Financing Models for Fecal Sludge Treatment in the Philippines

Background

Only 4% of the Philippine’s residents/businesses are connected to a sewerage system with treatment (mostly in Metro Manila), while approximately 80% rely on septic tanks that require regular emptying with subsequent treatment and disposal.  Septage treatment facilities are limited outside of large urban areas and fecal waste is typically dumped indiscriminately in creeks, rivers and the sea. The risks to health and livelihoods near urban and peri-urban areas are particularly acute.

The Philippines Clean Water Act (2004) mandates Local Government Units (LGUs) to manage wastewater disposal for regulation by Department of the Environment and Natural Resources (DENR) and Department of Health (DOH).  While large urban centers can obtain a 40% national government grant for the construction of sewerage systems, no such subsidy exists for the construction of fecal sludge treatment facilities, creating a financial barrier for most municipalities.  As populations and businesses in small and medium-sized municipalities continue to grow, and household-focused sanitation programs introduce increasing numbers of safe septic tanks, fecal sludge treatment facilities are not sufficiently available for safe treatment and disposal of waste from septic tanks.

Methodology

In March 2014, Oxfam commissioned a study to determine the feasibility of fecal sludge treatment systems in 14 municipalities in the Typhoon Yolanda recovery zone (Northern Cebu and Eastern Samar) – an area where many households toilets with septic tanks were being built, but which had no treatment facilities for safe treatment and disposal of de-sludged fecal waste.  The study found that while LGUs recognized the need for safe fecal sludge management (FSM) facilities, and were willing to make non-capital investments for them (provision of land for treatment facilities, establishment of local ordinances and billing systems), the following critical barriers were identified to implementation: (1) prioritization of FSM in LGU development plans; (2) an unwillingness or inability to invest financial resources or seek loans for infrastructure; and (3) low level of LGU technical capacity to design, construct and manage FSM facilities.

As access to financial capital was seen as the primary barrier to the implementation FSM systems, a revolving fund was established to provide no-interest loans to municipalities for the construction of FSM facilities.  The revolving fund began with an initial start-up balance of 500,000 USD (deposited by Oxfam) and is administered by Philippines Business for Social Progress (PBSP), a national NGO.  PBSP manages the loans from the revolving fund charges an administration fee of 5%.  Up to 100,000 USD can be borrowed from the fund to cover the development of treatment facilities with a capacity of 10 – 15 m3 fecal sludge per day, as well as related expenditures (e.g. vacuum truck).  The repayment period of the loan is 5 years, with a grace period of one year.

Interested LGUs undergo a loan application and approval process.  Requirements include submission of the following: letter of intent; business plan; engineering design and costs; development of local ordinance (establishment of tariff/fee schedule); land title (for construction site); environmental compliance certificate; LGU council resolution on loan acceptance; and finally a signed credit agreement.

A vital component of the project was Oxfam and PBSP’s support to LGUs through the application process, to develop the following activities:

  • A financial model to estimate income, expenditure and cash flows, allowing LGUs to make informed decisions regarding the type of treatment design, staffing and equipment. Details of technical designs were developed and fed into the financial model.
  • Technical and business plans for the operation of FSM facilities;
  • A local ordinance and other institutional arrangements such as environmental compliance;

In addition, the following activities were carried out to sustain the project and to strengthen long-term institutional engagement for improved FSM:

  • Technical training of engineers PBSP and government agencies (including regulators) on the design of fecal sludge treatment facilities to enable them to take on the role of advisers for LGUs;
  • Advocacy to the Department of Interior and Local Government (DILG) and the Department of Public Works and Housing (DPWH) to increase government support and financing for FSM;
  • Learning visits by LGU personnel to existing FS treatment facilities.

Results & Current Status

As of October 2016, four LGUs (3 municipalities and 1 city) are in the final stages of the loan approval process, and it is estimated that implementation of infrastructure shall begin no later than January 2017.  The program proceeded more slowly than initially planned; a 2 – 3 year timeframe would have been more appropriate than the one year implementation period.  The project was overly optimistic concerning the motivation of LGUs to pursue FSM (which was not often a development priority for constituents), and government elections further delayed plans.  Oxfam and PSBP are actively seeking additional funding to increase the revolving fund capital and support a larger number of LGUs.

Lessons Learned & Recommendations

  • A thorough understanding of the internal workings of LGUs, their planning cycles (3 years), and how to most effectively advocate FSM (to mayors, LGU officials and constituents) is necessary to enable prioritization of FSM, as well as a greater focus on advocating for an increased priority for FSM both with regulators and government agencies responsible for liquid waste management;
  • Encourage LGU councils to have greater responsibility for FSM with the mayor providing oversight, to avoid overdependence on him/her;
  • Consider linking FSM with other development activities, such as the reform of the water supply system to improve acceptance from constituents and gain advantages from integrated planning processes and tariff structures;
  • Greater encouragement should be given for LGUs to  share FSM facilities and for FSM facilities to be co-located with solid waste disposal sites  for increased cost savings and profitability, and  reducing the ‘nuisance factor’ associated with each type of facility;
  • LGU capacity to develop business plans was weaker than expected, and several LGUs struggled to develop them as part of the application process. Increased support is therefore likely to be needed for business plans in addition to technical designs and assessments;
  • The program would likely have benefited from a more consistent presence of local staff at the LGU level to provide regular-follow up and support to the LGU.

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Thomas Wildman

Tom Skitt

Header photo credit: Oxfam