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close this bookGuide to the Development of On-Site Sanitation (WHO, 1992)
close this folderPart III - Planning and development of on-site sanitation projects
View the documentChapter 9 - Planning
View the documentChapter 10 - Institutional, economic and financial factors
View the documentChapter 11 - Development

Chapter 10 - Institutional, economic and financial factors

Institutional responsibilities
Human resources development
Economic factors
Financial factors

Institutional responsibilities

Any work on sanitation improvement is carried out within a framework of household, community and governmental relationships, all of which affect the manner in which a programme is executed. Of major importance are the organizations or institutions that have been given responsibility for or have an interest in some aspect of sanitation improvement. Such bodies may be governmental ministries, departments of ministries, urban municipalities, rural councils, nongovernmental agencies or recognized organizations.
In this book, a body outside the local community which takes primary responsibility for initiating, promoting, supervising or otherwise supporting a sanitation improvement project is generally referred to as an agency in order to distinguish it from other interested institutions. This agency may be a sectoral institution or a part of an institution. It may also be a special multidisciplinary team drawn from several institutions or even a nongovernmental organization working under the authority of a governmental institution.

Projects or programmes

Improvements to sanitation practices involve projects and programmes. Projects are specific tasks with realizable goals within a specified time period. Programmes are continuous undertakings with long-term objectives. Protecting people and their environment from excrete-related disease and pollution is a continuous task which requires the responsible agency to take a long-term, programme approach.

Projects may be of vital importance to give a short-term boost to the sanitation programme and to enable people to make the next incremental improvement in their facilities. However, every project should be clearly related to existing sanitation programmes, with the relevant staff and institutions understanding its nature and objectives.

Governmental involvement

Allocation of responsibility

Government ministries of health, water supply, rural development, local government, agriculture, and social welfare, and local government councils may all have an interest in sanitation. This concern may be at central, regional or local level. Ministries of finance and economic planning may also wish to exert some control. For a programme to succeed, there should be one lead agency, with a designated officer or management committee which has the responsibility and authority to take executive action.

Integration of sectoral responsibilities

Nomination of a lead agency does not free other institutions from responsibility for a programme. Under their own terms of reference, they may want to play an active role in the promotion of sanitation, and may be able to provide specialist skills and inputs that are of vital importance. Consequently, it is necessary to define the responsibilities of all associated institutions, agencies and government officers at an early stage. The degree of involvement of any body will vary considerably according to the nature of the programme, the type of organization and other national and local conditions.

A forum or meeting for open discussion of needs and concerns may be of value. From this an intersectoral advisory committee can be drawn for more regular discussions of progress. However, it remains advisable to have a single lead agency responsible for decision-making rather than an intersectoral committee.

Specialized sanitation support teams

Where a sanitation programme is being given a new impetus it is often found that the staff already have too many duties to be able to take on significant roles in a new project. Staff must either be released from other duties or new personnel appointed. The creation of a multidisciplinary "sanitation improvement team" may be an effective means of encouraging progress. However, the relation of such a team to the existing organizational structure should be defined, particularly with regard to its eventual re-absorption as part of the overall programme.

Specialized teams or agencies, where properly constituted, are often able to bypass the bureaucratic procedures and delays that exist in all institutions. Particularly where unconventional, community based approaches are used, considerable flexibility is required from the facilitating agency. For example, staff may need to attend community meetings in the evenings or extension workers may need to make home visits when householders are home from work. Extra payment for overtime, or time off in exchange for late working, may have to be arranged.

Flexibility within the Institution and support team

As discussed in Chapter II, there are considerable advantages in mobilizing the people, particularly with regard to the long-term sustainability of the improvements. However, in the short term there is no guarantee that the people will respond to the extent and at the rate desired by the agency.

The role of the agency may be made more difficult by nonacceptance of the preferred design standards, slow take-up of credits or materials, unfulfilled budgets, lengthy construction times and uncompleted objectives. Particularly where outside donors are involved, there will be a pressure to produce measurable results. The agency has to organize its budgets and work plans in such a way that donors and any sponsoring institutions are able to understand what is happening and why, while retaining the flexibility required by the people.

Multilateral and nongovernmental organizations

Many aid and development organizations become involved in sanitation programmes with the aim of improving the health of the people. Some may be based within the country, while others are externally supported. Some are able to draw on considerable experience over many years in different parts of the world, with funds and skilled personnel from different countries. Others have limited experience and/or funds but demonstrate a strong desire to assist the people. Their enthusiasm and ability to respond quickly to new ideas may be usefully harnessed for the good of the project.

The sponsoring institution has to decide how best to use all offers of help. The crucial task is to integrate the multilateral and nongovernmental organizations and the sectoral institutions, where appropriate, into the long-term programme, with the objective of limiting any tendency the smaller organizations may have to promote one-off projects that are not sustainable.

Institution-householder linkage

To be effective, government institutions must have contacts with householders and the wider community that go beyond simply instructing the people what they must do. This is discussed more fully in Chapter 11. The lead agency should be constituted so that it can manage:

- community surveys, interviews, meetings, household visits;

- demonstration centres, sanitation "supermarkets", component purchase and/or production and sales;

- general or task-specific support staff, for example technical, social, financial and health staff;

- training of community members as facilitators;

- financial assistance; material assistance; technical assistance in construction; - identification of contractors and skilled builders;

- standard specifications and target prices;

- ongoing support, in terms of technical assistance, and health education; and

- evaluation and monitoring.

Human resources development

Human resources development includes the employment, supervision, continuing education and training, and occupational welfare of the people needed to do a job properly. The process should embrace planning, development of skills and training, and human resources management, with all aspects harmoniously geared to the achievement of specific goals.

Shortcomings in the preparation, implementation, operation and maintenance of sanitation schemes are often blamed on poor performance of programme staff and the ignorance of the people using the system. The usual response is to plan a training programme to educate all those involved in how to carry out their tasks correctly. However, such teaching may not in itself solve difficulties of performance. There are many factors to be considered in enabling people to perform to their full potential, and it is one of the roles of the programme manager to consider all aspects of human resources development.

Carefoot (1987) suggested that deficiencies in human performance, particularly with regard to water and sanitation activities, can generally be traced to one or more of the following: lack of skill or knowledge; environmental and/or management difficulties; or motivational, incentive or attitudinal causes. If lack of skills or knowledge is the primary cause of a problem, training is the likely solution. However, if problems stem from environmental and/or management causes, or from motivational causes, they will probably not be solved by training alone. In a number of surveys, managers involved with water and sanitation programmes have estimated that only 10-30% of performance difficulties are due to lack of skills or knowledge which can be rectified through training.

A "dual-focus" approach - on both the individual and the system within which the individual works - was therefore suggested by Carefoot in seeking solutions to performance problems. Development of skill should be complemented by the strengthening of the organizational environment, whether formal or informal, in which the person works.

Programme participants

Before looking at the requirements for human resources development in more detail, the people who might need to be involved in a programme must be considered.


One of the advantages of many on-site sanitation systems is that much of the work can be undertaken by the beneficiaries. Householders can plan, design and construct many elements of a latrine. Support is therefore required both for the individual householders and for the community to impart the necessary confidence that they can complete the task.

The special role of women in many countries in running the home, collecting water, and managing the sanitation system should not be underestimated. Many training programmes are automatically biased towards men or, by including men, exclude women. However, women have a vital part to play in the appropriate design, construction, operation and maintenance of excrete-disposal systems. Any human resources development programme must cater for the particular needs of women. Some programmes have also benefited from paying particular attention to the needs and role of children, both within formal education and informally in the community.

Community leaders and councillors

Community leaders have their own special interests, particularly where communal decisions have to be made about some aspects of a sanitation scheme or where leaders can set an example to other householders.


In many projects there is a need for masons, bricklayers, drain-layers, carpenters, plumbers and other artisans to carry out part of the work. These workers often have experience in construction of houses and other buildings. Special skills may be required for the construction of latrines and associated works.

Local contractors
Householders may require local contractors to carry out certain tasks for them, such as lining pits or constructing slabs. Where new techniques are being introduced or new forms of project support and funding used, contractors and subcontractors will require support.

Programme and project staff

The numbers and categories of people needed to prepare and implement a project are largely determined by the nature and size of the project, type of agency, involvement of central and local government, whether the project forms part of an ongoing programme, and the degree to which the community participates.

Government health officers often play an essential part in sanitation improvement schemes, especially where the ministry of health is responsible for sanitation. Where a technical arm of government (such as a public works department) or an independent agency is responsible, management and supervision may be in the hands of technical officers. In some countries, health assistants, community and development officers and extension officers may be the link between an agency and the community. There is considerable variation in the terms used for different groups of workers and in the allocation of duties between these intermediate-level staff.

Professional staff

Several kinds of professional staff may be concerned with sanitation improvement projects:

- public health engineers who are employed by an agency or by consultants working for an agency, with primary responsibility for the technical aspects of the programme;

- architects, planners, medical officers and development staff who, because of their jobs with agencies or government departments, are involved with the planning and implementation of sanitation;

- behavioural scientists, anthropologists, health staff, geologists, economists and others having specialist expertise that can be beneficially employed at some stage of planning or implementation; and

- administrators.

Skills and knowledge training

If training is to be relevant and is to produce the desired results, it must be planned systematically. The objectives are to enhance people's breadth and depth of knowledge about their particular responsibilities, and to improve their ability to carry out particular tasks. In order to achieve these it is useful to follow a training cycle. This same cycle may be followed for householders as well as for professional engineers (Fig. 10.1).

The training cycle

Preparation of any training prograrnme begins with an assessment of training needs. This requires an organizational chart describing the different jobs to be carried out in order to complete the objective. The objective should not be limited to completion of initial construction but should also include operation and maintenance. Each of the jobs listed then requires a job description, that is, a detailed list of the tasks to be carried out by the person in that position (whether or not employed by the programme). Comparison of the job description with the knowledge and skills of people likely to be available to do a task leads to a list of training needs. A training plan is then prepared from the list of training needs, bearing in mind the priorities of the programme. The plan should specify the people to be trained, with target dates for completion and objectives for what the training should accomplish.

Fig. 10.1. The training cycle

Implementation of training depends on whether the needs are for:

· knowledge - where lectures and books are particularly useful;

· manual skills - step-by-step development through demonstration, practice and correction of faults, concentrating on key areas;

· social skills - use of role-playing, case studies, discussion, practice under supervision;

· attitude change - group discussion, personal interview, case studies and feedback; or for

· systems (for example clerical procedures and stock control) - checklists, demonstration and practice with correction.

The final phase of the training cycle is evaluation of what the participants have learned and determination of what they are able to do. I his leads to a reassessment of training needs for the next training session or programme. Of course, training and education form a continuous process which starts from what people know and enables them to build upon that foundation of knowledge. There is always opportunity for further learning; it cannot ever be said to have been completed.

Management requirements

However well people have been trained, they will not be able to reach the objectives of effective sanitation unless their working environment is geared towards meeting those objectives. For example, if there is no transport for project staff to visit sites when required, the community will become disheartened when the expected visitors do not arrive. Similarly, if there is no money to disburse loans to householders when promised, or if there is a lack of supplies, materials and tools, the project will lose momentum. To overcome such problems requires a willingness on the part of management to use all possible means to overcome institutional difficulties.

In addition, project staff, particularly those working directly with the community, require constant encouragement and recognition of their contribution to the project. Suggestions for improving work conditions include:

· regular visits by supervisors and colleagues to those working in isolated situations;

· regular meetings and seminars so that all staff on a project feel part of a team;

· the provision and maintenance of appropriate transport (car, van, motorbike or bicycle);

· alternation of work at rural and urban locations;

· payment of overtime where necessary; and

· ensuring that personnel have occasional postings near their home.


Adequate motivation of agency staff and householders is a prerequisite for successful training. Of particular importance to project staff is the possibility of future career development beyond the present project. If the staff can see a chance of transfer to other projects within a continuous programme, they are more likely to be prepared to learn and improve their skills, and to share their expertise with colleagues and householders. It is important that status, conditions of service and salary scales should compare favourably with those for other available employment. This is particularly important for senior posts where the holders have to work away from home.

Economic factors

Choosing between alternatives

Different sanitation techniques may be equally acceptable from the health, social, technical and institutional points of view. The final choice between different techniques is therefore often made on the grounds of cost.

Financial costs, that is, in general terms, what a householder or agency has to pay in cash for a sanitation facility, are discussed on pages 169 176. Economic costs represent the total resource cost to the national economy, that is, what the country as a whole has to pay in terms of labour, materials, health, environment and imports.

Economic comparative costing aims to assign a cost to all the elements that go to make up a system, thus enabling comparisons to be made between competing technologies. It is important for planners and project staff to consider all the alternatives in order to recommend the most economic systems for demonstration and promotion. This then allows the householders to make the final decision on grounds of affordability, convenience and attractiveness.

It should be noted that detailed economic analysis is normally undertaken only for large projects in high-density urban and periurban areas. Because of uncertainties in the basic economic data in many countries, it is inadvisable to make final decisions regarding sanitation technology on the basis of economic analysis alone. However, the discipline of thought required to carry out an analysis of the full life-cycle costs of any system can be of great benefit to the planning team by leading to a fuller understanding of all the issues involved.

Least-cost analysis of alternatives

It is difficult to quantify the benefits obtained from improvements in sanitation. Where there is a choice of technology available to achieve the objective of safe disposal of excrete in an acceptable manner, the benefits obtained from the different options may be presumed to be equivalent. Economic comparison of the alternatives may then be restricted to a "least-cost analysis", which focuses solely on the costs of providing sanitation. There may be variations in the convenience with which this is achieved. For example, a flyless, odourless improved latrine may be far preferable to a flush toilet and septic tank where the water supply is intermittent. However, such situations are so site specific that it may be generally assumed that the systems outlined in this book (unless specified differently in Chapter 4) have similar benefits with regard to excrete disposal.

Each alternative should be considered according to consistent factors using economic analysis. Non-monetary contributions by householders, for example digging their own pits, should be quantified. Similarly, imported fittings for a pedestal toilet and septic tank should be recorded at their true cost to the national economy, taking into account "real" exchange rates. The values thus assigned may not directly reflect the financial cost involved.

Detailed information on economic analysis and methods of determining "real" values is given in the Guide to practical project appraisal (UNIDO, 1978). The main areas that need to be considered are outlined below.

Economic costs of sanitation systems


Where a householder is to contribute labour, e.g., by digging the pit or building the superstructure, this work should be costed at the shadow wage rate. This is the rate at which people would be hired to work if there were no artificially controlled wage rates. In a country with high unemployment, the shadow labour rate is likely to be between 40% and 70% of the government minimum wage. Similarly, where agency staff or direct labour is to be used for construction, the costs should be charged at the shadow rate rather than the amount actually to be paid to them. If a labour-only subcontractor is to be employed, the amount to be paid less profit to the subcontractor should be used. Profit represents a "transfer payment" and does not reflect any real transfer of wealth within the economy.

Building materials

The costs of both the superstructure and the substructure must be considered. Where a toilet is to be installed in part of a house, the proportion of the house value represented by the toilet (in terms of the proportion of the floor area) should be included in the calculation.

Building materials may be collected locally without financial charge. There is, however, a labour charge according to the time taken, based on the shadow labour rate. Where the materials to be collected are scarce and efforts are being made to renew them, for example through a reforestation programme, some costs should be assigned to these "free" materials.

For items manufactured in the country, the amount charged by the manufacturer, including transport to the site (less all profit margins), should be used. However, if the item is subsidized by the government, the subsidy should be added to the total cost. Where an item carries a sales tax, the amount of the tax should be subtracted to reflect the real value of the item to the economy.

Where imported items are to be used, the total cost, including freight charges and insurance, should be used, but not including customs duties, local taxes or traders' profits. In some countries, the foreign currency exchange rate may be kept artificially high in order to reduce the financial costs of imports. To reflect the real value of any imported materials, a shadow exchange rate should be used, which is likely to increase the apparent cost of imports. The shadow exchange factor is often in the range 1.2-1.8.


Where water is to be used for flushing the sanitation system, the cost of this water has to be included. If it is to be obtained free of charge from an unimproved source, there is a labour charge for carrying the water to the latrine - calculated from the total time taken, costed at the shadow wage rate. If water is to be obtained from a standpipe or other improved source, the economic cost of delivering that water to the standpipe should be used, in addition to the labour cost of transfer to the latrine. Similarly, where a household has an individual water connection, the economic cost of delivering water to the house must be used. This economic or marginal cost of the extra water used for sanitation is normally higher than the actual tariff paid by the householder. The cost of any pipework and fittings to be used specifically to transfer the water to the toilet should also be considered.

Land use

Where land is scarce, particularly in urban areas, there is a cost associated with it, which should be included in the analysis.

Cost of money and the timing of costs

In economic terms, there is a cost involved in using money for one purpose, such as sanitation, as opposed to using it for an alternative purpose. This cost of using money is known as the opportunity cost of capital, and may be defined as the return on an investment in the best alternative use, that is, what could be earned by that money if it was used elsewhere. This cost influences the choice between alternatives with regard to the balance between initial capital investment costs and recurrent operation and maintenance costs. For example, some facilities are expensive to build but cheap to run, while others cost very little to construct but have to be rebuilt and/or emptied at regular intervals.

The influence of the opportunity cost of money on the timing of payments for a sanitation scheme is determined through the mechanism of discounting. This is a technique whereby all future payments made are given a current value by discounting in order to assess fairly the different streams of payments.

In economic analysis, the discount factor is the opportunity cost of capital. Where money invested increases in value over a period of time, the technique of discounting quantifies the money required at the present time in order to obtain a given amount at a set time in the future. Discount factors are normally obtained from tables, but may be calculated directly from the formula:

Discount factor = 1/(1 + r)t


r = discount rate
t = period in years.

The example given on page 173 (example 10.1) demonstrates how the technique might be applied to the practical problems of judging alternative systems.

Design life of the system

As different facilities are designed to last for different periods, the principles of discounting may also be applied to differing design lives so as to give a fair comparison.

Emptying and disposal

Pits and tanks may be emptied by hand, for which there are shadow labour charges, or by vacuum tankers, for which there are hourly running costs, including labour, fuel and maintenance. In addition, replacement costs have to be considered, allowing for shadow exchange rates where the machine and spare parts are imported. There is also a cost relating to the disposal of the sludge, whether it is to be discharged to land or to a wastewater treatment plant.

Groundwater pollution

Wastes that drain through the soil may cause pollution, leading to the need for an alternative water source. If this possibility only applies to one alternative, the possible costs should be estimated and allowed for.

Sullage disposal

Some systems accept sullage water as well as excrete, thus obviating the need to invest further in sullage removal. This difference should be included where necessary.

Waste reuse

If the waste products can be reused, for example, sold to farmers as fertilizer or used in a biogas plant, the benefit to be gained should be offset against the costs.

Governmental and agency management

Most sanitation schemes bear some hidden costs of agency management and promotion. Where alternatives have markedly different charges associated with them, these should be included.


The economic cost of each alternative is determined by calculating all the costs involved in the construction, operation, emptying and maintenance of a particular system over a specified period of time, modified by any appropriate shadow factors. All costs are then discounted by multiplying by a discount factor according to the year in which they will be incurred. This gives the present value of those costs. The present value represents the amount of money required now to be able to pay all expected costs in the future. The present values for each year are then summed to give a single figure of the total present value of the entire life-cycle cash flow, that is, the economic cost for each alternative.

Where alternative systems being compared are expected to last for different periods of time (that is, they have different design lives), it is necessary to take a standard duration in order to make a fair comparison. For on-site sanitation, periods of 10 or 15 years are appropriate. All the costs likely to be incurred during this period for each alternative should be calculated. If the time period is longer than the design life of a system, it is necessary to include rebuilding costs. For a fair comparison it is advisable to choose a standard time that best fits the design life or as nearly as possible a whole multiple of a design life of the alternatives.

Least-cost analysis may be used to compare on-site sanitation with a conventional sewerage system. The nature of the discounting technique, where future costs have a much lower economic impact, tends to favour systems with low initial investment and higher recurrent costs.

Total annual cost per household

An extension of the least-cost analysis approach is to consider the total annual cost per household (TACH) (Kalbermatten et al., 1982). The initial construction costs are calculated as described above. Because the maintenance costs of most on-site sanitation systems are dependent on the number of people using the system, an average household size appropriate to the area should be selected, usually in the range 6 10 people.

The TACH is calculated by considering the total present value (PV) of the life-cycle cash flow (as described above) as the equivalent of a loan which has to be paid back over the design life of the system at constant, non-inflated prices. The value of yearly repayments, including interest, is obtained by multiplying the present value by a capital recovery factor. This factor is taken from capital recovery factor tables which are based on the equation:

Capital recovery factor = r (1 + r)t / [(1 + r)t - 1]


r = discount rate
t = design life in years

An example of a TACH calculation may be found at the end of this chapter (example 10.2).

Analysis by TACH may be used to compare on-site sanitation systems with conventional sewerage systems. Kalbermatten et al. (1982) calculated that the cost of on-site sanitation was between 5% and 10% of that of conventional waterborne sewerage systems.

Cost-benefit analysis

Having determined by least-cost analysis the present values of alternative systems, it is normal practice to compare the costs with the present values of the expected benefits. Investment appraisal requires that the present values of benefits should be greater than the present values of the costs. Where alternatives are being considered, the system with the highest margin of benefits over costs should be chosen.

Benefits to be considered include enhanced privacy and convenience for the users, and environmental protection, as well as the reduction and anticipated eventual elimination of excrete-related diseases. Multiple benefits from a single intervention are extremely difficult to isolate and determine, especially where benefits such as improvements in health are interrelated with other basic needs such as nutrition and water supply. Quantification of the benefits of sanitation therefore tends to focus on the more readily measurable reduction of disease and the subsequent increase in productive life expectancy, increase in work capacity, and the reduction of demand for medical facilities and drugs.

Quantification of perceived improvements in the quality of life (for example, not having to squat at the edge of the street before dawn) is based on the value attached to the improvement by the users. Logically this can only be measured by considering the amount people are prepared to pay for those elements of a sanitation system that are most closely related to comfort. However, in most cultures, the investment decisions will be made by men according to their priorities, whereas the greatest benefit is likely to be felt by women who may be unable to declare their preferences.

There are other sanitation benefits to be added, such as reuse of composted or digested excrete for agricultural purposes, or production of biogas for energy needs. However, the benefit to be obtained from this reuse is only occasionally significant.

Quantification of the benefits to be derived from sanitation is extremely difficult. Low-cost sanitation is usually considered as a basic human need, required for human dignity and development as a whole. Economic analysis is therefore best used to compare alternative techniques to determine the least-cost method. This approach is particularly necessary where many of the anticipated environmental or public health benefits will not be realized immediately owing to the necessarily slow pace of community involvement.

A suitable approach to economic analysis is described in the Guide to practical project appraisal (UNIDO, 1978) in which it is stated that the literature of project (economic) appraisal commonly gives the impression that the goal is to produce a set of numbers that show whether a project is good or bad but that in reality it is not the numbers themselves that are important, but rather the appreciation of the project's relative strengths and weaknesses that is gained. The numbers are simply an instrument that forces analysts to examine all relevant factors, and a means of communicating their conclusions to others.

Financial factors

Financial costs represent the money or cash that has to be paid by householders and donor agencies to build and operate a sanitation system (together with allowances for depreciation and bad debts). Financial costs are the main concern of householders and donor agencies whereas economic costs are of greater interest to project planners.

Financial costs of sanitation systems


Although it is often assumed that the householders can provide much of the labour themselves, this is usually only correct in rural areas. Particularly among disadvantaged groups, such as the disabled, the elderly, and households headed by women in urban areas, skilled and unskilled labour has to be paid for.

Building materials

Most items, such as concrete blocks or bricks for pit linings or superstructures, cement for the slabs, water seals, vent pipes, fly screens, roof sheeting and doors, have to be paid for. Only in the rural areas are timber and other materials normally free of cost. Routine maintenance, such as repair of superstructures and renewal of fly screens, will involve costs in the future.


For septic tank systems in particular, but also for pour-flush latrines, an allowance must be made for extra payments for the water required for flushing.

Cost of money

Interest rates may be payable on loans either at market rates or at subsidized project rates.

Emptying and disposal

Allowance should be made for possible future hiring of labourers for the emptying of double pits and the removal of digested sludge, or for the hiring of a vacuum tanker for sludge disposal.

Waste reuse

In certain limited situations there may be a cash income from selling sludge to farmers.

Governmental and agency management

Management costs are not normally passed on to householders but remain as a hidden subsidy. Mara (1985b) suggested that the institutional and project delivery costs may be assumed to be about 45 % of the sum of labour and material costs.

Affordability and financial assistance policy

Economic analysis of development projects attempts to show where scarce resources such as capital might be used to best effect. Economic theory requires that, to maximize the benefit to a nation, the financial costs charged to the users should reflect economic costs as closely as possible. However, if the users cannot afford to pay the recommended costs, they will never install a sanitation system and the society as a whole, as well as individual households, will fail to receive the anticipated benefits.

The general policy of international lending agencies is that if the cost of the minimal sanitation facility necessary to ensure adequate health is more than a small part of the household income, then the central or local government should subsidize its construction to make it affordable. Any operation or maintenance costs should be borne by the beneficiary. If, however, some consumers wish to have better or more convenient facilities, they should pay the additional cost themselves. Similarly, if more affluent communities decide that, beyond meeting basic health needs, they wish to safeguard the cleanliness of their rivers or more general environment by building a more expensive sanitation system, they should pay for that system either through direct user charges or through general municipal revenues (Kalbermatten et al., 1982).

Affordability is generally believed to be in the region of 1.5 3% of total household income, that is, total financial costs incurred in a year (initially high investment costs may be spread over a period by use of loans) should not be higher than 3% of total household income for that year. Among the poorest in a poor community, this figure of affordability falls to 1-1.5% of household income.

In many countries, any subsidy of costs over and above this level of affordability has to be rigorously controlled. Development budgets are normally insufficient to subsidize to any significant extent a large number of latrines. There is a danger that small-scale pilot projects with external donor assistance might be given a large subsidy, on the basis of the need to promote the concepts of effective sanitation, when such subsidies could not be extended to a larger scale during expansion of the implementation programme.

There are two other reasons for carefully controlling the level of any subsidy. (1) In some countries, private enterprise can become involved in making and selling the components for sanitation on a large scale. Any subsidy to government projects reduces the profit potential and, therefore, the incentive for private contractors to become involved. Direct subsidies to nongovernment enterprises are usually unacceptable in countries where there is a risk of poor administration. (2) Where a system is not affordable it is usually not maintainable, that is, where the people cannot afford the technology chosen, it is likely that they will also not have the funds to maintain the structure and empty the pits or tanks. The system will then quickly fall into disrepair and the investment will be wasted.

The financial costs of any proposed sanitation system therefore need to be examined very closely. If necessary, installation of pit linings, water seals, vent pipes, cement slabs and superstructures may have to be postponed in order that, at the initial stage, the maximum number of people may benefit from a system which, however simple, leads to a reduction in excrete-related disease.

Where financial subsidies are employed, they should not favour one sanitation system over another in such a way that the economic ranking of alternatives is chanced (Kalbermatten et al., 1982).

Financial assistance

Financial assistance may be necessary to start a sanitation programme and, in countries with appropriate resources, subsidies may be a useful means of quickly propagating public health improvement. Where people cannot afford even the simplest form of sanitation, particularly in urban areas, society as a whole has to pay for the required social benefits through general taxation. However, the use of direct grants is not recommended because of the danger of funds being diverted for purposes other than sanitation.

From India, Roy et al. (1984) suggested that if a programme is designed to serve the poorest groups, a subsidy has to be provided. One method of determining the extent of the subsidy is to use a means test. This may be based on the public utilities (water, electricity, etc.) available in the household. For example, households with no utilities might receive a 75% grant and a 25% loan. Where more utilities are available, the proportion given as a grant decreases. However, even for the poorest households, a small loan component requiring repayment is generally recognized as being vital to ensure effective care and use of the latrines, which only occurs when ownership is clearly vested in the householder rather than the agency.

A revolving fund or loan scheme, whereby money is lent at normal or subsidized interest rates for varying periods of time, may be of great importance. Monthly repayments on loans should be fixed at an affordable level. It is recommended that, if possible, loans for latrines should have a shorter repayment period (for example two years) than loans for housing. This is because benefits perceived by the householder are often limited and they may therefore lack motivation to continue payments over a longer period. Where the people have been fully involved in the construction of their latrines, small loans are usually repaid. If a programme is pushed through by an agency without effective community participation, it is likely that there will be a low return.

Revolving funds are a particular form of loan scheme where initial finance from government or a donor is distributed. The fact that there is only a certain amount of money available provides added incentive for borrowers to repay their loans, since other borrowers may have to wait for a loan while their neighbours repay.

There are many possibilities for combining the different types of financial assistance. A government agency might implement and maintain a sanitation system with full or partial cost recovery through tariffs or local taxation. This is more usually the case with a waterborne sewerage system than with on-site sanitation. The householders might do all the work themselves, assisted by grants or loans. They may achieve viable systems simply by accepting advice from external sources. Or the substructure might be constructed by an agency with costs recovered through a tariff, and with the householders building the superstructure with the help of a loan.

Wherever possible, financial assistance should be kept to a minimum, with design and technology appropriate to affordability in the various income groups targeted.

Costs of sanitation systems

A survey of sanitation by WHO (1987c) suggested that funding limitations are still the most serious constraint on achieving the goal of sanitation for all. The costs of different sanitation systems vary greatly according to country, current exchange rates, and skills needed for designing and implementing on-site technology. The figures given here (from WHO, 1987c, and other sources) are an indication of current costs per person served. However, it should be recognized that these costs are liable to considerable change, even over a short period. The WHO survey discovered increases in median figures between 1980 and 1985 of 131% for individual urban household sanitation in the least developed countries. The survey also noted a 30% decrease in per capita costs for rural sanitation in one region.

In South-East Asia, the per capita cost of sewer connections in urban areas in 1985 varied from US$ 45 to US$ 400 with a median cost of approximately US$ 80. To this must be added an annual water charge in the region of US$ 5 per person served. Low-cost on-site alternatives were costing US$ 13 30 per person in urban areas, and US$ 5-20 per person in rural areas.

In Africa south of the Sahara, sewer connections were reported to cost US$ 120-300 with accompanying water costs in the region of

US$ 8 per year per person. The median sewer connection cost was US$ 150, with urban on-site alternatives ranging from US$ 25 to US$ 70. Rural sanitation costs were in the range US$ 10 45 with a median of US$ 25 per person.

In Central and South America, sewer connection costs varied from US$ 120 to US$ 235 with a median cost of US$ 150, the same as for Africa. Urban on-site sanitation cost US$ 20 80 and rural sanitation ranged from US$ 10 to US$ 50, with an average of about US$ 25 per person served.


Example 10.1. Least-cost analysis

Two alternative on-site sanitation systems (A and B) are to be considered. The discount rate is taken to be 10%, the shadow exchange factor (SEF) for imported goods is 1.3, the shadow wage rate (SWR) for labour is 0.6, and the institutional and promotional costs are 30% of the initial capital cost. All costs are in dollars.

System A costs $ 71.80 at the initial construction stage and $ 10 for the use of a vacuum tanker every 5 years. The anticipated life of the system is 20 years. Note: the effects of inflation may be ignored.





Shadow cost



Shadow cost

Costs of pit:





lining - bricks



lining - cement


1 3






Costs of slab:





steel reinforcing bar















Total economic cost


Cost of superstructure (calculated in a similar manner)




Cost of institutional support and sanitation promotion (at 30%)


Total economic investment cost


System B costs $ 55 for pit, slab and superstructure at the initial stage, with the same amount for a new pit and superstructure after 10 years, at the end of the original design life.

Total economic cost


Total economic investment cost (calculated in a similar manner to System A above)


Least-cost analysis

System A

System B

Costs (a)

Discounted costs (a) x DF


Discount factor DF

Costs (b)

Discounted costs (b) x DF






















97.30 (present value)


86.20 (present value)

By least-cost analysis, the present value of system B is slightly less than the present value of system A. However, the difference is not enough to allow one system to be chosen in preference to the other on economic grounds alone.

Example 10.2. Total annual cost per household

The total annual cost per household (TACH) is determined by multiplying the present value of each system by the capital recovery factor (CRF). Using the formula given in the text (page 167), and at an interest rate of 10% over 20 years, CRF = 0.118.

From the figures calculated in Example 10.1:

System A

System B

Present value = $ 97.30

Present value = $ 86.20

TACH = 97.30 x 0.118

TACH = 86.20 x 0.118

= $ 11.50 per household

= $ 10.20 per household

per year

per year

Example 10.3. Financial and affordability analysis

Using the figures given in Example 10.1 for system A, it is assumed that the householder is contributing time to excavate the pit and to construct the slab and superstructure.

Financial costs to be paid by household



0.00 (given by household)









0.00 (collected by household)




14.50 (assumes household labour contribution of 12.50)



Determination of repayments

Assuming a subsidized interest rate of 5% with the loan to be paid off over two years:

Capital recovery factor = 0.538

Annual loan repayments = 0.538 x $ 48.00 = $ 25.80

Check on affordability: annual average household income estimated for this example as $ 380.

Repayment as percentage of annual income = (25.80 x 100)/380 = 6.8%

This would normally be too high for a household to pay, so repayments over four years at a subsidized rate of interest of 3% should be considered:

Capital recovery factor = 0.270

Annual repayments = 0.270 x $ 48.00 = $13.00

As percentage of annual income = (13.00 x 100)/380 = 3.4%

This may be acceptable, depending upon the cost of living, and repayments would be completed before the first pit-emptying cost is incurred. As an alternative to subsidizing the rate of interest, it might be possible to sell the latrine slab at a reduced cost. It would be unwise to sell the cement or steel at reduced cost because of the dangers of the materials being used for other purposes. Another alternative is to encourage the use of different building materials to reduce the cost of the superstructure.

Affordability with loan at full rate of interest, repayable over 4 years, slab sold at half price and reduced cost superstructure:

Financial costs to be paid by household








Cement \

>> as half price slab









9.50 (reduced-cost design)



Capital recovery factor = 0.315
Annual loan repayments = 0.315 x $ 36.50 = $ 11.50

Repayment as percentage of annual income = (11.50 x 100)/380 = 3%

Determination of subsidy

With subsidized rate of interest: assuming a real interest rate of 10%, capital recovery factor = 0.315 for four years. Without subsidy, annual repayments would be $ 15.10. With a subsidized rate of interest of 3%, subsidy = $ 2.10 annually for four years in addition to the institutional and promotional costs paid by the agency of approximately $ 22.

With subsidized slab cost: the subsidy represents half the cost of a householder making a slab. Therefore the agency has to pay labour charges as well as half the material costs. Subsidy = $ 2.00, labour and materials = $ 6.50, total subsidy = $ 8.50, in addition to the institutional and promotional costs.