Transcript Slide 1

Subsidies
Stefanie Keller, seecon international
Subsidies
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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
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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
Subsidies
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1.Concept
Where do Subsidies belong to?
 Standards are economic tools that belong to the software
implementation tools in Sustainable Sanitation and Water
Management
Subsidies
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1. Concept
With Economic Tools…
...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.
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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1. Concept
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.
Subsidies
Small hydroelectric power plant, built
in Tajikistan to produces electricity.
Source: http://news.ferghana.ru/photos/2009_03/ges.jpg
[Accessed: 08.06.2010]
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1. Concept
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.
Subsidies
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1. Concept
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.
Subsidies
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Four categories of subsidies. Source: FAO 2002
1. Concept
Types of Subsidies in Sanitation and Water Management
Four categories of subsidies.
Source: FAO 2002
Subsidies
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1. Concept
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.
Subsidies
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2. How it can optimize SSWM
• 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.
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]
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3. Design Principle
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.
Subsidies
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4. Things to consider before applying subsidies
•
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.
Subsidies
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4. Things to consider before applying subsidies
• 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
Subsidies
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5. Applicability
• 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
Source: http://rothroad.blogspot.com/2009/02/comic-farmsubsidies.html [Accessed: 08.06.2010]
Subsidies
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6. Advantages and disadvantages
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
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
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7. Examples
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.
Community members receive award for achieving the “open
defecation free status” after a successful CLTS Campaign
Source: M. Kropac 2009
Subsidies
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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