Households to Pay for Improved Services and Affordability Bharat Lal and R.K. Sinha (RGNDWM) and their team, and the Paper 2: Inefficiency of Rural Water Supply Schemes in India respective State Government officials. Paper 3: Multi Village Water Supply Schemes in India Paper 4: Operation and Maintenance Expenditure and Cost Recovery Paper 5: System of Monitoring and Evaluation The Report has been discussed with the Government of India but does not Paper 6: Norms for Rural Water Supply in India necessarily bear their approval for all its contents, especially where the Bank has stated its judgements/opinions/policy recommendations. Author and Task Manager: Smita Misra (Sr. Economist, SASDU, World Bank The World Bank Pictures by: Guy Stubbs/Water and Sanitation Program­South Asia June 2008 Created by: Write Media Printed at: PS Press Services Pvt. Ltd. The World Bank, New Delhi Office, 70 Lodi Estate, New Delhi 110 003, India Tel: (91-11) 24617241, 24619491