Knowledge PAPERS 91861 v2 Results-based Financing for Municipal Solid Waste Knowledge PAPERS Results-based Financing for Municipal Solid Waste July 2014, No. 20 Urban Development Series Produced by the World Bank’s Global Urban and Disaster Risk Management (DRM) Unit, the Urban Development Series discusses the challenge of urbanization and what it will mean for developing countries in the decades ahead. The Series aims to explore and delve more substantively into the core issues framed by the World Bank’s 2009 Urban Strategy Systems of Cities: Harnessing Urbanization for Growth and Poverty Alleviation. Across the five domains of the Urban Strategy, the Series provides a focal point for publications that seek to foster a better understanding of (i) the core elements of the city system, (ii) pro-poor policies, (iii) city economies, (iv) urban land and housing markets, (v) sustainable urban environment, and other urban issues germane to the urban development agenda for sustainable cities and communities. GPOBA is a global partnership program administered by the World Bank Group. Established in 2003, GPOBA funds, designs, demonstrates and documents innovative output-based aid (OBA) approaches in developing countries. GPOBA is committed to ensuring that the poor have access to basic services like water, sanitation, electricity, health care, and education. To date, GPOBA has a portfolio of 38 OBA projects around the globe, with disbursements of more than $105 million. Based on independent verification, GPOBA projects have directly benefited more than 7 million people throughout Latin America, Sub-Saharan Africa, the Middle East and North Africa, Southeast Asia and Central Asia. GPOBA’s current donors are the United Kingdom’s Department for International Development (DFID), the International Finance Corporation (IFC), the Directorate-General for International Cooperation of the Dutch Ministry of Foreign Affairs (DGIS), the Australian Department of Foreign Affairs and Trade (DFAT), and the Swedish International Development Cooperation Agency (Sida). For more information, please visit GPOBA’s website at http://www.gpoba.org. Copyright © World Bank, 2014 All rights reserved Global Urban and DRM Unit World Bank 1818 H Street, NW Washington, DC 20433 USA http://www.worldbank.org/urban This publication is a product of the staff of the World Bank Group. It does not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. This note is provided for information only. The World Bank has no responsibility for the persistence or accuracy of URLs and citations for external or third-party sources referred to in this publication, and does not guarantee that any content is, or will remain, accurate or appropriate. Table of Contents v Table of Contents List of Boxes, Figures, and Tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . x Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 RBF for Improved Solid Waste Service Delivery and User Fee Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2. Nepal: Improving Financial Sustainability and the Quality of MSW Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.6 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.7 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. The West Bank: Offsetting the Costs of Improved SWM Services with Increased SWM Fee Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 3.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.6 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.7 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 RBF to Promote Recycling and Source Separation of Waste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4. China and Malaysia: Incentive Payments to Increase Source Separation of Solid Waste in Ningbo, China and Penang, Malaysia . . . . . . . . . . . . 24 Ningbo, China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 4.6 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Penang, Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.7 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.8 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.9 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 4.10 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.11 Key Risks and Sustainability in Ningbo and Penang. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5. Indonesia: Expanding and Replicating Waste Banks in Tangerang, Balikpapan, and Manado. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 vi Results-based Financing for Municipal Solid Waste 5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 5.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 5.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.6 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 5.7 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 RBF to Strengthen Waste Collection and Transport for Underserved Communities . . . . . . . . . . . . . . . . . . . . . . . . . . 40 6. Tanzania: Improving Primary and Secondary Waste Collection and Fee collection in Dar es Salaam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 6.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.5 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6.6 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7. Jamaica: Improving Waste Collection, Source Separation, and Community Cleanliness in Inner Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 7.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 7.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.6 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 7.7 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 8. Mali: Improving the Reliability and Financial Sustainability of SWM Services in Sikasso . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.2 The Broader Context of World Bank Support. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.3 The Problem Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.4 The RBF Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.5 Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 8.6 Key Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 8.7 Lessons Learned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Lessons Learned and the Way Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9. Lessons Learned in Using RBF for MSW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.1 General Lessons and Recommendations for Using RBF for MSW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.2 Considerations for Designing RBF Projects for MSW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 9.3 Monitoring and Independent Verification of RBF Schemes for MSW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 9.4 Ensuring Successful Implementation of RBF for MSW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9.5 Sustainability of RBF Projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 10. The Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 10.1 Recommendations to scale up the use of RBF in the solid waste sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 10.2 The Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 List of Boxes, Figures, and Tables vii List of Boxes, Figures, and Tables Boxes Box 1.1: The Global Partnership on Output-based Aid (GPOBA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Box 1.2: The Climate and Clean Air Coalition (CCAC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Box 2.1: RBF in Nepal’s MSW Sector “At-a-Glance”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Box 2.2: The Solid Waste Sector in Nepal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Box 2.3: Outputs and Indicators for the Nepal Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Box 3.1: RBF in the West Bank’s MSW Sector “At-a-Glance” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Box 3.2: The Solid Waste Sector in the West Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Box 4.1: RBF in China’s MSW Sector “At-a-Glance”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Box 4.2: RBF in Malaysia’s MSW Sector “At-a-Glance” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Box 4.3: The Solid Waste Sector in China. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Box 4.4: The Solid Waste Sector in Malaysia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Box 5.1: RBF in Indonesia’s MSW Sector “At-a-Glance”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Box 5.2: The Solid Waste Sector in Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Box 5.3: Outputs and Indicators for the Indonesia Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Box 5.4: Simplifying Verification through Random Sampling and a Sequential “One-Out” Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Box 6.1: RBF in Tanzania’s MSW Sector “At-a-Glance” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Box 6.2: The Solid Waste Sector in Tanzania. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Box 6.3: Conditions Necessary for the Implementation of the RBF Scheme in Dar es Salaam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Box 7.1: RBF in Jamaica’s MSW Sector “At-a-Glance”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Box 7.2: The Solid Waste Sector in Jamaica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Box 8.1: RBF in Mali’s MSW Sector “At-a-Glance”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Box 8.2: The Solid Waste Sector in Mali. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 viii Results-based Financing for Municipal Solid Waste Figures Figure 1.1: Common Challenges along the MSW Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 1.2: List of Challenges undermining Proper Management of Solid Waste in Developing Countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 1.3: Potential Results-Based Financing Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 1.4: Sectors in the GPOBA Portfolio (Oct 2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 1.5: Cities Where Work was Undertaken. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 2.1: The Basic Project Cycle in Nepal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 3.1: The Basic Project Cycle in the West Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 5.1: Waste Bank Operational Model In Indonesia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Figure 10.1: Activities Along the Value Chain Addressed by the Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Figure 10.2: Sector Issues Addressed by the Case Studies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Tables Opportunities for Addressing MSW Challenges in Developing Countries using RBF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Table 1.1:  Table 2.1: Summary of Municipalities Selected for the Project in Nepal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 3.1: Outputs and Indicators for the West Bank Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table 8.1: Performance Indicators for the Sikasso Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Table 10.1: Additional RBF Design Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Foreword ix Acknowledgments This report is a product of the Global Urban and DRM Unit of the World Ionkova (Senior Urban Development Specialist), James Michelsen Bank, and benefited from the support of the Global Partnership for (Senior Industry Specialist), Sintana Vergara (Junior Professional Output-based Aid (GPOBA), except for the work in Penang (Malaysia) Associate), Robert Breeze (Consultant), Zie Ibrahima Coulibaly (Senior which was supported by the Climate and Clean Air Coalition (CCAC). Infrastructure Specialist), Jian Xie (Senior Environmental Specialist), Junxue Chu (Senior Finance Officer), Eric Dickson (Senior Urban Preparation of this guide involved a core team at the World Bank Specialist), HT Khor (Consultant), Esther Loening (Infrastructure that included Marcus Lee (Task Team Leader), Farouk Banna (Co-Task Specialist), Ik Jae Kim (Economist), Carrie Farley (Senior Investment Team Leader), Renee Ho, Perinaz Bhada-Tata, and Silpa Kaza. Content Officer), Stephen Hammer (Lead Urban Development Specialist), for the case studies was adapted from relevant World Bank project Adelaide Barra (Program Assistant), Xiaofeng Li (Operations Analyst), documents. Jeffrey Lecksell (Cartographer), Mara T. Baranson (Editor), and The team is grateful for the insight, comments, and contributions from Laura de Brular (Information Analyst). The typesetting was done by the following individuals: Yara Salem (Senior Infrastructure Specialist), Corporate Visions. Josses Mugabi (Senior Water and Sanitation Specialist), Luis Tineo Finally, thanks go to Sameh Wahba (Practice Manager, Global Urban (Senior Operations Officer), Ibrahim Khalil Dajani (Senior Operations and DRM Unit), Carmen Nonay (Manager, GPOBA) and Zoubida Officer), James Orehmie Monday (Senior Environmental Engineer), Allaoua (former Director UDR and Acting Vice-President, Sustainable John Morton (Senior Urban Environment Specialist), Kremena Development Network) for their leadership, guidance and support. x Results-based Financing for Municipal Solid Waste Foreword Solid waste management is a pressing challenge that an increasing number of cities in developing countries are facing today. Rapid urbanization, new economic activity, and population growth place multiple pressures on solid waste management systems. When basic services such as waste collection and disposal are inadequate, the economic, environmental, and human health effects disproportionally affect the urban poor. Yet, the solid waste challenge presents us with a tremendous opportunity. Improving solid waste management provides a cleaner environment including in poor and marginalized areas of cities and improves livability for all city residents. A cleaner city helps provide a more attractive environment for investment and tourism which, in turn, improves a city’s economic competitiveness, creating jobs and new business opportunities for local entrepreneurs. Solid waste management can also be linked to the development of new sources of energy, helping tackle climate change. Municipal solid waste management is directly relevant to the World Bank’s goals of ending extreme poverty and boosting shared prosperity. We have responded thus far with a solid waste portfolio of over 114 active projects in 58 countries, representing $1.27 billion in investments, and over 55 analytical and advisory activities. While most investment has provided direct financing for equipment and facilities, there is increasing recognition that this is not enough. Complementary investments are needed to encourage new behaviors toward waste minimization, separation, and recycling. Results-based financing (RBF) focuses greater attention on measurable outputs in basic service delivery and changes in human behavior. This report presents valuable lessons from the design and preparation phase of eight municipal solid waste projects that innovated in the use of RBF approaches in solid waste. In so doing, we have sought to draw on the range of successful experiences on RBF in other sectors, and to apply some fresh thinking in addressing existing solid waste challenges. I hope that solid waste management practitioners and policymakers will find this report useful. Given the growing challenge of rapid urbanization, we are committed to improving analytics and tools for local and urban development-related matters. Going forward, we will continue to work in this space, drawing lessons from implementation, and refining the application of RBF principles in the sector. Marisela Montoliu Munoz Director, Urban and Disaster Risk Management, Social, Urban, Rural and Resilience Global Practice Acknowledgments xi Sustainable financing is a major obstacle for municipalities seeking to improve solid waste management. Municipalities are caught in a vicious cycle; they are unable to generate the necessary fee collection rate until they improve service and, conversely, people are unwilling to pay for poor service. Policymakers need innovative financing mechanisms to increase cost recovery levels, and improve service delivery and outcomes in this basic and critical sector. The Global Partnership on Output-Based Aid (GPOBA) is at the forefront of this effort. Drawing on more than a decade of global experience using results-based financing (RBF)—particularly output-based (OBA)—to improve access to energy, water and sanitation, health, and education, GPOBA is applying the same innovative thinking to solid waste management projects. GPOBA is proud to sponsor this report, expanding lessons and analysis of RBF in the solid waste management sector. The report presents case studies of municipalities that adapted RBF principles to fit local contexts and meet individual challenges. It aims to help practitioners apply RBF principles in solid waste management and highlights the role outcome-based incentives could play in improving services and outcomes. In the report, GPOBA shares customized project designs and lessons learned with other municipalities that encounter similar solid waste management challenges. Since the report leverages existing World Bank Group projects, it also provides opportunity for GPOBA to make a significant contribution to the further exchange of knowledge in this area. I hope the diverse solutions and recommendations included in this report will encourage other municipalities to incorporate RBF into their solid waste management projects. GPOBA is ready to work with governments and policy makers to build technical knowledge and experience; creating sustainable solutions to solid waste management problems. Carmen Nonay Manager, Global Partnership on Output-Based Aid (GPOBA) Social, Urban, Rural and Resilience Global Practice xii Results-based Financing for Municipal Solid Waste Abbreviations 3R Reduce, reuse, recycle BPLHD Environmental Management Agency (Indonesia) C40 Global Network of Large Cities Taking Action to Address Climate Change CBO Community-based organization CCAC Climate and Clean Air Coalition CI Cleanliness Index (Jamaica) DCC Dar es Salaam City Council (Tanzania) DFAT Department for Foreign Affairs and Trade (Australia) DFID Department for International Development (United Kingdom) DGIS Directorate General for International Cooperation (Netherland) DLAs Dar es Salaam Local Authorities (Tanzania) DMDP Dar es Salaam Metropolitan Project (Tanzania) DRACPN Direction Régionale de l’Assainissement et de Contrôle des Pollutions et Nuisances (Mali) ETP Emerging Towns Project (Nepal) GDP Gross Domestic Product GFDRR Global Facility for Disaster Reduction and Recovery GIE Groupement d’intérêt économique (Mali) GoN Government of Nepal GPOBA Global Partnership on Output-Based Aid HFC Hydrofluorocarbon HMC High-rise Management Committee (China and Malaysia) ICDP Integrated Community Development Project (Jamaica) IBRD International Bank for Reconstruction and Development IDA International Development Association (World Bank Group) IFA Independent fiduciary agent IFC International Finance Corporation (World Bank Group) IFVA Independent financial verification agent ITVA Independent technical verification agent IVA Independent verification agent Abbreviations xiii JSC Joint Services Council JSC-B Joint Services Council – Bethlehem (West Bank) JSC-H Joint Services Council – Hebron (West Bank) JSC-H&B Joint Services Council – Hebron and Bethlehem (West Bank) JSIF Jamaica Social Investment Fund KMA Kingston Metropolitan Area (Jamaica) MIS Management information system MoF Ministry of Finance MP Maximum Payment MPPP Penang Island Municipal Council (Malaysia) MPSP Seberang Perai Municipal Council (Malaysia) MRF Material Recovery Facility MS Minimum Score MSW Municipal solid waste MT Metric Ton M/VC Municipalities/Village Councils (West Bank) NEMC National Environmental Management Council (Tanzania) NGO Non-governmental organization NMPMO Ningbo Municipal Project Management Office (China) NSWMA National Solid Waste Management Authority (Jamaica) NOS Neighborhood Overall Score (China) NPC National People’s Congress (China) NRC Neighborhood-level residents’ committee (China) O&M Operations and maintenance OBA Output-based aid PA Palestinian Authority (West Bank) PNI Potential neighborhood incentive (China) PIU Project implementation unit (China and Malaysia) PPP Public-private partnership RBF Results-based financing SDCM Strategy for the Development of the Cities of Mali SDN Sustainable Development Network (World Bank Group) xiv Results-based Financing for Municipal Solid Waste Sida Swedish International Development Agency SIP Service Improvement Plan SLCPs Short-lived climate pollutants SSWA Special Solid Waste Account SWEMP Solid Waste and Environmental Management Project SWMP Southern West Bank Solid Waste Management Project SWM Solid waste management SWMRMC Solid Waste Management and Resource Mobilization Centre (Nepal) SWSMO Ningbo Municipal Solid Waste Separation Management Office (China) TA Technical assistance TOU Technical Operations Unit tpd Tonnes per day UGDP Urban Governance and Development Program (Nepal) US EPA Unied States Environmental Protection Agency UNEP United Nations Environment Programme WTE Waste-to-energy Currency Units Exchange Rates (Effective as of March 17, 2014) Chinese Yuan Renminbi CNY1 = US$0.16 US$1 = CNY6.15 Indonesian Rupiah IDR1 = US$0.000089 US$1 = IDR11,295.65 Jamaican Dollar JMD1 = US$0.0091 US$1 = JMD108.93 Malaysian Ringgit MYR1 = US$0.305 US$1 = MYR3.27 Franc CFA (Mali) XOF1 = US$0.0021 US$1 = XOF470.83 Nepalese Rupee NPR1 = US$0.010 US$1 = NPR98.05 Tanzanian Shilling TZS1 = US$0.00061 US$1 = TZR1,630.50 Israeli New Shekel NIS1 = US$0.29 US$1 = NIS3.48 Executive Summary 1 Executive Summary Municipal solid waste (MSW) management is a crucial actions or achieving a pre-determined performance goal. RBF service provided by cities around the world, but is often offers opportunities to innovate in the use of development inefficient and underperforming in developing countries. finance in the solid waste sector and to achieve results. It is estimated that cities generated approximately 1.3 billion Until recently, RBF principles and designs had not been tons of MSW worldwide in 2010, and this is expected to widely applied in the solid waste sector, apart from the use of increase to 2.2 billion tons by 2025. The challenges that some performance-based contracting with private providers of cities face regarding their solid waste management systems solid waste services and carbon finance for methane mitigation. vary, but generally depend on their financial capacities. Low Given existing weaknesses and the challenges that cities face income countries face the most acute challenges with solid regarding solid waste management and service delivery, RBF waste management. In low income countries, cities collect can benefit the sector by ensuring that public funds are used less than half the waste stream. Of this, only about half is efficiently and transparently. processed to minimum acceptable standards. Improving MSW in cities offers a high economic rate of return and significant This report provides eight examples of RBF designs, environmental and public health benefits which contribute to each tailored to the specific context and needs of the solid overall city livability and competitiveness. At the global level, waste sector in the specific city or country. These projects are improving MSW also contributes to climate change mitigation currently in various stages of preparation or implementation; through the reduction of methane emissions. hence, lessons can be inferred only in terms of how solid waste projects can be developed using RBF principles. The World Bank’s portfolio between 2000 and 2012 included 114 active projects in 58 countries in all regions, representing The eight examples could be classified into three main US$1.27 billion in investments, with a further 55 analytical categories: (a) RBF to improve solid waste service delivery and advisory activities. Despite this significant portfolio, and fee collection: in Nepal and the West Bank, the projects the existing global annual US$40 billion shortfall for MSW use RBF subsidies to improve the financial sustainability requires the World Bank to reconsider its approach to MSW and of MSW services by increasing user fee collection while leverage innovative instruments and partnerships to increase its simultaneously improving waste collection services; (b) RBF impact on the sustainability and quality of the MSW sector. to promote recycling and source separation: in the cases In this regard, since 2012 the World Bank has been exploring of China, Indonesia, and Malaysia, an “incentive payment” the application of results-based financing (RBF) in the solid model is used to improve source separation and collection waste sector as an instrument to improve MSW services and of waste through changes in behavior at the household level; outcomes. and (c) RBF to strengthen waste collection and transport in under-served communities: in Mali and Tanzania, projects Results-based financing for MSW is a financial mechanism were designed to strengthen secondary waste collection and through which the payment for solid waste services is transport for under-served communities. In the case of Jamaica, conditioned to the achievement and verification of pre- the project was designed to improve waste collection in inner- agreed targets. A basic feature of RBF is that financial city communities and to encourage waste separation as well as payments or in-kind rewards are provided to a service provider general neighborhood cleanliness. conditional on the recipient undertaking a set of pre-determined 2 Results-based Financing for Municipal Solid Waste These models could be adapted to the context of other countries. General Lessons and Recommendations for Using The RBF model to improve solid waste service delivery RBF for MSW and fee collection is an appropriate model for low income • Collecting sufficient baseline information is essential countries where service delivery is poor or non-existent or to developing an RBF design that addresses the needs where fee collection to support waste collection and disposal is of the sector. In all eight case studies, baseline studies a major challenge. It is also an appropriate model to jump start provided the team with good insight into the situation and the solid waste services in fragile and post-conflict situations. challenges of the solid waste sector before a tailored RBF The RBF model to promote recycling and source separation solution was proposed. Because MSW practices generally is a good model for cities in middle income countries where vary from one city to another, the design of RBF solutions the collection of waste is already high but where the effort for the waste sector must include an analysis of the sector of the government is focused on improving the financial and as a whole to avoid unintended consequences on the other environmental sustainability of the sector. The RBF model to parts of the system. strengthen waste collection and transport in under-served • RBF solutions for MSW require active involvement communities is applicable to both low and middle income of all stakeholders from the early stages of project cities but is most relevant where the focus is to improve solid preparation in order to be successful. The team waste services in under-served and low income communities undertook community and stakeholder consultations and could be part of community and slum upgrading projects. and surveys in all eight countries where the RBF was RBF is not a panacea for the solid waste sector and is more proposed. These stakeholder consultations have appeared efficient when associated with other instruments such as to be a valuable tool to engage the service providers and infrastructure investment, policy reform and technical beneficiaries as well as the government. assistance. The eight RBF examples presented in this report • Getting the project prerequisites right, in early project address some of the fundamental problems associated with implementation stages, is essential. Even though RBF is solid waste management in developing countries, such as: not a panacea for the solid waste sector, it could provide fee collection, behavior change towards source separation an avenue through which important sector reforms are of recyclable and organic waste, and access to service in facilitated. In Nepal for example, these prerequisites underserved communities. However, RBF alone is not a included establishing and institutionalizing SWM subject universal solution to all the challenges that cities in developing committees and operational units, preparation of SWM countries face regarding solid waste management—it is more strategies and service improvement plans (SIPs), and effective when associated with other instruments. establishment of performance and service delivery monitoring systems, etc. Lessons Learned • Improving SWM services does not always require more Several important lessons emerged from the preparation of the staff, more vehicles, more equipment, or bigger landfill eight case studies. This report presents the challenges faced space. RBF for MSW could be designed in such a way in the design and implementation phases as well as general that enables it to achieve its objectives using the available recommendations on how to address such challenges in future technical and human resources. This could be achieved by projects. Some of the lessons learned and recommendations are designing simple, robust, and affordable systems that can generally applicable to the preparation of any MSW project, be easily managed and maintained by current staff. whereas others are particular to the design of RBF projects for MSW. The main lessons learned are summarized below: Abbreviations 3 Considerations for Designing RBF Projects for MSW • Providing up-front financial assistance to service providers with limited access to credit could facilitate • In the solid waste sector, OBA subsidies may be more the implementation of RBF projects. An RBF scheme effectively targeted at municipalities rather than with an unbalanced sharing of responsibility and risks individual households. The lesson from the project in between the public authorities and the private sector could the West Bank was that attempting to target low income discourage private sector engagement. In Tanzania, it households for GPOBA subsidies may not be feasible in the was decided that some equipment for collection would be solid waste sector because it is a shared, community-based provided through the investment project to overcome the activity. Improving the situation of solid waste management lack of access to credit. This issue is even more acute in as a whole has a more positive effect on the urban poor— fragile countries where investment presents a high risk to who generally live near improperly disposed solid waste. the private sector. Also, a large number of informal waste pickers are from poor communities. • RBF projects must be designed with a focus on a set of desired results, allowing the service providers to • RBF design should be carefully aligned toward decide what service delivery model would best achieve achieving the intended improvements in solid waste those results. RBF projects for diverse communities outcomes. Any RBF scheme should be designed, as should be designed in a manner that allows participating far as possible, to motivate the right players to achieve municipalities to design to their specific needs. the intended outcomes, because misalignment between Additionally, the experience from Nepal has highlighted who is performing and who is being paid could be the need to ensure that any results indicators are under the detrimental to the success of an RBF project. In Indonesia, full responsibility of the implementing agency, that the RBF payments could not be made to waste banks and indicators are well-defined and independently verifiable, communities whose behavior change was targeted by the and that project designs reflect pragmatic levels of risk project due to fiduciary arrangements; as an alternative, the transfer. RBF was designed to provide payment to municipalities as the closest public entity capable of creating the enabling Monitoring and Independent Verification of RBF conditions to stimulate the behavior change. Schemes for MSW • When an RBF scheme is designed as a payment • Balancing simplicity and meaningfulness in the design mechanism for solid waste services, the payment should of the verification process is often a practical necessity fairly compensate the service received; however, if it for implementation in the solid waste sector. The is for individual noncommercial behavior change, the verification mechanism for RBF projects should not be payment should be linked to the value of the outcome so cumbersome that it results in excessive transaction of the desired behavior change. RBF projects where costs. End results should thus be verified through simple the service provider is paid for collection could be based and straightforward protocols. For example, the design on a competitive bidding process or direct negotiations of any scorecards or formulae to calculate the payments with the incumbent service provider. RBF projects where should consider limited local capacities, and therefore be residential communities are paid for recycling could be easy for all parties to understand. Also, periodic random based on how much cost-savings the municipality achieves performance evaluations could be used instead of daily through reduced costs in solid waste collection, transport, performance evaluation. and disposal. 4 Results-based Financing for Municipal Solid Waste • A third party independent verification agent (IVA) explain. Institutional arrangements and flow of funds are provides greater transparency but could also be costly; important factors during implementation and must be alternative means of verification could be considered presented in a manner that could be easily understood to minimize the cost in the solid waste sector. In by the implementing agency, the beneficiaries, and the China and Jamaica, alternative verification agents were independent verification agency. considered in lieu of an independent firm to reduce the Sustainability of RBF Projects transaction cost. A verification process that is very costly cannot be sustainable in the long run, particularly in the • Keeping the big picture in mind helps ensure that the solid waste sector which is often struggling with the resulting scheme contributes to long-term sustainability financial sustainability of operations in the first place. in the solid waste sector overall. The design of any One alternative would be to use a city’s own monitoring solid waste management interventions, including RBF, and verification system, which has the added benefit of should take into account the country’s broader solid strengthening local capacity in this area which is often waste management context, from waste collection to final weak to start with. disposal, to ensure that the problem statement and the proposed solution are appropriate and to avoid unintended Ensuring Successful Implementation of RBF for MSW consequences or knock-on effects on other sectors. As far • Supplementing financial subsidies with educational as possible, waste reduction, reuse and recycling initiatives outreach and technical assistance provides greater should be prioritized. leverage for RBF projects. Although RBF is about • Addressing solid waste challenges often involves paying for the results and shifting performance risks to the fundamental changes in behavior that can take time service provider/implementing agency, experiences from to establish, so setting realistic targets is important in Nepal and West Bank have shown that technical assistance order to keep stakeholders motivated. The RBF designs is needed to ensure the achievement of the performance in China, Malaysia and Indonesia attempt to improve solid targets. Technical assistance resources should therefore be waste management through the very difficult objective included as part of any RBF project to enhance the basic of behavior change among communities, which could capacity for service delivery. take time to be effective. Expectations should be set for • Linkages to investment projects provide more leverage gradual improvements over time; otherwise, dissatisfaction for implementation of RBF schemes in the solid and de-motivation may set in among recipients who fail waste sector. All eight of the schemes described in this to meet targets despite their reasonable efforts. Setting report were linked at some stage to related solid waste realistic targets is important in order to minimize the risk investments. These linkages provided added momentum that people could go back to their original behaviors, or for implementation, although they also brought the risk of develop new unexpected ones, after the financial rewards delay or cancellation if the investment projects did not go or incentives are ended. ahead. The report recognizes that the eight case studies did not cover • The institutional arrangements and flow of funds some issues or activities such as waste generation, energy for RBF projects must be simplified, as much as recovery or waste picking. There are opportunities to develop possible, taking into account the capacity of the additional RBF concepts to address these other issues or implementing agency. The diagrammatic representation to address the same issues from a different perspective. The of the institutional arrangements and flow of funds for following additional concepts are suggested for consideration the RBF project in Nepal is complicated and difficult to for future RBF projects in the solid waste sector. Executive Summary 5 • Providing incentives to households to reduce the quantity the lessons learned from the preparation and design of RBF to of waste generated at source (impacting the choice of address specific solid waste issues. Even though these designs manufactured products with less packaging); have undergone peer reviews or review by a GPOBA panel of • Including conditional cash transfers to waste pickers; experts, there is a need to see how they will be implemented. • Implementing performance-based operating contracts for Moving forward, a second phase of this worked is planned to the management of waste facilities by the private sector start in fiscal year 2015 and will have three main objectives: (e.g., landfill, waste-to-energy, compost facility, transfer • Continue to assess the implementation of the various station, materials recovery facility (MRF), etc.) designs presented in this report to infer lessons revealed • Utilizing performance–based grants to municipalities for during implementation and from the subsequent reducing methane and black carbon from the solid waste adjustments made to the designs; sector; and • Design new RBF undertakings in additional cities, some of • Providing solid waste service fee vouchers to poor which would consist of replicating or adaptng the existing households. models while others would attempt to design entirely new solutions; and This work represents the first phase of a programmatic • Disseminate the findings from this phase to decision- undertaking to pilot the use of RBF in the waste sector to makers and donors. tackle critical challenges faced by cities with respect to solid waste management. The focus of this first report has been on 6 Results-based Financing for Municipal Solid Waste 1. Introduction Managing municipal solid waste (MSW) is a critical and In middle income countries, the quality of the service tends to basic urban service, but cities face numerous challenges at be better with a higher rate of municipal solid waste collection. every stage of the MSW value chain. With rapid urbanization, This is due to the fact that the sector is better financed and MSW is growing at alarming rates, and is expected to almost equipped with appropriate regulatory, institutional capacity. In triple in low and lower-middle income countries by 2025. these countries, the trend is generally to improve the efficiency At the same time, MSW is seriously underfunded in most of the MSW system, and move towards a more financially developing country cities. Cities in low income countries and environmentally sustainable system. Among all countries, spend about US$1.5 billion per annum on MSW – typically fragile and post-conflict countries face more severe challenges the largest expenditure category on municipal budgets. With due to a lack of government capacity, lack of financial capacity an existing global annual shortfall of at least US$40 billion, and difficulties to engage with private sectors firms because of MSW budgets in World Bank client cities will need to at least the risky environment to private investment. triple over the next 20 years. Most of this funding is needed for Improper waste management, especially open dumping and operating MSW services, rather than for capital investments. open burning, has significant adverse effects on water bodies, Willingness to pay is generally lower for MSW than it is for air and land resources. It attracts disease vectors and clogs water, sanitation, electricity, and cell phones. drains, which contributes to flooding. People who live near or The solid waste management value chain comprises collection, work with solid waste have increased disease burdens. transport, and disposal with the possibility for waste diversion Addressing MSW challenges in cities offers co-benefits at or energy recovery, as illustrated in Figure 1.1. Cities face the local and global levels. At the local level, improving numerous challenges (Figure 1.2), some of which are beyond MSW could generate high economic rates of return through the purview of the municipal government. The issue that significant environmental, social and public health benefits, is creating most of the challenges is the limited financial and improvements in overall livability, urban resilience, and capacities to cope with the growing demand for good service city competitiveness. It could reduce unpleasant odors and as a consequence of fast urbanization. Low income countries reduce the reproduction of flies, bugs and mosquitoes which face the most acute challenges with their MSW systems. As spread diseases such as malaria and dengue. It contributes a result, waste collection services are lacking or not reliable to attracting tourists and investors who support the local and the disposal is primarily through unsanitary dumpsites or economy. Improving solid waste has also a positive benefit by open burning. In middle income countries on the other hand, creating jobs and providing income generation opportunities the problem is generally less intense, except in countries where to local citizens. It can help keep drainage channels open, thus waste management has been disregarded by the government. reducing the vulnerability of urban poor living in slums to Figure 1.1: Common Challenges along the MSW Value Chain Recycling/Organic Generation Collection/Transport Disposal Energy Recovery Diversion • High growth rate of • Low collection rate in low • Informal sector • Large use of insanitary • Untapped opportunity to waste generated income communities • Lack of intergration of the dumpsites and open generate energy from • Lack of policies to reduce • Inefficient collection informal sector burning landfill gas waste generation equipment • Low rate of organic waste • Land constraints for • Landfill gas to energy • Inefficient routing diversion future sanitary landfills systems non-existent or • Severe environmental in poor condition impact • Local context unsuitable • Lack of financial or for waste-to-energy technical capacity to operate sanitary landfills 1. Introduction 7 DUE TO RAPID URBANIZATION AND GROWING ECONOMIES, MSW IS GROWING AT ALARMING RATES. IT IS EXPECTED TO ALMOST TRIPLE IN LOW AND LOWER-MIDDLE INCOME COUNTRIES BY 2025. 2.2 BILLION TONS OF MSW BY 2025 Solid waste management remains critically underfunded in developing countries. 8 Results-based Financing for Municipal Solid Waste Figure 1.2: List of Challenges Undermining Proper Management of Solid Waste in is verified and certified as satisfactory Developing Countries before public funds are used to pay the service provider. It could be used High cost of collection and Infrastructures in No plan or strategy as instrument to provide incentives or poor conditions for the sector rewards to community groups to stimulate disposal self-organization for positive behavior change towards source separation of No market for Poor performance waste, recycling or to improve the Lack of awareness cleanliness of their community. RBF in waste-derived of private sector of waste issues products contracts the solid waste sector could also be used to transfer donor funds to countries to provide access to basic services in poor Lack of appropriate Low institutional Lack of areas. policies and and technical organization of the regulations capacity informal sector There are a variety of instruments that constitute RBF. While there is no single commonly agreed-upon definition for RBF, the instruments are all designed intense rainfall and sea level rise. On the global level, MSW to enhance the delivery of services or accounts for about 15 percent of global emissions of methane, infrastructure by providing funding only if pre-specified results a potent greenhouse gas, and MSW could be a channel through have been achieved.1 In contrast to more conventional funding, which cities can mitigate climate change. payments are not based on inputs or expenditures; instead, funds depend on demonstrated and independently verified The World Bank’s portfolio between 2000 and 2012 included results. Some examples of RBF include output-based aid, 114 active projects in 58 countries in all regions, representing conditional cash transfers, advance market commitments, and US$1.27 billion in investments, with a further 55 analytical carbon finance (Figure 1.3). and advisory activities. Bank-managed carbon funds have purchased over US$1 billion of emissions reduction credits The main feature of RBF is that the performance criteria are from MSW projects which reduce methane emissions. Despite specified explicitly up-front, clearly tying payment to specific this significant portfolio, the existing US$40 billion annual and measurable performance. In this way, RBF increases global shortfall for MSW requires the World Bank to reconsider transparency and accountability in the use of public funds, with its approach to MSW and leverage innovative instruments and the potential of improving the quality of the service delivery partnerships to increase its impact on the sustainability and or to stimulate behavior change. In much of development quality of the MSW sector. To achieve this goal, since 2012 the finance, there exists a “principal-agent problem” in which the World Bank has been exploring the application of results-based interests of each (i.e., the donor and the service provider) are financing (RBF) in the solid waste sector as an instrument to not necessarily aligned. The result of this misalignment is a improve MSW services and outcomes. The work consists of degree of performance risk and an increased possibility that designing implementable RBF schemes that are customized to development goals are not achieved. RBF creates an incentive each city’s circumstances. structure that harmonizes stakeholder interests to support real and measurable results. Results-based financing (RBF) is an innovative approach to development finance that is changing the conversation Output-based aid (OBA) is a type of RBF that provides on aid effectiveness. Results-based financing for MSW is a performance-based subsidies to deliver basic services targeted financial mechanism through which the payment for solid waste to benefit the poor—water, sanitation, electricity, transport, services is conditioned to the achievement and verification of telecommunications, education, and health care—where policy pre-agreed targets. In a sector that faces budget constraints but also demonstrates demand for good service, RBF appears as a valuable tool to ensure that public funds are used efficiently 1 Tremolet, Sophie. “Identifying the Potential for Results-Based Financ- and transparently. RBF could be used as a payment mechanism ing for Sanitation,” Water and Sanitation Program (World Bank) Working Paper, 2011. Available at: http://www.wsp.org/sites/wsp.org/ for solid waste collectors to ensure that the service provided files/publications/WSP-Tremolet-Results-Based-Financing.pdf 1. Introduction 9 Figure 1.3: Potential Results-Based Financing Instruments The basic guiding principles of RBF and its documented successes suggest that it could be applied to improve the service delivery or stimulate behavior change in the municipal solid waste sector. The rationale for considering RBF for the MSW Output-based Output-based Aid (OBA) Disbursement sector is based on the following features that are commonly found in many developing country cities: • A serious shortfall in the delivery of the basic service of Performance- Results-based MSW collection and processing, particularly in poorer based Financing in Contracting Health areas where residents are unable to afford private service provision; Conditional • Few or no incentives for cities to improve MSW Carbon Finance Cash Transfers services, innovate and increase efficiency in what is often (CCTs) considered to be a low-priority sector; and 30 • Limited revenue collection, such as user fees, for MSW services, which affects the financial ability of the city to concerns would justify public funding to complement or provide these services. replace user fees.2 OBA subsidies encourage service providers RBF should not, however, be taken as the panacea for the to expand service to poor households where otherwise no MSW sector, given the extent of the challenges. Rather, it clear market incentive exists. OBA’s explicit identification should be viewed as a way to address some of the challenges of subsidies—who they are going toward and for what facing developing countries such as fee collection, waste performance metrics—can reduce the economic distortions collection rates or implementation of source separation that subsidies often create. These subsidies can be one-time, schemes. Table 1.1 provides an overview of the issues that transitional, or ongoing, depending on the unique service and RBF is more likely to address. circumstance. Given these needs, MSW management is a new sector that There have been significant RBF projects in the sectors of could learn and benefit from RBF innovation. Over the last health, water, and energy. As of October 2013, the Global two and one-half years, with funding from GPOBA, the World Partnership on Output-based Aid (Box 1.1) had a portfolio Bank Urban Development and Resilience Unit (UDRUR) with 40 percent funding in energy, 29 percent funding in water, took lessons learned from prior RBF projects in other sectors and 14 percent funding in health (Figure 1.4).3 While projects to design RBF schemes for MSW improvements in several continue to be designed and tested in these sectors, there has pilot cities. The designs were tailored to the specific contexts already been notable success. As an example, in 2009, Indonesia and needs of cities in Nepal, the West Bank, China, Malaysia, embarked on a grant-funded OBA project through the GPOBA. Indonesia, Tanzania, Jamaica, and Mali. Work on these The project’s aim was to expand piped water supply to the city RBF designs involved preliminary baseline assessments of of Surabaya’s urban poor through subsidies for successfully solid waste issues in each city, and in-country stakeholder achieved performance criteria: in-fill connections to existing consultations. Most of the proposed designs focus on specific water mains, expansion of connections to previously un- issues (e.g., fee collection, source separation, etc.), even though served areas, and bulk supply (“master meter”) connections. these actions have an impact on the entire value chain. The scheme was considered widely successful, such that it subsequently expanded into a national government program Most of these RBF designs were undertaken as part of the called Water Hibah. preparation of World Bank investment projects in solid waste. Of these, GPOBA has two grant projects in its portfolio (both of which are covered in this report). The first grant was approved 2 “Output based aid: Supporting infrastructure delivery through explicit for Nepal in December of 2011, and inspired a second project – and performance-based subsidies,” OBA Approaches, March 2005, in the West Bank – which was approved in 2013. GPOBA also Note Number 05. provided technical assistance (TA) funding for preparation of a 3 “A Decade of Supporting the Delivery of Basic Services for the Poor,” Sector Brief, Global Partnership on Output-based Aid, October project in Mali, which was intended to be supported by a grant 2013. 10 Results-based Financing for Municipal Solid Waste Box 1.1: The Global Partnership on Output-based Aid (GPOBA)a GPOBA is a partnership of donors working together to support output-based aid approaches. Its mandate is to fund, design, demonstrate, and document OBA approaches to improve the delivery of basic services to the poor in developing countries. GPOBA has over 10 years of experience and a portfolio of 37 projects in six sectors: energy, water and sanitation, health, solid waste management, education, and information and communication technology (ICT), as depicted in Figure 1.4. Its projects include US$170 million in subsidy funding and technical assistance and its services have benefitted about 5.9 million poor people throughout Latin America, Sub-Saharan Africa, the Middle East and North Africa, South Asia, Southeast Asia, and Central Asia. GPOBA was established in 2003 by the United Kingdom’s Department for International Development (DFID) as a multi- donor trust fund administered by the World Bank. Since 2003, four additional donors have joined the partnership: the International Finance Corporation (IFC), the Dutch Directorate General for International Cooperation (DGIS), the Australian Department for Foreign Affairs and Trade (DFAT), the Swedish International Development Agency (SIDA). a Global Partnership on Output-Based Aid, October 2013. Box 1.2: The Climate and Clean Air Coalition (CCAC)a The CCAC to reduce short-lived climate pollutants (SLCPs, such as methane, black carbon and hydrofluorocarbons (HFCs)) is a partnership of governments, inter-governmental organizations, representatives of the private sector, the environmental community, and other members of civil society that addresses the challenge of SLCPs in various sectors such as solid waste management, oil and natural gas, brick kiln, heavy duty diesel vehicles and engines, and cook stoves. The MSW Initiative of CCAC was launched at the Rio+20 Summit in June 2012. Lead partners of the initiative include: Environment Canada, US Department of State, US Environmental Protection Agency (EPA), C40, United Nations Environment Programme (UNEP), Japan, the World Bank, etc. – and the objective of the coalition is to reduce short-lived climate pollutants in the solid waste sector. a Climate and Clean Air Coalition website 2014. Accessible online at: http://www.unep.org/ccac/ from GPOBA, but this project was later dropped. In 2014, one CCAC participating city, through which work in Penang, the Climate and Clean Air Coalition (CCAC; see Box 1.2) Malaysia was undertaken. provided TA funds to UDRUR to design an RBF solution for This report presents an overview of each of the RBF designs in the MSW sector. Individual RBF designs were subject to Figure 1.4: Sectors in the GPOBA Portfolio (Oct 2013) World Bank review processes for investment projects or review 2% 1% by a GPOBA panel of experts (Nepal and West Bank) prior to implementation. In most cases, the designs are pending or in the early stages of implementation. Therefore, it is 6% Energy premature to draw conclusions or claim specific results from 8% Water implementation. Under these constraints, the report serves to Health describe and critically reflect on the designs, and the unique 14% 40% Solid Waste MSW contexts and thought processes behind them. Management This report presents eight case studies to illustrate how RBF Sanitation could be used to address some of the fundamental challenges that Education cities in developing countries face in solid waste management. 29% ICT The eight designs could be classified into three main categories: (a) RBF to improve solid waste service delivery and fee collection: in Nepal and the West Bank, the projects Source: Global Partnership on Output-based Aid, October 2013. use RBF subsidies to improve the financial sustainability 1. Introduction 11 Table 1.1:  Opportunities for Addressing MSW Challenges in transport for under-served communities. In the case of Jamaica, Developing Countries using RBF the project was designed to improve waste collection in inner- city communities and to encourage waste separation and Potential to address general neighborhood cleanliness. Challenge the challenge using RBF These models could be considered for replication in other High cost of collection and disposal Likely countries. In general, the RBF model to improve solid No market for waste-derived products Unlikely waste service delivery and fee collection is more suited to Lack of appropriate policies and regulations Unlikely low income countries where service delivery is poor or non- existent or where fee collection to support waste collection Low institutional and technical capacity Unlikely and disposal is a major challenge. It is also a good model to Lack of awareness on waste issues Unlikely jump start the solid waste services in fragile and post-conflict Infrastructures in poor conditions Unlikely situations. The RBF model to promote recycling and source No plan or strategy for the sector Unlikely separation could be a good model for cities in middle income Poor performance of private sector contracts Very likely countries where the collection of waste is already high but Lack of integration of the informal sector Unlikely where the effort of the government is focused on improving the financial and environmental sustainability of the sector. The RBF model to strengthen waste collection and transport in of MSW services by increasing user fee collection while underserved communities could be applicable to either low simultaneously improving waste collection services; (b) RBF or middle income cities but is most relevant where the focus to promote recycling and source separation: in the cases is to improve solid waste services in under-served and low of China, Indonesia, and Malaysia, an “incentive payment” income communities and could be part of community and slum model is used to improve source separation and collection of upgrading projects. waste through changes in behavior at the household level; and (c) RBF to strengthen waste collection and transport in The report concludes by synthesizing the findings that emerged underserved communities: in the Mali and Tanzania, projects across the eight case studies, and makes recommendations for were designed to strengthen secondary waste collection and how RBF/OBA could be used to improve MSW management. Figure 1.5: Cities Where Work was Undertaken Bethlehem, West Bank Pokhara, Nepal Leknath, Nepal Hebron, West Bank Tansen, Nepal Ningbo, China Dhankuta, Nepal Lalitpur, Kingston, Jamaica Nepal Sikasso, Mali Penang, Malaysia Manado, Indonesia Dar es Salaam, Balikpapan, Tanzania Tangerang, Indonesia Indonesia GSDPM Map Design Unit IBRD 40973 MAY 2014 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any CITIES WHERE WORK WAS UNDERTAKEN judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 12 Results-based Financing for Municipal Solid Waste RBF for Improved Solid Waste Service Delivery and User Fee Collection 2. Nepal: Improving Financial Sustainability and the Quality of MSW Services Box 2.1: RBF in Nepal’s MSW Sector “At-a-Glance” Solid Waste Situation. Nepal’s cities are rapidly growing: urbanization rates are more than 3.5 percent per year. This population pressure exacerbates the existing challenges in municipal solid waste services. Of the 700,000 tons of waste that cities generate each year, less than half is collected and most of the collected waste is informally dumped. Waste collection is irregular and done in an ad hoc manner, resulting in hazards for both population health and the environment. Problem Statement. Solid waste collection is defined by low levels of service coverage and weak financial sustainability. Without increasing revenues from SWM services, municipalities cannot finance improvements to service provision. At the same time, there is low willingness to pay among residents. Design Solution. An output-based subsidy is given to the participating municipalities (Dhankuta, Tansen, Lekhnath, Pokhara, and Lalitpur) to help bridge the gap between the cost (including capital costs, O&M costs, overheads and other expenses) of delivering improved SWM services and the revenues that municipalities collect for SWM services. Payment of the subsidy is linked to improvements in services. The amount of the subsidy is designed to decrease over time, as services improve and fee collection increases to contribute toward final cost recovery. Implicit in this design is the assumption that residents’ willingness-to-pay increases as there are visible improvements in service coverage and delivery. The outputs measured relate to improved quality of services and improved financial sustainability of the service provider. Upon verification of these outputs each year, the amounts of the subsidy are determined based on a pre-established multiplier and are subject to a maximum amount. This multiplier is based on target levels of cost recovery and long-term municipal subsidy levels. Over the project timeline of four years, the multiplier varies so that by the end, there is no subsidy required for the city to continue service provision in a financially sustainable (fee-based) way. 2.1 Introduction expertise and resources to deal with the rapid growth, and are struggling to deal with pressing environmental problems such Nepal is predominantly a rural country with only about 15 as solid waste management, wastewater management, and percent of the population living in municipalities, but has a drainage. high rate of urbanization at more than 3.5 percent per year4. Between 1991 and 2001, the municipal population increased by 94 percent or 6.8 percent per year. This rapid urbanization 2.2 The Broader Context of World Bank is exerting immense pressure on Nepal’s urban environment Support and municipal capacities. Municipalities often lack sufficient The World Bank approved a project in 2011 to support Nepal’s urban governance and development through a combination 4 National Planning Commission, “Three-Year Interim Plan Approach of technical assistance and investment lending. The Urban Paper (2064/65-2066/67)”, National Planning Commission, Govern- ment of Nepal, 2007. Governance and Development Program/Emerging Towns 2. Nepal 13 IN NEPAL, CITIES GENERATE 700,000 TONS OF WASTE EACH YEAR AND LESS THAN HALF IS COLLECTED. WITHOUT INCREASING REVENUES, MUNICIPALITIES CANNOT FINANCE IMPROVEMENTS TO SERVICE PROVISION. NEPAL OBA subsidies—tied to service and fee collection—help bridge the funding gap. 14 Results-based Financing for Municipal Solid Waste Project (UGDP/ETP) aims at improving delivery and sustainable 2.3 The Problem Statement provision of basic services and priority infrastructure in the participating municipalities. The RBF project described in The main challenges faced by the SWM sector in Nepal are this chapter – Output-Based Aid in Municipal Solid Waste low levels of service coverage and poor financial sustainability, Management in Nepal – operates in parallel to the UGDP/ETP, which are intricately linked. Municipalities in Nepal generally but does not formally constitute a component under it. do not earn much revenue from providing SWM services and lack the funds to improve these services. Without increasing revenues from SWM services, municipalities are unable to finance improvements to service provision. At the same time, Box 2.2: The Solid Waste Sector in Nepal Waste generation, collection and disposala It is estimated that municipalities in Nepal generate about 700,000 tons of waste per year, but less than half of this gets collected and almost all of the collected waste is dumped in a haphazard manner. On average, households generate 0.33 kilograms (kg) of waste per day or 121.7 kg per year. About 65 percent of this waste is organic, 25 percent is recyclable (i.e., plastics, paper and metal), and about 10 percent consists of inert materials. Even so, composting and recycling rates are low. The waste collection system in Nepal municipalities is often not properly planned, resulting in poor service quality. Most municipalities do not keep records; however, recent estimates suggest that about 600 tons of waste is collected per day in all 58 municipalities, which represents only about 31 percent of total generation. The most common system of waste collection is street-side collection. Waste generators dump their waste on streets or other public places and municipalities employ sweepers. A few municipalities have set up communal containers at collection points or have door-to-door collection systems. For transportation of waste, most municipalities use tractors with trailers, or non-motorized vehicles, such as handcarts and rickshaws. Waste from these smaller vehicles is transferred to trucks for secondary transportation. Only four out of Nepal’s 58 official municipalities have sanitary landfill sites for waste disposal; others dispose of their waste haphazardly in crude dumping sites. According to the Government of Nepal, 20 municipalities dispose of their waste in riverbanks; 18 dump their waste in temporary open piles on vacant plots; and 9 have dumping sites, where the waste is occasionally covered. The remaining seven municipalities do not have any designated place for waste disposal.b Institutional context Although solid waste management is a critical issue, it has received little attention in Nepal’s policy, legal, and institutional framework. The country has some policies and legislation related to waste management but they are not effectively enforced. In 1996, the government adopted a Solid Waste Management Policy for Nepal, which promoted waste minimization and private sector participation, but this has not been followed up with appropriate plans and programs. The Solid Waste Management and Resource Mobilization Act (1987) created the Solid Waste Management Resource Mobilization Centre (SWMRMC)c. More recently, the SWM Act of 2011 was passed and articulates that: local governments are responsible for municipal SWM and may competitively contract private service providers; all MSW must be separated into organic and inorganic matter at the source; and local authorities are to promote waste reduction and recycling; a Solid Waste Management Council be formed under the Local Development Minister for policy making and coordination; and a Solid Waste Management Technical Support Center is to be established to assist local governments with technology development and capacity building. One of the main factors preventing municipalities in Nepal from effectively managing solid waste is the lack of funds. Most municipalities do not earn any revenue from SWM services, yet SWM is a major contributor to municipal expenditure. A survey carried out by SWMRMC estimated that municipalities spend on average 13 percent of their total expenditure on solid waste management. On a per capita basis, municipalities spend on average NPR 97 (US$1.4) per resident per year to provide SWM services. On the other hand, NGOs and private companies working in this sector charge fees ranging from NPR 30 to NPR 200 (US$0.4 to US$2.8) per household per month for waste collection services. a World Bank, Municipal Solid Waste Management in Nepal’s Emerging Towns - A Situational Analysis and Main Considerations for an Output-Based Aid Pilot Project”, The World Bank, 2011. b Solid Waste Management and Resource Mobilization Centre, “A Diagnostic Report on State of Solid Waste Management in Municipalities of Nepal”, Solid Waste Management and Resource Mobilization Centre, 2004. c Later renamed ‘Solid Waste Management Technical Support Centre (SWMTSC)” when the SWM ACT 2011 Act was passed 2. Nepal 15 people have a low level of willingness to pay for SWM services verification agent (ITVA), confirm that an acceptable standard because of the poor service quality. of SWM services have in fact been provided. If this condition is met, then the second stage of verification by an independent 2.4 The RBF Approach financial verification agent (IFVA) would be triggered, to confirm the level of fees collected from beneficiaries based The RBF approach developed for Nepal is an output-based aid on the amounts deposited into the municipality’s account for project, through which an OBA subsidy helps participating SWM services. municipalities to bridge the gap between the cost (including The technical scorecard was developed as a performance capital costs, O&M costs, overheads and other expenses) of management tool for the OBA project to be used in the Nepal delivering improved SWM services and the revenues that project and beyond, and consists of four sections: municipalities collect for SWM services. Payment of the subsidy is linked to improvements in services. The project is a. SWM strategy and action plan indicators, which track the designed for participating municipalities to improve service development and implementation of the plan; quality, become more financially sustainable, and expand b. Performance monitoring system indicators, which track SWM services over a four-year period. The key assumption in the ability of a management reporting system to capture this design is that as the municipalities increase the quality of and track key operational data; SWM services provided, they would also be able to gradually c. Service provision indicators, which track the provision of increase the fees charged to beneficiaries for these services. collection and disposal services against defined targets; 2.4.1 Defining and Measuring Results and Results in the Nepal OBA project are measured in terms of d. Financial performance indicators, which track fee two categories of ‘outputs’: improved quality of services collection, cost recovery, and efficiency of the system. and improved financial sustainability. These outputs, and the Within this framework, the first two sections of the scorecard specific indicators used, are summarized in Box 2.3. are seen as prerequisites for successful implementation and To measure results, the project provides for two separate monitoring of performance, while the latter two sections track and independent stages of verification. The first stage would, actual performance. The intent is to encourage municipalities through a review of technical scorecards and sample on-site to first focus on instituting the basic requirements of an SWM verification of the service provided by an independent technical system, and then focus on actual performance. Thus, developing Box 2.3: Outputs and Indicators for the Nepal Project 1. Improved quality of services • Number of households within the core city area receiving daily waste collection services on a door-to-door curbside basis; • Number of households outside the core city area receiving at least weekly waste collection services on a ‘bring to truck’ or communal container basis (i.e. households carry their waste to a communal container which is then collected on a weekly basis); • Percentage of wards/zones within a municipality’s area that are receiving regular SWM services, as per stated service levels in the municipality’s solid waste management service improvement plan; • Percentage of wards/zones with visibly clean public areas, main streets, and secondary streets following a random visual inspection; and • Percentage of sampled households who report that waste collection and street cleaning services provided by the municipality have met or exceeded their expectations in the key areas of reliability, frequency, improvement in environmental quality, convenience, and responsiveness. 2. Improved financial sustainability • Increase in SWM fees charged to all waste generators; • Annual revenues from collected SWM fees; and • Percentage O&M (operations and maintenance) cost recovery from SWM fees. 16 Results-based Financing for Municipal Solid Waste an SWM strategy and implementing an action plan for a 2.5 Implementation municipality, and establishing a system to capture and report key operational data, are necessary actions at the beginning and The project aimed to cover five out of a total of 58 municipalities are assigned a higher weighting for the first year of the project. in Nepal, five of which have shown interest in participating based The actual solid waste collection and disposal services offered on eligibility criteria that they fulfilled. The municipalities were and the financial performance of the municipalities are more first required prove their commitment to the project objective important to track in the subsequent years and, consequently, through a resolution or letter of commitment. In addition, the have higher weightings in years two to four. municipalities need to have access to an operational landfill, in addition to a basic functioning SWM system for collection 2.4.2 Financing and disposal and a system to collect fees from beneficiaries The OBA subsidy is designed to close the gap between the for these services. The municipalities were also required to O&M costs of delivering the expected service improvements, prepare a SWM strategy and action plan. Moreover, small and the SWM fees collected. The subsidy would ‘match’ the municipalities having less than 50,000 people must already be SWM fees collected according to an agreed upon multiplier, participants in the broader World Bank-financed UGDP/ETP. and would be phased out over four years. Over the life of Some basic facts on the five participating municipalities are the project, the multiplier would vary such that the amount summarized in Table 2.1. of subsidy gradually declines until it is phased out entirely Implementation support to municipalities during project after four years. In addition, there would be a maximum implementation includes financing for technical assistance limit of subsidy that a municipality could receive in a given needed by municipalities to help them successfully implement year, regardless of the amount of verified fees collected. The the project. Examples of this support include preparation of project’s financing model also assumes that apart from the SWM Service Improvement Plans (SWM-SIPs), improving subsidy funding and SWM fees collected, part of the total cost billing and revenue collection systems and performance delivering the improved SWM services in each municipality management systems for SWM services, implementation of would be covered by government funding (through municipal “reduce, reuse, and recycle” (3R) activities, and designing subsidies, grants from the central government, blended loan/ contractual arrangements. This component has financing worth grants, etc.). Overall, the subsidy funding provided for this US$580,000. The remaining funding slated for this project, project as a grant from GPOBA is just over US$3 million. which amounts to roughly US$700,000, would be used for project management, monitoring and verification outputs and performance of the municipalities. Figure 2.1 summarizes the basic steps in the project cycle. Table 2.1: Summary of Municipalities Selected for the Project in Nepal Municipality Dhankuta* Tansen* Lekhnath* Pokhara Lalitpur District Dhankuta Palpa Kaski Kaski Lalitpur Population 27,572 23,299 55,000 in 2001, 65,000 in 2012 300,000 estimated (156,352 400,000 (2011/12) (2011/12) (equal to 12,000 households) in 2001 census; annual growth 5%+) Waste 0.24 0.18 0.15 0.23 0.23 generation (of which 48% organic, 12% (of which 72% (kg/person/day) plastic, 18% paper; organic, 10% plastic, 2008 waste survey) 6% paper; 2008 waste composition survey) Waste collected 8 6 0 Waste production is assessed 65 (MT**/day) Presently no waste is collected; at 69 MT/day. Actual waste (of which 40% or however, the municipality is to landfill is 50-60 MT/day around 25 MT/day is planning to initiate waste collection (based on vehicle capacity) collected by NGOs) services from August/ September in the new budget year * UGDP/ETP municipalities. ** MT is metric tons. 2. Nepal 17 Figure 2.1: The Basic Project Cycle in Nepal Step 1: Step 2: Step 3: Planning and Preparation Service Delivery and Financial Verification Technical Verification and Subsidy Payment • Municipalities prepare (a) SWM-SIPs and delivery • Municipalities pre-finance • Municipalities account for models; and (b) Plans for required investments and beneficiary revenues collected; collecting beneficiary associated technical support; • IFVA reviews and verifies revenue; • Providers deliver services beneficiary revenues collected; • Municipalities develop according to agreed terms; • World Bank/GPOBA pays internal service providers or • Municipalities monitor and matching subsidy grants based engage external service regulate service providers; on pre-agreed multiple of providers according to • Beneficiary revenues collected beneficiary revenue verified by plans. via designated SWM fee; IFVA’s report; • ITVA assesses service quality • But ONLY IF services receive against scorecard “passing score” from ITVA. 2.6 Key Risks phase. Although RBF is about paying on outputs and shifting performance risks to the service provider/ The main risks in relation to the project design are the implementing agency, experience from RBF pilots around beneficiaries’ willingness to pay for services that they have the world has shown that in cases where the capacity previously not paid for, as well as the municipalities’ technical of the implementing agency is low, complementary and financial ability to collect fees from the beneficiaries. To implementation support funding may be justified. In mitigate this risk, the project has been designed in such a way as general, municipal authorities in Nepal have low capacity. to include parallel and reinforcing features that would improve Technical assistance included in the project is helping the likelihood of sustainability once the OBA subsidy has been to enhance the basic foundation for service delivery. phased out. For instance, the initial municipal participation Despite the cities’ current progress, it is difficult to move criterion allows only municipalities that are willing and able ahead with the implementation stage of the RBF project to improve their financial sustainability to participate. The without tailored technical assistance. This will include the municipalities would be required to create SWM-SIPs, which provision of technical know-how on landfill management would clearly delineate the methods they would be using to to ensure they are being operated in an environmentally improve revenue collection. sound manner; putting in place basic monitoring systems for SWM service delivery and ensuring their consistent 2.7 Lessons Learned usage; and deploying related communication and advocacy activities at the community level to influence relevant • Improving SWM services does not always require behavior. more staff, more vehicles, more equipment or bigger • RBF projects should be designed with a focus on a set of landfill space. Simple, robust, and affordable systems desired results and allow the service providers to decide are being rolled out in targeted municipalities that can be what service delivery model would best achieve those easily managed and maintained by current staff. Plans results. There is diversity across Nepal’s 58 municipalities are underway for the municipalities’ staff to be trained in terms of size, context, capacity and appetite for reform. to perform their duties in a way that contributes to the This diversity calls for a project design that allows municipalities’ long terms goals. In terms of vehicles participating municipalities the discretion to deliver SWM and equipment, the project will capitalize on the ongoing services as they see fit, provided that: (a) services meet improvement plans that the municipalities’ set in motion a set of standards that align with national environmental originally to further support SWM system improvement. policy objectives and sound environmental management In terms of landfill space, the project will aim to make principles; and (b) services achieve a certain level of the most out of the current space while improving its financial viability in order to sustain continuous provision management and other related practices. given municipal budget constraints. • Providing tailored technical assistance will help lay the foundation for improving services after the preparatory 18 Results-based Financing for Municipal Solid Waste 3. The West Bank: Offsetting the Costs of Improved SWM Services with Increased SWM Fee Collection Box 3.1: RBF in the West Bank’s MSW Sector “At-a-Glance” Solid Waste Situation. The West Bank generates approximately 1.2 million tons of waste per year, with 34 percent originating from the Hebron and Bethlehem governorates (project area). The collection rate of solid waste is as high as 98 percent but, in the absence of a sanitary landfill, the waste collected is being disposed into 19 unsanitary dumpsites. Problem Statement. Despite a collection rate comparable to high income countries, the solid waste sector in Hebron and Bethlehem governorates suffers from major issues such as poor planning, high operation and maintenance cost, limited financial resources and unsanitary disposal of waste in 19 dumpsites. The World Bank and other donors are assisting the Palestinian Authority with upgrading the entire solid waste management system in Hebron and Bethlehem governorates, including the construction of a new sanitary landfill which will be operated by a private sector firm. The upgraded waste management system will result in an increase in operation and maintenance cost, which intensifies the need to improve the collection of solid waste fees. Design solution. In this context, an OBA subsidy project will be provided over a four-year period to partially support increased costs associated with the disposal in the new sanitary landfill. This would allow municipal and village councils to focus resources towards improvement of primary collection. The RBF will also provide an incentive for village and municipal councils to increase efforts to collect solid waste fees to sustain operation in the long run. The disbursement of RBF funds is made based on an independent assessment of two categories of outputs: (a) access to improved solid waste services; and (b) improved financial sustainability of the sector. Beyond its main purpose of incentivizing service improvement and fee collection, this subsidy represents an additional payment guarantee which attracted an international private sector firm to enter the waste market in West Bank. 3.1 Introduction areas receiving no SWM services while others are completely covered. This raises serious concerns as unsanitary waste Political and economic instability in the West Bank and Gaza disposal practices in the West Bank and Gaza present a serious over the last several decades have resulted in inadequate public health threat and environmental hazard. infrastructure investment and poor provision of public services. Although GDP growth has been steadily increasing, 3.2 The Broader Context of World Bank the Palestinian Authority (PA) faces a difficult fiscal situation. The total population of Hebron and Bethlehem governorates, Support which are the target areas of the RBF project described in this The World Bank’s initial involvement with the SWM sector chapter, was 840,501 in 2012. Over 85 percent and 70 percent in the West Bank began in 2000, with the construction of the of the population in Hebron and Bethlehem, respectively, live Zahrat Al Finjan Landfill in Jenin Governorate. Following in urban areas while the rest live in rural areas and refugee the successful implementation of the Solid Waste and camps. These two governorates together cover an area of Environmental Management Project (SWEMP), the World 1,726 sq km and include a total of 92 municipalities, areas, Bank Group, along with the European Union and other donors, or localities. There is a high degree of variability in the SWM is funding the Southern West Bank Solid Waste Management services provided across the two governorates, with some Project (SWMP). The SWMP, approved in 2009 with total 3. The West Bank 19 POLITICAL AND ECONOMIC INSTABILITY IN THE WEST BANK AND GAZA OVER THE LAST SEVERAL DECADES HAVE RESULTED IN INADEQUATE INFRASTRUCTURE INVESTMENT AND POOR PROVISION OF PUBLIC SERVICES. IT CAN BE A RISKY ENVIRONMENT FOR PRIVATE SECTOR INVESTMENTS. WEST BANK RBF can help defray risk and encourage private sector investment. 20 Results-based Financing for Municipal Solid Waste funding of US$20 million (including a US$12 million grant councils (M/VCs). In addition, waste was disposed at 19 from the World Bank), has the development objective of unsanitary dumpsites, 15 of which have been closed, while the improving solid waste disposal services for communities and remaining four are expected to close with the commencement businesses in Palestinian municipalities and joint services of full-scale operations at the Al Minya landfill. Improvements councils in the Bethlehem and Hebron governorates. This would to the overall SWM system and moving towards sanitary final be accomplished through: (a) strengthening the joint services disposal of waste will result in an increase of SWM costs. councils’ administrative and technical capabilities for cost- This, in turn, can exacerbate the challenge of collecting SWM effective management of waste disposal services; (b) improving fees. At present, willingness to pay, willingness to bill, and waste disposal services through provision of a sanitary landfill collection of billings are all low. Box 3.2 provides an overview facility and related infrastructure; and (c) carrying out a public of the solid waste sector in the West Bank. awareness campaign to promote waste minimization, resource recovery, and cost recovery for financial viability. 3.4 The RBF Approach 3.3 The Problem Statement The RBF approach designed for the West Bank aims to improve access to quality and financially sustainable SWM The main challenges with the current SWM system in the services in Hebron and Bethlehem governorates. The design West Bank are the lack of quality in service provision and low for this project was based on the concept developed for Nepal financial sustainability. Problems such as inadequate service (see Chapter 2). As an OBA project, an OBA subsidy helps planning, insufficient distribution of waste bins, and inefficient to partially support the increased costs associated with an routing of collection vehicles all result in a lack of cleanliness improved level of service, namely the final disposal fees at Al and overall citizens’ dissatisfaction with the SWM services Minya, thereby allowing service providers (M/VCs) to focus provided. Currently, primary collection services are provided resources towards service improvement along other points of by the Joint Services Council of Bethlehem (JSC-B), Joint the SWM chain such as primary collections. The subsidy would Services Council of Hebron (JSC-H), or municipalities/village be disbursed over a four year period, based on the achievement Box 3.2: The Solid Waste Sector in the West Bank Waste generation, collection and disposal The West Bank generates approximately 1.2 million tons of MSW per year.a Thirty-four percent of the total waste in West Bank originates in Hebron and Bethlehem, which are the two poorest governorates in the West Bank. Waste collection tends to be high, although the service itself is inefficient, thus increasing primary collection costs. Problems with waste collection include poor planning, high operation and maintenance costs, inadequate vehicles and bins, and limited financial resources. It is estimated that over 98 percent of waste is collected in Hebron and Bethlehem governorates. Approximately 29 percent of the population in Hebron and 53 percent in Bethlehem receive at least partial SWM services. These services are either supported by the M/VCs or the JSC-B / JSC-H. Waste disposal in the West Bank and Gaza is generally unsanitary, with garbage being disposed in open, unregulated sites. The number of dumpsites ranges from 190 to 420.b Burning of waste is also common, particularly in rural areas due to a lack of an efficient collection and disposal system. Institutional context The SWM sector in the West Bank is regulated by the Ministry of Local Government, as part of its overall responsibility for municipalities, and by the Palestinian Authority Environmental Quality Authority; however, both lack the capacity to properly govern the sector. Municipal capacities, as well as the funds to improve the system, are also lacking, thus contributing to the overall lack of regulatory strength. Nonetheless, the sector is beginning to see improvements through the establishment of JSCs that take responsibility for providing a consolidated service. The Joint Services Council-Hebron and Bethlehem (JSC-H&B) is a legal entity established by the Ministry of Local Government, and consists of the JSC-H and the JSC-B, as well as other municipal JSCs. a Sweepnet, 2012. www.sweep-net.org b Baseline Data Inventory Report, Feasibility and Social Impact Study for the Southern West Bank Solid Waste Management Program, dated May 10, 2008, by DHV Consultants. 3. The West Bank 21 of specific service improvement and financial sustainability of different types of waste (e.g., slaughterhouse and medical targets. The expected benefits of this project in the West Bank waste) and an MIS for reporting, monitoring, and evaluation of are: improvements in the quality of SWM services provided; results, are also important indicators of results for the project. better public health and environmental conditions through the Improved financial sustainability, the second output category, closure of illegal dumpsites and improvement in the level of is a function of the cost of services provided and the revenues service; and enabling private sector participation, which would generated to cover these costs. Revenue generation is broken in turn contribute to the long-term sustainability of the SWM down into billings (number of registered users who receive system in the region. The expected number of residents who bills and amounts billed to each registered user) and collections would benefit from the project is approximately 840,000.5 (the portion of the amount billed that is actually collected). 3.4.1 Defining and Measuring Results The indicators under the two output categories summarized in Table 3.1 would be verified on a semi-annual basis by an Results in the West Bank OBA project are measured in terms independent verification agent (IVA). Verification would of two categories of ‘outputs’: (a) access to improved services; include visual inspection of streets, and review of the and (b) improved financial sustainability of the SWM sector. tonnage of waste received at transfer stations and the landfill These outputs, and the specific indicators used, are summarized in relation to waste generation rates. A technical scorecard, in Table 3.1. which is central to project monitoring, tracks SWM strategy Under the first output category, two tangible and immediately development and implementation of the MIS, service provision, measurable indicators—“Cleanliness of Areas” and “Total and financial performance. As in the case of Nepal, the first Waste Managed”—were adopted to capture the spectrum of part of the scorecard checks for project implementation and improved services to be provided to households. Cleanliness monitoring systems, which are a prerequisite for proceeding captures the various characteristics of effective primary to the latter stage of verifying actual performance of service collection service; however, it does not address the overarching delivery and fee collection. The indicator on SWM strategy/ goal of SWM, which is to ensure the overall handling of MIS implementation will be measured at the JSC-H&B level waste such that the environment is preserved for all residents. on a yes/no evaluation. The indicator on total waste managed In order to ensure these benefits are received by users, it is is a measure of the waste treated at the Al Minya landfill. important that waste is also managed in a sanitary manner. In The score for the other indicators is done using a population- addition, development of an SWM strategy for the treatment weighted average. Targets for individual M/VCs are set in order to achieve aggregate targets and the M/VCs receive the OBA subsidy based on their performance against the targets for 5 Solid Waste Management in Hebron and Bethlehem Governorates, each indicator. Assessment of Current Situation and Analysis of New System, SENES Consultants Ldc and ARIJ-Jerusalem, June 2012 Table 3.1: Outputs and Indicators for the West Bank Project Indicators Description Output 1: Access to Improved Services SWM Strategy/Management of Information  evelop plans for management and treatment of slaughterhouse and medical waste and closure and • D Systems (MIS) Implementation rehabilitation of unsanitary dumpsites; and • Design and implementation of management information system for the first year. Cleanliness of Areas  easured using a Cleanliness Index (CI), based on visual inspection; scores assigned based on cleanliness • M characteristics observed. Total Waste Managed • Three waste streams monitored: ·· Waste deposited at Al Minya sanitary landfill; ·· Waste diverted from Al Minya through recycling or re-use; and ·· Waste that is deposited at other dumpsites (e.g., Yatta) and not sanitarily treated. Output 2: Improved Financial Sustainability Improvement in Fee Collection • Fees collected divided by billings. Improvement in Cost Recovery • Total billings divided by total operating costs. 22 Results-based Financing for Municipal Solid Waste 3.4.2 Financing 3.5 Implementation The total cost for the OBA subsidy component of the project As a first step, the implementation agency, JSC-H&B (with the over the four-year period is US$8 million. It is expected that M/VCs) will be required to develop and implement an MIS for the JSC-H&B will contribute approximately US$5.6 million better reporting and conduct a baseline study for cleanliness. through improved collection of user fees. Solid waste fees would This would be essential for the IVA to verify the data reported be charged to households by their respective municipalities later in order to disburse the subsidy. The JSCs and M/VCs to cover primary collection, transport to transfer stations, provide collection, transport, and disposal services and collect and operations and maintenance of the sanitary landfill, as fees for the services provided. The JSC-H&B is responsible well as administrative costs of the landfill operator and JSC- for monitoring and evaluation of the project and tracks the H&B. These fees are expected to increase over time in order performance of the M/VCs through the MIS, and compiles to cover the costs of operating a sanitary landfill, which will performance results. The IVA is hired by the JSC-H&B cost more to operate than the dumpsites in the ‘business-as- according to World Bank procurement procedures. The IVA usual’ situation. The current average household fee collection reviews progress made by the municipalities semi-annually and rate of 48 percent equates to approximately US$1.4 million per verifies the scores reported based on the pre-agreed indicators. year; it is expected that by year four the collection efficiency If a minimum score is reached, the JSC-H&B TOU submits will reach 80 percent, based on the experience in Jenin with a replenishment request to GPOBA; GPOBA then disburses improvements to payment mechanisms and enforcement funds through a “Designated OBA Account” housed at the procedures. MoF on behalf of JSC-H&B. Figure 3.1 summarizes the basic The OBA subsidy grant is fully funded by the International steps in the project cycle. Finance Corporation (IFC) through GPOBA. Because requirements on the use of IFC funds stipulate that such funds 3.6 Key Risks must flow to a private party, the grant funds will be used to pay the landfill operator a portion of the final disposal bill on behalf A key risk to the success of this RBF approach is beneficiaries’ of M/VCs. The projected disposal costs amount to US$30/ willingness to pay for the improved services. Hence, it is ton on a monthly basis, of which 66 percent is expected to be important that the subsidy provided over the project period covered by fees from beneficiaries and 34 percent through the enables service providers to invest the resources needed for GPOBA grant, over the four-year period. improved services in the form of improved primary collection and sanitary final disposal. In addition, there is also the issue of the service providers’ willingness to adopt alternative options to fee collection, such as including solid waste fees on Figure 3.1: The Basic Project Cycle in the West Bank Step 1: Step 2: Step 3: Planning and Preparation Improved Service Subsidy Payment Delivery, Improved Financial Sustainability and Verification • Procurement and rollout • JSCs and M/VCs • GPOBA replenishes of MIS system. demonstrate improved subsidy to JSC-H&B • Completion of cleanliness services as measured by baseline study. indicators. • JSCs, M/VCs demonstrate improved fee collection/ cost recovery. • IVA verifies results 3. The West Bank 23 electricity bills. In areas where solid waste fees have been tied A study was performed to identify how municipalities to electricity bills, fee collection rates have been as high as 90 could optimize cost and better collect fees. An MIS to 100 percent. As in the case of Nepal, a key assumption in was designed and implemented to support participating this design is that as the municipalities increase the quality of municipalities with financial and data management for the SWM services provided, they would also be able to gradually verification process. increase the fees charged to beneficiaries for these services. • RBF subsidies in the solid waste sector are better To reduce these risks and increase the likelihood of success, targeted at municipalities rather than individual the overall project beyond the OBA component has received households due to the shared nature of the service institutional buy-in and stakeholder support, and the costly provision. In the solid waste sector, poor areas of cities upfront investments of the construction of the sanitary are generally those experiencing low fee collection rates landfill and associated equipment has been funded through a and consequently poor quality of service; these problems World Bank grant and other donors. The indicators have been justify RBF subsidies to bridge the gap of affordability. designed to enhance operational efficiency and cost savings. Unlike other sectors such as water and energy where the The action plans developed by the JSCs include measures subsidy could easily be targeted to individual households, to develop a standardized system for setting tariffs, improve it is difficult to target a subsidy to poor households since fee collection systems, link fees to utility billing systems waste disposal is often a shared, community-based activity. (where possible), and so on. However, it remains to be seen In the West Bank, GPOBA approved a grant for Hebron whether all these aspects can be appropriately and effectively and Bethlehem governorates based on average mean- implemented and monitored by the municipalities given their income criteria rather than segregating poor households or current levels of technical capacity. Lastly, in terms of fee poor neighborhoods within these governorates. collection, the JSC-H&B is entitled to claim other sources of • RBF could be an effective tool to attract the private revenues from municipalities such as taxes and road safety sector in post-conflict and fragile countries. The fragile fees. In this respect, the project has been designed in a manner political situation in the West Bank is generally not whereby participating municipalities commit to pay JSC-H&B conducive and highly risky for international private sector to compensate for any reduction of OBA subsidies that occur investments. The Southern West Bank solid waste project if the pre-agreed service and financial targets are not achieved. has, however, attracted the international private sector mainly because the RBF project represented a payment 3.7 Lessons Learned guarantee to the international private sector firm. As a consequence, the first public-private partnership (PPP) • Supplementing financial subsidies with educational transaction with an international firm was signed for the outreach and technical assistance provides greater management of the new sanitary landfill in Al-Minya leverage for RBF projects. In the West Bank, the landfill. In the context of fragility, transitional subsidies RBF project aimed to motivate municipal and village such as those provided by GPOBA are an effective tool to councils to take action to improve fee collection in the facilitate revenue collection as citizens will immediately Bethlehem and Hebron governorates. Introducing new fees experience the value for the fee that they are being asked particularly for waste management requires some level of to pay. public education and outreach for greater acceptance. For the case of West Bank, an outreach program was part of the broader solid waste project that the RBF is supporting. 24 Results-based Financing for Municipal Solid Waste RBF to Promote Recycling and Source Separation of Waste 4. China and Malaysia: Incentive Payments to Increase Source Separation of Solid Waste in Ningbo, China and Penang, Malaysia Box 4.1: RBF in China’s MSW Sector “At-a-Glance” Solid Waste Situation. The municipality of Ningbo, China is home to approximately 3.5 million residents (2010) and generates 1.2 million tons of municipal solid waste each year (2009), much of this waste being residential. The city has two waste-to-energy (WTE) facilities and two sanitary landfills, with capacities of 1,600 and 1,300 tons per day (tpd), respectively. By 2015, the city is projected to generate 1.4 million tons of waste per year, which would result in a shortfall of disposal capacity of 1,000 tons per day.a Problem Statement. 85.2 percent of Ningbo households indicated that they do not separate waste at home. Even among households that claimed to segregate their wastes, their separated waste was not transported and treated separately due to a lack of facilities for waste separation and treatment. When asked why households did not practice segregation, 21 percent reported they did not know how to separate wastes, 23 percent mentioned a lack of space in their homes, and 14 percent noted a lack of appropriate separation, collection, and treatment facilities. Design Solution. While Ningbo embarks on financing the facilities for waste separation, an RBF approach is used to address the issue of behavior-change and incentivizing household solid waste separation at source. “Incentive payments” (i.e., cash awards) are given to communities if they successfully separate wastes into the following streams: food waste, recyclables, hazardous waste, and all other wastes. Separated waste will be evaluated on pre-determined quality and quantity measures, such that neighborhoods will receive a final overall score. The neighborhood community, organized around a neighborhood-level residents committee (NRC) that is the lowest level of government, will receive an incentive payment based on this score, subject to both a minimum score and a maximum incentive payment ceiling. Each program cycle is six months long. During the first month, the program begins implementation and the NRC is responsible for education, out-reach, and advocacy. During months two through five, waste is evaluated. During the last month, final scores and incentive payment amounts are calculated and distributed as grants from the municipal government. a. World Bank, “Project Appraisal Document—Ningbo Municipal Solid Waste Minimization and Recycling Project”, The World Bank, December 19, 2012. 4. China and Malaysia 25 BY 2015, NINGBO IS PROJECTED TO GENERATE 1.4 MILLION TONS OF WASTE PER YEAR, WHICH WOULD RESULT IN A DISPOSAL CAPACITY SHORTFALL OF 1,000 TONS PER DAY. SEPARATING AND DIVERTING HOUSEHOLD WASTE THROUGH RECYCLING CAN HELP SAVE VALUABLE LANDFILL SPACE. CHINA Incentive payments are given to communities if they successfully separate waste. 26 Results-based Financing for Municipal Solid Waste Box 4.2: RBF in Malaysia’s MSW Sector “At-a-Glance” Solid Waste Situation. Penang State, Malaysia is comprised of two highly urbanized parts—Penang Island and Seberang Perai on the Malaysian Peninsula. Penang Island’s population of 750,000 residents and Seberang Perai’s population of about 815,767 residents generate about 288,377 and 528,275 tons of waste per year, respectively.a Existing landfill capacity is rapidly decreasing with the amounts of waste currently generated, collected and disposed. Problem Statement. Of Penang’s waste, approximately 40-60 percent is organic waste (food and yard wastes).b Organic waste that is landfilled releases greenhouse gases like carbon dioxide and methane that contribute to global warming. A significant portion of waste is from residential high-rise buildings and yet most residents in Penang, including those in these complexes, do not separate their organic wastes. Design Solution. “Incentive payments” (i.e., cash awards) are given to participating high-rise communities if they successfully separate organic waste from all other wastes. Separated organic waste will be evaluated on pre-determined quality and quantity measures, such that communities will receive a final overall score. The communities, through organized high-rise management committees (HMCs), will receive an incentive payment based on this score, subject to both a minimum score and a maximum incentive payment ceiling. The program cycle is four months long, with two months of evaluation. a. Municipal Councils of Penang Island (MPPP) and Seberang Perai (MPSP), 2012. b. Hung Teik Khor, State of Penang Organic Waste Policy Proposal, 2012. Ningbo, China municipal government and the rest through the World Bank. The project covers over two million urban residents living in Haishu, Jiangdong, Jiangbei, Beilun, Zhenhai, and Yinzhou 4.1 Introduction districts that together make up Ningbo. The project comprises the following components: The municipality of Ningbo, China, is home to approximately 3.5 million residents (2010) and generates 1.2 million tons • Component 1: municipal solid waste separation, collection, of municipal solid waste each year (2009). The city has two sorting and transportation of residential waste and waste in waste-to-energy (WTE) facilities and two sanitary landfills, public places; with capacities of 1,600 and 1,300 tons per day. By 2015, the • Component 2: kitchen waste treatment, through the city is projected to generate 1.4 million tons of waste per year, construction of an anaerobic digestion facility; which would result in a shortfall of disposal capacity of 1,000 • Component 3: project implementation support to cover tons per day. In an effort to overcome its growing deficit in community mobilization and raising awareness, MSW waste management capacity, the Municipality of Ningbo is pricing policy and drafting of related regulations, a initiating a waste separation at source program. Through this smart SWM information management system, external program, residents would be required to separate their waste monitoring and evaluation of performance, and output- into four streams: organic waste, recyclables, hazardous waste, based incentives for NRCs to encourage waste separation and other waste. The aim is to divert as much hazardous waste, and for restaurants that install and operate oil-waste organic waste and recyclables from the WTE facilities and separators; landfills, thus extending the life of the landfills and enabling the current system to handle increases in waste generation. • Component 4: capacity building and project management support for advisory services, supervision, project 4.2 The Broader Context of World Bank management, monitoring, and training of SWM staff. Support 4.3 The Problem Statement Together with the municipal government of Ningbo, the World A critical element for the success of the overall project in Bank is funding the Municipal Solid Waste Minimization and Ningbo is to ensure that source separation actually takes Recycling Project in Ningbo to assist the city in increasing the place. The project is financing all the necessary equipment volume and proportion of solid waste recycled through source and facilities to support waste separation, such as the new separation. The total project cost is estimated at US$248.33 anaerobic digestion facility, several waste collection trucks, million, with almost 70 percent being financed through the 4. China and Malaysia 27 and construction or upgrade of transfer stations. However, fully responsible for outreach, education, and mobilization of all this requires behavior change at the community level to residents’ behavior for source separation as well as the means ensure success. Yet, according to a public survey on waste and methods used to encourage households to segregate their separation prior to project implementation, 85.2 percent of wastes. Ningbo households indicated that they do not separate waste 4.4.1 Defining and Measuring Results at home, except for selling some valuable recyclables to the market. Even for those households that claimed that they did Each neighborhood would be evaluated based on its outputs, separate waste, their separated waste was not transported and defined as the quality and quantity of source-separated waste. treated separately due to lack of facilities for waste separation Using the quantity of waste separated as an evaluation criterion and treatment. When asked why households did not practice would ensure that each NRC strives to get its residents to separate segregation, 21 percent reported they did not know how to as much waste as possible. However, quantity parameters alone separate wastes, 23 percent mentioned a lack of space in their would not provide an accurate and fair evaluation; therefore, a homes, and 14 percent noted a lack of appropriate separation, set of quality factors are also used to ensure that the separated collection, and treatment facilities. waste is of a certain level of purity. The purity of the organic waste is key to the success of the anaerobic digestion plant. 4.4 The RBF Approach Likewise, properly separated recyclable waste would yield a higher price than mixed waste. The RBF approach designed for Ningbo is an output-based neighborhood incentive payment program, to encourage a 4.4.2 Financing high rate and good quality of waste separation according to The incentive payments for the NRCs in Ningbo are based the four streams of waste under the city’s new SWM system. on three factors: the Neighborhood Overall Score (NOS), the The basic units for promoting solid waste separation are the Potential Neighborhood Incentive (PNI), and the minimum NRCs. The rationale for working at the NRC level is due to score (MS), of each NRC. The NOS measures the overall quality the fact that this is the lowest level of government in China and quantity of the source-separated waste in a neighborhood, which is in direct contact with residents. Each NRC would be taking into account the quality and quantity of both food waste Box 4.3: The Solid Waste Sector in China Waste generation, collection and disposal Today, China is the world’s largest waste producer. In 1980, the amount of municipal solid waste collected and transported in China was about 31 million tons. Following its rapid economic growth and urbanization, by 2009, this amount had increased five-fold to about 157 million tons. Current estimates expect this amount to continue increasing to about 585 million tons in 2030. Aside from the huge environmental costs, the investment needed to collect and dispose of this amount of waste is likely to increase tenfold, from its current budget of RMB 50 billion to RMB 500 billion. Current residential waste, a large portion of municipal solid waste, is rarely separated at source. While there is some recycling done by through the private sector, most residential waste is mixed and disposed through incineration or landfilling. Public awareness and participation in waste separation is generally low. As living standards increase, recyclable materials will likely increase and need to be separated from the rest of the waste stream. Institutional context For comprehensive resource recovery, China needs to develop a stronger waste management system and market for recyclables. It has been inhibited largely by weak institutional arrangements and insufficient investments in waste management technologies and infrastructure. From a policy perspective, in 2004, the National People’s Congress (NPC) passed the national Solid Waste Pollution Prevention and Control Law. This law focuses on supervision, management and pollution prevention, and regulates dumping, collection, transport, reuse/recycling and disposal of municipal solid waste. In 2009, the Chinese government adopted a “reduce, reuse, and recycle” (3R) strategy, through its Circular Economy Promotion Law. The law aims to promote simultaneous economic growth and resource efficiency and reduced pollution. It has also adopted an experimental approach to testing domestic waste separation through the establishment of pilot or model cities, including Beijing, Shanghai, Guangzhou, and Hangzhou. Results from these pilot projects, however, remain low because of a lack of comprehensive recycling systems and infrastructure, and low public awareness and participation. 28 Results-based Financing for Municipal Solid Waste as well as recyclables diverted, in addition to the quantity of e. At the end of the evaluation period, the PIC would household hazardous waste diverted. calculate the final scores and the amount of incentive for each NRC. The PIU reports would be reviewed by the The incentive payment would also be subject to a ceiling, known Ningbo Municipal Solid Waste Separation Management as the Potential Neighborhood Incentive (PNI). The PNI is the Office (SWSMO), which oversees and coordinates the maximum amount that an NRC can earn if it were to achieve activities of the PIUs. The PIU reports are compiled into a the maximum score of 100. For Ningbo, the PNI should be single report that is submitted to the NMPMO within three set at less than the savings in disposal costs that the municipal weeks of the completion of the evaluation period. government would achieve resulting from the separation of the waste. At the discretion of the municipal government, the value f. Within a week of the SWSMO submission, the NMPMO of the PNI is determined at the start of the evaluation period reviews and approves the report and transmits it to the and could be steadily decreased before each cycle in order to municipal government for payment. gradually phase out the incentive program. In order to ensure g. The results are publicly announced concurrently with the a minimum level of quality and quantity of source-separated opening of the next cycle. waste, a minimum score (MS) would be established before any incentive would be paid. 4.6 Lessons Learned The amount of funds available for the incentive payments in Incentive payments schemes for behavior change require Ningbo is US$4.54 million, funded out of the IBRD loan for complementary activities in education, outreach, and the Ningbo project. Each NRC would determine for itself how advocacy. Strong local ownership of these activities helps to use the incentive payment, which would be received by the build community buy-in and participation. In Ningbo, NRC as a grant from the municipal government. participating districts and NRCs of the pilot projects organized stand-alone publicity campaigns and created their own 4.5 Implementation promotional materials for dissemination. Stakeholder trainings Each program cycle in Ningbo would be six months long, with were provided to waste separation inspectors, instructors, two cycles a year. The program cycle can be summarized as volunteers, and residents. Mass media --ranging from local follows: television, radio, newspapers, and signage in public areas— was employed. Some communities also conducted their own a. The Ningbo Municipal Project Management Office baseline surveys of to guide the project’s roll-out. The Ningbo (NMPMO) is responsible for the overall implementation, RBF project began implementation in July 2013, covering coordination, and oversight of the neighborhood incentive initially 6,760 households and 50,000 by March 2014. program. At the beginning of a cycle, the NMPMO would officially announce the start of the evaluation period, along Recyclables that are successfully separated by households with the PNI and minimum score required. may not make it as anticipated to their final collection point. This unexpected diversion means that the waste cannot be b. NRCs would formally express their interest to participate properly measured and evaluated. The pilot projects in Ningbo at least 15 days prior to the start of the evaluation cycle. show that household-separated recyclables were deposited at c. The evaluation period starts in the second month and ends neighborhood collection points. However, these sites attracted in the fifth month. In these four months, the district-level private waste recyclers that would take the recyclables to Project Implementation Units (PIUs) would collect data on independently sell them. While the end goal of recycling was waste quantities and make random neighborhood visits for presumably achieved, the waste was not successfully measured physical inspection to determine the waste quality. NRCs for calculation of an incentive payment and, consequently, the would be visited at least once per month. Final quality municipality is not making the anticipated profit from the sale scores would be based on the average scores assigned of recyclables. A future design element should include some during each visit, and quantity scores would be the sum of mechanism such as locked collection points. the quantities recorded during the site visits. The scores that neighborhoods receive are a function of d. The PIUs would publish mid-term scorecards in order to the theoretical waste composition (expected proportions give the NRCs an indication of how they are performing. 4. China and Malaysia 29 of food and recyclable waste in the total waste generated). Penang, Malaysia The project used estimates of waste composition but it would be more accurate to have real data. The project assumes that food waste is 50 percent of total waste, and that recyclables 4.7 Introduction are 10 percent. Although more labor intensive, it would be Malaysia is predominantly an urban country, with almost 75 helpful to conduct a waste characterization study for the percent of its citizens living in cities. The World Bank classifies participating pilot projects. From this lesson, advance waste Malaysia as an upper-middle income country; compared to characterization studies were conducted for a similar project in the other countries in this report, Malaysia ranks high in the Penang, Malaysia. provision of sanitation facilities to its residents. This case study Large-scale separation of organic waste may not always focuses on one particular area, Penang, which is one of the be achieved by monetary incentives and education most developed and economically important states, in addition because behavior change is complex and often can take to being a popular tourist destination in Malaysia. The state time. In Ningbo, despite the financial incentives provided to of Penang consists of Penang Island and an adjacent area of communities and the education and outreach performed by the mainland, located in the north-west of Peninsular Malaysia NRCs, the scale of the waste separation is still moderate. As of near the northern end of the Strait of Malacca. On the island, March 2014, the participation rate was only 50,000 households the Penang Island Municipal Council (MPPP) manages an whereas the target by the end of 2014 is 178,000. area of 297 sq km with a population of over 700,000 people. Seberang Perai on the mainland has over 868,000 people in an area of 738 sq km, managed by the Seberang Perai Municipal Council (MPSP). PENANG’S WASTE IS 40 TO 60% ORGANIC. DISPOSAL OF ORGANIC WASTE IN LANDFILLS GENERATES METHANE, A POTENT GREENHOUSE GAS THAT CONTRIBUTES TO GLOBAL WARMING. Malaysia Incentive payments catalyze organic waste diversion from landfills. 30 Results-based Financing for Municipal Solid Waste 4.8 The Broader Context of World Bank to the CCAC to develop a comprehensive organic waste management system, encompassing best practices for SWM, Support capacity building, and identification of appropriate technologies The World Bank has not had investment projects in Malaysia and PPPs in the sector. As part of this plan, an output-based in over a decade. However, the Bank has provided technical program to incentivize source separation was envisioned, in assistance to Penang for RBF in solid waste, under the auspices order to maximize the quality and quantity of separated organic of the CCAC to Reduce Short-lived Climate Pollutants waste, in the context of Penang’s organic waste policy adopted (SLCPs). CCAC is a coalition of countries and non-state in 2012 which aims to divert as much organic waste as possible partners formed to catalyze actions to reduce SLCPs in various from its landfill. sectors including solid waste, thereby improving public health, food and energy security, and mitigating climate change in the 4.9 The Problem Statement near- to long-term. The largest fraction of waste going to the landfill in Penang In 2013, Penang became a participating city within the solid comprises organic matter, such as food and garden waste. waste initiative of CCAC. UNEP, as a lead partner in CCAC, Available data indicate that almost half of the organic waste in undertook an assessment to identify opportunities to reduce Penang Island originates from high-rise residential buildings, SLCPs in the waste sector in Penang. An action plan for SLCP so persuading residents in these buildings to segregate their reduction in Penang was prepared as part of its commitment waste into organic and recyclables would go a long way in Box 4.4: The Solid Waste Sector in Malaysia Waste generation, collection and disposal Malaysia’s current rate of urbanization is about 75 percent. In 2005, with a population of 26.6 million, the country generated about 19,000 tons per day. In 2012, with a population of 28.3 million, it generated 33,000 tons per day (over 12 million tons per year). Much of this is waste is municipal solid waste, driven by urbanization, increasing income levels, and changing consumption patterns that accompany the country’s development. Its waste composition today consists of roughly 45 percent food waste, 24 percent plastic, 7 percent paper, 6 percent metals, 3 percent glass, and 15 percent other materials (2005 data). Among residential waste, the organic fraction is about 51.6 percent of total waste.a,b Waste is collected and dumped at municipal landfills. Landfills, however, are often controlled dumps that are rapidly filling and in need of upgrading. The country is in the process of building sanitary landfills, closing dumpsites, upgrading others, building incinerators, and considering other technologies. For Penang, all wastes are transported to Pulau Burung Landfill. The landfill is about 33 hectares and will last until 2017. The landfill management is now in the process of expanding the landfill with additional capacity estimated to last another ten years. With the rapid rate of waste generation, another landfill site will soon need to be identified. Institutional context Municipal solid waste management falls under the responsibility of the Ministry of Urban Wellbeing, Housing, and Local Government. It supports an integrated national solid waste management policy founded on principles of efficiency, cost- effectiveness, and privatization of services. The policy also emphasizes the importance of environmental conservation and public health. Like other country governments, it supports a 3R approach—through the reduction, use, and recycling of waste materials. Prior to 2007, state and local government had a much more independent role managing solid waste. In 2007, Act 672 was passed leading to the National Solid Waste Management Department and the increased role of the Malaysian federal government in setting solid waste policies, strategies, plans of action, regulation, and licensing of private service providers. Act 673 (2007) also established the Solid Waste and Public Cleansing Corporation for implementation and enforcement of policies and regulations. In 2012, Penang issued an Organic Waste Policy with the ambitious goal of diverting 40 percent of organic waste from its landfill by2015 and all of it by 2020. The implementation of its policy remains nascent and ongoing. a. Malaysian National Solid Waste Management Department, Ministry of Urban Wellbeing, Housing, and Local Government. Available online at: http://www.kpkt.gov.my/jpspn_en_2013/main.php?Content=articles&ArticleID=43&IID= b. Dato’ Seri Arpah Abdul Razak, Solid Waste Management in Malaysia: the Way Forward presentation at the 2013 International Solid Waste Association World Congress. Available online at: http://www.iswa2013.org/uploads/ISWA2013_ARPAH_presentation_333_EN.pdf 4. China and Malaysia 31 achieving the goals of Penang’s organic waste policy. Diverting 4.11 Key Risks and Sustainability in Ningbo organic waste from being disposed into landfill would prolong and Penang the service life of the landfill, reducing the costs of solid waste management, and contributing to climate change mitigation by At the outset, the design of the incentive program would seem reducing the amount of methane, a potent greenhouse gas. likely to be a successful approach given the financial benefit awarded to residents for segregating their waste. However, this 4.10 The RBF Approach leads to an obvious risk: would the program be sustainable if the financial incentive is withdrawn? In addition, what if the The basic RBF approach for Penang is based on the approach incentive payments are set too low to make a significant impact taken in Ningbo. However, the design for Penang differs in on households’ behavior towards waste segregation (i.e., is it some important ways from Ningbo. First, the basic unit for the financial incentive or some other goal which encourages promoting waste separation in Ningbo is the NRC which can households to separate their waste)? One option here would comprise multiple residential buildings, while in Penang it is be to encourage NRCs to use the incentive payments received the management committees of individual high-rise residential towards the whole community (e.g., funding a festival, buildings. Additionally the program in Penang focuses on upgrading a children’s playground), instead of distributing organic waste separation, and does not specifically target the proceeds among individual households. This would show recycling as a separate waste stream. households the benefit to the wider community; however, it 4.10.1 Defining and Measuring Results might also make households consider segregation as a public good where their individual participation would not make a The ‘outputs’ for the Penang’s program are defined as the significant impact. quantity of the organic waste fraction, subject to a quality (purity) requirement depending on the specific organic waste Another risk is related to the subjectivity of the verification processing technology in use in each location in Penang. The process. Guidelines for the visual inspections of the quality of program in Penang would work with each high-rise property the separated waste are provided for the verification process. that has a management committee. Performance would be Nevertheless, assessments of quality still involve a subjective measured based on the outputs of each building. To begin with, component. Keeping this in mind, the designers of the project the program would be piloted at six sites across Penang and, if also provide an alternative method, based on measuring successful, could eventually be scaled-up to operate city-wide. separated waste at recycling and anaerobic digestion facilities, to calculate the quality of the recyclable and organic fractions, 4.10.2 Financing respectively. However, this would require constant weighing of At the time of writing, the program in Penang had not yet the segregated material as well as the unwanted material after it begun implementation, and the Penang state government and has been separated for each NRC. This would not only be time municipal councils had yet to determine the amounts of the consuming but may also be imprecise if wastes get mixed up. incentive payments that would be offered to participating high- Finally, the waste source targeted for the incentive scheme is rise buildings. However, it has been agreed in principle that the the household. However, many commercial institutions such amounts of the incentives would not exceed the cost savings as schools, restaurants, and malls, generate waste that could that would be realized by the municipal councils resulting from benefit from source segregation. Source separation at these organic waste separation – by comparison, the average cost of establishments is also important as the waste generated by collection, transport and disposal of solid waste in Penang is in them can be significant. excess of MYR 100 (approximately US$30) per ton. 32 Results-based Financing for Municipal Solid Waste 5. Indonesia: Expanding and Replicating Waste Banks in Tangerang, Balikpapan, and Manado Box 5.1: RBF in Indonesia’s MSW Sector “At-a-Glance” Solid Waste Situation. In Indonesia, waste banks are community-level intermediaries between household producers of waste and buyers of recyclable wastes. Households separate their waste and bring it to “deposit” into individual accounts at a local waste bank. Waste bank operators sell aggregated deposits to brokers, and return part of the sale proceeds to depositors in the form of cash, in-kind goods, or other services. Problem Statement. Many households do not recycle their wastes. Of residential waste in the participating cities of Tangerang, Balikpapan, and Manado, about 25 percent is recyclable, but much less is actually recycled. Design Solution. In this context, the RBF approach is applied to motivate behavior-change and encourage households to recycle wastes using local waste banks. “Incentive payments” (i.e., cash awards) are given to the participating cities if they successfully achieve a minimum percentage of household participation (participation rate) and waste banks operate according to pre-determined criteria. The incentive payments to the city are then devolved for local community development projects. There are three tiers of “participation rate”; pending other criteria, if a city achieves a higher participation rate, it qualifies for a larger incentive payment. There are three stages for verification spread approximately over three years. Stage one measures planning, implementation, and early operations of waste banks; stage two measures waste banks’ growth in operations; and stage three measures maturation and sustainability in operations. collected and transferred to landfills.8 Over this same period, 5.1 Introduction per capita solid waste generation is expected to rise from 0.52 Population growth in Indonesia’s urban areas is putting an to 0.85 kg/capita/day.9 unprecedented amount of stress on urban governance and Poor waste collection and disposal results in environmental infrastructure. Half of the country’s population currently lives pollution and hazards to public health. Open dumping and in cities (over 125 million people) and this is projected to rise burning deteriorates air quality. Health risks rise from the to 65 percent by 2025 (178 million people).6,7 The existing air pollution, but also from poor sanitation and uncontrolled urban population generates about 97,000 tons of solid waste leachate that contaminates surface and groundwater. per day, out of which only 39,000 tons per day (40 percent) is Unmanaged waste also frequently blocks drainage systems and worsens flooding. Even when collected and transported, 8 Irma Setiono, “Coordination and socialisation have proved to be key factors in making output-based aid effective”, Prakarsa: Journal of Indonesia Infrastructure Initiative, Issue 12, October 2012. Avail- 6 International Bank for Reconstruction and Development Project Ap- able online at http://www.indii.co.id/upload_file/201210121451540. praisal Document: Solid Waste Management Improvement Project for Prakarsa%20Oct%202012%20ENG%20full-colour%20sm.pdf Regional and Metropolitan Cities (March 1, 2014). 9 Daniel Hoornweg and Perinaz Bhada-Tata. What a Waste: A Global 7 “Issues and Dynamics: Urban Systems in Developing East Asia”, Review of Solid Waste Management, World Bank Urban Development Urbanization Dynamics and Policy Frameworks in Developing East Series Knowledge Papers, March 2012, No.15. Available online at: Asia, East Asia Infrastructure Department, World Bank. Available http://www.wds.worldbank.org/external/default/WDSContentServer/ online at: http://siteresources.worldbank.org/INTEAPREGTOPURB- WDSP/IB/2012/07/25/000333037_20120725004131/Rendered/PDF/6 DEV/Resources/Indonesia-Urbanisation.pdf 81350WP0REVIS0at0a0Waste20120Final.pdf 5. Indonesia 33 HOUSEHOLDS SEPARATE THEIR WASTE AND BRING IT TO “DEPOSIT” INTO INDIVIDUAL ACCOUNTS AT LOCAL WASTE BANKS. WASTE BANK OPERATORS SELL AGGREGATED DEPOSITS TO BROKERS AND RETURN PART OF THE SALE PROCEEDS TO DEPOSITORS IN THE FORM OF CASH, IN-KIND GOODS, OR OTHER SERVICES. Indonesia RBF can encourage more households to recycle using local waste banks. 34 Results-based Financing for Municipal Solid Waste waste in dumpsites and landfills contributes to greenhouse gas and social development. The project was to have invested up emissions. to US$100 million for improvements to the SWM systems in three cities (kota): Balikpapan, Tangerang and Manado. 5.2 The Broader Context of World Bank However, at the time of finalization of this report, preparation Support of the investment project had been dropped from the Bank’s pipeline of projects in Indonesia. Work on the RBF approach in Indonesia was undertaken within the framework of preparation of the Solid Waste Management 5.3 The Problem Statement Improvement Project for Regional and Metropolitan Cities in Indonesia, which the World Bank had been preparing with Rates of household waste separation and community recycling the Ministry of Public Works. The development objective is awareness remain low in Indonesia and thus contribute to the to support improvements to SWM systems and services to country’s broader problem of SWM. One avenue to encourage residents, in participating cities, through selective interventions household-level waste separation and recycling is through in waste minimization, separation, treatment and disposal. waste banks (“bank sampah” in Bahasa Indonesia). In lower The project consists of three components: improvements in income communities in Indonesia, waste banks serve as SWM systems, implementation support and advisory services, community-level intermediaries between household producers Box 5.2: The Solid Waste Sector in Indonesia Waste generation, collection and disposal Approximately 125 million people (or half of Indonesia’s population) live and work in urban areas. Collectively, they generate about 97,000 tons of solid waste per day. Of this, only about 40 percent (39,000 tons per day) is collected, transferred to temporary disposal sites, and then ultimately transferred to landfills. Landfills are of varying quality and size; most are being rapidly filled such that without expansion or a reduction in waste, they will quickly be saturated. In Balikpapan, Manggar was designed and constructed as a sanitary landfill; however, now it is being operated as a controlled landfill since it fails to meet the national guidelines for sanitary landfills. It is 25.1 hectares but undergoing expansion because of it is quickly being filled. In Tangerang, Rawa Kucing is really only a dumpsite with no leachate management system onsite. It is located dangerously close to drinking wells and a river downstream, and 20 of its 34.8 hectares are already filled. In Manado, Sumompo is the city’s main landfill and its 7.5 hectares are now almost full. Around 60 percent of urban waste (or 58,000 tons per day) is simply not collected. Instead, it frequently is informally dumped or burned, which results in environmental degradation and risks to population health. Indonesia is home to frequent flooding – and urban areas are affected by this most visibly along roadways that become dangerous and unpassable. Solid waste that is not disposed of properly exacerbates flooding by blocking drainage and sewerage systems. Institutional context The Indonesian government established Waste Law No. 18/2008 to explicitly support a “3R” strategy of waste reduction, reuse, and recycling. The law articulates a policy of household waste handling to include waste separation and integrated waste management. The Ministry of Public Works (PU) maintains a budget of block grants to help local governments achieve the objectives of this law. Nevertheless, recycling rates remain quite low. The Ministry of Environment promotes waste banks as a key part of the 3R strategy. In 2012, it added waste banks as part of their criteria for the aforementioned Adipura award competition for “Green and Clean Cities” (Permen LH No. 28/2012). Also in 2012, it issued a set of guidelines and regulations (Permen LH No. 13/2012) to oversee the development of waste banks that, to date, have generally arisen in an uncoordinated and unregulated fashion. The regulations demonstrate a national interest in waste banks but their requirements may not match the reality of waste banks in local communities and may not, in fact, be necessary to achieve the ultimate goal of increased household separation of waste and recycling. The Ministry of Environment plays a strong role in solid waste management at a more local level as well. However, as with many local public services, responsibilities, mandates, and budgets are fractured across different departments. There is a need for greater coordination between the Cleansing and Sanitation Departments (Dinas Kebersihan Kota), the Department of Public Works (Dinas PU Kota), the Regional Development Planning Board (Bappeda), and the Environmental Management Agency (BPLHD). 5. Indonesia 35 Figure 5.1: Waste Bank Operational Model In Indonesia Separates. Collects, House transports, Waste -hold & deposits Bank weighs, & Broker Buys waste waste sells waste 10-30% money kept for Waste Bank operations 70-90% money paid Money paid to Waste Bank to household Source: World Bank field research (2014) and the Unilever Foundation Waste Bank System guidebook (2013) of waste and buyers of recyclable wastes. Households separate 5.4 The RBF Approach their waste and bring it to “deposit” into individual accounts at the local waste bank. Waste bank operators sell aggregated The design of an RBF approach for waste banks in Indonesia deposits to brokers, and return part of the sale proceeds to intends to catalyze household waste separation and community depositors in the form of cash, in-kind goods, or other services. recycling awareness through the waste bank model. Unlike The remainder of sale proceeds is, in turn, used to finance the other waste projects that focus on built infrastructure, the waste bank’s on-going operations. Figure 5.1 summarizes the immediate objective in this case is behavior change. This basic operational model of waste banks. objective is evaluated against concrete results from waste bank performance, and provides incentive payments for measurable Waste banks in Indonesia have shown some early success. behavior change. However, much potential remains to be realized both in terms of the number of available waste banks and the performance 5.4.1 Defining and Measuring Results of each one. Of those that exist, many only service a small number of depositors and a small amount of recyclables. The The performance criteria used to measure results for waste low number of waste banks is due to a scarcity of coordinated banks are structured into three stages. City governments will knowledge-transfer to help new communities’ set-up and be expected to increase available baseline data on city waste operate waste banks. The performance of waste banks is tied to banks and to provide fora for waste bank capacity building. a variety of factors including a generalized lack of awareness Results will also be expected from the community-level waste or indifference and the age-old problem of moral hazard in banks themselves: waste banks will be assessed against pre- economic theory. Noticeably, the individual (household-level) established performance metrics related to operations and economic incentive from recycling is insufficient to motivate management, community participation, and sustainability. increased participation. The stages, and the performance criteria within them, are summarized in Box 5.3. 36 Results-based Financing for Municipal Solid Waste Box 5.3: Outputs and Indicators for the Indonesia Project Stage 1: Planning, Implementation, and Early Operations a. The city provides an enumerated list of all existing waste banks with the number of opened accounts at each one. b. The city provides attendance sheets for a minimum of three meetings held by a city-wide Bank Sampah Association. c. At least 50 percent of all existing waste banks (according to the enumerated, item (a) above) have attended at least one of the Bank Sampah Association meetings. d. The city provides an enumerated list of all waste banks in the scheme (waste banks in existence at the beginning of this stage plus communities targeted for waste banks). e. Each waste bank has the minimum equipment for operations including a weighing scale, a master account book, and individual account books for each depositor. f. Each waste bank meets minimum data collection criteria (provided in a checklist). g. Each account-holder’s name is associated with at least one deposit (to open an account, a deposit must be made). h. Across all waste banks in the city, the aggregate number of opened accounts is greater than or equal to 10 percent of the total number of households in the city. Stage 2: Growth in Operations a. Across all the waste banks in the city, the aggregate number of opened accounts is greater than or equal to 20 percent of the total number of households in the city. b. Each waste bank shows a minimum collection of an average of 1 kg per household per month. c. Each waste bank has receipts from brokers (buyers of recyclables) that demonstrate that the amount sold equals at least 80 percent of the total amounts deposited. Stage 3: Maturation and Sustainability in Operations a. Each waste bank shows a minimum collection of an average of 2 kg per household per month. b. Each waste bank has receipts from brokers (buyers of recyclables) that demonstrate that the amount sold equals at least 80 percent of the total amounts deposited. c. Each waste bank shows that at least 80 percent of account-holders are active, meaning having deposited at least once every two months during this twelve-month stage. The performance criteria, as designed, are somewhat complex. It is also evident from Box 5.3 that several of the performance Firstly, they are staged—and failure to meet Stage 1 criteria criteria in Stage 1 are, in fact, inputs. The decision to include precludes progression to Stages 2 and 3. Secondly, the these was two-fold: there was a need to generate some baseline criteria involve percentages which thus assume assessment of data against which future performance metrics would be performance against some baseline data, which is a moving assessed; moreover, there was a desire to guide the waste banks target. Thirdly, multiple actors are assessed: the city government according to what the design team found were ingredients for and the waste bank management, and more indirectly through success. As a whole, however, the design aligns with a results- waste bank management, individual account-holders and based approach that rewards outputs and outcomes. brokers. In designing this RBF approach, there was a frequent and difficult tradeoff between the significance of the indicator and ease of measurement (see Box 5.4). 5. Indonesia 37 Box 5.4: Simplifying Verification through Random Sampling and a Sequential “One-Out” Rule In this scheme’s design, there is the frequent and difficult tradeoff between an indicator’s significance and its ease of measurement. The scheme was designed such that if the results are not meaningful, then the whole results-based approach becomes nullified. As a consequence of this prioritization, the verification procedures for this scheme are complex. For monitoring and verification, the scheme attempts to simplify procedures (and therefore the associated transaction time and costs) wherever possible. Firstly, instead of having the IVA verify every waste bank or every account-holder (which could be hundreds), the IVA will take a random sample. In Stage 1, if the city shows that it has a city-wide participation rate of 10 percent from its list of account holders, the IVA will verify this by using a random 10 percent sample of waste banks (subject to a minimum of 10 and a maximum of 25). The performance eligibility criterion is that 90 percent of account-holders have to be verified as true within the sample. Secondly, the verification procedure aims to simplify with a sequential “one-out” rule on the Master Scorecards. Each city must answer affirmatively to 100 percent of the questions in the Master Scorecards. Therefore, the Master Scorecard questions are listed in order of verification difficulty and if the city fails one question, then it has already not passed the entire stage, and there is no need to continue verification of the other criteria. For example, in Master Scorecard 1, there are questions A through G. If the city answers question C incorrectly, the IVA may save valuable time and not continue with questions D through G. 5.4.2 Financing 5.5 Implementation The scheme’s financial award is not based on subsidies. This Each city participating in the scheme has approximately three is primarily because unlike other schemes that are based on years for full implementation and verification of performance. service delivery or infrastructure, there are no significant costs Because each city may choose a moderately different start to be subsidized or reimbursed. Therefore, without an input- date and apply for re-verification, the entire scheme for all cost against which to anchor the award, it is quite difficult to three cities is likely to run for between four and five years. determine what particular amount to give. The scheme is divided into three stages for verification by an The scheme, instead, adopts a model of “incentive payments” IVA. These stages (see Box 5.3) are purely for verification; (i.e., cash awards) that are tied to a pre-determined total ambitious cities may, of course, choose to progress to higher budget. In other words, an approximate total amount for operational levels before the designated verification dates. incentive payments is budgeted up-front based on 20 percent Regardless, the verification dates and performance eligibility of current municipal SWM operations and maintenance criteria remain fixed.10 (O&M) expenditures. Based on current data in participating cities, Tangerang potentially receives US$780,000; Balikpapan 5.6 Key Risks US$660,000; and Manado US$480,000. In sum, the budget for incentive payments is US$1,920,000 and another US$500,000 There are a few risks associated with the design of this kind of is allotted to support verification of performance. The sums financial reward. Firstly, there is the question of whether the budgeted for each city are then allocated across the temporal full budget (20 percent of municipal SWM O&M expenditures) stages for each city: 10 percent in Stage 1, 40 percent in Stage 2, is significant enough to encourage city participation. What and 50 percent in Stage 3, thus creating an additional incentive for continuous improvement in waste bank performance over time. 10 At the time of finalization of this report, actual implementation of this scheme is uncertain, as preparation of the overall World Bank invest- ment project had been dropped from the Bank’s pipeline of projects in Indonesia. 38 Results-based Financing for Municipal Solid Waste amount is truly meaningful to the cities? This is especially the project tries to incentivize individual household actors, yet the case when the probability of achieving this complete budget actual incentive payments go to the municipal governments is not one hundred percent. Secondly, there is the question that, in turn, devolve the award through local community whether the household (the actors) will be sensitive to an award development projects. Whether or not the households are that is distributed at the city-level, in effect several degrees sufficiently sensitive to and motivated by these projects is a removed from their personal and community interests. risk. This choice was made, however, because pooled funds among socially cohesive communities were perceived to The scheme design assumes that 20 percent of municipal SWM provide greater impact (given that individual payments were so O&M expenditures represents a significant amount to cities. small) and, moreover, it would have been logistically difficult At the same time, it recognizes that this is merely a budgeted to pay individuals. available amount and that cities may only achieve 75 percent of it. This design is chosen in order to mitigate risks of an over- Incentive payments are best supported with strong commitment of funds. The design team deliberately chose to education, awareness-building, and “socialization”. These prioritize the concern of spending within a limited budget even additional tools guide behavior that may be new and unclear if this means that the financial incentive to cities is lower. to an individual; moreover, they ensure greater sustainability in the behavior change. The incentive payment by itself is To address the second risk of whether households will be unlikely to achieve much success. Community leaders and sensitive to the awards given to city governments, the scheme municipal governments must provide complementary activities requires that the financial awards be used for local community to explain how and why to recycle. After the incentive payment development projects and strongly recommends that cities scheme ends, this education, and the habit of recycling, can set tangible, salient, and realistic community development help sustain the behavior into the future. goals before the start of the scheme. This is for households to understand what their waste bank participation helps achieve. Waste banks vary in their size, capacity, and operational However, the scheme does not hold cities accountable for this models. Tangerang, Balikpapan, and Manado are all quite spending and if the spending occurs in one community, another different cities. Without standardization among these actors, community may not find it sufficiently motivational. The and without baseline data related to their existing performance, choice to avoid dictating the specific use of funds was based it is difficult to set meaningful performance indicators. For on experience with other projects in Indonesia: there is a need many RBF designs, there is a clear baseline and a single actor. to simplify and limit the bureaucratic and transaction costs For example, suppose a specific household does not have a that accompany micromanagement; and, there is also a need water connection. The actor to change this baseline is a single to respect the autonomy and capacity of the city governments. water utility that delivers this connection in a predictable, uniform way. This project sets indicators lower: in the interest 5.7 Lessons Learned of accommodating many different actors, it chooses a “one-size fits all” model with a level of performance that most should be Using an incentive payment to induce behavior change able to achieve. assumes that the actor is “price sensitive”; determining price sensitivity and the size of the payment is difficult. This 5. Indonesia 39 40 Results-based Financing for Municipal Solid Waste RBF to Strengthen Waste Collection and Transport for Underserved Communities 6. Tanzania: Improving Primary and Secondary Waste Collection and Fee Collection in Dar es Salaam Box 6.1: RBF in Tanzania’s MSW Sector “At-a-Glance” Solid Waste Situation. Over recent years, Dar es Salaam has gone through rapid urbanization to become one of the fastest growing cities in Africa. As a consequence, the quantity of solid waste generated in the city, which was estimated to be 4,200 tpd in 2011, is projected to triple by 2025. The local governments in charge of waste management lack sufficient financial resources to adequately manage the sector and meet the fast growing demand. It is estimated that less than 40 percent of the waste generated is collected and disposed into the Pugu dumpsite. The remaining is disposed into vacant lots or into drainage channels. Problem Statement. An assessment of the solid waste sector in Dar es Salaam has revealed that primary collection (door- to-door collection to neighborhood collection points) is relatively effective in many communities because residents self- organize to provide door-to-door hand cart collection. The main drawback is the inefficiency of the secondary collection (collection from neighborhood collection points to the dumpsite) and the poor condition of the Pugu dumpsite. The city is also experiencing similar issues related to cost recovery. Most households pay for primary waste collection services but little revenue is generated to pay for the cost of the secondary collection. Design Solution. In this context, the RBF approach is used to provide a transitional subsidy over a period of time to support the improvement in primary collection within selected low income communities as well as secondary collection city-wide. Payment to hand cart primary collectors is based on an independent assessment of the percentage of households served regularly, improvement in service cost recovery, and proper waste transportation to an approved location. The latter is important to reduce illegal dumping by hand cart collectors. Payment to the municipality for secondary waste collection is based on the percentage of incoming waste removed each day, proof that the waste collected is effectively disposed in a sanitary manner, and the percentage of waste that is recycled and/or diverted for composting. 6.1 Introduction governments are commonly referred to as the Dar es Salaam Local Authorities (DLAs). Dar es Salaam is Tanzania’s largest and most important industrial and commercial center with an estimated population of more Dar es Salaam faces a range of challenges, including fragmented than 4 million in 2012. Dar es Salaam is an administrative governance structures, inadequate financial resources and region of the country and is composed of a coordinating Dar es management, overdependence on transfers from the central Salaam City Council (DCC) and three physically contiguous government, and a very constrained land and housing market. Municipal Councils: Kinondoni in the north, Ilala in the center The city also faces a huge and growing backlog in the provision of the region, and Temeke in the south. Together, the four local of basic urban infrastructure such as roads, drainage, and solid 6. Tanzania 41 DAR ES SALAAM IS THE FASTEST GROWING CITY IN AFRICA. SOLID WASTE GENERATION IS PROJECTED TO TRIPLE BY 2025. THE LOCAL GOVERNMENTS IN CHARGE OF WASTE MANAGEMENT LACK SUFFICIENT FINANCIAL RESOURCES TO MANAGE THE SECTOR AND MEET GROWING DEMAND. Tanzania RBF can enhance accountability and financial sustainability in the sector. 42 Results-based Financing for Municipal Solid Waste waste facilities. Solid waste services in general are poor due The other drawback along the collection chain is the serious to increased waste generation without an adequate collection, lack of an efficient secondary solid waste collection system, transport, and disposal system. Flooding is common and which is the responsibility of the DLAs. DLAs lack sufficient persistent, due to storm water drains in poor condition or filled equipment and financial capacity to adequately perform the with solid waste. service. This inefficiency has transformed most of the collection points into small dumps where open burning is often practiced 6.2 The Broader Context of World Bank as a waste reduction measure. Support Another important problem with the system is related to financing: the fee charged by primary waste collectors to The World Bank is engaged with the Government of Tanzania residents does not flow up to the DLAs for secondary waste to improve urban infrastructure and services in the country, collection, which increases the DLAs’ financial deficit and strengthen fiscal decentralization, improve accountability in increases their dependency on cross-subsidies. use of local government resources, and improve management of intergovernmental transfer systems. As part of this partnership, the Dar es Salaam Metropolitan Development 6.4 The RBF Approach Project (DMDP) project is being prepared to: (a) improve The proposed RBF mechanism provides payments to support municipal and metropolitan management; and (b) deliver solid waste operations for the first few years in a way that urban services in the three Municipal Councils that make up it enhances accountability and contributes to a gradual Dar es Salaam. The project will include a number of municipal improvement of the financial sustainability of the sector. The infrastructure investments including urban roads and drainage payments will be provided at two levels to ensure that all parts systems. SWM is of high relevance to this agenda due to the of the solid waste value chain that are underperforming are fact that poor SWM is one of the main causes of flooding in the properly incentivized to ensure that the waste is collected and city. In addition, poor SWM poses a substantial risk to human transported to the final disposal site. The subsidies consist of: health and the environment. a. A service delivery payment to support improvements in The RBF scheme described in this chapter was originally the primary collection system in poor areas and slums. designed as part of DMDP. Due to limitations in the project This will be paid to primary waste collection providers envelope and the need to prioritize target sectors, solid waste in selected wards/sub-wards conditioned to good is not currently included in DMDP. This chapter describes the performance; and proposed RBF scheme as it was designed as part of the early b. A service delivery payment to support improvements in stages of DMDP preparation. secondary collection city-wide. This will be paid to the DLAs. 6.3 The Problem Statement Primary collection is not an issue in most communities. The main challenge faced by the SW sector in Dar es Salaam is Therefore, the RBF payment for primary collection will the lack of financial capacity to cope with the growing quantity be limited to communities in poorer areas of the city where of solid waste resulting from rapid urbanization of the city. the waste collection service is unreliable due to lack of fee Unlike many cities of similar income level, primary collection collection or is simply non-existent. These communities will (from houses to collection points) in Dar es Salaam is working be selected through an income-based mean testing method. relatively well in many wards and sub-wards, except for some of In addition, the communities would meet the following basic the poor areas and slums. Communities generally self-organize eligibility criteria: to provide basic primary collection either individually, through • Existence of reliable infrastructure and facilities for NGOs, or small private enterprises. These organizations collect collection and transport of waste funded through the fees from residents as compensation for the service provided. capital project or through service provider pre-financing; The primary collectors generally use rudimentary equipment such as handcarts, which limit the ability of the collector to • Households/neighborhood collection points accessible for transport the waste to the final disposal site. As a result, the waste collection; and waste is frequently dumped randomly in nearby streams, • Demonstrated support from all levels of government. drainage channels, or vacant lots. 6. Tanzania 43 The service provider (Ward, CBO, or private sector contractor) •• Proof that the waste collected is being delivered to shall meet the following minimum criteria in order to be neighborhood collection points (or otherwise diverted certified as a service provider under this program: for reuse, recycling, or composting). • Committed and capable service provider; • Output 2: Payment for Secondary Collection • Demonstrated capacity to collect service fees; and •• Percentage of waste remaining at the collection point at • Trustworthy and transparent accounting system. end of a work day; •• Proof that the waste collected from neighborhood sites 6.4.1 Defining and Measuring Results is being disposed in an approved location (or otherwise The outputs and indicators proposed for the Dar es Salaam diverted for reuse, recycling or composting); and RBF scheme are as follows: •• Percentage of waste recycled or composted. • Output 1: Payment for Primary Collection The technical scorecard is designed to enable fair and accurate •• Percentage of households served/skipped during a performance assessment. This assessment is done by an collection event; Independent Technical Verification Agent (ITVA) and an •• Percentage of cost recovery; and Independent Fiduciary Agent (IFA). Box 6.2: The Solid Waste Sector in Tanzania Waste generation, collection and disposal It is estimated that approximately 4,200 tpd of solid waste were generated in Dar es Salaam in 2011, and this is projected to increase to over 12,000 tpd by 2025. This tripling of solid waste generation in just 14 years is of particular concern given that the capital and operating budgets of the DLAs are not expected to rise significantly over the same time period. Less than 40 percent of the total waste generated in the city is collected and disposed in the Pugu dumpsite or otherwise recovered. The remainder is either dumped on the side of roads or into drainage canals, contributing to health problems for local residents, annual flooding events, and methane generation. In affluent areas of the city, waste is usually collected at curbside from households, commercial establishments, and institutions either by the DLAs or by the private sector and taken directly to the Pugu dump. In less affluent and more congested parts of the city, waste is transported by handcart to neighborhood collection sites or is taken directly to the collection sites by households, where the waste is subsequently picked up by the DLAs or private operators. It is estimated that there are approximately 50 to 60 neighborhood collection sites across the city. In unplanned areas of the city where wards or community-based organizations (CBOs) have not taken the initiative to collect waste or in areas of the city where collection service is poor, individuals commonly dump their waste into drainage ditches, streams, and by the roadside. The main disposal site, the Pugu dumpsite was originally intended to operate as a sanitary landfill; however due to budgetary limitations the requirements of such a landfill (e.g., separate cell operations, leachate treatment, landfill gas management, daily soil cover and compaction, and formal perimeter boundaries) have not been implemented. At present, MSW covers a large portion of the 65 hectares approved for the landfill, where open burning of waste is common practice. Institutional context Tanzania lacks a single comprehensive legislative framework for the environment. Efforts are underway through a draft of the Environmental Management Act towards an integrated approach to environment policy. Part IX of the draft Act focuses on waste management and assigns local governments the responsibility to manage and minimize solid waste at source, including the use of appropriate waste containers, the commissioning of regular studies on waste quantity and composition, and the establishment of waste transfer and final disposal facilities. This Act also establishes the National Environmental Management Council (NEMC) as a statutory body to advise and coordinate environmental management issues including evaluating development policies, plans, and activities that could have an impact on the environment. The NEMC is responsible for ensuring that waste management projects meet a reasonable test through Environmental Impact Assessments. The DLAs have authority under the proposed Environmental Management Act to plan, design, build, establish standards, manage, monitor, evaluate, and report on MSW operations within their respective areas of responsibility. Although the Act is still a draft, local authorities have accepted these responsibilities and have established a basic SWM system for Dar es Salaam consistent with their capacities and available resources. 44 Results-based Financing for Municipal Solid Waste For verification of primary collection, the process is as follows: to the estimated total cost of service are used to calculate the • CBOs, NGOs, Wards and private sector firms perform Maximum Payment (MP) in each participating community. the primary collection of solid waste using push carts • The actual value of the payment for primary collection is a or collection vehicles and deposit the waste at the pro-rated amount of MP based on the total score achieved neighborhood collection points (NCP) or directly at the by the service provider subject to a minimum score, which landfill if feasible. will be specified before the launch of the program. The • In poor neighborhoods participating in the RBF program, MP per year will be calculated and agreed upon during the ITVA would verify the performance of the primary appraisal, taking into consideration the cost to provide collection service providers (using the set of output reliable secondary collection. measures described in earlier sections), which entails data • The actual value of the payment to be paid to DLAs for compilation and visual inspection at household level and at secondary collection each year will be a pro-rated amount the NCPs to ensure that the waste is not dumped randomly of MP based on the total score achieved by the DLA in vacant lots or drainage channels. subject to a minimum score, which will be specified before • The ITVA would issue a report which will be verified and launch of the program. approved by the IFA prior to issuing payment. 6.5 Key Risks For secondary collection, the process is as follows: • DLAs or their private sector contractor would be The RBF scheme provides a payment to support primary service responsible for collecting waste from NCPs for disposal improvements. As in the case of both Nepal and the West Bank, into the landfill, a recycling plant or other approved sites. gradual improvement in solid waste fee collection is expected to replace the transitional payment over time in order to sustain • The ITVA would verify the regularity of the secondary high-quality service beyond the duration of the RBF scheme. collection using the set of output measures (described For secondary collection, DLAs will continue to assume a in earlier sections), which entails data compilation and portion of the total cost to provide the service. The proposed visual inspection at the NCP level and at the final disposal scheme incentivizes recycling and composting, which have facilities. the potential to divert more than half the waste away from the • The ITVA would issue a report which will be verified and landfill. This waste diversion, if successfully implemented, will approved by the IFA prior to issuing payment to the DLA contribute to reducing the overall cost of waste management or their private sector service provider. by reducing the quantity of waste transported to the landfill and providing an additional source of revenue to the DLAs. 6.4.2 Financing Waste minimization and diversion is the main avenue by which The primary collection service is financed through the DLAs will be able to reduce the sector’s dependency on cross- collection of solid waste fees from households. However, since subsidies. some residents in these areas will be asked to start paying There are various risks that go with the assumptions made in the for the service for the first time, it is expected that the initial design of this RBF scheme. First, it assumes that as recycling rate of collection will be low, but will gradually increase over and composting rates increase over time, the cost to collect and time. The RBF payment will supplement the revenue stream transport the waste will be reduced. It is also assumed that the to ensure that a reliable service is provided starting from Year total cost to manage the waste will reduce over time as a result 1 to increase the willingness to pay. The assumption made is of the municipality having to transport less waste to the landfill, that residents will be willing to pay if the quality of the service and that the municipality will generate additional revenue from is improved. Thus, an affordability and willingness to pay composting and recycling which will offset a portion of the assessment would be necessary to ensure that residents are operation and maintenance costs. However, various financial, willing and able to pay for the full cost of the improved service. operational and market risks could affect these assumptions. A baseline study will be performed to estimate the total cost of Last but not least, the RBF scheme would not be viable unless the service and set tangible targets for fee collection that the certain key improvements are first made to the SWM system in service provider should strive to achieve. The figures related 6. Tanzania 45 Dar es Salaam, some of which involve significant investments. secondary collection services. These are described in Box 6.3. • Blending RBF and investment in required equipment and facilities for collection and transport of waste 6.6 Lessons Learned could reduce the risk of cancellation or delays in the implementation of RBF projects. The RBF scheme for • The Efficiency of a solid waste management system Dar es Salaam was originally designed as part of the World should not be defined solely in terms of cleanliness of Bank-supported Dar es Salaam Metropolitan Project. streets and public areas. An important aspect of solid Through the DMDP project, it was anticipated that Dar waste management in Dar es Salaam is the fact that, aside es Salaam will acquire waste collection equipment and from poor areas of the city, the primary collection of waste facilities as well as upgrade the final disposal facility in is fairly efficient. Communities are able to self-organize Pugu, and the RBF would represent an operational subsidy to ensure that the waste is collected and transported away to support improvements in the collection service and from their residential areas. As a result, major streets, revenue generation. The DMDP project and its solid waste public areas and households appear to be clean and free component were delayed, which delayed the entire RBF from litter. However, this apparent cleanliness hides a scheme. This lesson is also applicable to OBA projects deeper problem with the collection system. The waste funded by GPOBA in the waste sector. So far, the two RBF collected through primary collection (handcart collection) subsidy projects that GPOBA is implementing in Nepal is often afterward dumped illegally into vacant lots or and West Bank are intended to improve the service and not drainage channels. Moreover the waste arriving at the large solid waste infrastructure such as sanitary landfills or NCPs is rarely collected by the local government. As transfer stations. However, these infrastructures are vital a consequence, NCPs are turning into small dumpsites for waste collection and transport to become efficient and where open burning is often practiced as a way to reduce meet the environmental safeguards. In order to reduce the volume of the incoming waste. As an attempt to the cancellation of RBF projects, future projects should address these two fundamental issues, the outputs for the consider including an investment package for acquisition primary collection include proof that the waste collected or rehabilitation of solid waste equipment and facilities to has been taken to an approved location. In addition, the have a significant impact on the solid waste service. subsidy that is provided to the municipality to support secondary collection is conditioned upon improvements in Box 6.3: Conditions Necessary for the Implementation of the RBF Scheme in Dar es Salaam • Improvements to the existing collection system. A large number of communities in Dar es Salaam do not have a waste collection point. In addition, most of the existing collection points are in critical need of improvement to meet minimum health and safety standards. The municipality is in the process of upgrading neighborhood collection sites and constructing new ones. Some of these sites will be equipped with recycling and composting areas to reduce the waste quantities transported for final disposal. The scarcity of land is a major barrier to overcome in many areas, in particular slums and unplanned areas of the city. Having an adequate number of collection points will be necessary to implement the proposed scheme. • Construction of waste transfer/material recovery facilities. One of the biggest difficulties in establishing a cost- effective and efficient waste management collection and transportation system in Dar es Salaam is the travel time from collection points to the Pugu dumpsite. Currently, depending on the time of day, it can take up to two hours for a return trip from certain points in the city to the disposal site. A previous study recommended the construction of three transfer stations in Dar es Salaam to reduce the travel time and transportation cost to the final disposal site. • Acquisition of primary and secondary collection equipment. The waste collection fleet and equipment needs to be upgraded. Typically, RBF requires the service provider to bear the risk by pre-financing equipment. Pre-financing of primary collection equipment may be difficult in some communities. • Upgrading the Pugu dumpsite. Originally designed to be operated as a sanitary landfill, the Pugu site has over the years become a large dumpsite. The rehabilitation of this dumpsite to meet international standards and the World Bank environmental and social safeguard policies is necessary to ensure that the waste collected is disposed in a manner that reduces adverse impact to human health and the environment. 46 Results-based Financing for Municipal Solid Waste 7. Jamaica: Improving Waste Collection, Source Separation, and Community Cleanliness in Inner Cities Box 7.1: RBF in Jamaica’s MSW Sector “At-a-Glance” Solid Waste Situation. The Kingston Metropolitan Area (KMA) has a population of about 579,137 residents. It generates about 420,000 tons of waste per year. The National Solid Waste Management Authority (NSWMA) is in charge of solid waste collection, but this service is poor due to the authority’s inadequate capacity and budget shortfall. Service is notably worse in inner city communities due to an insufficient number of trucks, a lack of storage facilities, and the unplanned nature of these areas. Problem Statement. There is insufficient and irregular waste collection in inner-city communities. Community and dumpster areas are ill-maintained and unclean. Moreover, waste separation (of recyclables and organic materials from other waste) is limited. Design Solution. In-kind incentives (waste collection trucks) are given to the NSWMA if they provide sufficient and regular waste collection services. Sufficient collection is defined by visual evaluations of dumpsters to determine if they are less than 75 percent full. Regular collection is defined by comparison of the actual versus required number of collection pick-ups. Financial incentives are given to Environmental Wardens and CBOs if separated recyclables and organics meet a targeted weight and if qualitatively, communities and areas around communal waste dumpsters are sufficiently clean. All quality evaluations are conducted visually using pre-established photographs as benchmarks. The scheme is 36 months long; evaluations are conducted every three months. Subject to their performance, the NSWMA earns a waste truck at year 2 and 5, the Environmental Wardens earn a 10 percent salary bonus every three months, and the CBOs earn between US$1200 and $2400 every 6 months. 7.1 Introduction With an estimated annual increase of 1.31 percent per annum, the urban population of Jamaica is projected to be 1.5 million Jamaica, the largest English speaking country in the Caribbean in 2020 and 1.8 million in 2030. with a population of 2.7 million in 2011, is an upper-middle income country with a long history of low growth and high Many of Jamaica’s inner cities are centers of major criminal public debt. The country’s progress on poverty reduction and activity, violence, and social exclusion. Lack of social shared prosperity has been hampered in the recent past due in inclusion and access to basic services in urban areas has large part to economic shocks that were amplified by structural additional implications for growth as it leads to inadequate weaknesses in the economy. For the past 30 years, real per skills, limited job opportunities and low participation rates in capita Gross Domestic Product increased at an average of just the workforce. Based on a 2004 estimate, the cost of violent one percent per annum, making Jamaica one of the slowest crime is 4 percent of Jamaica’s GDP. During riots in 2010, a growing economies in the world. community used large uncollected waste items to block police from entering their neighborhood to arrest a well-known drug Over the same few decades, the island experienced rapid dealer. Additionally, there have been many instances where urbanization. As of 2005, 52 percent of Jamaica’s population waste items were used as weapons against the police. resides in urban areas, an increase of 16.75 percent since 1991. 7. Jamaica 47 MANY OF JAMAICA’S INNER CITIES ARE CENTERS OF CRIMINAL ACTIVITY, VIOLENCE, AND SOCIAL EXCLUSION. THIS RESULTS IN LIMITED ACCESS TO BASIC SERVICES THAT CAN HARM GROWTH: IT LEADS TO INADEQUATE SKILLS TRAINING, LIMITED JOB OPPORTUNITIES, AND LOW PARTICIPATION RATES IN THE WORKFORCE. Jamaica In-kind incentives are given for proven waste collection in inner city communities. 48 Results-based Financing for Municipal Solid Waste 7.2 The Broader Context of World Bank facilities within the communities, and the unplanned nature of development in these areas which makes access difficult. Support The solid waste management activities under the previous The Integrated Community Development Project (ICDP) project and for the ICDP include waste infrastructure provision approved in 2014 builds on a previous urban development as well as beautification initiatives such as community cleanups and community safety project in Jamaica supported by the and tree plantings. These activities serve to create safe, open World Bank. The US$42 million loan aims to enhance access and nonthreatening spaces in communities, contributing to to basic urban infrastructure and services, and contribute reducing crime and violence. A lesson from the previous towards increased community safety in selected economically project was that simple provision of waste infrastructure vulnerable and socially volatile inner city communities. ICDP such as dumpsters and trucks was not sufficient to improve is designed to help more than 80,000 people in 18 inner cleanliness in some communities; properly managing waste city communities live in an improved, healthy and secure requires a behavior change. The community has to proactively environment. participate in depositing trash into the dumpsters and keeping The project comprises the following four components: their neighborhood clean. This behavior change should happen simultaneously with regular waste collection services; • Component 1: Basic Infrastructure and Access to otherwise, the community will not see the value of depositing Services. This component supports specific infrastructure waste in a dumpster versus another area. If NSWMA provides investments across project communities according to reliable waste collection services, then the community’s identified community priority plans for civil works. behavior should be re-enforced and hopefully sustained. The • Component 2: Public Safety Enhancement and ICDP builds on these lessons learned to enhance community Alternative Livelihoods. This component supports the participation and waste collection services through RBF development and roll-out of key programs to enhance schemes. public safety and develop alternative employment skills and opportunities. 7.4 The RBF Approach • Component 3: Institutional Strengthening for Urban Management and Public Safety. This component Two RBF schemes will be implemented in fifteen communities supports institutional strengthening activities and the as a part of ICDP’s solid waste management activities—one preparation of strategic policy documents for selected to incentivize regular and sufficient waste collection and the Government of Jamaica entities responsible for issues other to incentivize cleaner neighborhoods. These schemes relating to urban management and crime and violence aim to prove collection services, divert recyclable and prevention programs. compostable waste from the landfill, reduce costs of collecting and transporting waste, and beautify communities to increase • Component 4: Project Administration. This safety and ownership of it by community members, thereby component supports the costs associated with program reducing crime and violence. management, including project-related audits, monitoring and evaluation, equipment and training to strengthen 7.4.1 Defining and Measuring Results the project implementation unit, as well as individual Under the first scheme, sufficient waste collection will be consultancies. measured by the absence of waste in all community dumpsters on a day that NSWMA is required to pick up waste. If each 7.3 The Problem Statement dumpster is less than 75 percent full, then the collection service will be considered sufficient. Regular waste collection The National Solid Waste Management Authority (NSWMA) will be measured by comparing the actual number of weekly is responsible for managing waste on the island. However, due pickups that NSWMA made to the number it agrees on with to inadequate capacity and a significant budget shortfall of the community and the Jamaica Social Investment Fund approximately US$54M for 2013, it is unable to collect and (JSIF). The score will be weighted such that 70 percent of it is dispose of waste on the entire island. The problem is particularly based on the sufficient waste collection and 30 percent on the worse within inner city communities where collection seldom regularity of collection. The expected number of trips per week occurs due to an insufficient number of trucks, lack of storage will differ from community to community. The performance 7. Jamaica 49 of NSWMA in each participating community will be assessed the community and around dumpsters will require a qualitative by an unbiased independent verification agent appointed for assessment from the IVA which will be documented with the project. The IVA will randomly evaluate NSWMA once a photographs. Prior to the RBF schemes starting, the IVA will week on a day that it has agreed to collect waste. The IVA will divide each community into ten areas, of which three will be calculate scores every quarter. randomly selected each visit for evaluation of cleanliness. This will aid the IVA to randomly assess the cleanliness of each Under the second scheme, both Environmental Wardens and community in a systematic manner. Similarly, the IVA will CBOs will be held accountable and evaluated based on how conduct a visual inspection of each dumpster’s surroundings. well recyclables and organics are being separated as well as how clean the community and dumpster surroundings are. 7.4.2 Financing There is a single shared set of performance criteria for Scheme The first scheme entails providing NSWMA with an in- 2 in each community since Environmental Wardens and the kind incentive consisting of two trucks that would increase CBO collectively contribute to overall cleanliness and waste NSWMA’s fleet and have the longer-term effect of subsidizing management practices. Therefore, both parties get the financial collection in select ICDP communities. NSWMA’s services incentive or none of them do. The performance criteria that the will be monitored in the fifteen selected communities over Environmental Wardens and CBOs will be evaluated on are five years. The minimum score they must achieve is 80/100, both quantitative and qualitative. The diversion of recyclables which requires NSWMA to provide regular and sufficient and organics can be weighed and documented. They will be waste collection services 80 percent of the time. The first truck compared against a target diversion weight for both recyclables will be provided at the end of the second year if NSWMA and organics which will initially be set at 40 percent of the meets the minimum score until that point. The second truck total weight of recyclables and organics found to be generated will be provided at the end of the fifth year, again provided in the community from a prior waste audit. The cleanliness of Box 7.2: The Solid Waste Sector in Jamaica Waste generation, collection and disposal Studies and surveys undertaken indicate that Jamaicans generate approximately 1.6 million tons of domestic waste annually. Half of this amount originates from the Kingston Metropolitan Area (KMA) alone. In the KMA, households and markets contribute between 50 percent and 70 percent of the waste stream, with the remaining amount generated primarily by industrial, commercial and institutional sources. It has been estimated that approximately two-thirds of the waste generated in Jamaica is collected. The remaining waste is either dumped in vacant lots, by the roadside or into drainage canals, contributing to major health problems for local residents, flooding and uncontrolled pollution. There are currently no sanitary landfills in KMA. The Riverton site is located approximately 7.5 km northwest of the Kingston downtown area. The waste collected from various areas of KMA is transported to this dump site for disposal. It is estimated that approximately 60% of the waste stream in the country is ultimately disposed of at the Riverton site which is operated as a dump site. Burning, dust, smoke, odor and vermin problems are frequent at the site. Institutional context The National Solid Waste Management Authority was established by Act of Parliament in 2001 with the mandate to “take all such steps as are necessary for the effective management of solid waste in Jamaica in order to safeguard public health, ensure the waste is collected, stored, transported, recycled, reused or disposed of in an environmentally sound manner and to promote safety standards in relations to such waste.” The Authority currently collects, treats and disposes of domestic solid waste while simultaneously regulating the sector. This has proven to be difficult given inadequate infrastructure and funding of the NSWMA. Despite NSWMA owning 100 trucks, almost half are non-functional, leading NSWMA to rent 80 units regularly at a cost of US$8.76 million, annually. The NSWMA is not responsible for the collection, treatment and disposal of commercial, agricultural, industrial or hazardous waste; however, most non-domestic wastes end up at the disposal sites operated by the Authority. Solid waste services in Jamaica are mainly funded through property taxes. The NSWMA is funded 15 percent from the Consolidated Fund, 80 percent from property taxes, and 5 percent from their own revenue, primarily through commercial collection of waste. Over the last four years the capital budget has ranged from US$400,000 to zero and NSWMA faced a budget shortfall of US$54M for 2013. 50 Results-based Financing for Municipal Solid Waste that NSWMA meets the minimum score. It has the opportunity service providers meet the pre-determined performance over the third year to make up for its previous performance standards. if the averaged score over three years is sufficient; otherwise, Each participating community will have a one month grace NSWMA forfeits its right to the first truck by the third year. period to allow everyone to get into a routine when a scheme Provision of trucks to NSWMA as an in-kind contribution begins in a community. The IVA will summarize the scores under this scheme is, in effect, a contribution to the capital and recommendations as well as submit scorecards to JSIF costs that NSWMA would otherwise have to incur. The trucks quarterly. If they meet the minimum score, the Environmental are an appropriate incentive as they would help NSWMA Wardens will receive their financial incentive quarterly, the overcome its fleet shortage. Approximately half of NSWMA’s CBOs will have their financial incentive accrued at JSIF semi- fleet is constantly in repair and it is forced to rent trucks at a annually, and NSWMA will receive a truck at the end of the high rate to continue operations. second year and fifth year of the schemes. The second scheme will provide financial incentives The Jamaica Social Investment Fund, a part of the Government to Environmental Wardens and CBOs that are directly of Jamaica, works in the beneficiary neighborhoods and will participating in mobilizing and enforcing cleanliness in their be overseeing the RBF schemes, including disbursements. respective communities. The financial incentives for both JSIF will review the scorecards, notify the World Bank of Environmental Wardens and CBOs differ. The Environmental the required disbursement amounts, and make appropriate Wardens will receive a fixed 10 percent of their salary, which disbursements as needed within two weeks of receiving the is minimum wage, if they achieve the minimum score of funds. JSIF will also inform the participants of their scores 70/100. On the other hand, CBOs have a scalable incentive every three months. The purpose of the quarterly scorecard is which starts at US$1200 for achieving 70/100 and scales up to give participants an indication of how they are performing to a maximum of US$2400 per year for achieving 100/100. and encourage them to strive towards a higher score. There could be a potential misalignment given that both Environmental Wardens and CBOs are evaluated based on a NSWMA will be expected to cover the service cost through single set of criteria; however, Environmental Wardens will not revenue from property tax allocation. The trend in the waste receive a higher financial incentive if they work harder than quantities is expected to stabilize and potentially decrease what is required to achieve the minimum score. Any additional over time as frequent waste collection patterns are established outreach and enforcement to improve the community would be and communities take responsibility for disposing of waste due to internal motivation. properly and diverting recyclables and organics. If the Environmental Wardens program proves successful over 7.5 Implementation the project, it is the hope that NSWMA finds it economically efficient to absorb the wardens as employees. This could make The fifteen selected communities will be phased into the RBF the incentive model financially sustainable in the long term, and schemes starting with three communities in the first year, six NSWMA and JSIF may elect to sustain, replicate and scale up in the second and six in the third. The communities will be the model in additional communities beyond the ICDP project. a mix of communities from the previous and current project, based mostly on whether infrastructure and collection services are in place. These fifteen communities will receive the RBF 7.6 Key Risks incentive for three years. The RBF incentives (approximately The main risks to the program include inadequate participation US$425,000) will be disbursed over these five years if the of those involved in the schemes that could lead to underperformance or collusion, inappropriate evaluation 7. Jamaica 51 methods that potentially misrepresent the results, misalignment and NSWMA to create a more positive cycle. However, it is of incentives, administrative delays and lack of behavior possible that once the Environmental Wardens are no longer change beyond the life of the schemes. employed, that the communities stop taking ownership over their waste management and community cleanliness. Given The risk of underperformance or collusion will be mitigated that the schemes will be for three years in each neighborhood, by the presence of JSIF in the selected communities. JSIF will the hope is that this is sufficient time to create behavior change oversee the schemes and see how the CBOs, Environmental although a small risk will always exist. Wardens, NSWMA, and the IVA are performing. JSIF has the authority to dismiss and replace Environmental Wardens and the IVA if they are not fulfilling their responsibilities. 7.7 Lessons Learned They also have the ability, with the approval of the World • When identifying initial pilot communities, it is Bank, to change the selected communities if there is sustained helpful to select those that have existing waste underperformance. Additionally, given CBOs’ likely strong collection infrastructure and strong CBOs. Minimum interest to ensure that the Environmental Wardens, NSWMA, waste collection infrastructure guarantees that the pilot and the IVA are performing in order to improve their community, is testing—as much as possible—the effectiveness of JSIF will also rely on the CBOs to report any anomalies in the incentives (the independent variables) over another performance. variable like the existence of a waste dumpster. Having There is a risk of misrepresented results for both the qualitative strong CBOs helps develop greater local buy-in and and quantitative evaluation methods. This risk will be partially participation. Moreover, strong CBOs are more likely to mitigated since the IVA should take photos of randomly selected participate in the initial design of the project and provide areas in each community prior to documenting a cleanliness critical feedback on the feasibility of achieving evaluation score. However, it is possible that the IVA can be selective about criteria and the meaningfulness of the incentive payments. which parts of each area are photographed to misrepresent the • Aligning incentives can help strengthen community overall area cleanliness. For example, if there is an area that networks that are critical to the overall goal. The is generally dirty but one part happens to be clean, then the Environmental Wardens and the CBOs are evaluated IVA can photograph the clean area to help the Environmental on the same criteria—the quantity of separated organic Wardens and CBOs get their financial incentive. By dividing materials and recyclables, and the cleanliness of their each community into ten smaller areas, the intention is that communities—even though their payments are different. the IVA will have less of a chance of misrepresenting an area. By having the same goal, their activities are necessarily However, there is a risk for misleading the JSIF. cooperative and reinforced. There is a risk of misaligned incentives for Environmental • When designing the evaluation of performance outputs, Wardens and CBOs. The Environmental Wardens have a special attention should be given to prevent possible fixed incentive whereas CBOs have a scalable incentive so collusion. With any RBF project, regardless of having Environmental Wardens do not have a financial incentive to an independent verification agent or not, there is always work harder than necessary to achieve the minimum score. potential that actors may attempt to misrepresent outputs This misalignment of incentives has the potential to generate or performance. In Jamaica’s project design, actors could inefficient results. always increase the weight of their recyclables or organics artificially. For quality assessments, if the evaluations are Lastly, there is a sustainability risk that the behavior changes not sufficiently randomized, actors could anticipate which that these schemes are inducing might not last beyond the life areas are evaluated and thus focus their energies on these of the schemes. The schemes have been designed to instill at the neglect of others. consistent waste management practices in the communities 52 Results-based Financing for Municipal Solid Waste 8. Mali: Improving the Reliability and Financial Sustainability of SWM Services in Sikasso Box 8.1: RBF in Mali’s MSW Sector “At-a-Glance” Solid Waste Situation. Sikasso is Mali’s second largest city with a population of 225,000. In 2012, the city generated 46,770 tons of waste, and this quantity is projected to increase to 59,127 tons by 2017. Sikasso is one of the few cities in Western Africa equipped with a state-of-the-art sanitary landfill, built in 2002 with the assistance of the Belgian government. Problem Statement. Despite the large investment in a modern sanitary landfill, there was no significant improvement in the collection service. The rate of households waste collected and transported to the new sanitary landfill was about 25 percent. The remainder of the waste was disposed into illegal dumpsites or storm water drains. The main contributing factor to this inefficiency was the lack of a sustainable revenue stream for the city to manage solid waste. Design Solution. In this context, an OBA subsidy project was proposed in 2010 to improve the reliability of the solid waste service and introduce a solid waste tax to enable the municipality to contract with a private sector firm to provide collection service and management of the sanitary landfill. Under the proposed OBA project, the disbursement of OBA funds were to be made based on an independent assessment of two categories of outputs: (a) the amount of funds collected from the Solid Waste Tax that are transferred to a special account; and (b) the quantity of solid waste delivered and disposed at the landfill. The OBA pilot project was originally designed to support an IDA operation, the Strategy for the Development of the Cities of Mali (SDCM). Although the existence of the sanitary landfill in Sikasso and the low rate of waste collection made RBF appealing, the IDA urban project did not include a solid waste component in the end, and the OBA project was subsequently dropped. 8.1 Introduction 8.2 The Broader Context of World Bank Support Mali is a land-locked country in western Africa with a population of over 14.5 m people (2009) and a Gross Domestic The World Bank supports the Government of Mali’s efforts Product (GDP) per capita of less than US$70011. The city of to implement the Strategy for the Development of the Cities Sikasso, which is the focus of this chapter, is located in the of Mali (SDCM), which focuses on poverty reduction and south of Mali and is the capital of the Sikasso Cercle and the economic growth with a focus on improving basic services Sikasso Region. It is the second largest city in Mali, with a delivery, coverage and quality, including environmental population of 225,000 (2009). management. This project was prepared for implementation as a GPOBA subsidy project for the city of Sikasso, because the presence of a unique sanitary landfill made RBF appealing. However, the GPOBA project was dropped because the broader IDA (International Development Association) urban project did 11 World Bank Data Indicators. 2013. Available at http://data.world- not include a solid waste component. GPOBA-funded projects bank.org 8. Mali 53 SIKASSO IS ONE OF THE FEW CITIES IN WESTERN AFRICA EQUIPPED WITH A STATE-OF-THE-ART SANITARY LANDFILL. DESPITE THIS, WASTE COLLECTION SERVICES REMAIN POOR: ONLY 25 PERCENT OF HOUSEHOLD WASTE REACHES THE SANITArY LANDFILL. Mali A declining OBA subsidy and an increasing solid waste tax could improve SWM. 54 Results-based Financing for Municipal Solid Waste are generally implemented in conjunction with World Bank 8.4 The RBF Approach investment projects, as opposed to being implemented as stand-alone projects. This chapter presents the Sikasso design The main objective of the RBF project was to improve the as it was proposed in order to draw lessons from the design reliability and financial and environmental sustainability of of this project. The Sikasso design was, in fact, a precursor to SWM services while still making it affordable for low income the designs later developed for Nepal and the West Bank, as households to pay for and receive SWM services. This would described in earlier chapters of this report. have been done through the establishment of a “Solid Waste Tax” and having the municipality contract with private parties. 8.3 The Problem Statement The contractors would transport waste collected from transfer stations and from illegal dumpsites to the landfill as well as Sikasso is one of the few cities in western Africa that boasts manage the landfill. The RBF scheme would have promoted of a state-of-the-art landfill, built in 2002 and jointly financed this objective by complementing the collection of the Solid by the Belgian government and the Government of Mali. This Waste Tax and the beneficiary collection fees with a subsidy US$5 million project has not resulted in the improvement payment. The subsidy would be phased out over a six-year of the provision of solid waste services. The municipality period according to a pari passu formula. This project was to of Sikasso is responsible for collecting and safely disposing be implemented across all households, and hence was expected the solid waste generated in its territory. At present, only 25 to cover the entire expected population of 330,000 people by percent of households in Sikasso benefit from door-to-door 2017. waste collection services. Moreover, only 25 percent of the total waste generated in the city is transported to the landfill, 8.4.1 Defining and Measuring Results with the remaining being left at illegal dumpsites in most Results in Sikasso would have been assessed in terms of neighborhoods, street corners, and in storm water drains. two primary outputs: the amount of funds collected from the Box 8.2: The Solid Waste Sector in Mali Waste generation, collection and disposal Sikasso is Mali’s second largest city with a population of 225,000. In 2012, the city generated 46,770 tons of waste, and this quantity is projected to increase to 59,127 tons by 2017. As of 2010, only about 25 percent of households currently benefit from a door-to-door collection service provided by small private contractors (groupement d’intérêt économique, or GIEs) and only about 25 percent of the solid waste generated in the city is transported from transfer stations to the sanitary landfill. The remainder goes to illegal dumpsites that can be spotted at the fringes of most neighborhoods as well as in many streets and storm water drains. Low income households that tend to live closer to these illegal dumpsites suffer the most from this poor sanitary environment. The Municipality of Sikasso is responsible for collecting and safely disposing the solid waste generated on its territory, but the Direction Régionale de l’Assainissement Contrôle Pollution et les Nuisances (DRACPN), the local branch of the central government department in charge of pollution control, still operates the landfill and two trucks that transport the solid waste from transfer stations. Institutional context The 1992 Constitution in Mali provides the basic tenets of decentralization while the law on decentralization (Loi 93- 008), adopted in 1993, provides a general framework for decentralization. The law establishes régions (regions), cercles (districts), and communes (communes) as collectivités (territorial units) in rural areas.a In the context of the decentralization in Mali, the central government has transferred authority to local governments for urban development and management. Under this arrangement, the national government is responsible for large infrastructure for transfer and disposal (landfills) whereas municipalities are mainly responsible for infrastructure for transfer sites, waste collection, as well as operation and maintenance of the disposal sites. According to the sanitation strategy, solid waste collection, transport and final disposal can be contracted out to the private sector. Private sector firms are largely used for waste collection and for the operational management of landfills. a. Kelsey Jones-Casey, Ailey Kaiser Hughes, and Anna Knox “The Challenge of Decentralization in Mali,” Feb 2011 edition of “Focus on Land in Africa Brief” published by the Global Protection Cluster. 8. Mali 55 Solid Waste Tax that is transferred to the Special Solid Waste the six-year period of the OBA project, it was expected that Account (SSWA), and the quantity of solid waste delivered and beneficiaries would contribute to 60 percent of the SWM disposed at the landfill. The first output would be measured by budget through collection fees and the solid waste tax. the amount of funds received in the SSWA, which would be Funding from GPOBA, including project supervision costs, regularly monitored by auditors appointed by the municipality. would have amounted to approximately US$4.5 million. The The second output would be measured by the disbursements actual subsidy would have been disbursed on a declining basis made from the SSWA. A more detailed set of indicators for the according to a pari passu formula. It was assumed that after project is summarized in Table 8.1. six years, the SSWA would have sufficient funds through Two disbursements were envisioned in order to boost the beneficiary collection fees and the Solid Waste Tax to finance quantity of MSW brought to and disposed at the landfill: an private contracts for transporting waste and managing the “Unloading Bonus” to transport contractors for each ton landfill. The subsidy was designed in such a way that in the of solid waste delivered and weighed at the landfill, and a first year, for every US$10 deposited into the SSWA, GPOBA “Management Fee” paid to the landfill operator, based on the would have contributed US$90; in year 2, the ratio would have actual quantity of solid waste treated according to contractual been 25/75; and so on such that by year 6 the ratio would have specifications. become 85/15. A potential risk here would have been that payment based per ton of waste received at the landfill could have been manipulated 8.5 Implementation by the service provider by transporting bulky items such as At present, the Municipality of Sikasso is responsible for construction and demolition waste and stones to maximize his collecting and safely disposing of MSW generated within its return. The design could have been improved by measuring the boundaries, while the Direction régionale de l’Assainissement cleanliness of streets and the environmentally-friendly disposal et de Contrôle des Pollutions et Nuisances (DRACPN), the options, rather than the quantity transported for disposal. In local branch of the central government department in charge addition, quantity-based rewards dis-incentivize recycling of pollution control, is in charge of the operation of the landfill and diversion of organic wastes, which could contribute to the and related equipment, including trucks to transport the waste financial sustainability of the solid waste sector in the long-run. from transfer stations to the landfill. 8.4.2 Financing For the purposes of this project, it was envisioned that the It was estimated that the total budget required to fund municipality would bear full responsibility for the collection, improvements to SWM services over a six-year period would transportation and safe disposal of solid waste generated. This be US$12.2 million. Given the expected valuation from would have included providing licenses to the private operators collection fees paid by beneficiaries, the Solid Waste Tax that (GIEs); organizing the selection of GIEs, transportation would be introduced, and funding from the municipal budget, contractors, and landfill managers; regulating the collection a transitional subsidy of US$3.7 million from GPOBA would fees charged by the GIEs and making payments to contractors have been required to meet the objective of this project. During from the SSWA; employing an “Engineering Supervisor” Table 8.1: Performance Indicators for the Sikasso Project Reliability –– Number of households benefitting from door-to-door collection; –– Volume collected and transported at transfer stations; –– Number of active transfer stations, tractors and trucks; and –– Volume of solid waste delivered at the landfill. Financial Sustainability –– Replenishment of the Special Account; –– Billing and collection of the Solid Waste Tax; –– Transfer from the municipal general budget; and –– Payment to contractors. Environmental Sustainability –– Operation of the landfill (compacting, backfilling, leachate treatment); and –– Removal of illegal dumpsites. Affordability –– Collection fee charged and collected by GIE; –– Solid waste charged and collected by Municipality; and –– Average and mean SWM budget of household benefitting from door-to-door collection. 56 Results-based Financing for Municipal Solid Waste to oversee the performance of the contractors; and hiring an that primary waste collection services are effective and well auditor to certify the operations of the SSWA. The municipality managed; however, only a minority of households received would have received technical assistance for preparation of all door-to-door collection services and the rest do not seem to these activities. receive any primary collection services at present. The GIEs and transportation contractors would have been Second, it is assumed that the municipality has the technical granted collection and transportation licenses respectively for and financial capabilities in order to initiate a Solid Waste Tax, a period of three years. While the GIEs would have contracted as well as “willingness to charge” households for provision with households individually in a specific service area for of SWM services. How the tax would be implemented and waste collection and handling, the transportation contractors collected from individual households was not well elaborated. would have entered into agreements with GIEs for maximizing At present, most households pay nothing for SWM services. primary collection and minimizing the performance risk. The project was designed with the assumption that households The transportation contractor would have been awarded an would need to pay two separate charges: a collection fee to the “Unloading Bonus” for the waste taken to the landfill. GIE and a Solid Waste Tax. This may have added significant financial burden to households, not to mention that they may The landfill operator would have been awarded a six-year not have been willing to pay for services they might not contract to operate and maintain the landfill and equipment that even have expected to receive. At the same time, it is unclear is currently operated by DRACPN. It was expected that the whether residents were expected to bear the full cost of SWM landfill operator would contract with transportation contractors services or if private enterprises (e.g., hotels, factories, stores) to maximize the quantity of waste delivered. The landfill would also contribute to the Solid Waste Tax and, if so, in what operator would have been paid a “Management Fee” from the proportion. SSWA based on the quantity of waste treated. There were three options to collect the Solid Waste Tax, which DRACPN’s role would have shifted to a more regulatory role, was estimated to cover almost 35 percent (US$4.1 million) of from operating the landfill to monitoring overall SWM tasks, the total SWM budget over the six-year period of the project. such as landfill operations, removal of illegal dumpsites, and The tax could have been collected through municipal taxes; treatment of hazardous wastes. as a line-item in the power or water bill issued by the public The SSWA would have been replenished by a few sources: utility; or by requesting the GIEs to collect it during their door- beneficiary collection fees paid to GIEs, a Solid Waste Tax, to-door waste collection. Each of these three options has its and transfers from the municipal general budget. The SSWA drawbacks: in the first case, the municipality has a poor track would have also received funds from GPOBA for the initial six record of collecting municipal taxes (about 5 to 10 percent only) years of the project, upon verification by the auditor employed and limited instruments to enforce payment by defaulters. It is by the municipality. unlikely that including another item on the municipal tax bill would have encouraged households to begin paying their local 8.6 Key Risks taxes. In the second case, it would have required the utility to first agree to provide a service that is not part of its core activities. A number of risks are foreseen with the proposed project It also would have required establishing contractual provisions design in Sikasso. First, in order to strengthen secondary and fund transfers from the utility to the municipality. The third waste collection services, an implicit assumption is made here option would be dependent on the commercial and financial 8. Mali 57 management capacity of the GIEs not only to collect their own more waste, contracts based only on the quantity of waste fees but also the tax. It also included contractual arrangements collected provides opportunity for manipulation of the and implementing fund flows between the GIE and the quantities of waste in order to maximize the payment. municipality. This option also implies that only a door-to-door • Improving one activity along the solid waste value collection system would be suitable, instead of another method chain does not always result in a transformational such as the use of community bins. More broadly, it is unclear change in the solid waste system. Solid waste what proportion (if any at all) of the beneficiary fees collected management is a chain, and all parts of the chain by GIEs would go into the SSWA. Moreover, given the limited must be in a good working condition for meaningful overall budget of the Municipality of Sikasso, it is doubtful improvement of the service. In Sikasso, the construction whether the transfers from the municipal general budget to the of the new sanitary landfill did not result in the expected SSWA would have been sustained not only over the six-year service improvement because the primary and secondary period but also beyond the length of the OBA subsidy. collection was not properly addressed. Likewise, the OBA Finally, further clarification on the indicators would have been project was proposed to improve the secondary collection useful in order to appropriately track the fees both collected and the management of the landfill but there was very little from beneficiaries and through the Solid Waste Tax as well as focus on primary collection. those disbursed as bonuses to transportation contractors and • Incentivizing collection and disposal without any landfill operators. Furthermore, how the “Unloading Bonuses” provision for recycling may not lead to long-term and “Management Fees” would be priced for transportation financial and environmental sustainability. A large contractors and landfill operators, respectively, was not well proportion of solid waste is organic and recyclable elaborated upon. In order to streamline the contractors’ roles waste, which can be used beneficially instead of disposed in the future, it would have been prudent to require that the into landfills. Recycling and reuse is generally done concept of receiving bonuses be phased out altogether, or at in developing countries by the informal sector; where least over the same period of time as the subsidy exists. feasible, organic waste could be used in anaerobic digesters to generate electricity. Composting is an 8.7 Lessons Learned alternative to the large investment that anaerobic digestion may require. The main barrier to the success • RBF Payments based on sole quantity measures may of large composting facilities in developing countries is not provide sufficient guarantee and transparency: the availability of market for the end product; however, A second level of verification is needed. In the Mali backyard or community composting activities could be project design, payment for solid waste collection is supported through technical assistance and incentives. based on the quantity of solid waste measured through the RBF solutions should not discourage recycling and weighbridge, a set of scales used to measure the contents composting. of vehicles. While this could be perceived as a fair way to compensate the service provider and an incentive to collect 58 Results-based Financing for Municipal Solid Waste Lessons Learned and the Way Forward 9. Lessons Learned in Using RBF for MSW RBF is an effective tool to improve MSW but is not a the involvement of private sector firms. panacea for the sector. The eight RBF designs presented The rest of this chapter presents various lessons learned from in this report address some of the fundamental problems of the experience of applying RBF for MSW in the eight case solid waste management in developing countries, such as: studies. Some of the lessons learned and recommendations are fee collection, behavior change towards source separation generally applicable to the preparation of any MSW project, of recyclable and organic waste, and access to service to whereas others are particular to the design of RBF projects for underserved communities. By conditioning the payment to MSW. the achievement of results, RBF provides an assurance of the value-for-cost and makes the use of public funds more efficient and impactful. However, RBF alone is not a universal solution 9.1 General Lessons and Recommendations to all the challenges that cities in developing countries face for Using RBF for MSW regarding solid waste management. Some challenges—such as The following recommendations are generally applicable to lack of planning and strategies, lack of institutional capacity, the preparation of any MSW project, and their relevance was and weak legal and regulatory frameworks that contribute to confirmed through this work. the poor performance of the MSW sector—cannot be directly addressed by RBF. It is a good tool that is more effective • Collecting sufficient baseline information is essential to when associated with other instruments such as infrastructure develop an RBF design that addresses the needs of the investment, policy reform and technical assistance. sector. In all eight cases, preliminary baseline studies were done and appeared as a valuable step that facilitated the Some of the advantages of using RBF for the solid waste sector understanding of the issues that the sector is facing. This include: process led to proposing RBF design solutions tailored • RBF appears to be a promising tool to address some of to the challenges and needs in each city or country. In the fundamental issues of the MSW sector such as fee Dar es Salaam, for example, the baseline assessment has collection, behavior change towards recycling and source revealed that the main issue that the solid waste sector separation of organic waste; was facing is not inefficiency of primary collection but • RBF could be a good tool for cities to provide access to rather inefficiency of secondary collection. Thus, the team basic service for the poor and to reduce the adverse impact developed a design that includes solutions for secondary of uncollected or inappropriately disposed waste on low- collection. In general, MSW practices vary from one income residents; city to another. Within the same city, it could also vary from one neighborhood to the next. In some locations, • RBF offers the advantage of increasing transparency solid waste collection is provided by a public entity, and accountability in the use of public funds through the whereas in others it is provided by private sector firms, independent verification process; and NGOs, community-based organizations, informal waste • In fragile countries, RBF could be a useful tool to help collectors or a combination thereof. The type of equipment achieve rapid results in the quality of solid waste services used to collect solid waste could also vary, ranging from and increase the willingness of residents to pay solid waste rudimentary equipment such as hand carts, bicycle carts fees. It could also provide a payment guarantee to attract or donkey charettes (carts) to waste collection vehicles. 9. Lessons Learned in Using RBF for MSW 59 Methods used to treat and dispose of MSW are also on getting the targeted municipalities to meet a set of location-dependent and could consist of a sanitary landfill, criteria deemed necessary for the project to go forward. waste-to-energy facility, controlled or uncontrolled These prerequisites constitute the basis for the project dumpsite, or open burning. Likewise the policies and activities in terms of having the right systems, capacities regulations governing solid waste management could vary and buy-in all in place. The regular follow-up on the part from one location to the other. Therefore, it is therefore of the implementing agency helped targeted municipalities important to perform an advanced assessment of the solid make significant progress on those pre-agreed technical waste sector in a city to identify how the RBF approach and institutional actions necessary for successful could contribute to improving solid waste services. The implementation and monitoring of the project. These solid waste data collection tool provided could be used to included, for example: establishing and institutionalizing support data collection and to assess the potential for using SWM subject committees and operational units, RBF to improve solid waste management in a city. preparation of SWM strategies and service improvement • RBF solutions for MSW require active involvement plans (SIPs), and establishment of performance and of all stakeholders, from the early stages of project service delivery monitoring systems, etc. preparation, in order to be successful. In all eight • Improving SWM services does not always require more countries where RBF design work was performed, staff, more vehicles, more equipment or bigger landfill communities and stakeholder consultations were space. In Nepal, the project is designed in a way that will undertaken, providing useful resources in guiding the enable it to achieve its objectives within almost the same design of the RBF solution. In Nepal, the consultations technical and human capacities available with limited carried out as part of the scoping work revealed that supplements. Simple, robust, and affordable systems are municipal authorities were keen to gradually increase being rolled out in targeted municipalities that can be charges for solid waste services, both to ease the burden on easily managed and maintained by current staff. Plans are households and to demonstrate improvements in service underway for the municipal staff to be trained to perform performance before a significant portion of the costs of their duties in a way that contributes to the municipalities’ those improvements are passed on to the households. long-term goals. In terms of vehicles and equipment, the This enabled the pursuit of the proposed RBF design to project will capitalize on the ongoing improvement plans gradually increase fee collection and provide a reliable that the municipalities set in motion originally to further service. In Indonesia, the survey of waste banks in support SWM system improvement. Likewise, in the the participating cities revealed that the barrier to the West Bank, an assessment of the inefficiencies of the solid development of waste banks is not financial, but lack waste system in the Governorate of Bethlehem revealed of community mobilization. It is this important that any that the main issue is not the lack of equipment, but rather RBF design for MSW starts with a thorough consultation the poor use of these assets. In response, the World Bank of stakeholders and actors through workshops or/and team provided technical assistance to the governorate targeted surveys to ensure that all views are taken into to improve the collection system by optimizing the use consideration. This could generally involve the national of existing collection vehicles. In short, improvement and municipal governments, private and informal waste in SWM service delivery is possible without massive collectors, and community members and leaders. In investments in assets. addition, it is important to discuss the proposed design in a final stakeholder workshop where each actor is given 9.2 Considerations for Designing RBF the opportunity to voice their opinions. The involvement Projects for MSW of all stakeholders and actors is crucial to ensure that they are in agreement with the RBF design and that the • In the solid waste sector, OBA subsidies may be more implementation arrangements are known to all actors. effectively targeted at municipalities rather than individual households. In the West Bank, the US$8 • Getting the project prerequisites right is essential in million grant from GPOBA was intended to provide access early project implementation stages. Even though RBF to solid waste collection to poor households. During the is not a panacea for the solid waste sector, it could provide preparation of the project, it was recognized that because an avenue through which important sector reforms could low and high income communities were mixed, it would be introduced. In Nepal, much emphasis has been placed 60 Results-based Financing for Municipal Solid Waste not be possible to target poor households only for the of a service. In China, the method used was to set the subsidy. As a consequence, the project was approved based reward below the estimated saving that the municipality on the average mean income criteria of the municipalities would make for not having to transport diverted waste rather than attempting to segregate poor households or for disposal. On the other hand, for RBF projects which poor neighborhoods within these municipalities. The consist of paying a service provider to collect, transport, challenge associated with targeting low income households treat or dispose waste, the payment could be based on is that solid waste management is a shared, community- a competitive bidding process or negotiated with the based activity with strong externality effects. Even incumbent service provider based on an estimation of the though the solid waste subsidies are provided to citizens cost incurred to provide the service. regardless of income, improvements in waste collection • Providing upfront financial assistance to service and disposal tend to have a greater direct benefit for the providers with limited access to credit could facilitate urban poor, who typically live nearby improperly disposed the implementation of RBF projects. One of the basic solid waste. principles of RBF is that the service provider bears most • RBF designs should be carefully aligned toward of the financial risks by pre-financing equipment and labor achieving the intended improvements in solid waste to provide the service, and payment the flows after the outcomes. In Indonesia, the RBF design provides cash service has been verified. In Tanzania, community-based payment to the municipalities for the achievement of organizations and wards which were incumbent solid a minimum percentage of household participation and waste service providers had limited financial capacity waste banks in operation according to pre-determined and access to credit to pre-finance new equipment. Thus criteria. The design could not provide direct payment to the design solution provided for some equipment for waste banks and communities, whose behavior change collection to be provided through the investment project, is crucial for the success of the project due to fiduciary with CBOs assuming the risk associated with the cost arrangements. The rationale for providing payment to of labor. In general the issue of risk-sharing in RBF municipalities in the absence of a possibility to provide projects should be carefully assessed. Designing an RBF payments to waste banks or communities is guided by scheme with an unbalanced risk-sharing between the the fact that the municipalities could put the enabling public authorities and the private sector could discourage conditions in place to stimulate the creation and proper private sector engagement. This issue is even more acute operation of waste banks. As a general principle, any in fragile countries where investment presents a high risk RBF scheme should be designed as far as possible to the private sector. It is thus important to perform due to motivate the right players to achieve the intended diligence during the preparation phase of the project to outcomes. Misalignment between who is performing and assess the extent to which the private sector is willing to who is being paid could be detrimental to the success of pre-finance the service in a particular city. In the West an RBF scheme. This lesson from the solid waste sector Bank, for example, the well-balanced risk sharing between emphasizes the importance of ensuring that individuals the private sector and the public sector has led to the or households benefit directly or indirectly from their establishment of the first PPP in the solid waste sector in behavioral change that contributes to improved solid waste the West Bank. Given the volatile environment, instead of management, even as incentives may be targeted at an requiring the private sector to finance the heavy equipment aggregated level. (which would have represented a high investment risk • When an RBF scheme is designed as a payment for the private sector given the fragile political context), mechanism for solid waste services, the payment should the SWMP project financed all major equipment for the fairly compensate the service received; however, if it landfill and the transfer station. is for individual noncommercial behavior change, the • RBF projects should be designed with a focus on a payment should be linked to the value of the outcome set of desired results, allowing the service providers of the desired behavior change. In Malaysia and China, to decide what service delivery model would best the determination of payment amounts was challenging. achieve those results. In Nepal, there is diversity across This was because the amounts were rewards to stimulate 58 municipalities in times of size, context, capacity behavior change and were not directly tied to the cost and appetite for reform. This diversity calls for a 9. Lessons Learned in Using RBF for MSW 61 project design that allows participating municipalities transported as the only indicator for payment could lead the discretion to deliver SWM services as they see fit, to potential fraud since it would encourage the service provided that: (a) services meet a set of standards that provider to mix foreign items into the waste to maximize align with national environmental policy objectives and earnings. To address this concern, such schemes should sound environmental management principles; and (b) include verification of the origin of the waste to ensure services achieve a certain level of financial viability in that it comes from the service area and visual inspection order to sustain continuous provision given municipal of loads to ensure that what is transported is indeed solid budget constraints. Furthermore, recent experience with waste. RBF initiatives has highlighted the need to ensure that • A third party independent verification agent provides any results indicators are under the full responsibility greater transparency but could also be costly; of the implementing agency, that the indicators are well alternative means of verification could be considered to defined and independently verifiable, and that project minimize the cost in the solid waste sector. During the designs reflect pragmatic levels of risk transfer. These preparation for the RBF project in China, it was decided findings have been fully incorporated in the design of this that using an independent verification agent would add project by: (a) establishing a key set of indicators (i.e., to the cost of the project and, as a consequence, it was scorecards) that measure milestones along the way to proposed to use the Project Implementation Unit for achievement of the project objectives and are under the verification. Likewise, in Jamaica there were concerns control of the municipality; (b) ensuring that achievement that using a private firm for independent verification could of the milestones will be verified by an independent result in significant cost to the project. As an alternative, verification agency; and (c) shifting performance risk to there was a preference to use an NGO for the verification the municipality by way of a matching subsidy grant that process. In general, while independent verification will only be available if the municipality achieves pre- through a third party is a good practice to ensure an agreed performance standards. unbiased performance evaluation, it is also important to keep in mind that a verification process that is very 9.3 Monitoring and Independent costly cannot be sustainable in the long run, particularly Verification of RBF Schemes for MSW in the solid waste sector which is often struggling with the financial sustainability of operations in the first place. • Balancing simplicity and meaningfulness in the The transaction cost for the verification process could be design of the verification process is often a practical minimized by having a public entity perform most of the necessity for implementation in the solid waste sector. “heavy lifting” in solid waste data collection, and have the Independent verification is one the most important third-party IVA perform the secondary verification prior to features of any RBF scheme. It provides assurance to payment. This alternative has the added benefit of building the service provider that the disbursement of funds is local capacity in monitoring and evaluation, which is often based on an independent and unbiased assessment of weak in the solid waste sector. Strengthening this capacity achievement rather than arbitrary measurement by the would contribute to sustainability and support replication funding authority. At the same time, verification should not in other sectors. Yet, care should be taken to avoid direct be so cumbersome that it results in excessive transaction conflicts of interest, such as service providers verifying costs. End results should thus be verified through simple their own performance. This is one of the risks of having a and straightforward protocols. For example, the design public entity perform the verification. of any scorecards or formulae to calculate the payment should consider limited local capacities, and therefore be easy for all parties to understand. Also, periodic random 9.4 Ensuring Successful Implementation of performance evaluations could be used instead of daily RBF for MSW performance evaluation. However, there is generally a • Supplementing financial subsidies with educational difficult trade-off between simplicity in the verification of outreach and technical assistance provides greater indicators and measuring indicators that are meaningful. leverage for RBF projects. Although RBF is about Verification also needs to be designed to minimize the paying for the results and shifting performance risks to risk of fraud. For instance, using the quantity of waste the service provider/implementing agency, experience 62 Results-based Financing for Municipal Solid Waste from Nepal and the West Bank has shown that technical case for the RBF projects in China, Jamaica and Tanzania, assistance is needed to ensure the achievement of the where the implementation of the RBF components performance targets. In Nepal and the West Bank, the were contingent upon the implementation of the capital RBF projects aimed to motivate municipalities to take investment projects to which they were linked. The action to improve fee collection. Introducing new fees, reliance on capital investment projects could result in particularly for waste management, requires some level project delays and potential cancellation if the required of public education and outreach for greater acceptance. infrastructure or equipment does not move forward as However, the capacity of the implementing agencies was planned. As an example, preparation for the two RBF low. Complementary implementation support through projects in Tanzania and Mali was halted by the removal of technical assistance or additional funding for capacity the solid waste component from the IDA projects that they building is needed in such situations to ensure that the intended to support. municipalities achieve their targets. In general, municipal • The institutional arrangements and flow of funds authorities have low capacity to manage the waste, and for RBF projects must be simplified as much as the shift to a results-based system would only increase the possible taking into account the capacity of the willingness and not the capacity unless it is supplemented implementing agency. The diagrammatic representation with technical assistance. It is important for any RBF of the institutional arrangement and flow of funds for project for MSW to ensure that municipalities or the the RBF project in Nepal is complicated and difficult implementing agencies have a basic level of capacity for to explain. Institutional arrangements and flow of funds implementing OBA as evidenced by: (a) having some form are important factors during implementation and must of existing SWM services; (b) collecting some level of be presented in a manner that can be easily understood beneficiary revenues; (c) having access to sanitary landfill by the implementing agency, the beneficiaries and the disposal facilities; and (d) having a good accounting independent verification agents. In general, no solid waste system to enable financial audits. Technical assistance project could be considered as easy to implement, but resources should be included in the project to enhance the RBF projects are even more complex since their success basic capacity for service delivery. depends predominantly on how they are implemented. At • Linkages to investment projects provide more leverage the city level, it is very important for there to be a local for implementation of RBF schemes in the solid waste champion who is willing to facilitate the preparation sector. In most developing country cities, the financial and implementation of the project, thus maximizing the need is for solid waste operations rather than capital chances of success. investment. Development banks however rarely finance operations, because such expenses are expected to be 9.5 Sustainability of RBF Projects covered by user charges or the city’s own resources to avoid indefinitely increasing their debt. At the same • Keeping the big picture in mind helps ensure that time, the collection of the user fees or charges is a major the resulting scheme contributes to long-term challenge for many developing countries, which in turn sustainability in the solid waste sector overall. limits the ability of the city government to provide a The design of any solid waste management intervention, reliable service to its citizens. The two OBA projects including RBF, should take into account the country’s funded by GPOBA (West Bank and Nepal) help address broader solid waste management context, from waste this need by providing a financial subsidy to the city collection to final disposal, to ensure that the problem governments for a defined period of time while, at the statement and the proposed solution are appropriate and same time, requiring the city to gradually move towards a to avoid unintended consequences or knock-on effects financially sustainable system. These two projects did not on other sectors. As far as possible, waste reduction, directly support the procurement of large infrastructure reuse and recycling initiatives should be prioritized. and equipment, which were necessary to improve the For example, it is sometimes tempting to simplify the service, but were designed with the expectation that the design of an RBF scheme for solid waste by only linking physical equipment and infrastructure would be in place the payment to the quantity of waste transported by the by the time the OBA projects became effective, in part service provider for disposal. This approach may sound through related investment projects. This was also the like a fair way to compensate the service provider based 9. Lessons Learned in Using RBF for MSW 63 on the level of effort made to collect the waste and keep years for a community that has been disposing its waste communities clean. However, in addition to leaving the into a single bin to move to fully separating waste at door open to the manipulation of results, this approach source. Likewise, establishing a new solid waste fee in could also dis-incentivize initiatives for waste reduction, a community that has never paid for such service will reuse and recycling – initiatives that would otherwise take time due to inability or unwillingness to pay for contribute to the solid waste sector’s overall environmental a service that had hitherto generally been perceived as and financial sustainability by reducing disposal costs and being free. Therefore, the design of RBF projects that the quantity of greenhouse gases emitted. Most of the case involve behavior change must set realistic targets, with studies presented in this report are relatively micro-level expectations set for gradual improvement over a period interventions or address a specific issue, although some do of time. If the targets are not realistic, the recipient may take a city-wide approach with the municipal government be unable to achieve the target despite reasonable efforts, as implementer. The bigger question is whether any of this and this could lead to dissatisfaction and demotivation. can be truly transformational and be replicated in many There is a risk that people could go back to their original cities around the world. This has yet to be seen, but project behaviors, or develop new unexpected ones after the replication or adaptation is found to some extent in the financial rewards or incentives are terminated. Moreover, similar project designs for Nepal and West Bank, China human behavior is often complex and motivated by and Malaysia, and finally Tanzania and Jamaica. multiple factors; change cannot always be obtained • Addressing solid waste challenges often involves by providing financial incentives or by demonstrating fundamental changes in behavior that can take time improved service. It is therefore important to ensure that to establish, so setting realistic targets is important any RBF or OBA project that targets behavior change to keep stakeholders motivated. The RBF designs in is coupled with the public awareness campaigns on China, Malaysia and Indonesia attempt to improve solid solid waste management and fee payment issues, simple waste management through the very difficult objective of behavioral nudges, and enforcement of solid waste laws behavior change among communities, which could take and regulations. Including competition in RBF schemes time to be effective. For example, it could take several can be a good way to drive inclusiveness and increase motivation for higher levels of performance. 64 Results-based Financing for Municipal Solid Waste 10. The Way Forward This final chapter presents further opportunities to use RBF 10.1 Recommendations to Scale up the use to address MSW issues. It also includes recommendations to of RBF in the Solid Waste Sector bolster the use of RBF in the solid waste sector and presents the way forward following the publication of this report. Even though RBF is not a panacea for the solid waste sector, it presents the opportunity to address some fundamental issues Figures 10.1 and 10.2 present the activities along the MSW of the solid waste sector. This would directly contribute to value chain and sector issues, respectively, that the eight designs the World Bank’s twin goals of ending extreme poverty and have covered. It shows that the designs did not cover some of boosting shared prosperity. It would also result in a cleaner the activities along the value chain or some fundamental issues. environment, particularly in poor and marginalized areas of This is mainly due to the fact that they were not identified as large cities; this, in turn, could help attract investments and the main challenges in the solid waste sector in their respective create jobs. locations. In order to facilitate the use of RBF concepts in future World Some issues or activities—such as waste generation, energy Bank projects, (either as part of World Bank investment recovery or waste picking—were not addressed in the eight projects or subsidy projects funded by GPOBA), the following RBF designs profiled. There are opportunities to develop actions are recommended: additional RBF designs to address these other issues or to address the same issues from a different perspective. The • Use a systematic project diagnostic. The RBF following additional concepts are suggested for consideration approaches could be integrated into many World Bank for future RBF projects in the solid waste sector (Table 10.1 investment projects to increase the efficiency of the provides additional details on each of these concepts): projects and the focus on results. Indeed, most of the World Bank investment projects for solid waste focus on • Incentives to households to reduce the quantity of waste infrastructure, whereas RBF provides the opportunity to generated at source (impacting the choice of manufactured address the issues of service quality and sustainability. To products with low packaging); minimize missed opportunities, a systemic diagnostic is • Conditional cash transfers to waste pickers; recommended at the project concept note stage to assess • Performance-based operating contracts for the whether any project component could be delivered using management of waste facilities by the private sector an RBF approach. In particular, the RBF concept could be (landfill, waste to energy, compost facility, transfer station, a tool that could be leveraged in the World Bank’s slum MRF etc.); and community upgrading portfolio. • Performance–based grants to municipalities for reducing • Simplify the preparation and implementation methane and black carbon from the solid waste sector; and monitoring process for RBF-type projects, to increase their use as part of World Bank investments. There • Solid waste service fee vouchers for poor households. is often a separate preparation, approval and monitoring Figure 10.1: Activities Along the Value Chain Addressed by the Case Studies Recycling, Energy Waste Generation Collection/Transport Composting, Disposal Diversion Recovery Digestion • Nepal • China • China • West Bank • West Bank • Malaysia • Malaysia • Jamaica • Indonesia • Tanzania • Mali 10. the Way Forward 65 Figure 10.2: Sector Issues Addressed by the Case Studies Poor and Behavior Waste Waste Revenue Methane Undeserved Change Minimization Pickers Collection Avoidance Communities • China • China • West Bank • West Bank • China • Malaysia • Nepal • Nepal • Nepal •Malaysia • Jamaica • Indonesia • Jamaica • Indonesia • Tanzania • Mali process that project teams have to undergo, if an RBF though these designs have undergone peer reviews or review project is also funded by other donors. The level of by a GPOBA panel of experts, there is a need to see how they effort required to prepare, implement and monitor such will be implemented, and to evaluate the results following projects needs to be further assessed for simplification implementation. while maintaining the focus on results. For example, Moving forward, a second phase of this work is planned to start specific grants prepared as part of larger IBRD or IDA in fiscal year 2015 and will have three main activities: investments could be fully integrated as part of the IBRD/ IDA project and undergo a single World Bank approval • Continue to assess the implementation of the various and implementation monitoring process, to minimize the designs presented in this report to infer lessons during the transaction costs for what often represents a small amount implementation and subsequent adjustments made to the compared to the envelop of the World Bank investments. design; • Design new RBF initiatives in additional cities, some of 10.2 The Way Forward which would consist of replicating existing models, while others would attempt to apply the additional concepts This work represents the first phase of a programmatic proposed in Table 10.1; and undertaking to pilot the use of RBF in the solid waste sector, in • Disseminate the findings from this phase to decision- order to tackle critical challenges faced by cities with respect makers and donors. to solid waste management. The focus of this first report has been on the lessons learned from the preparation and design of RBF schemes to address specific solid waste issues. Even 66 Results-based Financing for Municipal Solid Waste Table 10.1: Additional RBF Design Options Objective Description Outcome Output Major risks Incentives to households to Households would receive financial Waste generated is Credit is given based on Retail stores unwilling to reduce the quantity of waste rewards (in the form of cash back or reduced across municipal the quantity of qualified participate. generated at source store discount) for selecting goods with areas. items purchased. a low quantity of packaging over those Complaints from with a large quantity. manufacturers. Conditional cash transfers to Waste pickers receive cash incentives Health and social risks Size of the cash incentive Behavior change is waste pickers for positive behavior changes such as associated with waste is inversely proportional complex and not always wearing personal protective equipment, picking are reduced. to the number of motivated by money. not bringing minors to the work site, times bad behavior is etc. Livelihood of waste observed. Sustainability of the pickers is improved. behavior change after the program is uncertain. Performance-based operating Private sector firm compensated based Waste management For landfills, frequency of The contractor may find contract for management on pre-agreed performance measures. facility managed properly. placement of daily cover, this too risky. of waste facilities by private Example: for management of a density of waste in place. sector sanitary landfill, the payment could be conditioned upon placement of daily For composting facility, cover, waste compaction etc. this could be the quantity and quality of the compost generated. Performance –based grants Performance-based grants provided Methane and black Difference between Accuracy of the to municipalities for reducing by the national government to carbon emissions from baseline emissions of methodology to measure methane and black carbon municipalities for verified quantities of the solid waste sector are methane and black emissions from the solid from the solid waste sector methane or black carbon reduced from reduced. carbon and current waste sector at the city its solid waste operations. emissions. level. Solid waste service fee This is an alternative to the Nepal and Poor households are able Vouchers provided based Difficulty in verifying vouchers for poor households West Bank models, where vouchers to afford solid waste on household income. income levels of or rebates are provided to households services. households. that are below a specified income level The service provider will to subsidize the solid waste fee. The The municipality or private be able to convert the Vouchers could be sold to waste collector provides the service and sector service provider is vouchers to cash only the service provider for a is paid directly by households using a able to recover its cost. if the IVA confirms that fraction of the value. combination of cash and vouchers. The the service has been IVA verifies that the vouchers are used provided. to pay for a genuine service. Previous Knowledge Papers in this Series Lessons and Experiences from Mainstreaming HIV/AIDS into Memo to the Mayor: Improving Access to Urban Land for Urban/Water (AFTU1 & AFTU2) Projects All Residents – Fulfilling the Promise Nina Schuler, Alicia Casalis, Sylvie Debomy, Christianna Johnnides, Barbara Lipman, with Robin Rajack, June 2011, No. 11 and Kate Kuper, September 2005, No. 1 Conserving the Past as a Foundation for the Future: China- Occupational and Environmental Health Issues of Solid World Bank Partnership on Cultural Heritage Conservation Waste Management: Special Emphasis on Middle and Katrinka Ebbe, Guido Licciardi and Axel Baeumler, September 2011, Lower-Income Countries No. 12 Sandra Cointreau, July 2006, No. 2 Guidebook on Capital Investment Planning for Local A Review of Urban Development Issues in Poverty Governments Reduction Strategies Olga Kaganova, October 2011, No. 13 Judy L. Baker and Iwona Reichardt, June 2007, No. 3 Financing the Urban Expansion in Tanzania Urban Poverty in Ethiopia: A Multi-Faceted and Spatial Zara Sarzin and Uri Raich, January 2012, No. 14 Perspective What a Waste: A Global Review of Solid Waste Management Elisa Muzzini, January 2008, No. 4 Daniel Hoornweg and Perinaz Bhada-Tata, March 2012, No. 15 Urban Poverty: A Global View Investment in Urban Heritage: Economic Impacts of Judy L. Baker, January 2008, No. 5 Cultural Heritage Projects in FYR Macedonia and Georgia Preparing Surveys for Urban Upgrading Interventions: David Throsby, Macquarie University, Sydney, September 2012, No. 16 Prototype Survey Instrument and User Guide Building Sustainability in an Urbanizing World: A Ana Goicoechea, April 2008, No. 6 Partnership Report Exploring Urban Growth Management: Insights from Three Daniel Hoornweg, Mila Freire, Julianne Baker-Gallegos and Artessa Cities Saldivar-Sali, eds., July 2013, No. 17 Mila Freire, Douglas Webster, and Christopher Rose, June 2008, No. 7 Urban Agriculture: Findings from Four City Case Studies Private Sector Initiatives in Slum Upgrading July 2013, No. 18 Judy L. Baker and Kim McClain, May 2009, No. 8 Climate-resilient, Climate-friendly World Heritage Cities The Urban Rehabilitation of the Medinas: The World Bank Anthony Gad Bigio, Maria Catalina Ochoa, Rana Amirtahmasebi, June Experience in the Middle East and North Africa 2014, No. 19 Anthony G. Bigio and Guido Licciardi, May 2010, No. 9 Cities and Climate Change: An Urgent Agenda Daniel Hoornweg, December 2010, No. 10 For more information about the Urban Development Series, contact: Global Urban and DRM Unit The World Bank 1818 H Street, NW Washington, DC 20433 USA Email: Urbaninfo@worldbank.org Website: www.worldbank.org/urban July 2014, No. 20