Financing Rural WSS in Tajikistan/FEASIBLE

From WaterWiki.net

Following the OECD [1]the Feasible Model has the following purpose:

Environmental financing strategies (EFS) provide a bridge between general environmental programmes and everyday decisions about how to use the next year budget for supporting individual infrastructure projects. EFS should typically be prepared together with implementation programmes as a way of testing whether they are financially viable and affordable to the treasury and households. Scenario analysis, conducted as part of the financing strategy, can be used to correct the implementation programmes, if they appear unrealistic.

Relevant authorities can subsequently use the financing strategy to identify specific projects or project types that would require government support. EFS is a powerful though not always sufficient tool to effectively support project proposals presented by relevant ministers at Budget Committees. In this role, the long-term strategy needs to be supplemented by a rolling two to four-year pipeline of priority investment projects for co-financing from the public budget. In some countries, such a pipeline management mechanism is called Public Investment Programme (PIP). PIP is a mechanism through which funding from the state budget is allocated to public sector investment projects in the short to medium term. A financing strategy offers a long-term, sustainable underpinning for successful PIPs. Both tools, applied together, are intended to streamline limited domestic and international resources and allocate them as efficiently as possible in order to maximise economic and social benefits and to support the Government's long-term environment and development strategies. At the end of this process, the planned government commitments are incorporated into annual budgets.

The EFS methodology was tested and applied in a number of countries. It includes a computer model (Decision Support Tool) to stimulate in quantitative terms the consequences of different policy choices. The financing strategies sensu stricto are put together through a series of iterative model runs with different assumptions describing environmental or service level targets and policies to mobilise additional finance. The model assesses the investment, maintenance and operational expenditure that would be required to achieve specific targets. These expenditure requirements are subsequently compared with current levels and sources of finance and the model calculates the resultant "financing gaps". The model has proven useful for dialogue between environment ministries, health ministries, ministries responsible for urban infrastructure and the ministries of finance and economy. The EFS methodology, developed by the EAP Task Force, with support from the Danish Ministry of Environment and Energy, was welcomed by the Ministers of Finance, Economy and Environment at the Ministerial Consultation on Water Management and Investments in Almaty, Kazakhstan in October 2000. Further, Environment Ministers at the Fifth “Environment for Europe” Ministerial Conference, held in Kiev, Ukraine, in May 2003, emphasised the need for preparing realistic environmental investment and financing strategies and plans at national and local levels as an essential prerequisite for making better use of public resources in financing investment-heavy public infrastructure.

Consulting Engineers and Planners (COWI) have built the software under the methodological guidance of the EAP Task Force Secretariat and applied it through demonstration projects in several EECCA, with support of local specialists. COWI hosts a special web page dedicated to this project: http://www.cowi.ru/almaty/ Expert work has been monitored by advisory groups composed of senior officials and policy makers from the ministries of finance, economy, environment and other relevant government agencies. The role of these groups was also to discuss and approve all assumptions and targets used in modelling as well as the policy implications of the modelling results. This makes the strategies relevant to, and "owned" by the key stakeholders in the countries. The work on EFS has been supported by a number of donors, including the Danish Ministry of Environment and Energy (as the most significant contributor), the EU Tacis, Germany, Japan, Australia. Overall substantive guidance and methodological support has been provided by the EAP Task Force Secretariat.

The developers COWI[2] focus more on the model itself:

FEASIBLE is a software tool developed by COWI to support the preparation of environmental financing strategies. A major challenge when developing such strategies is often the lack of available data on investment and rehabilitation needs at the individual facility level. The key feature of FEASIBLE is the use of generic cost functions which allow easy estimation of the costs of alternative service and environmental targets with a limited data collection effort. The output generated by FEASIBLE has proven valuable for decision makers planning heavy-cost investments in the environmental sector.

The basic approach underlying FEASIBLE is to take public policy targets in areas like water supply and sanitation, determine the costs and timetables of achieving them and compare the schedule of these expenditure needs with available sources of finance.

This analysis generally reveals “finance gaps” during planned implementation. FEASIBLE can then develop various scenarios to determine how these gaps could be closed. This could be by: identifying policy reforms that could help achieve the targets at lower cost; identifying ways of mobilising additional finance; adjusting the ambition level of the targets; or extending the time period for achieving the targets.

An important feature of FEASIBLE is the emphasis on realism and affordability. The model can assess the levels of finance (public, private, domestic, foreign) that might be available under different macro-economic conditions. In this way, it provides a check on what public budgets might realistically be expected to contribute. It can also help to assess the potential social implications of increasing tariffs by determining the impacts of such price increases on household income.

By focussing on these issues, the application of FEASIBLE is more than a technical exercise: it also supports a process of dialogue and consensus building among the key stakeholders involved in financing environmentally-related infrastructure. In this way, it can build a bridge between policy development and implementation.

The FEASIBLE model was developed in close cooperation with the OECD and financed by the Danish Ministry of the Environment under the DANCEE programme.

Download the model: [3]