Subsidies Stefanie Keller, seecon international. Subsidies Find this presentation and more on: Copy it, adapt it, use it.

Subsidies

Subsidies

Stefanie Keller, seecon international

Subsidies

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The contents of the SSWM Toolbox reflect the opinions of the respective authors and not necessarily the official opinion of the funding or supporting partner organisations.

Depending on the initial situations and respective local circumstances, there is no guarantee that single measures described in the toolbox will make the local water and sanitation system more sustainable. The main aim of the SSWM Toolbox is to be a reference tool to provide ideas for improving the local water and sanitation situation in a sustainable manner. Results depend largely on the respective situation and the implementation and combination of the measures described. An in-depth analysis of respective advantages and disadvantages and the suitability of the measure is necessary in every single case. We do not assume any responsibility for and make no warranty with respect to the results that may be obtained from the use of the information provided.

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Subsidies


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Contents

1. Concept

2. How it can optimize SSWM

3. Design principles

4. Things to consider before applying subsidies

5. Applicability

6. Advantages and disadvantages

7. Examples

8. References

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Where do Subsidies belong to?

Standards are economic tools that belong to the software implementation tools in Sustainable Sanitation and Water Management

1.Concept

Subsidies


...people change their behaviour because the want to achieve maximal benefit at minimal cost. Economic Tools involve the use of prices and other market-based instruments to provide incentives monetary incentives to change behaviour.

1. Concept

Tools:• Water pricing (tariffs)• Subsidies • Charges (irrigation, wastewater)• Tradable water rights• Etc.

Source: http://www.wsp.org/userfiles/image/november2002.jpg [Accessed: 23.03.2010]

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With Economic Tools…

Subsidies


Subsidies

A subsidy is a form of financial assistance paid to an individual, a business or an economic sector in order to achieve certain policy objectives.

For example, a subsidy can be used to support businesses that might otherwise fail, like a sewage treatment plants or small hydro-electric power plants.

1. Concept

Small hydroelectric power plant, built in Tajikistan to produces electricity.Source: http://news.ferghana.ru/photos/2009_03/ges.jpg [Accessed: 08.06.2010]

Subsidies


Types of Subsidies in Sanitation and Water Management

• Direct subsidies

Directly giving money to people to achieve certain policy objectives by national or municipal government, national or international agencies.

Example: Government funds are used to cover part of the water bill of poor households who meet certain clearly defined eligibility criteria.

• Services and indirect financial transfers

Active and explicit government intervention which does not involve a direct financial transfer. This type of subsidies has a direct short-term effect on profitability but is rarely negative.

Example: Construction of community toilets provided by the municipal government for legal slum dwellers in order to reduce the Open Defecation (OD) practises within the city.

1. Concept

Subsidies


Types of Subsidies in Sanitation and Water Management

• Interventions with different short and long-term effects

Considering a long time perspective. Includes government interventions which have a negative economic impact on the industry in the short-term but ultimately result in long-term benefits and more general benefits for society.

Example: Setting higher standards for treated wastewater (especially regarding BOD values). First, this measures will have a negative impact on the industries but positive influence on the entire society in the long-term.

• Lack of intervention

Inaction on behalf of the government that allows producers to impose - in the short or long-term - certain costs of production on others, including on the environment and natural resources.

Example: Non-implementation of existing regulations such as certain BOD regulation for treated wastewater from Industries.

1. Concept

Subsidies


Types of Subsidies in Sanitation and Water Management1. Concept

Four categories of subsidies. Source: FAO 2002

Four categories of subsidies. Source: FAO 2002

Subsidies


Controversies

• The different objectives of any public subsidy remain non-explicit. Subsidy is often a highly politicized issue and it is essential to imply this objectives to the explicit ‘official’ objectives.

• By implementing cost-intensive subsidies, government finances mostly suffer in return. It is probably the major reasons why the topic of sanitation and water subsidies is so problematic.

• Lack of ownership often occurs through these financial interventions and inappropriate integration of local communities. Many projects have failed in the past where water and sanitation infrastructure was constructed with subsidies but without sufficient integration of local people.

1. Concept

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• In SSWM, subsidies can contribute towards a sustainable practice, e.g. by granting subsidies to implement clean and in the long run sustainable technologies that otherwise might not be selected by the people.

2. How it can optimize SSWM

World map showing the countries with the poorest water access in 2006.Source: http://www.worldmapper.org/images/largepng/186.png [Accessed: 08.06.2010]

Subsidies


Implementation Steps

In order to implement a subsidy scheme it is necessary to establish:

• a legal basis for the subsidy scheme;

• a set of institutions charged with implementing the scheme;

• a series of administrative procedures to govern the operation of the system.

3. Design Principle

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• Subsidies should achieve the intended policy outcome:

Subsidies require a smart design and clarity about what the policy objectives are. Choices and tradeoffs need to be made between different interest groups and short- and long-term objectives.

• Subsidies should reach the intended target groups:

They require clarity on who is the intended target group and how they can best be reached. It also requires that rigorous monitoring is in place to track how subsidies are reaching the intended groups.

• Subsidies should be financially sustainable:

A solid understanding of the potential scale of needs and the costs of the programme is required. Costs include both upfront capital costs and long-term operational and maintenance costs even in rural areas.

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• Subsidies should integrate local peoples’ needs:

In order to guarantee the sustainability of the subsidised sanitation or water infrastructure, it is of prime importance to facilitate the integration and participation of the local beneficiaries and to develop a sense of ownership.

• Subsidies should be implemented in a clear and transparent manner:

Subsidy programmes need to be clear and transparent. Furthermore, proper monitoring and evaluation is an essential element of such transparency and must be fully financed as part of the subsidy programme.

Community members decide and plan where to build new latrines in their area. Source: KAR and CHAMBERS 2008

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• Use subsidies to maximise health benefits and increase access specifically to groups who are persistently excluded.

• Subsidise the lowest possible level of service to maximise spread and avoid distortions to the market.

• Base subsidies on solid and rigorous information:

- Types of service people are willing to pay for

- Affordability for the target group

- To be scaled up in the long term

5. Applicability

Source: http://rothroad.blogspot.com/2009/02/comic-farm-subsidies.html [Accessed: 08.06.2010]

Subsidies


6. Advantages and disadvantages

Disadvantages:• Subsidies may not

increase access to poor households

• Subsidies may distort markets, and can impose extra costs

• Lack of financial sustainability, if there are not sufficient public funds to support it

• Subsidies aimed at helping the poorest sometimes associate a certain technology with poverty

Advantages:• Well targeted can reach

households without access

• Lowers costs for example per-latrine costs

• Addresses access problems directly and may be better targeted

• Uses existing tariff collection and payment system

Subsidies


Community led total sanitation (CLTS) interventions is an evidence of subside success in Bangladesh. They recognized that only subsiding toilets is not a guarantee of their use, neither of sanitation or hygiene improvement. CLTS’s goal is to invest in community mobilisation instead of hardware tools, towards creation of “open defecation-free” villages.

Senegal 2009 is an example of subsidies that “went wrong”. They wanted to provide water connection to all households. But households to be eligible for the subsidy needed a title to the land and an existing house located on it. This almost guaranteed that poor people (which were supposed to be the target group) were excluded.

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7. Examples

Community members receive award for achieving the “open defecation free status” after a successful CLTS CampaignSource: M. Kropac 2009

Subsidies


8. References

EVANS, B.; VAN DER VOORDEN, C.; Peal, A. (2009): Public Funding for Sanitation. The many Faces of Sanitation Subsidies. Geneva: Water Supply and Sanitation Collaborative Council.

GOMEZ-LOBO, A.; FOSTER, V.; HALPERN; J (Smith) (2000): Infrastructure Reform, Better Subsidies, and the Information Deficit. Washington DC: The World Bank.

KOMIVES, K.; FOSTER, V.; HALPERN, J.; WODON, Q.(2005) Water, Electricity, and the Poor: Who Benefits from Utility Subsidies?. Washington DC: The World Bank.

TODARO, M.P.; Stephen, C.S (2009) Economic development 10th ed.. Harlow : Addison-Wesley

WSSCC (2005): Sanitation and Hygiene Promotion: Programming Guidance. Geneva: Water Supply and Sanitation Collaborative Council (WSSCC) and World Health Organization. URL: http://whqlibdoc.who.int/publications/2005/9241593032.pdf [Accessed: 08.06.2010]

KAUFMANN-HAYOZ, R.; BÄTTIG, C.; BRUPPACHER, S.; DEFILA, R.; DI GIULIO, A.; FLURY-KLEUBER, P.; FRIEDERICH, U.; GARBELY, M.; GUTSCHER, H.; JAEGGI, C.; JEGEN, M.; MOSLER, H.J.; MUELLER, A.; NORTH, N.; ULLI-BEER, S.; WICHTERMANN, J. (2001): A Typology of Tools for Building Sustainability Strategies. In: Kaufmann-Hayoz, R. & Gutscher, H. (Eds.): Changing Things – Moving People. Strategies for Promoting Sustainable Development at the Local Level. Basel: Birkhaeuser. 33-108.

Subsidies

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Subsidies Stefanie Keller, seecon international. Subsidies Find this presentation and more on: Copy it, adapt it, use it.

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