Finance & Cost Recovery

INTRODUCTION

CONTEXT AND BACKGROUND

Most countries in the METAP RSWMP region are actively seeking to improve the quality of their solid waste management services and to reduce the impact that municipal waste and its management has upon the environment. In most of these countries waste management services have traditionally been provided directly by municipal waste management departments and funded through transfers of municipal and central government tax (and other) revenues. The demands of citizens for higher quality services and the need to meet increasingly stringent environmental standards have meant that service costs are progressively increasing, imposing severe constraints on the ability of municipalities to fund service improvements out of traditional revenue sources.

Accordingly, most countries are faced with having to establish what the standards and composition of the improved services should be and how the initial investment and the ongoing operating costs of these services are to be financed. This, in its turn, raises issues involving the amounts of the country’s national resources that should be devoted to solid waste management, the affordability of the services to municipalities and households alike, and the possible role of the private sector in financing, constructing and operating such services. A corollary to this is the need to consider whether users should be asked to pay directly for the services they receive and, if so, what charging mechanisms should be adopted and at what level the charges should be set.

This transition towards improved service levels and environmental protection calls for a very careful consideration of the financial impacts of these improvements on society in general and on municipalities and individuals in particular. In order to measure what these impacts are likely to be it is necessary to have a very clear understanding of the financial costs of the improved services and of their implications of these costs for service providers (typically municipalities).

The scope of this Guideline is to provide guidance to policy planners in general and to waste management professionals in particular on the processes involved in making well informed decisions about the appropriateness, affordability and financing of the various approaches available for improving solid waste management services.

JUSTIFICATION

By knowing your financial costs, you can control your own solid waste improvements, both financially and technically. The costs of providing municipal waste management services in the METAP RSWMP region are commonly under-estimated by a large margin. This reflects, in large part, the organisational arrangements through which the services are provided, the methods through which they are funded and the accounting systems through which service costs are recorded. This situation, coupled with a lack of reliable information on the actual costs of new services, means that municipalities frequently find it particularly difficult to make available the financial resources necessary to sustain service quality.

This guideline provides guidance to national planners and to municipal practitioners on how properly to assess the costs of existing services, how to evaluate the financial implications of alternative ways of improving those services, how to establish the investment and operating costs of proposed services, and how to establish how these costs are to be funded.

The extent and complexity of the analyses involved in making these assessments will differ, depending on the precise nature of the issues being examined. For example, the level of analysis needed to assess different waste management strategy options at the national level is likely to be different from that needed by a large municipality to prepare the financial documentation for a large loan application. Similarly, the nature and complexity of the analysis will differ between a large metropolitan city and a small country municipality.