99686 June 2015 Note Number 46 Output-Based Aid for Solid Waste Management Nepal and the West Bank Photo courtesy of COWI The Development Challenge W ith rapid urbanization, population growth, and new economic activity, municipal solid waste is In low income countries, municipalities commonly spend increasing at alarming rates, and is expected to 20–50 percent of their budgets on SWM. The vast major- almost triple in low and lower middle income countries by ity of that expenditure (80–90 percent) is spent on waste 2025.1 At the same time, solid waste management (SWM) collection, and the results are often incomplete. Only systems in most developing countries are underfunded and about half of what is collected is processed to minimum suffer from a lack of planning. Improving SWM requires acceptable standards, with the rest being disposed of in intervention all along the supply chain (see figure 1). Such unsanitary dumpsites and by open burning, with adverse improvements do not necessarily require major financial in- effects on health and the environment. The urban poor vestment. Low-cost interventions that utilize existing techni- tend to suffer the most, as they are more likely to live near cal and human resources, combined with support for crucial improperly disposed solid waste or unsanitary dumpsites. behavior changes at individual and municipal level, can bring One of the major obstacles to improving SWM in poor about significant enhancements in SWM. Output-based aid countries is the lack of sustainable financing. Households (OBA) is a results-based financing mechanism that ties the and service providers are caught in a vicious cycle, with disbursement of funds to the achievement of specified out- municipalities unable to improve services and expand puts. This note examines the design of two projects—in Nepal their capacities unless they can increase fee collection and the West Bank—that use an OBA approach to SWM. rates, while residents are unwilling to pay for inadequate services. With a limited ability to collect fees, cities have Supporting the delivery of basic services in developing countries Figure 1. Municipal Solid Waste Value Chain Collection/ Recycling/ Generation Disposal Energy Recovery Transport Organic diversion • High growth rate • Low collection rate • Lack of integration • Large use of • Untapped opportunity of waste generated in low income of the informal sector unsanitary dumpsites to generate energy • Lack of policies countries • Low rate of organic and open burning from landfilll gas to reduce waste • Low willingness to waste diversion • Land constraints • Landfill gas to energy generation pay for collection for future sanitary systems not installed services landfills or in poor condition • Inefficient • Severe • Local context collection equipment environmnetal impact unsuitable for • Inefficient routing • Lack of financial waste-to-energy or technical capacity to operate sanitary landfills few or no incentives to improve their services or to inno- projects should be designed for flexibility and adaptability. vate and increase efficiency. Simplicity in institutional arrangements, flow of funds, Meanwhile, increasing urbanization has intensified and verification mechanisms is important, particularly in pressure on available land, making it more difficult to find unpredictable environments. appropriate land for constructing sanitary landfills, and In Nepal and the West Bank, two OBA projects use financial or technical capacity to operate such facilities subsidies to improve the financial sustainability of munici- is often limited. The absence of properly designed and pal solid waste services by increasing user fee collection operated landfills means that opportunities for generating while improving waste collection services. Both projects energy from waste gas are lost, along with the chance to have a strong focus on behavior change throughout the reduce greenhouse gas emissions. waste-generation and waste-management chains. Innovative financing mechanisms are needed if cities are to begin to increase cost-recovery levels, improve Nepal service delivery, and address the environmental impacts of poor waste management. In Nepal, the country’s municipal capacities are under immense pressure due to rapid urbanization (more than Designing OBA Projects in SWM 3.5 percent per year) and struggle to deal with SWM. Of the 700,000 tons of waste generated each year in Nepal’s cities, OBA is one instrument that can benefit the SWM sector less than 50 percent is collected, and most of this waste is by ensuring that funds are used efficiently and transpar- informally dumped. Only four out of Nepal’s more than 50 ently to produce verified results. Experience so far in official municipalities have sanitary landfill sites. Most mu- designing OBA projects in SWM has made clear some key nicipalities do not earn any revenue from SWM services, considerations. yet SWM is a major contributor to municipal expenditure. As cities and municipalities have great variation in In 2013, a grant of $4,288,381 was approved for an their practices, problems and capacities, SWM projects OBA project in Nepal to expand SWM services over should focus on a set of results tailored to context-specific a four-year period. An estimated 800,000 people are needs, with service providers and municipalities deciding expected to benefit. The project aims to improve access which service-delivery models can best achieve results lo- to high quality and financially sustainable waste manage- cally; these models should meet established environmental ment services in five participating municipalities (Tansen, standards and be capable of achieving a level of financial Dhankuta, Lalitpur, Ghorahi, and Pokhara). Municipalities viability that may lead to the sustainable provision of selected for the project were required to have access to an services. operational landfill, a basic functioning SWM system for SWM projects in low-capacity areas or in fragile and collection and disposal, and a system to collect fees from conflict-affected situations (FCS) need to incorporate sig- residents for these services. The municipalities were also nificant technical assistance, with planning and resources required to prepare a SWM strategy and action plan. for this included from a project’s inception. As political The OBA subsidy bridges the gap between the cost of and security environments are liable to change in FCS, delivering improved SWM services (capital costs, operations June 2015 Note Number 46 and maintenance costs, and other expenses) and the rev- enues that municipalities can collect for these services. The amount of the subsidy is designed to decrease over time, as services improve and the increases in fee collection rates contribute to cost recovery. Implicit in the design is the assumption that as the quality of SWM services improves, residents’ willingness to pay will grow, and municipalities will be able to gradually increase the fees charged. To measure results, the project provides for two separate and independent stages of verification. The first stage addresses service provision, with an independent technical verification agent (ITVA) confirming that an ac- ceptable standard of SWM services has been provided, as recorded by municipalities on a technical scorecard. Once this condition is met, an independent financial verifica- Photo courtesy of Sintana Vergara tion agent (IFVA) verifies the level of fees collected from beneficiaries, based on money deposited into the munici- pality’s account for SWM services. This two-stage process The OBA subsidy is funded by the IFC through encourages municipalities to focus first on instituting the GPOBA. It is disbursed over a four-year period to service basic requirements of a SWM system, and then focus on providers to partially support increased costs associated actual performance. Disbursement of subsidies occurs with waste disposal at Al Minya, thus allowing providers once both stages of verification have been completed, with to focus resources on improving services at other points verification taking place on an annual basis. on the SWM chain. The subsidy is designed to decrease Implementation support to municipalities during the over time as fee collection increases, providing an incen- project includes technical assistance in the preparation tive for councils to strengthen efforts to collect solid waste of SWM service improvement plans; improvement of fees. The achievement of specific service improvement billing, revenue collection, and performance management targets (cleanliness of areas; total waste managed; the systems; and design of contractual arrangements. development of a SWM strategy for waste treatment and an information management system) is verified by an IVA. As in Nepal, this first stage of verification focuses on The West Bank implementation and monitoring systems as a prerequi- site to the second stage, which concerns performance of Hebron and Bethlehem, two of the poorest governorates service delivery and fee collection. A technical scorecard in the West Bank, generate 34 percent of the 1.2 million is used in the verification process, which is comprised of tons of waste produced annually in the West Bank. The indicators for service quality and financial performance solid waste sector in these two governorates suffers from of SWM operations. Verification occurs on a semi-annual poor planning, high operations and maintenance costs, basis, and subsidy payments are triggered upon satisfac- and limited financial resources. Although waste collec- tory verification in both stages. tion tends to be high (as much as 98%), in the absence of a sanitary landfill, collected waste is disposed of in 19 unsanitary dumpsites. Lessons Learned In 2013, a grant of $8,256,623 was approved for an OBA project in Hebron and Bethlehem to increase access • Improving SWM services does not always require to municipal solid waste services and improve financial more staff, vehicles or equipment, or bigger landfill sustainability. It is estimated that 840,000 residents will space. Projects can support the use of available techni- benefit. The OBA project is part of the larger Southern cal and human resources by utilizing designs of simple, West Bank Solid Waste Management Project, funded by robust, and affordable systems that can be easily man- the World Bank Group and other donors, which was un- aged and maintained by existing staff. In Nepal, for in- dertaken to assist the Palestinian Authority in upgrading stance, the project will capitalize on ongoing plans that the entire SWM system in Hebron and Bethlehem gov- the municipalities had already set in motion to support ernorates. The overall project included the construction SWM system improvement. It will aim to make the of a new landfill at Al Minya. The International Finance most out of current landfill space while improving Corporation (IFC) worked with the Joint Services Council practices related to management of that space. of Hebron and Bethlehem (JSC-H&B) to design and ten- • Because SWM is a community-based activity, OBA der a public-private partnership (PPP) for the operations subsidies in the SWM sector are better targeted at and maintenance of the Al Minya landfill. municipalities rather than individual households. In sectors such as water or energy, subsidies can be easily • Simplicity, flexibility and effectiveness must be bal- targeted to individual households; however, SWM anced in project design. Institutional arrangements involves shared service provision. In the West Bank, and flow of funds should be simply presented and eas- for example, the Hebron and Bethlehem governor- ily understood by the implementing agency, residents, ates were selected as grant recipients based on average and IVAs. In the Nepal project, the diagrammatic rep- mean income criteria, which is very low, rather than resentation of institutional arrangements and flow of the further identification of poor households or poor funds was complex and difficult to explain. Verification neighborhoods within these already poor governorates. mechanisms should likewise use clear, straightforward • OBA can be an effective tool to attract the private protocols that are easy for all parties to understand sector and support PPPs, particularly in fragile situ- and that are not so cumbersome as to incur excessive ations. The West Bank is a highly risky environment transaction costs or discourage use. for international private sector investors, even for those companies with the advanced technology and experi- Conclusion ence to operate an SWM facility to required standards. The West Bank project has, however, attracted an inter- Addressing solid waste challenges requires a holistic ap- national firm to operate the Al Minya landfill, in part proach, with support provided all along the SWM chain. due to the OBA component of the project. Under the Any interventions in the sector should take into account PPP designed by IFC, the firm is paid a portion of the the country’s broader solid-waste context, and should final disposal bill on behalf of the councils. This pay- make realistic allowances for the time needed to bring ment, subsidized in part by OBA funds, helps to mini- about lasting changes in behavior, which are key to the mize risk for the private operator. The OBA subsidies, improvement of SWM. The West Bank and Nepal projects based on specific service improvements and financial demonstrate that OBA approaches are flexible enough targets, provide additional comfort to the operator. to be applied in FCS and can jump-start SWM services • Supplementing financial subsidies with educational in low-income countries where service delivery is poor outreach provides greater leverage for SWM proj- or non-existent or where fee collection to support waste ects. The introduction of new or increased fees for services is a major challenge. waste management, especially when service quality has been low in the past, requires outreach in order to gain public acceptance. Any outreach activities should aim to ensure that important stakeholders, such as munici- pality staff, see the long-term value of strengthened institutions and capacities, and that residents under- 1 Results-Based Financing for Municipal Solid Waste (World Bank, stand that improvements in service are directly linked Urban Development Series, July 2014). to the payment of fees. About OBApproaches OBApproaches is a forum for discussing and disseminating have been chosen and presented by the authors in agreement recent experiences and innovations in supporting the delivery with the GPOBA management team and are not to be attribut- of basic services to the poor. The series focuses on the provi- ed to GPOBA’s donors, the World Bank, or any other affiliated sion of water, energy, telecommunications, transport, health, organizations. Nor do any of the conclusions represent official and education in developing countries, in particular through policy of GPOBA, the World Bank, or the countries they output- or performance-based approaches. The case studies represent. To learn more, visit www.gpoba.org e Global e Partnership on Global Partnership Output-Based Aid on Output-Based Aid Supporting the delivery of basic services in developing countries