trackfin methodological discussions

TRACKFIN INITIATIVE METHODOLOGICAL DISCUSSION

SOPHIE TRÉMOLET AND MARIE-ALIX PRAT

RABAT, 29TH SEPTEMBER 2014 TRACKFIN INTER-COUNTRY MEETING

CONTEXT

• The Draft Guidance Document provided initial guidance.

• Testing in countries allowed identifying what works, which elements need to be modified, simplified or developed

• Next steps: revise the Guidance Document o Modify methodology based on lessons from country testing

o Introduce “real-life” examples from the experience gained in WASH sector in Brazil, Ghana and Morocco

o Make it “more user-friendly”: improve the structure, delete unnecessary material

o Clarify areas for future methodological development

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OBJECTIVES OF THE SESSION

Based on country results :

• Discuss the nature of WASH Accounts

• Discuss key methodological issues : o Methodology : Classifications, estimating financing

flows, reconciling FS and cost-based approach, Fixed assets approach

o Process : collecting data, having a dedicated tool, institutionalising the production of WASH-Accounts

• Agree on revisions/inclusions needed in the guidance document

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NATURE OF THE WASH-ACCOUNTS

• Clear preference for sector-relevant WASH-Accounts, rather than based on the System of National Accounts o ISIC, CPC categories were not relevant in countries and

thus not explicitly referred to

o Countries used sector-relevant classifications and definitions as proposed in the Guidance Document

• Link with SEEA-W : limited potential at this stage o In Brazil, SEEA-W activities are focused on tracking

physical water flows, not financial flows as yet

THE STEP-BY STEP APPROACH

POINTS COVERED IN THE PRESENTATION

Methodology - Classifications 1. Classification of services 2. Classification of uses 3. Classification of service providers 4. Classifications of financing sources and financing units 5. Classification of costs Methodology – Approaches to estimating expenditure in WASH 6. Reconciling the gap between the “financing sources” and “cost-based” approaches 7. Feasibility of selecting the “Fixed Asset stock approach” and methods used

Methodology – Estimating certain financing flows 8. Estimating households’ expenditure for self-supply 9. Treatment of loans Processes at country level 10. Improving data collection methods 11. Developing a common data collection and analysis tool 12. Developing institutional support for compiling WASH-Accounts & Institutionalisation Issues at international Level 13. Ensuring the comparability of data

Any other points we need to cover ?

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1. METHODOLOGY - CLASSIFICATIONS

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1. CLASSIFICATION OF SERVICES

• Water / sanitation: overall relevant with minor country-specific adaptations • Hygiene activities were treated differently – overall difficult to classify

o Guidance: hygiene promotion activities included in S3 “Support services” o Brazil: created a separate category (S5 Hygiene), mostly with government expenditure

• Countries expressed the need to include a clear definition of hygiene in the Guidance Document. But there is no internationally agreed definition for hygiene: o Should we create a separate category for hygiene? o Should we propose a definition or should it be addressed separately by WHO / others? o How feasible would it be to disaggregate hygiene from water and sanitation spending ? o What should be the boundaries of activities included under “WASH-related hygiene”

• Exclude food and environmental and solid waste management • Hygiene promotion programmes, by government or service providers:

– Hand-washing campaigns, menstrual hygiene promotion, chlorine distribution, sanitation promotion?

– Only software or some hardware? • Households spending on :

– Hand washing, bathing, washing clothes and material/equipment (soap tippy taps, bathroom etc.) – Chlorine for water treatment ? ( or include it in water?)

• Water Resource Management: o Some expenditure has been included, but not always clear which ones

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Discussion # 1: Should a list of WASH-related hygiene services be defined? By whom? Can expenditure on hygiene be clearly identified?

2. CLASSIFICATION OF USES (1)

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2. CLASSIFICATION OF USES (2)

• Separating household uses from other types of uses:

o Only Brazil estimated expenditure by type of use.

o Non-domestic use was treated as one category : it was not possible to disaggregate non-domestic uses by type of users (institutional, industrial, commercial) and between served vs self-supply for non-domestic uses

o 88% of the resources were spent for the production of services for served domestic use. Household self-supply was estimated at 2.2% of the expenditure. The remaining non domestic uses (institutional, industrial, commercial) represent 9.8% of the expenditure.

• Estimating expenditure of self-provided institutional/commercial/industrial use:

o Consultants proposed to delete these categories, although tracking this information could be important for providing a complete picture and for policy-making

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Discussion # 2: • How can the expenditure by type of use be better estimated ? Should we provide

further guidance on how to do it (i.e. based on revenues and/or costs)? • Should we simplify categories of uses: should we maintain self-provided uses for

non-domestic even if hard to quantify?

3. CLASSIFICATION OF SERVICE PROVIDERS (1)

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3. CLASSIFICATION OF SERVICE PROVIDERS (2)

• No need to create more categories of Service providers. Instead, the guidance document encourages countries to create sub-categories: o P1 “government agencies” can be broken down into:

• P1.1: “national government agencies” • P1.2: “regional government agencies” • P1.3: “local government agencies”

o P2 “network corporate providers” can also be broken down: • P2.1: “Parastatal network corporate providers” • P2.2: “Private network corporate providers” • P2.3: “Housing developers”

• The GD will provide more specific examples to use the categories. Example of housing/real estate developers: o In Morocco, a significant portion of hardware network investments are financed by

housing/real estate developers. In this case, housing developers should be included in P2.

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Discussion # 3: • Are the service providers categories adequate? • How can we encourage the creation of sub-categories to fit countries needs?

4. CLASSIFICATIONS OF FINANCING SOURCES AND FINANCING UNITS (1)

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4. CLASSIFICATIONS OF FINANCING SOURCES AND FINANCING UNITS (2)

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4. CLASSIFICATION OF FINANCING SOURCES AND FINANCING UNITS (3)

Two main issues:

• The GD led to different understandings of financing units and financing sources: o Needs to be clarified and presented with

examples from countries

• The channelling of flows is not well captured: o Need a solution to show how funding is

channelled through certain financing units that gather funds from several sources (including their own) and make funding decisions

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4. CLASSIFICATION OF FINANCING SOURCES AND FINANCING UNITS (5) • Financing units provide financing sources to service providers or to other

financing units in the sector.

• The classifications of FS and FUs are used to answer 2 key questions on the funding of service providers :

o What are the financing sources of service providers ?

o Who is financing the expenditure of service providers ?

“Served” households

Central Government Bilateral and Multilateral Donors

Service Providers

Non–domestic users

Tariffs

Domestic Public transfers International

public transfers

Self-expenditure

Banks Loans

Tariffs for services provided

Domestic public transfers

International public transfers

Voluntary transfers

Private repayable financing

Financing units

Service providers

Key: • Financing Sources:

• Institutional entities:


What are the financing sources of service providers?

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Brazil 2010 - Financing sources by type of service providers (PxFS) in Million Brazilian

Reals Repayablefinancing

Voluntarycontributions

Internationalgrants

Domestic publictransfers

Households’ expenditure for self-supply

Morocco - Financing sources by service providers - in Million Dhr

Global picture of sector financing sources Zoom on FS of some service providers

Who is financing the expenditure of service providers? There is a confusion re. tariffs. Both Brazil and Morocco showed tariffs as coming from service providers as the financing unit – when the guidance document implied that households (FU10)/ users should be the FU


(This chart was modified from the one in the 10 pager to reflect GD concepts)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Financing units by type of service providers (PxFS) - Brazil 2010 Households

NGOs and community-based organizationsBanks and FinancialInstitutionsBilateral andmultilateral donorsEconomic and qualityRegulatorsNon-networkcorporate providersNetwork corporateprovidersLocal authorities

Regional authorities

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Financing unit funding to service providers (PxSP) - Brazil 2010

Based on definitions in the Guidance Document In the Brazil report


Who is channelling funding in the sector? • There are different “layers” of financing units: some generate financing sources,

others are channelling financing sources from a mix of units

• Example: a local government which is not providing direct water services and is channelling funding to service providers

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Tariffs for services provided

Domestic public transfers

International public transfers

Voluntary transfers

Private repayable financing

Financing units

Service providers

Key: • Financing Sources:

• Institutional entities:

“Served” households

Central Government Bilateral and Multilateral Donors

Service Providers

Local Government

Non–domestic users

Tariffs

Domestic Public transfers International

public transfers

Self-financing (Internally generated funding from property tax, business rates etc.)

Domestic Public transfers

Sanitation Tax


• Recommendation: we are proposing to maintain the categories (FS / FU):

o A new category of financing channels / agents would be redundant

o Additional breakdown of FS can be introduced (e.g. to split local government / central government funding)

o Clarify how FU concept should be used, particularly for tariffs

o “Zoomed-in” pictures can be produced for the FUs that act as “Financing channels”, i.e. they have a programmatic control over the allocation of funding from different sources.

4. CLASSIFICATION OF FINANCING SOURCES AND FINANCING UNITS (10) • Example of “financing channels” : Local Governments, national agencies that provide

funding not necessarily associated with provision of services (ex. CWSA in Ghana).

Discussion # 4: • What do we want to show in terms of flows of funds? • Are the concepts of Financing sources and Financing Units sufficient to answer these questions ?

-

200

400

600

800

1,000

1,200

2009 2010 2011

Local governments

Fictive example of financing sources of a local government

Repayable financing

Voluntary contributions

International grants

Transfers from centralgovernmentLocal governmenttransfersLocal Sanitation Tax

Tariffs for servicesprovided

5. CLASSIFICATION OF COSTS (1)

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5. CLASSIFICATION OF COSTS (2)

• Other costs may need to specifically identified: o Brazil has added a new category for taxes on income – This is a big cost for service providers

(~5%). o Depreciation has also been included in costs (though not in a separate category), in order to

reconcile the cost-based and the financing source approach (cf. next point)

• Changes proposed: Include C3 in C1; add 2 new categories (taxes and provisions)

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Discussion # 5: • Should the category C3 (large capital maintenance costs) be removed and included in C1? • Discuss the changes proposed (taxes and provisions)

Type of costs Proposed changes

C1

Capital costs including hardware and software

• Extend to large capital maintenance costs. Not only initial costs, but also the costs for the renewal, replacement and rehabilitation of a system.

C2 Operating and maintenance costs

This category can be broken down in more detailed sub categories: HR (salaries and social contributions), Energy, R&D etc.

C3 Large capital maintenance costs

(This category has not been used in country studies – costs have been included in C1.

C4 Cost of capital

C5 Support or software costs

C6 Taxes This would include Taxes on production “corporate and import tax” and any other taxes related to WASH service provision. Taxes paid on “intermediary consumption (i.e. as part of the production process) would be included in C2.

C7 Provisions Including provisions for depreciation

2. METHODOLOGY – APPROACHES TO ESTIMATING EXPENDITURE

6. RECONCILING THE GAP BETWEEN FS AND COST-BASED APPROACH (1) • The total expenditure to the sector is estimated using 2 methods:

o The “financing source approach” aggregates the expenditure of financing units or the revenues from each financing sources that are received by service providers

o The “cost-based approach” aggregates the expenditure of service providers. The main objective of this approach is to allow disaggregating by types of services / costs

• The total expenditure figures estimated through these two methods vary slightly.

• Need to identify the reasons for this gap and try to reduce it: Is it due to missing data or to estimation methods?

o Treatment of depreciation (cf. example of Brazil) : If tariffs are set to cover depreciation of assets, than provisions for depreciation should be included in the estimation of total costs.

o Cashflow issues: mismatch between the time when revenues come in and expenses incurred

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Discussion # 6: • What could be other reasons explaining the gap between the two approaches? • If there is a difference between costs and financing sources: what is this telling us about

sector financing ? • Which approach should be used as the “total expenditure to WASH”?

6. RECONCILING THE GAP BETWEEN FS AND COST-BASED APPROACH (2)

• Example from Brazil : o In the first iteration, the financing source approach estimated WASH sector

funding at R$ 54.2 billion and the "costs-based” approach estimated total expenditure at R$ 50.9 billion in 2012.

o In the second iteration, depreciation was added in the costs. The financing source approach estimated the funding at R$ 51.8 billion, and the "costs-based” approach at R$ 52.5 billion in 2012.

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R$ 0,00

R$ 20.000,00

R$ 40.000,00

R$ 60.000,00

2010 2011 2012

Despesas totais - abordagens financiamento e custos

Fontes Financ Custos

R$ 0,00

R$ 10.000,00

R$ 20.000,00

R$ 30.000,00

R$ 40.000,00

R$ 50.000,00

R$ 60.000,00

2010 2011 2012

Despesas totais - abordagens financiamento e custos

Fontes Financ Custos

First iteration – without depreciation Second iteration- including depreciation in costs

7. FEASIBILITY OF SELECTING THE FIXED ASSET STOCK APPROACH AND METHODS USED (1)

• This approach is more difficult to apply due to data limitations but potentially interesting

• It was only tested in Brazil

o Fixed asset stocks of service providers were estimated based on their balance sheets when available

• Missing data had to be estimated based on an average asset cost per connection

• Data from different types of SPs and different years was estimated in different ways (historical value, including or not depreciation). This required an important treatment of data

• Fixed assets stocks were valued in the studies based on historical costs, including depreciation

o Fixed asset stocks of households were estimated based on estimated unit costs of replacing equipment owned (septic tank, water tanks, wells) and the reported number of self-supplied households from household surveys

o Data on municipal assets (for WRM for instance) could not be valued

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Tabela WA 11 (ASxP) - Estoques de ativos por tipo de fornecedor do WASH - Abordagem estoque de ativos2012 Valor histórico ajustado a valor presente por índices setoriais médios editados pela FGV (exceto P5)

Provedores WASH P1 P2 P3 P4 P5

Estoque

de ativosR$ milhões

Instituições

governamentais

Fornecedores

corporativos

da rede

Fornecedores

corporativos

fora da rede

ONGs e

organizações

comunitárias

Domicilios

(autofornecimento)Total

Participação

%

S1Abastecimento de

águaR$ 30.246,03 R$ 87.472,94 R$ 0,00 R$ 0,00 R$ 6.277,98 R$ 123.996,95 56,33%

S2Esgotamento

SanitárioR$ 20.966,52 R$ 60.636,16 R$ 0,00 R$ 0,00 R$ 11.957,31 R$ 93.559,99 42,50%

S3Serviços de apoio e

suporteR$ 660,32 R$ 1.909,69 R$ 0,00 R$ 0,00 R$ 0,00 R$ 2.570,01 1,17%

S4Gestão de recursos

hídricosR$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 0,00%

S5 Higiene/saúde R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 0,00%

AS1Estoques finais de

ativosR$ 51.872,87 R$ 150.018,78 R$ 0,00 R$ 0,00 R$ 18.235,29 R$ 220.126,94 100,00%

Participação % 23,56% 68,15% 0,00% 0,00% 8,28% 100,00%

Preços atuais de

construção


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Discussion # 7: • How useful is this approach? Is it worth replicating elsewhere? Should it

be done on a case study basis only? • Can the asset-based approach bring interesting information even when

different asset-valuation methods are used?

• Data on fixed assets stocks is not easily available.

o Brazil has a very developed information system (SNIS) which collects data from service providers, including their balance sheet.

• Need to develop strategies for estimating stocks from different SPs and types of services

• Should assets be valued at their historical or replacement value?

• What can we learn from recording fixed assets stocks value from different years ?

3. METHODOLOGY – ESTIMATING CERTAIN FINANCING FLOWS

8. ESTIMATING HOUSEHOLDS’ EXPENDITURE FOR SELF-SUPPLY(1)

• The guidance document proposes to estimate household expenditure for self-supply based on coverage trends (from household surveys) and estimated unit costs

What was done in countries?

• Testing confirmed that this expenditure is not currently estimated

• Household budget surveys only collect data on O&M, so only O&M spending for self-supply could be reliably estimated, although which costs are included is not always clear

• It was not possible to estimate household investment for self-supply:

o Brazil:

• Sanitation: Could not be estimated because the total number of households using latrines overall decreased over the period

o Ghana:

• Sanitation: there was no coverage increase between 2010-2012 so household investments in individual latrines was very limited

• But there was an increase in the number of shared latrines, in which households are also likely to invest: these investments were not estimated however

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8. ESTIMATING HOUSEHOLDS’ EXPENDITURE FOR SELF-SUPPLY(2) • Household investment costs need to be estimated more reliably – Several issues:

o Estimating investments from households when the overall trend is negative or constant

o Capturing investments from households moving inside a level of service (for instance going from poor improved to better improved) or into shared toilets: how could these be assessed in more detail?

o Estimating non-monetary costs (time spent by households, material uses etc.)

o Estimating household investments via community structures, particularly in water

• Identifying solutions to improve estimated unit costs of household : o For each type of self-supply : have a detailed list of the costs to include

o Conduct specific national surveys or include questions in the national survey, particularly to estimate household investment costs in self-supply

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Discussion # 8: • How can we estimate investment in latrines when the overall trend is negative? • Should we try and estimate non-monetary costs ? • How can household spending surveys be improved?

9. TREATMENT OF LOANS (1)

• Loans have been included as a Financing Source: “repayable finance”

o Perspective: total financing flows to fund outgoings on investments

o All loans (including concessional) included in repayable finance

• In the guidance document, we proposing to account for loans as it is done in the Health Accounts:

• include the principle of the loan in FS6 “Repayable finance”;

• Include the interest paid in C5 “Capital Costs”;

• The repayment of the loan is excluded.

• The guidance document does not specifically address the issue of how loan repayments are covered (from tariffs or subsidies…)

• If loan repayments are excluded: this may be a source of the difference between the Financing source approach / the cost-based approach.

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Discussion # 9: • Can we combine non-repayable and repayable financing as FS? • What can learn from the health sector in this area?

9. TREATMENT OF LOANS (2)

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Operating costs

Maintenance costs

Investment costs (rehabilitation and

new)

COSTS REVENUES

Tariffs

Taxes

Transfers

SERVICE PROVIDERS’ FINANCES

Loans

Operating costs

Maintenance costs

COSTS REVENUES

Tariffs

Taxes

Transfers

SERVICE PROVIDERS’ FINANCES

Year 1 - loan Year 2 – loan repayment

Financial costs

Repayment of the loan

4. PROCESSES AT COUNTRY LEVEL

10. IMPROVING DATA COLLECTION METHODS

• In Morocco and Ghana, questionnaires were developed for different types of actors (government agencies, local governments, donors, NGOs, service providers etc.)

• In Brazil, national information systems (SNIS, IBGE, form national funding schemes etc.) were mainly used.

• Developing national surveys will help filling data gaps (household and non-domestic expenditure for self-supply)

• One result of this exercise was to identify how national information systems can be improved to collect the data required for WASH-Accounts in future years o E.g. In Ghana, TrackFin helped confirm that water and sanitation expenditure need to be

separately identified in the GIFMIS (Ghana Integrated Financial Management Information System), recording expenditure of all government agencies

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Discussion # 10: • Should the Guidance Document propose standard questionnaires or should we

leave it to countries to develop their own questionnaires? • How can surveys be used to improve estimates?

11. DEVELOPING A COMMON DATA COLLECTION AND ANALYSIS TOOL (1)

• A simple data collection tool in excel format was provided for testing

• In practice, the country teams used the structure of the tool, but developed their own tailor-made excel spreadsheet to reflect data availability in their country

• This was a very cumbersome exercise: In Morocco for instance more than 13,000 data items were collected and had to be manually allocated to the different categories of expenditure

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Should we develop a software for compiling WASH-Accounts? • The health sector has developed two separate tools: a Health Account production and a

Health Account analysis tool. These tools are now used by over 20 countries, and are much appreciated for the systematic support they provide.

• Advantages – The software would:

o Simplify the exercise, by standardizing the treatment of the data:

• Coding different types of flows

• How the financial flows are distributed between different types of financing sources or financing units

• Avoiding double-counting of flows

• Producing summary tables / pivot tables of WASH Accounts.

o Cut down the costs of replicating the exercise from one year to another, through the coding of data sources.

o It would also support proper traceability and accountability of the work done behind the figures.

• This tool could be easily adapted from the Health Accounts software

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Discussion # 11: • Should we develop a tool for producing and analysing WASH-Accounts?

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12. DEVELOPING INSTITUTIONAL SUPPORT FOR COMPILING WASH-ACCOUNTS & INSTITUTIONALISATION (1)

• The success of the production of WASH-Accounts highly depends on the involvement of high-level decisions makers to :

o Open doors for data collection

o Spread lessons learned from WASH-Accounts to influence policy making

• In Morocco, the creation of a steering committee formed by directors, who was guiding the WASH-Accounts Team was a key factor of success

• What should be the recommended structure of the WASH-Accounts team? Should it be a team of consultants or ministry staff ?

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Discussion # 12: • What additional organisational tips can we include in the guidance document

to support the data collection, analysis and dissemination?

5. ISSUES AT INTERNATIONAL LEVEL

13. ENSURING THE COMPARABILITY OF DATA

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Treatment of inflation o At present: results are presented in nominal terms

o Should results should be converted in real terms to track evolution over times and clearly identify the impact of inflation?

• Exchange rate conversions o At present: use market exchange rates

o Should we control for differences in price levels between countries using PPP indices? If so, which indices should be used?

THANK YOU FOR YOUR ATTENTION!

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