Difference between revisions of "Capital Expenditure (CapEx)"

Capital Expenditure is the cost of providing a water or sanitation service to users where there was no service before; or of substantially increasing the level of services received by users. It includes the capital invested in first time construction or purchase of fixed assets such as concrete structures, wells, pumps, pipes or toilets prior to implementation of the service and to improve or expand existing water or sanitation systems. Costs for rehabilitation or replacement of major parts of a water or sanitation system, such as replacing a pump, are considered expenditure on capital maintenance (CapManEx).

Capital expenditure (CapEx) consists of expenses on hardware and software (see table 1).
Capital expenditure hardware (CapEx hrd) includes expenditure on fixed assets as pumps, pipes, etc. and required equipment such as vehicles or offices to support the construction of water and sanitation systems prior to implementation of the service.
Capital Expenditure software (CapEx Sft) includes the costs of one-off work with stakeholders prior to construction or implementation or extension of the service such as one-off training of pump mechanics or caretakers, community mobilisation or hygiene education.

Table 1. Capital Expenditure (CapEx)

Borrowed: Source: Smits et.al, 2011, 7.

Examples

According to the 2012 GLAAS report (WHO and UN-Water, 2012, 29), 69% of funds for water and sanitation expended in 11 respondent countries were directed towards Capital Expenditure (see figure 1).

Figure 1. Capital expenditure versus operational and maintenance expenditure

Source: WHO and UN-Water, 2012, 29

Benchmarks capital expenditure

Based on research from WASHCost, the Capital Expenditure (CapEx) basic level of water service with a borehole and handpump (at 2011 prices) range from US$ 20 per person to just over US$ 60 per person (see table 2). For small schemes, including mechanised boreholes and piped supplies, the costs range from US$ 30 to just over US$ 130 per person. For intermediate and larger schemes benchmark capital costs vary widely from US$ 20 to US$ 152 per person.

Table 2. Total Capital Expenditure per person for borehole and handpump, small schemes and intermediate to large schemes required for a basic level of service

Borrowed: Source: IRC, 2012a, 1.

The costs as shown in table 2 (above) are based on the provision of a basic level of water service, as defined by WASHCost. A basic water service implies that the following criteria have been realised by the majority of the population in the service area: People access a minimum of 20 litres per person per day, of acceptable quality (judged by user perception and country standards) from an improved source, which functions at least 350 days a year without a serious breakdown, spending no more than 30 minutes per day per round trip (including waiting time).

Based on research from WASHCost, the minimum Capital Expenditure required to provide a basic level of sanitation service ranges from US$ 7 for a basic pit latrine to US$ 36 (2011 prices) for a Ventilated Pit Latrine (VIP) (see table 3).

Table 3. Total Capital Expenditure per facility for traditional pit latrines, pit latrines pour- flush or septic tank required for a basic level of service

Borrowed: Source: IRC, 2012b.

The costs as shown in table 3 (above) are based on the provision of a basic level of sanitation service, as defined by WASHCost. A basic water service implies that the following criteria have been realised by the majority of the population in the service area: At least some members of the household use a latrine with an impermeable slab at the house, in the compound or shared with neighbours. The latrine is clean even if it may require high user effort for pit emptying and other long-term maintenance. The disposal of sludge is safe and the use of the latrine does not result in problematic environmental impact.

When using these benchmarks (see tables 2 and 3), local factors must be taken into account. For example, the lower cost ranges were generally, but not always, found in India while cost data from Latin America tends to be higher than the maximum ranges, but usually relates to higher service levels.

For both water and sanitation:

• If expenditure is lower than the minimum range, then there is higher risk of reduced service levels or long-term failure. A reduced service level means that one or more service criteria (e.g. access, quantity, use, quality and reliability) are not achieved.
• In WASHCost research, use of latrines and reliability of services tend to be lower when recurrent expenditure on things such as operation and maintenance is low.
• If expenditure is higher than the maximum range, an affordability check (for both users and providers) might be required to ensure long-term sustainability.
• If a basic level of service is being delivered and expenditure is outside the cost benchmarks, then there may be context-specific explanations; such as the service is in a densely-populated area with economies of scale, or, conversely, the area is difficult or remote to reach.

Capital expenditure in Burkina Faso, Ghana, India and Mozambique

WASHCost research indicated that in both Burkina Faso and Mozambique, higher levels of capital expenditure on sanitation services are found in the more densely populated peri-urban areas in comparison with rural areas (see figure 2) (Burr and Fonseca, 2011). A slab latrine in Burkina Faso costs over three times as much in peri-urban areas than in rural areas. All latrines costed in rural Mozambique are two to three times cheaper than their peri-urban equivalents.

Figure 2. Median capital expenditure on latrines in Burkina Faso, Ghana and Mozambique (current cost US$ 2009)

Borrowed: Source: Burr and Fonseca, 2011, 12-13

In contrast, Ventilated Pit Latrines (VIP) in Ghana are approximately 10% more expensive in rural areas than in small towns (see figure 2). Ventilated Pit Latrines (VIPs) costs in Burkina Faso are much higher than the found costs in neighbouring Ghana as well as in Mozambique. Ventilated Pit Latrines (VIPs) consistently cost between US$ 300 and US$ 600 to construct in Burkina, compared with average costs of between US$ 100 and US$ 250 in the other two countries. The occasional VIP in Ghana and Mozambique is of a comparable cost to those in Burkina Faso, but the majority cost three to four times less. The proportionally higher slab latrine costs in Burkina Faso reinforce the findings that the construction of latrines is generally more expensive here than in Mozambique.

Key Documents

• Batchelor, C., Fonseca, C., and Smits, S., 2011. Life cycle costs of rainwater harvesting systems. (Occasional paper series / IRC; 46). The Hague, The Netherlands: IRC International Water and Sanitation Centre.

In partnership with IRC and the Rainwater Harvesting Implementation Network, WASHCost studied the historical trends and drivers of adopting Rain Water Harvesting (RWH). Detailed comparisons are made between life-cycle costs of RWH systems and the life-cycle costs of other water supply systems.

• Burr, P. and Fonseca, C., 2011. Applying the life cycle costs approach to sanitation: costs and service levels in Andhra Pradesh (India), Burkina Faso, Ghana and Mozambique. (WASHCost briefing note; 3). [online] The Hague, The Netherlands: IRC International Water and Sanitation Centre.

This briefing note presents an application of the life-cycle costs (LCCA) approach to sanitation in rural and peri-urban areas in four different countries— Andhra Pradesh (India), Burkina Faso, Ghana, and Mozambique. The document compares the differences between the financial costs of traditional and improved latrines, and the quality of service delivered to users.

• Fonseca, C. et al., 2011. Life cycle costs approach: costing sustainable services. (WASHCost briefing note; 1a). The Hague, The Netherlands: IRC International Water and Sanitation Centre.

This briefing note describes the life-cycle costs approach and why it was developed. It explains the main cost components for water and sanitation in rural and peri-urban areas.

• IRC, 2012a. Providing a basic level of water and sanitation services that last: cost benchmarks. (WASHCost infosheet; 1). The Hague, The Netherlands: IRC International Water and Sanitation Centre.

Information sheet provides an overview of the minimum benchmarks for costing sustainable basic services in developing countries. The benchmarks have been derived from the WASHCost project dataset and the best available cost data from other organisations all over the world. The benchmarks are useful for planning, assessing sustainability from a cost perspective and for monitoring value for money.

• IRC, 2012b. The cost of sustaining sanitation services for 20 years can be 5-20 times the cost of building a latrine. (WASHCost infosheet; 2). The Hague, The Netherlands: IRC International Water and Sanitation Centre.

• Smits, S. et al., 2011. Arrangements and cost of providing support to rural water service providers. (WASHCost working paper; 5). The Hague, The Netherlands: IRC International Water and Sanitation Centre.

• WHO and UN-Water, 2012. UN-Water global annual assessment of sanitation and drinking-water (GLAAS) 2012 report: the challenge of extending and sustaining services. (UN-water global annual assessment of sanitation and drinking-water (GLAAS) report; 2012). Geneva, Switzerland: World Health Organization (WHO).

Links

• WASHCost was a five-year action research programme, running from 2008 to 2012. The WASHCost team gathered information related to the costs of providing water, sanitation, and hygiene services for an entire life cycle of a service -- from implementation all the way to post-construction. The WASHCost programme was led by IRC International Water and Sanitation Centre with several partners to collect data in the rural and peri-urban areas of Burkina Faso, Ghana, India, and Mozambique. For more information see: WASHCost.

• The Costing Sustainable Services online course was developed to assist governments, NGOs, donors and individuals to plan and budget for sustainable and equitable WASH services, using a life cycle cost approach. The life cycle cost approach is a methodology for costing sustainable water, sanitation and hygiene service delivery and comparing the costs to the level of service received by users. For more information go here

• WASHCost data sets provide access to the validated life cycle cost and service level information collected in Burkina Faso, Ghana, Andhra Pradesh (India), and Mozambique between 2009 2010. The data has been collated from a number of sources including infrastructure surveys, detailed household surveys and range of specific research undertaken with stakeholders in each country. The data sets are available here

• Triple-S (Sustainable Services at Scale) is a six-year, multinational learning initiative to improve water supply to the rural poor. It is led by IRC International Water and Sanitation Centre. The initiative is currently operating in Ghana and Uganda. Lessons learned from work in countries feeds up to the international level where Triple-S is promoting a re-appraisal of how development assistance to the rural water supply sector is designed and implemented. For more information see waterservicesthatlast.org/