Output Based Incentives for

Sanitation Services to

Urban Poor Households

Isabel Blackett and Almud Weitz

WATER AND SANITATION PROGRAM

2

A rationale for sanitation subsidies but subsidy delivery mechanisms lack clarity about:

... who and what should be financed• due to fragmented sector supervision, and• fragmented delivery, weak and/or informal service providers

... what funds should be used for • as hardware subsidies ‘wasted’, insufficient focus on behaviour • ‘too much’ spent on wastewater treatment, rather than connecting• households expected to invest in adequate on-site sanitation,

woth limited public support, despite strong public benefits• insufficient focus on environmental impacts of poor sanitation

The context

3

• Targeted performance-based payment to reduce the gap between what users can afford and the cost to the provider

• “Payments” made to service providers after pre-identified outputs are delivered and independently verified

and• Results-Based Financing includes conditional cash

transfers (CCT), COD, performance-based financing

• Used in other sectors e.g. roads, telecoms, health, education, electricity, water etc

What is an output based incentive?

How OBA differs

Inputseg materials

Public Finance

Inputseg materials

Service Provider

Service Provider

Commercial Finance

Outputs(Services for End

Users)

Outputs(Services for End

Users)

OBA reimburses the service provider after the

delivery of outputs

Government purchases specific “inputs”, builds

assets and contracts out or provides services itself

Output-Based Approach

TraditionalApproach

The sanitation “value chain”

Demand creation

Collection

Transport

Treatment

Disposal / Re-use

MD

G fo

cus

Types of services Main actors

• Households (investors)

• Masons /Businesses

• Utilities

• Local governments• CBOs, NGOs

Promote sanitation , create demand, community

organisation

• Pit-latrine emptiers (manual emptying, trucks, etc)

• Utilities (sewers)

• Local governments • Utilities • SSIPs

Value chain

• Local governments • Local farmers, etc..

On-site with

reuse

On-site w/out reuse

Sewer connections

Environment

Decentralised treatment facilities

Partial on-site

treatment

Treatment Plants

Re-use: energy,

agriculture

En

viro

nmen

tal f

ocu

s

Environment

Demand creation

Collection

Transport

Treatment

Disposal / Re-use

MD

G fo

cus

On-site with reuse

On-site w/o reuse

Sewer connections

Decentralised treatment facilities

Partial on-site treatment

Treatment plants

Promote sanitation , create demand, community organisation

Re-use sludge (energy,

agriculture)

En

viro

nmen

tal f

ocu

s

NGP awards IndiaPLM Mozambique

MoroccoIndonesia,

Brazil Payments to septic tank/pit

emptier

Payments for re-use

Potential packaging of output incentives

Examples of services and indicators

Value chain Services Output indicators

Demand promotion Sanitation marketing No. households who build/rehabilitate a

latrine following demand promotion

Social mobilisation, triggering No. villages/communities becoming ODF

Collection and latrine access

Build on-site sanitation facilities

No. facilities built and still operating x-month down the line

Build and operate public toilets

No. toilet blocks in disadvantaged areas (used/paid for)

Transport Transport pit waste to designated points

Volume of waste transported to and disposed in designated locations

Build and operate transfer stations

No. transfer stations built and functioning x-years later

Treatment Build, maintain and operate WWT plants

Volume of waste collected and treated to required standard

Disposal/reuse Build and maintain biogas facilities

Volume of agricultural inputs generated and sold to farmers

Output based grants for water and sewerage in Morocco

The system• Connecting 11,300 poor households in unplanned urban

settlements to water and sewerage

• Subsidy paid to service provider in installments 60% after connection, 40% after 6 months of sustained use

• Verification carried out by independent third party.

Lessons and Findings• Initial progress slow due to new scheme, land ownership and

investment delays

• Later investment substantially increased, some cities delivering ahead of schedule

• Subsidies vary USD420-910, due to different unit costs

Some potential challenges and solutions

12

Common challenges Potential solutions

Measuring outputs is difficult and costly

Measure behavior change associated with sanitation

High costs for performance verification built-in

Sewerage subsidies per household tend to be higher than for other services

Conveying message that although investment costs are high, economic and social benefits to society are also high!

Demand for sanitation services poorly understood

Conduct demand assessment studies as part of the design (with adequate funding)

Little attention paid to ongoing operational costs e.g. pit and septic tank wastes or sewerage

OBI designed to make public funding of operations more efficient and accountable

Build sewerage tariff increases as a condition for subsidy release

Take home messages

14

• Business-as-usual subsides will not generate improved urban sanitation outcomes

• Output based incentives provide a new innovative targeted approach

• Expect new learning from Indonesia, Egypt, Senegal, Morocco and India.

For more information:

Output-Based Aid and Sanitation, WSP 2010

Indentifying the Potential for Results-Based Financing for Sanitation, Sophie Trémolet, WSP and SHARE, 2011

On www.wsp.org and at WSP conference booth

www.wsp.org | www.worldbank.org