Day2 session1 costing and mtef
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This document discusses methods for estimating the costs of environmental programs, including bottom-up, average unit costs, and top-down approaches. It provides examples of how each method was used to estimate costs for wastewater treatment programs in Poland. It also discusses linking program cost estimates to medium-term expenditure frameworks and annual budgets to plan financial flows over multiple years.
Day2 session1 costing and mtef
- 1. COST ESTIMATION AND LINK WITH MTEF (MEDIUM-TERM EXPENDITURE FRAMEWORK) Rafał Stanek SST-CONSULT /Kommunalkredit Public Consulting Promoting Clean Urban Public Transport in Kazakhstan: Designing a Green Investment Programme 14 December 2016, Astana
- 2. • Introduction to programme costing • Three methods of programme costing: –bottom-up –average unit costs –top-down • Financial flows, METF and one year budget Structure of the presentation
- 3. • Correct estimation of the costs of implementation of an environmental programme is crucial for the success of future implementation • No single theoretical methodology can be used for costing of environmental programmes • A number of internationally recognised good practices in this field do exist Major methods of environmental programme costing
- 4. • Bottom-up: by collecting information from the field (prospective investors, such as local governments, utilities, etc.) • Using Average Unit Costs • Top-down: by imposing rules and procedures that ensure that only projects within a specific (scope, costs, environmental effect) margin are implemented Estimating the costs of an environmental programme
- 5. • For example, local governments are asked to provide detailed information (investment costs, period of implementation) on specific projects • This method has a very high accuracy: information on projects under preparation is collected • Local governments, however, may overestimate the scope – need for verification Bottom-up
- 6. Costs of the national programme Verification Aggregation on the regional level Aggregation on the regional level Beneficiary /for example municipal/ level - investments and its cost Bottom-up
- 7. • Polish National Programme for Municipal Waste Water Treatment prepared to implement EU Directive 91/271/EEC of 21 May 1991 on urban wastewater treatment • Local governments proposed the scope, which was then negotiated with the central government • Very broad definitions of agglomeration and local governments tended to ensure that every settlement was put into the programme Bottom-up - example
- 8. • Total costs of the implementation of the Urban Wastewater Directive in Poland –The National Programme for Municipal Waste Water Treatment 2003: PLN 35 billion –Update 2005: PLN 42.6 billion –Update 2010: PLN 31.9 billion –Update 2015: PLN 55.963 billion was spent by the end of 2014 and there is a need for additional PLN 29 billion Bottom-up - example
- 9. • Easy to use, but prone to high inaccuracy • For example: – 30% of the country's population is connected to the sewage system – If we want to achieve a target of a 90% connection rate, we need to multiply 60% of the population by the unit cost of building sewage systems with WWTPs Total outlays for the programme = Population to be connected Unit costs to connect one person * Average unit costs
- 10. Total outlays for the programme = Number of new LPG buses Average unit costs of LPG bus * Number of new CNG buses Average unit costs of CNG bus * Number of new EURO6 diesel buses Average unit costs of modern diesel bus * + + Average unit costs
- 11. • When the wastewater infrastructure is partially built (sewer mains and WWTPs are in place), expanding the system by building sewerage connections may cost less than the average • If the sewer network is constructed in high density areas first, however, expanding it to areas with lower population density may cost more than the average • When energy efficiency projects are promoted for several years, the most cost-effective are usually those projects implemented at the beginning. Projects in later years, in turn, may cost more than the average Average versus marginal costs
- 12. • Easy to calculate, but highly inaccurate • Sometimes marginal unit costs should be used instead of average unit costs • To increase accuracy, it is necessary to break down components into small types of projects, such as: – WWTP: small, medium-sized, large – sewer network in: flat urban area, flat rural area, hilly urban area, in hilly rural area – or even more detail – Only then: estimate the unit costs for each type • Problems occur when scope of the programme is changed due to political pressure Average unit costs - conclusions
- 13. • Programme promoter decides on relatively small margin of the projects' scope and costs • Programme may contain a number of types of projects, but the programme promoter needs to know the details on each type of project • Programme is usually prepared after conducting research or implementing pilot projects Top-down
- 14. Costs of the national programme and project parameters are decided by the programme promoter Beneficiary level Application forms Top-down
- 15. • Example of solar collectors: • Polish EcoFund (debt-for-environment swap, programme now closed): – Maximum grant per unit: 250 EUR/m2 – Annual limit: EUR 2.5 million EUR – Grant limit of up to 40% of the project costs • Polish National Environmental Fund: – Maximum project costs 600 EUR/m2 – Up to 1.5 m2 per person – Grant limit of up to 45% of project costs • Very detailed definition what projects costs may include Top-down
- 16. • Every good method to implement programmes consisting of many replicable projects • Good to implement programmes where programme promoter subsidizes only part of the project costs • Programme costing requires good and detailed knowledge about potential projects – research or pilot projects first • Projects outside the range set by programme promoter are lost, even if they would be useful in achieving targets • Cheapest projects are implemented first, thus procedures require update after a few years Top-down
- 17. • Regardless the method used for programme costing, when the total budget is agreed, we need to see how to disburse the budget over the years • This can be done looking at several constrains: – availability of the public support over the years (for example, we will have available maximum 5 billion tenge per year – Market readiness to deliver goods needed for programme implementation (if average bus production in the country is 300, we cannot estimate replacement of 500 buses in the first year of the programme implementation) – Readiness of beneficiaries to implement the programme – the market study shall estimate how many project beneficiaries are ready to implement such projects per year (could vary from year to year due to better market penetration) Financial flows
- 18. • When possible disbursement schedule is determined and the level of the support from the state budget is calculated (next presentation), the programme can be included into the Medium Term Expenditure Framework • Medium Term Expenditure Framework (or multiyear budget) is a resource envelope for a high cost government-wide programmes Financial flows and MTEF
- 19. • Then, specific costs for a given year are allocated to the annual budgets • The monitoring of the programme implementation also gives an input to the annual budget allocations – for example, if not all funds were spent in the given year, next year allocation may take it into account plus improvements in the programme implementation shall be considered MTEF and annual budget