Sanitation Market Analysis Report
SANITATION MARKET ANALYSIS REPORT – TAMA, GHANA 4/11/2014
CLIP_WASTE
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Sanitation Market Analysis Report
LIST OF ABBREVIATIONS............................................................................................................................3 1.0 INTRODUCTION....................................................................................................................................4 1.1 Research Methodology Adopted......................................................................................................4 2.0 BACKGROUND - TAMALE MUNICIPAL AUTHORITY (TaMA)...............................................................6 2.1 TaMA Background.............................................................................................................................6 2.2 Administration of TaMA....................................................................................................................6 2.3 Governance.......................................................................................................................................7 2.4 Environmental and Sanitation Issues...............................................................................................7 2.5 Waste Management Department....................................................................................................7 3.0 SANITATION AS A BUSINESS................................................................................................................8 3.1 The sanitation Issues.........................................................................................................................8 3.2 Public Toilets Management..............................................................................................................8 3.3 Public Private Partnership (PPP) Arrangement...............................................................................9 4.0 SANITATION VALUE CHAIN (SVC)......................................................................................................10 4.1 Demand for Public Toilets / Users of Public Toilets........................................................................10 4.2 Public Toilet Operations (PTO) in TaMA.........................................................................................10 4.3 Faecal Sludge Emptying Services...................................................................................................10 4.4 Treatment of Faecal Sludge...........................................................................................................10 4.5 Composting of Faecal Sludge for Farmers.....................................................................................11 5.0 MARKETING MIX STRATEGY..............................................................................................................11 5.1 Product Development.........................................................................................................................11 5.2 Product Exclusion.......................................................................................................................11 5.3 Sanitation Value Chain along the use of PT................................................................................11 5.3.5 Observations and Recommendations.....................................................................................12 5.2 Pricing of Sanitation Services.........................................................................................................13 5.2.1 Pricing Assumption...................................................................................................................13 5.2.2 Pricing PT usage Fees...............................................................................................................13 5.2.3 Pricing for Water Kiosk usage..................................................................................................13 5.2.4 Pricing for Public Bath facility..................................................................................................13 5.3 Profitability of Public Toilets by Segments.....................................................................................14 Page 1 of 30
Sanitation Market Analysis Report 6.0 SUGGESTED PUBLIC TOILETS MANAGEMNT MODELS.....................................................................16 6.1 Special Purpose Vehicle (SPV) - Sanitation Holding Enterprise (SHE)...........................................16 6.1.2 Initial Investment Requirements.............................................................................................16 6.1.3 Key Functions of the Holding Company..................................................................................18 6.1.4 Merits of Holding Enterprise...................................................................................................18 6.2 Creating Independent Sanitation ‘Champion’ Entrepreneurs......................................................19 6.2.1 Fee Structure for PLPT.............................................................................................................19 6.2.2 Contract Conditions with PTOs...............................................................................................20 6.2.3 Merits of PLPTs........................................................................................................................20 6.2.4 Demerits of PLPT.....................................................................................................................20 6.2.5 Financial Justification Independent Model.................................................................................20 6.2.6 Assumptions............................................................................................................................20 6.2.7 Profitability of PTs....................................................................................................................21 6.3 Business Case for Emptying Services.............................................................................................23 6.3.1 The Market for Emptying Services in TaMA............................................................................23 6.3.2 Profitability of Emptying Services...........................................................................................23 6.4 Composting into Organic Fertilizer................................................................................................26 6.4.1 Profitability of Organic Fertilizer.............................................................................................26 6.4.2 The Case of 24 HR Rapid Thermophilic Digester....................................................................26
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Sanitation Market Analysis Report
LIST OF ABBREVIATIONS Abbreviation CBD CLIP EPA FBO FGD FS MW PB PT PTO TaMA UDS WMD
Full Meaning Central Business District Community Life Improvement Programme Environmental Protection Agency Farmer Based Organisation Focus Group Discussion Faecal Sludge Municipal Waste Public Bath Public Toilets Public Toilets Operator Tamale Municipal Authority University of Development Studies Waste Management Department
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Sanitation Market Analysis Report
1.0 INTRODUCTION This report has been developed as part of the WASH Window proposal which is being submitted by WASTE and its local partner Community Life Improvement Project (CLIP), Tamale, Ghana. As part of the input into the WASH Window proposal JPCann Associates Ltd was commissioned to look into whether there is a business case for PPP arrangement involving Tamale Municipal Assembly (TaMA) and other private entrepreneurs in the Public Toilets (PT) solid waste management process in TaMA. The emphasis here was on the rehabilitation of the 125 Public Toilets (PT) in TaMA. 1.1 Research Methodology Adopted A five days market analysis was conducted to among others come out with some findings supporting a business case or otherwise of the economic viability of sanitation as a business model in the Tamale Municipal Assembly (TaMA) area. The market analysis conducted used several methodologies in arriving at the findings, recommendations and conclusions in this report. Among others, the market analysis used methods such as report reviews including the synthesis report on the status of sanitation in the Tamale Municipality, focus group discussions and key informant interviews. In addition, several field trips were made to observe first-hand the status, conditions and practicality of what goes-on on the ground. Discussions and interviews were held with stakeholders including officials of TaMA (including the honourable Municipal Chief Executive, Chief Metro Director, and Waste Management Department) PTOs, Mechanical Cesspit Tank companies, Compost companies, bio digester companies, research institutions (UDS), New Energy (a partner of SIMAVI in the Northern region of Ghana) for Water Supplies and linking of water to PT facilities), financial institutions (Stanbic Bank Ghana Ltd, Global Trust Financial Services Ltd, Baobab MFI) and other stakeholders including officials of CLIP. Among others the interviews and FGD focused on several key points of interest including: 1. The demand for the services and products within the sanitation value chain – estimated usage of the PT in the various facilities in TaMA; 2. The adequacy and need for rehabilitation of broken down PTs at various locations; 3. Costs implications in rehabilitation of PTs, adding extra facilities and pricing of services patronized by the general public and households in TaMA; Page 4 of 30
Sanitation Market Analysis Report
4. Dislodging and emptying services needed, costs, pricing structure and profitability of such services to the business owners; 5. Treatment and other solid waste management practices in the TaMA area; 6. Composting and co-composting opportunities in the TaMA area and demand for organic manure by Farmer Based Organisations (FBOs) derived from the use of the faecal sludge matter; 7. sanitation entrepreneurs’ willingness and readiness to raise private funding to invest in the sanitation value chain in Tamale; 8. Public sector support for a PPP arrangement in addressing the sanitation issues in TaMA;
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Sanitation Market Analysis Report
2.0 BACKGROUND - TAMALE MUNICIPAL AUTHORITY (TaMA) 2.1 TaMA Background The Tamale Metropolitan Assembly (TaMA)1 was elevated to the status of Metropolis in 2004. The Metropolis is one of the six Metropolitan Assemblies in the country and the only Metropolis in the three Northern Regions of Ghana namely; Upper East, Upper West and Northern Regions. The capital of the Metropolis is the capital of the Northern Region and the seat of the Northern Regional Minister. It lies between latitude 9.16° and 9.34° North and longitudes 00.36°and 00.57.Tamale Metropolitan Assembly is located approximately 180 metres above sea level. The topography is generally rolling with some shallow valleys which serve as stream courses. There are also some isolated hills but these do not inhibit physical development. The Tamale Metropolis is one of the 26 districts in the Northern Region. The Metropolis is located in the central part of the Northern Region and shares boundaries with five other districts namely the Savelugu- Nanton to the North, Yendi Municipal Assembly to the East, Tolon-Kumbungu to the West, Central Gonja to the South West and East Ganja to the South. Tamale has a projected population of 537,986 with a growth rate of 3.5%, according to the 2010 census which makes it the fastest growing city in West Africa. The town is located 600 km north of Accra. Most Tamale residents are moderate followers of Islam, as reflected by the multitude of mosques in Tamale, most notably the Central Mosque. The size of Tamale is approximately 922km sq. The city experiences severe hamattan winds in the dry season from November to January. The Metropolis is poorly endowed with water bodies. The only water systems are a few seasonal streams, which dry up during the dry season. The other water bodies include dugouts and dams. The city attracts population from all over the northern region. Economic activities revolve around farming and trading. 2.2 Administration of TaMA The Tamale Metropolitan Assembly (TaMA) was established by Legislative Instrument 1453, and governed under the Local Government Law, Act 462. The National Building Regulation, Legislative Instrument 1630, Town and Country Planning Ordinance CAP 84, the National Development Planning Systems Law, Act 480 are also applied for development planning and control. 1
http://ghanadistricts.com/districts/?news&r=6&_=80 [accessed 7.4.2014 at 6.46pm GMT]
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Sanitation Market Analysis Report
Sources of revenue for the city are twofold; internally generated funds such as rates, land, fees and fines, licenses, rent and investment; central government funds such as District Assemblies Common Fund. 2.3 Governance The mission statement of the Tamale Metropolitan Assembly states, “The Tamale Metropolitan Assembly exists to enhance the quality of life of the people of the Metropolis by facilitating the maintenance of law and order and mobilizing the physical and financial resources to provide quality socio-economic services especially in education and health in collaboration with other development agencies and in conformity to broad national policies,� (Medium Term Development Plan, TAMA 2003). This is a clear manifestation of the Tamale Metropolitan Assembly acknowledgement of its role in provision and the citizens right for access to basic services. Consequently the provision of these basic services has constituted a major component of the Tamale Metropolitan Assembly budget and programme of action as contained in the various district budget and action plans. 2.4 Environmental and Sanitation Issues As one of the fastest growing cities in the country, Tamale is faced with daunting challenges in the management of both solid and liquid waste. The management of solid and liquid waste is the single greatest environmental problem facing the Metropolis. 150 tonnes of solid waste are generated daily but the Assembly is only able to clear 7.5 tonnes a day. More than 80% of the population depends on public toilets or other illegal modes of toilets. Proliferation of commercial and light industrial activities within the residential areas is another environmental problem facing the township. Development control enforcement in the township has been very weak and as a result smallscale commercial activities find it relatively easy to locate on any available space (road sides and reservation, open spaces and undeveloped plots). The city has an engineered landfill site and liquid waste treatment plant but there are challenges in the management of the landfill site by WMD. Sanitation bye-laws of the Assembly are not implemented; similarly development control laws are not fully implemented due to lack of staff. 2.5 Waste Management Department The Assembly has the responsibility for waste management. This is done through the Environmental Health Department. The Town and Country Planning Department has responsibility for planning and development control. Unfortunately these Departments are not well resourced to function as expected.
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Sanitation Market Analysis Report
3.0 SANITATION AS A BUSINESS The business of sanitation is the business of bringing solutions to the sanitation challenges confronting communities at a price which ensures either costs recovery or making a good return on investment. Several forms of funding the construction, maintenance and operations of public sanitary facilities have not yielded the required results. The need for the private sector’s intervention has become needed as there are several business prepositions along the sanitation value chains. This requires that each value preposition makes a strong business sense that will sufficiently attract the private entrepreneur to invest and run such facilities at a profit and a good return on investment. 3.1 The sanitation Issues It is estimated that more than 2.6 billion 2 (approx. 41% of world’s population) people do not have access to sanitation services. Ghana being no exception, there are even much bigger percentages in some parts of the districts and metropolitan assemblies. The National Environmental Sanitation Strategy Action Plan 2010 – 2015 3 estimate that 39% of Ghana’s urban citizens depend on public toilets for their daily sanitation needs. Tamale has a very low coverage in terms of available toilet facilities. Only 15% of total houses (10523 houses out of 69,891 houses) have access to toilet. Predominant model includes WC (47%), KVIP (30%), VIP (12.5%), Traditional Pit latrine (3%), and bucket latrine (8%)4. 3.2 Public Toilets Management The case of PT availability is quite acute as the metropolis has only 115 PTs serving 58% of the total households with an estimated 27% of households resorting to open defecation due to unavailability and dilapidated nature of PT facilities. PT facilities in TaMA are either Aqua Privy toilets (80%), KVIP (17%) and WC (3%). These facilities were built by the TaMA but the maintenance and operations are mostly franchised to private individuals (57%) and member committees (43%) on a two year contract. The TaMA only receives monthly fees from the operations by the private entrepreneurs 5. Traditionally in developing countries like Ghana Water, Sanitation and Hygiene provision has been the responsibility of the central governments through their decentralized MMDA’s and supported with public funds using budgetary grants through taxes collected to make such provisions. The provision of sanitation services is seen as a social good and thus costrecovery has not been the focus. A situation which is unsustainable! Central government subventions and support to TaMA through grants to the various MMDAs have woefully 2
http://www.sswm.info/Sanitation As A Business Source: MLGRD - National Environmental Sanitation Strategy and Action Plan (NESSAP) 2010 - 2015 4 CLIP: Synthesis Report on Sanitation Markets Study 5 CLIP: Synthesis Report on Sanitation Markets Study 3
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Sanitation Market Analysis Report
failed to catch-up with the level of new demand for sanitation facilities across various communities. In the case of TaMA, the upsurge in demand for PT and other facilities has been partly due to several factors including: 1. in-migration of more people from the peri-urban and rural areas to the urban centres of tamale, the regional capital, seeking for jobs; 2. adverse climatic changes and its effects on soil fertility; 3. erratic rainfall patterns leading to failure of agricultural yields; 4. lack of enforcement of by-laws: building codes by TaMA, Town and Country Planning, etc.; 5. TaMA is a major business capital and market convergence point for all the trade in the three Northern regions in Ghana; 6. Negative behavioural practices affecting perception of sanitation management in TaMA. The aforementioned factors has meant that support from central government cannot keep up with the operation and maintenance costs needed to sustain the existing public toilets let alone building new ones. This has resulted partly in the current state of poor insanitary conditions in TaMA and its peripheral towns. 3.3 Public Private Partnership (PPP) Arrangement As a solution to inadequate and dwindling state funding and support in solving the sanitation, water and hygiene challenges is the use of PPP initiatives that seeks to bring onboard all the various stakeholders including the TaMA, private investors, community leaders and NGO’s in this tripartite arrangement which is aimed at making the sanitation value chain more attractive to investors as a profitable and sustainable business venture. To prove that the PPP initiative is a viable and sustainable option in TaMA area this market analysis was important in looking into the various PPP models that can be used to address the issue and make it more economically sustainable.
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Sanitation Market Analysis Report
4.0 SANITATION VALUE CHAIN (SVC) The Sanitation Value Chain being addressed in this report has several actors and players including: construction of toilet facilities – Users (households, commuters, institutional users, etc.) – Operators – Emptying /Transporting Faecal Sludge – Treatment/composting – Users of end products (FBO). 4.1 Demand for Public Toilets / Users of Public Toilets Given that more than 80% of households 6 in Tamale and its environs totalling about 1,458,475 have no toilet facilities attached to their homes, the use of PT becomes the next best alternative. The only other option, open defecation being very common though illegal. Several forms of toilet facilities exist in the TaMA area including Aqua Privy, KVIP, VIP and pour flush. The users here are mainly in two categories: households using PT and commuters or traders who need temporal places of convenience.
The demand for these two categories can be bundled together as in demand for toilet and other complimentary products such as water for cleansing and bathing. The commuter users normally pay much higher than those in the residential areas due to the location of most of the trade around the central business district of Tamale. 4.2 Public Toilet Operations (PTO) in TaMA The PTO’s are those who are licensed to operate PT by TaMA through licensing or franchising agreements. There was no evidence of pure private operators of public toilets as it operates in Accra and Kumasi where private entrepreneurs construct, operate and maintain their own toilet and bath facilities. 4.3 Faecal Sludge Emptying Services Transport and Cesspit tank operators are a mix of purely private operators and institutional operators. The private operators own their Septic Tank vehicles and offer services to the general public mostly households with WC and toilets facilities such as KVIPs, VIPs, etc. there are only three identified private operators in the TaMA area. The others are mainly institutional operators such as WMD (2), Prisons (1), Tamale Polytechnic (1), and UDS (2).
6
Source: CLIP: Synthesis Report on Sanitation at TaMA
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Sanitation Market Analysis Report
4.4 Treatment of Faecal Sludge Treatment of waste is a missing link as this service is quite integrated with that of composting businesses such entities that converts faecal sludge into manure and bio gas. The WMD’s facility is in a state of disrepair and only the landfill site is running without any meaningful activity to treat waste in TaMA due to capacity and funding challenges. 4.5 Composting of Faecal Sludge for Farmers Composting and use of faecal sludge (FS) is a welcome business in Tamale metropolis and its environs. Traditional use of faecal waste in farming is quite popular in TaMA where farmers have over the years applied FS as a solution to poor soil fertility and poor nutrients composition in the soil. However, there are no serious commercial entities into organic waste production for commercial farming. The only notable composting business is that of DeCo! Currently, DeCO! is producing co-compost using Municipal Waste and Chicken droppings. The only competitive alternative is the use of inorganic fertilizers by farmers and also direct application of the FS by farmers on their farms, a practice which is inimical to the EPA rules and also the Assembly’s bye-laws. This is one of the most promising areas in the sanitation value chain process which is quite untapped. Several co-composting options have been researched into by UDS and other civil society organisations. The UDS research were commissioned by CLIP and the report is yet to be implemented as alternative methods of treating FS for commercial purposes. 5.0 MARKETING MIX STRATEGY 5.1 Product Development As a value chain analysis we were looking at all the products and services needed to bring about sustainability and profitability of the sanitation services and products. Several products were looked into such as the PT construction and masonry, PB construction, provision of water kiosk, and organic fertilizers or manures for farmers. We also looked at complimentary products and services such as transportation of waste materials, construction and masonry works, provision of affordable toilets facilities to households including options such as the use of bio digesters, septic tanks, etc. 5.2 Product Exclusion The construction of KVIP and VIP latrines were not options that we looked into due to its environmental difficulties and the fact that the TaMA is not in favour of those systems to be constructed again.
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Sanitation Market Analysis Report
5.3 Sanitation Value Chain along the use of PT Our analysis looks at various sanitation products that will appeal to the users of public toilets in the TaMA area. The product development took into consideration the socio-cultural factors within the TaMA area. It also looks into the ease and accessibility of such services by clients and whether there were any competing services already being used by users in TaMA. The following sanitation services were agreed to be the product range that will be provided under this project. 5.3.1 Aqua Privy Toilets Aqua Privy is the dominant model of PT facility in TaMA and there are about 87 of these available for rehabilitation. Three other complimentary products which we tested via FGD and interviews: Water Kiosk, Public Bath and Sale of Detergents. 5.3.2 Water Kiosk Given that Islam is the predominant religion in TaMA we sought to look into possibility of adding Water kiosk where Muslim users will have the opportunity to cleanse themselves after the use of the toilet facility. This practice is already being used at public toilets so are not new to the users of public toilets as well as the PTOs but the need to make the service more available, profitable and sustainable. It is estimated that 40 – 60% of the users of the toilet facilities will make use of the water for ablution.
5.3.3 Public Bath Facilities The provision of Public Bath (PB) as an additional service or product to be added to the PT facilities to be rehabilitated. This we believe will give the facility a complete service to the populace and solve partially the issue of inadequate water in various homes due to supply bottlenecks in water treatment system in the TaMA area. 5.3.4 Other complimentary sanitary products The PT facility can also make room for the purchase of other complimentary sanitary products including using the facility to sell detergents and other health related products such as soaps, sanitary pads, and disinfectants. 5.3.5 Observations and Recommendations The response is quite mixed as in the case of PB where there is a demand in the CBD and inner city areas (densely urban areas) of TaMA. These areas are characterised by high commuter population and there is inadequate PB for travellers. Some homes also have a challenge with accessing bathing facilities either as a result of inadequate supply of water or bath facilities in the homes is crowded in those areas due to fewer bath facilities vis-Ă -vis the number of users in most homes. There is always a queue in the rush hours for the use of Page 12 of 30
Sanitation Market Analysis Report
bath facilities. Whiles this is the case for the CBD areas and highly densely populated areas same cannot be said for peri-urban areas of TaMA. Though not properly tested in terms of the demand for the service it was generally agreed by participants at the FGD that it is a service that has a huge demand but for the fact that water distribution is not very reliable and the fact that fee charges is quite low which prevents the PT Operators from adding such services. In the case of the water Kiosk for cleansing it was quite clear that this is already in demand as it is a religious requirement and as such most Muslims will want to have the service provided them to ensure they discharge their religious duty. There are already indication of places visited that such services are being provided albeit on a small scale.
5.2 Pricing of Sanitation Services 5.2.1 Pricing Assumption The pricing is quite mixed with no reference to costs pf operations and return on investments. The prices are set based on the assumption that toilet facilities is a social service and such must reflect the economic circumstances of the users rather than costrecovery and a decent return on investments. 5.2.2 Pricing PT usage Fees The pricing system currently being charged especially for PT usage is somehow fixed by TaMA in consultation with PTOs. The fee structure ranges between 10Gp per user and 50Gp per user depending on the location of a facility and cleanliness of the facility as perceived by users. The PT at the STC yard for example was charging 50Gp per use (water closet facility) whiles at urban densely populated residential areas the charge per user was 10Gp. There are other areas around the CBD where the fee charge is 20Gp. However, the greater majority especially in the peri-urban and urban areas were charging 10Gp due to ‘’political influence’’ and the price sensitivity of the community to increases in fees. Where fees per use of PT is perceived to be too high the alternative has been use of other illegal methods such as open defecation in nearby bushes, open spaces and ‘’flying toilets’’ by households. 5.2.3 Pricing for Water Kiosk usage An extra fee for water usage for cleansing is normally charged at 10Gp per a 750ml – 1 litre container which clients normally use for cleansing. The fee is quite an informal charge which is done at the discretion of the attendants of the PT and the PTOs desires.
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Sanitation Market Analysis Report
5.2.4 Pricing for Public Bath facility It is believed that PB will cost anything from 30Gp to 50Gp per bath since it uses more water than for cleansing purpose. However, it must be emphasised that these make more economic sense in the CBD and the densely populated areas than the peri-urban areas due to the earlier reasons adduced and also income levels which tend to be higher in the urban areas than the peri-urban areas. 5.3 Profitability of Public Toilets by Segments The figures for the calculations of the profitability of the PT did not take into cognisance the interest costs of loans to be contracted for the project due to the various sources of borrowing to be used and the fact that such interest costs has not been finalised. The Weighted Average Costs of capital would have been used to calculate interest costs. However, the below figures indicates that apart from the peri-urban segment all the other segments will be profitable with a good return on investments. An average monthly expected contribution before any interest deductions is GHS2,870.00 with a different payback periods given the segments we looked in this study. Estimates with Complimentary Services: Bath and Water Kiosk Categories
Peri-urban Monthly Revenues
Urban
Inner City
Monthly Revenues
Monthly Revenues
CBD
Average
Monthly Revenues
Monthly revenues
200.0 0
550.0 0
800.0 0
1,200.0 0
687.5 0
0. 10 30.0 0
0. 10 30. 00
0. 10 30. 00
0. 20 30. 00
0.1 3 30.0 0
Pay-Per-Use (PPU)
600.0 0
1,650.0 0
2,400.0 0
7,200.0 0
2,962.5 0
Water Kiosk
240.0 0
660.0 0
960.0 0
1,440.0 0 2,160.0 0
825.0 0 2,160.0 0
840.0 0
2,310.0 0
3,360.0 0
10,800.0 0
4,327.5 0
50.0 0
50. 00
50. 00
100.0 0
62.5 0
Estimated Users/day Price Per Use Days in a Month Revenues
Bath Booth Advertising
Variable Costs Operating & Maintenance Costs Electricity Charges
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Sanitation Market Analysis Report
Water Charges Labour Costs TaMA Fees Repairs and Maintenance Disinfectants & Cleaning Materials Septic Tank Emptying
30.0 0
50. 00
75. 00
150.0 0
76.2 5
200.0 0 100.0 0 50.0 0 75.0 0 100.0 0
400.0 0 150.0 0 50. 00 100.0 0 200.0 0
400.0 0 200.0 0 150.0 0 150.0 0 200.0 0
700.0 0 250.0 0 400.0 0 500.0 0 600.0 0
425.0 0 175.0 0 162.5 0 206.2 5 275.0 0
50.0 0 655.0 0 185.0 0 0.1 1 0.0 3 22.0 2 80,000.00
50. 00 1,050.0 0 1,260.0 0 0.0 6 0.0 8 54. 55 80,000.0 0
95.2 4
150.0 0 2,850.0 0 7,950.0 0 0.0 8 0.2 2 73. 61 80,000.0 0 362,264.1 5 1,086.7 9 10. 06 7. 41
75.0 0 1,457.5 0 2,870.0 0 0.0 8 0.1 0 53.0 6 80,000.0 0
1,047,619.05 1,466.6 7 63. 49 34. 63
50. 00 1,275.0 0 2,085.0 0 0.0 5 0.0 9 62. 05 80,000.0 0 920,863.3 1 1,289.2 1 38. 37 23. 81
Depreciation Costs Other Overheads Total O & M Cost Contribution Margin Varibale Costs Per Use Contribution in Cedis Contribution Margin% Fixed Costs BreakEven - uses BreakEven - Revenue Payback Period(using contribution Margin) Payback Period(using Revenue)
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776,915.50 1,280.8 9 37.3 1 40.2 7
Sanitation Market Analysis Report
6.0 SUGGESTED PUBLIC TOILETS MANAGEMNT MODELS Based on assessments made above the following business models which are presented here looks more viable to operate and attractive to the various parties in the value chain and key stakeholders. 6.1 Special Purpose Vehicle (SPV) - Sanitation Holding Enterprise (SHE) The most efficient and effective model being suggested for the operation of the Public Toilets Management in TaMA is based on the principle of creating a Special Purpose Vehicle (SPV) holding company which will serve the various key components in the value chain. The suggested Sanitation Holding Enterprise (SHE) if registered as a private limited liability company in Ghana will seek to consolidate the various activities in the rehabilitation, operations and maintenance, dislodging and transportation services, and the disposal of the FS from the various PT facilities in the Tamale metropolis. Additional service that can be performed by SHE will be composting of the FS into organic fertilizers to be used by FBOs. The sanitation operators within TaMA already have a loose association in place that serves as an advocacy body for the operators. It is proposed that we look into the possibility of turning the association into a Holding Enterprise with a wider composition of other key stakeholders including TaMA (WMD), CLIP-WASTE, etc. This proposition seems very workable, effective, efficient and most economical to operate due to its merits over that of other models that can equally be used to operate the management of PTs in TaMA. 6.1.2 Initial Investment Requirements The initial investment cost needed to make the SPV functional is Four Million four Hundred and Sixty Two Thousand Ghana Cedis (GHs4,462,000.00). This is made up of capital expenditure in key areas including: 1. 2. 3. 4.
the rehabilitation of the 50 Public Toilets, Purchase of 4 Emptying Septic tank removers/ vehicles, setting up a new composting plant and Purchase of other tools and equipment in the discharge of its mandate.
An additional investment in working capital will be needed to cover the administrative and other staff related expenses. This is also projected at around for Working capital needs will cover initial administrative and operational overheads needed to make the operations of the SPV viable and sustainable. The working capital needs is budgeted at GHS389,000 excluding a contingency seed money of GHS100,000 for price differences and unforeseen expenditure.
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Sanitation Market Analysis Report
Therefore the total budget requirement for the SPV will amount to GHS 4,951,000 the breakdown of which is given in the table below. The profitability of the proposed SPV model indicates an ROI of 11.95% with a payback period of 8.37 years based on the total investment costs of the SPV. See full details below: SHE INVESTMENT BUDGET & PROFITABILITY STATEMENT Unit Price Amount PT Rehabilitation Costs
50.00
67,500.00
3,375,000.00
Appendix A
Septic Tank Vehicles
4.00
112,500.00
450,000.00
Appendix B
Compost Plant
1.00
637,000.00
637,000.00
Appendix C
CAPEX Office Equipment & Accessories Office Vehicle Purchase (Pickup truck)
4,462,000.00
1.00
115.00
Furniture & Fittings Computers and Accessories
7.00
2,000.00
Total Fixed Assets Costs Other Overheads Legal Fees & Accountancy fees
115,000.00
Cost of New Hilux PickUp
20,000.00
office desk, chairs, etc.
14,000.00 149,000.00
40,000.00 Salaries and Wages
125,000.00
Administrative Expenditure
25,000.00
Rental
50,000.00
Total Overheads
240,000.00
Contingency Fund
100,000.00
TOTAL INVESTMENT COSTS
4,951,000.00
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A staff strength of 7 including Driver +SSF Initial Expenses for utilities, stationery, phones, etc. Advanced payment for two years office space
Due to unforeseen expenses and price changes
Sanitation Market Analysis Report
REVENUE PT Fees (Bundled)
50.00
Water Kiosk
50.00
Public Bath
8,012.00
Net of operating costs of maintenance and repairs
400,600.00
Not included in the first years though cost included Not included in the first years though cost included
10.00
Revenue net of operating costs
Septic Tank Emptying Services
2.00
95,400.00
190,800.00 -
TOTAL REVENUE
591,400.00
ROI (%)
11.95
Payback (Years)
8.37
6.1.3 Key Functions of the Holding Company The holding enterprise will among others: 1. Set fees for various categories of users and services; 2. Supervise all the Public Toilet Operators (PTOs); 3. Enter into contracts with TaMA, Financial Institutions(FI), and other major stakeholders; 4. The PTO’s in turn will also have individual performance agreements with SPV in running the individual toilets allotted to them; 5. Award of contracts for the rehabilitation of PT but smaller rehabilitations to be performed by PTOs. 6. Operate an emptying services to service the PTO and also the compost production. 6.1.4 Merits of Holding Enterprise 6.1.4.1 Lower interest Costs We envisaged that given the costs of borrowing which effectively cripples most SME businesses in Ghana, it would be more ideal to have a super-structure holding company that will borrow the funds in bulk and use the amount to rehabilitate the various PT in TaMA. The rehabilitated PT will be allotted to identify private operators on franchise basis to allow for effective control and standardisation. Each PTO will then be made to pay a percentage of Page 18 of 30
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their daily takings to the SPV directly. This will reduce the costs of borrowing by half (say 28 30% instead of 60-75%, EIR, etc.) and also will allow for medium-long term borrowing from financial institutions such as Stanbic Bank Ghana Ltd and HFC Bank Ltd. 6.1.4.2 Bargaining Power of SPV One of the challenges of the current system which has resulted in the insanitary conditions in PT in TaMA is the substantial costs incurred by PTO in keeping up with frequent cleaning of facilities. Purchase of detergents to clean the facility is always the first cost item sacrificed by PTO when profit margins are low. With a holding enterprise the bargaining power is much higher in terms of making bulk purchases of detergents on behalf of the PTOs and redistributing same to them to reduce costs and also increase the levels of cleaning and hygiene at the PT. 6.1.4.3 Greater Autonomy The use of SHE will remove a very important barrier to PT operations in TaMA - the level of political manoeuvring at TaMA that does not allow proper functioning of PTs. An SPV is a legal creation the composition is devoid of political affiliations and with that PTOs are under less pressure from political networks and frequent changes in Operators because of changes in governments. This also has the potential of increasing the revenues of the PTO as more users will be made to pay for use of facilities. 6.2 Creating Independent Sanitation ‘Champion’ Entrepreneurs This model is currently being used in part with various degrees of adjustments in this proposition. The independent sanitation entrepreneurs’ champions are grouped in clusters depending on their activity albeit loosely to support the PT management with services needed to make the system sustainable. The various value chain actors are mainly independent providers of services such as emptying services, treatment and composting of solid waste and distribution of organic compost to the various FBOs. The key issue here will be for TaMA to lease rehabilitated PT facilities to private individuals through ‘’competitive tendering’’ to allow for private entrepreneurs to invest in the rehabilitation of the PT and subsequently being licensed to run the toilets based on Operation and Maintenance (O&M) agreement with selected private entities. The equity stake from the private investor is a guarantee for a longer term contracts from TaMA. In return, the licensee will have a contract to manage the toilets for a period of 5 – 7 years subject to meeting some KPIs each year of assessment. TaMA will receive monthly fees based on an agreed fee structure as indicated in 6.2.1 below.
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6.2.1 Fee Structure for PLPT TaMA only collect fees from the PTOs. The fee to be paid can be one of the following: 1. Flat fee rate to TaMA based on the squat holes in a facility. This is collected on monthly basis by TaMA. 2. A flat percentage of cash proceeds based on the demand forecast for the PT and the squat holes available. 3. Commission basis where TaMA will allow a commission fee per squat holes with a forecast demand being set at the beginning. The commission takes care of the operating and maintenance cost of the PTO. 6.2.2 Contract Conditions with PTOs The following key conditions should be part of the contract between operators and TaMA 1. Minimum contract period of five to seven years subject to renewal based on KPI being maintained. A period good enough to allow for recouping investment by PTOs and make a good return on investments. 2. TaMA retains title to the land and receive fees from operations based on the above fee arrangement; 3. Issue of electricity and water supplies are the responsibilities of the operators; 4. Operator provides toilet tissues, cleaning materials, labour costs, etc. 6.2.3 Merits of PLPTs 1. This arrangement allows for private ownership by smaller entrepreneurs in this way building entrepreneurship in the sanitation value chain; 2. Independence from a centrally controlled body allows for creativity 3. Allows for competition between individual PTOs in an area 6.2.4 Demerits of PLPT 1. Increased costs of operations due to huge costs of sanitary materials, detergents, etc. 2. Higher interest costs on loans from banks and other financial institutions due to perceived risk in operations and lack of collateral 3. Not an interesting preposition to banks for loans due to the fact that they have to deal with several individual borrowers instead of a holding body; 6.2.5 Financial Justification Independent Model Financial analysis of the operations of PTs using PLPT approach shows a clear case of good profitability and sustainability of the model. Operating PT using this model will mean that PLPTs will have to borrow on their own to cover the working capital requirements for the operations and maintenance of the facilities. Page 20 of 30
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6.2.6 Assumptions Several assumptions have been made in analysing the financial viability of the PLPT model. Among others: 1. Only 50% of the users actually pay for the use of the PTs. The other 50% are mainly children and elderly who are exempt by TaMA operating rules. This also includes those politically connected to the government in power, a situation which can improve when proper PPP arrangements are in place; 2. Three categories of locations are used for easy analysis and for reasons of similar features in usage: CBD, Urban and Peri-Urban; 3. Only 40% will make use of the water kiosk. Much higher in real terms; 4. Current fee charge of GHp0.10 is charged for usage of the PT and also for water kiosk usage; 5. The PT rehabilitation costs used in this analysis is based on the costs of a PT which is graded as ‘fair’ which will costs GHs65,000. This figure is almost same as the acerage costs of the 50 PT to be targeted. 6. All estimates are based on current market values7 6.2.7 Profitability of PTs Apart from the peri-urban PT facilities which proved unprofitable due to low usage, the PT facilities in the CBD and Urban areas will at least break-even and make a little bit of surplus each year. The calculations given below is based on the assumptions above. WASH SANITATION BUSINESS PLANNING REVENUE
Users
Rate/use r
Daily Total Revenue
Monthly Total Revenue
Yearly Total Revenue
Public Toilets Usage
800.00
0.10
80.00
2,400.00
28,800.00
Water Kiosk
320.00
0.10
32.00
960.00
11,520.00
0.30
112.00
3,360.00
40,320.00
Public bath TOTAL REVENUE RECURRING EXPENDITURE
12.00
Sanitary materials
100.00
1,200.00
Detergents
250.00
3,000.00
7
Prices as at 18th April 2014
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Water costs
100.00
1,200.00
50.00
600.00
Repairs & Maintenance
100.00
1,200.00
Labourers (x3)
450.00
5,400.00
TaMA Fees
100.00
1,200.00
Depreciation costs
541.67
6,500.00
Electricity
Loan repayments - Principal
-
Loan repayments - Interest Management Salaries Bank Charges
TOTAL EXPENDITURE EXCESS INCOME / EXPENDITURE RATIOS Payback Period (@cost) Profit Margin Return on Investment (ROI) Loan Calculations Loan Amount Needed Interest Rates p.a Tenor Years Tenor in Months Disbursement Fee
65,000.00 32% 5.00 60.00 3% 1,083.00
Repayment - Principal Page 22 of 30
-
1,100.00
13,200.00
500.00
6,000.00
50.00 3,341.67
600.00 40,100.00
18.33
220.00
2,727.27 0.55 0.04
295.45 0.55 0.44
Sanitation Market Analysis Report
Repayment - Interest Depreciation calculations Asset Useful life Number of months Cost of PT Depreciation Amount/month
1,100.00
10.00 120.00 65,000.00 541.67
The average ROI is about 0.44% with a Profit Margin of 0.55%. The payback period averages 295.45 years. A clear case of the justification that actual capital expenditure on the rehabilitation of the PT cannot be undertaken by PT Operators but by a grant or from the Central Government. 6.3 Business Case for Emptying Services 6.3.1 The Market for Emptying Services in TaMA Emptying services of PT in TaMA is done by either mechanical emptying or manual emptying by individuals. Mechanical emptying services are mainly rendered to individual households, institutions and public toilets which are accessible by Cesspit Tank Vehicles. Manual emptying services are done by individuals mainly with very little protective clothing and gears who work in gangs and mainly collect and dispose FS from VIP and KVIPs. Manual emptying is also sometimes required in dislodging PTs where compacted sludge needs to be removed manually. Interviews and review of operations of mainly the mechanical emptying services indicate strong competition among institutions operating emptying services and that of private individuals operating mechanical cesspit emptying services. Institutions such as UDS (1), Tamale Polytechnic (1), Ghana Prison Services(1) and TaMA/WMD (2) operates services mainly targeted at the institutions and the Public toilets where there is a capacity to do so. The private individuals rather serve as a buffer to the PTOs where needed but concentrates more on the individual households. TaMA via WMD has the first option for emptying services to PTOs. It is only when it is unable to do so that PTOs can turn to private mechanical emptying service providers.
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6.3.2 Profitability of Emptying Services The fee charge per each emptying service ranges from GHs80.00 and GHs140.00 for Institutional mechanical emptying and private mechanical emptying respectively. The fee also partly depends on the size of the Septic emptying vehicles. Transport Emptying Services Assumptions
Day
Estimated Trips Per day - Large
3.00
Estimated Trips Per day - Small
2.00
Fee charges per trip - Small Fee charges per trip - large AVERAGE Estimated Trips
80.00 1 40.00
Month 90. 00 60. 00 80. 00 140.0 0
Yearly 1,080.00 720.00 80.00 140.00 6. 00 110. 00
Current Fee charges
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Daily Revenue
Monthly Revenues
Yearly Revenues
Revenues
Small Cesspit Tank
420. 00 160. 00
12,600. 00 4,800. 00
TOTAL REVENUE
580. 00
17,400. 00
40. 00 40. 00 20. 00 20. 00 150. 00 15. 00 10. 00 20. 00 315. 00 265. 00
1,200. 00 1,200. 00 600. 00 600. 00 4,500. 00 450. 00 300. 00 600. 00 9,450. 00 7,950. 00
Large Cesspit Tank
151,200.00 57,600.00
208,800.00
Operating & Maintenance Costs labour Costs: Labour: Driver 1 Labour: Driver 2 Labour: Driver’s Assistant Repairs and Maintenance Fuel Costs Depreciation Taxes Other Overheads Total O & M Cost Contribution Margin Fixed Costs - Vehicle Purchase Costs Profit Margin Payback Period
14,400.00 14,400.00 7,200.00 7,200.00 54,000.00 5,400.00 3,600.00 7,200.00 113,400.00 95,400.00 180,000.00 45.69 1.89
The interest cost of borrowing to finance this venture has not also been factored due to the fact that different sources may be used which is much cheaper the commercial rates of Page 25 of 30
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interest and also fact that current operators had finance such purchases from unconventional methods. Based on available data the emptying services were also profitable as the Payback Period (PP) is 1.89 which is less than two years using the average of two vehicles (second hand vehicles with total market value of about GHS180,000). The average profit margin is about 45.69% and a ROI of 53%. 6.4 Composting into Organic Fertilizer Composting of FS into compost and co-compost is quite on the low side as only one identified company – DeCo!, operates in the market by converting FS and municipal waste into organic fertilizer. The only competitive alternative is the direct application of FS unto farms by emptying vehicles at a fee to the farmer of GHS20.00 per trip. This practice though wide spread is against the EPA and sanitation rules of TaMA and thus illegal. 6.4.1 Profitability of Organic Fertilizer It is widely known that fertilizer production and sale in Northern Ghana is a lucrative and profitable business given the huge demand for the fertilizer. The current market price of inorganic fertilizer is about USD$200/ton. The financial data for the organic fertilizer from the compost plant indicates good return on investment. However the information could not be relied upon due to scale of production and also the fact that we are yet to receive complete data from DECO!
6.4.2 The Case of 24 HR Rapid Thermophilic Digester However, there is an alternative compost plant which is based on a 24 hour cycle Thermophilic Digester which uses BM1 Enzymes to turn the waste into organic fertilizer within 24 hours. The data indicates that given a 15 ton waste the output will amount to 10 tons of organic fertilizer. Given that the market price for fertilizer is in the neighbourhood of USD200.00 per ton it is estimated that using the above technology will mean daily revenue of USD2,000. This amount to USD$50,000 (USD2000*25 days) per month with a direct cost of USD$20,000. This gives a monthly gross profit of about USD30,000. The costs of the digester is about USD$750,000 which gives a ROI of 25 months (2 years and one month). It must however be noted that this calculation is based on direct costs of producing the fertilizer.
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The challenge here apart from the enormous initial costs for the complete digester it also will have challenges with separation of polymers from household waste but will do fine with FS and agricultural waste.
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APPENDICES Appendix A: PT Rehabilitation Costs PT Rehabilitation Costs Categories #
Cost
Amount (GHS)
5.00
100,000.00
500,000.00
15.00
75,000.00
1,125,000.00
20.00
65,000.00
1,300,000.00
10.00
45,000.00
450,000.00
Very Bad Bad Fair Bath 50.00
3,375,000.00
Appendix B: Septic Tank Vehicles Costs Septic Tank Vehicles
Septic Tank Hydraulic 2500 Gallons Septic Tank Hydraulic 1500 Gallons Accessories
#
Costs
Amount
2
195,000.00
390,000.00
2
135,000.00
270,000.00
2
66,000.00
132,000.00
792,000.00
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Appendix C: Compost Plant Investment INVESTMENT COST IN COMPOST PLANT S/R Description
Unit
Unit cost Ghc
Total cost Ghc
1.00
Drying beds
4.00
8,000.00
32,000.00
2.00
Borehole
2.00
15,000.00
30,000.00
3.00
Reservoirs
4.00
4,000.00
16,000.00
4.00
Vehicles
2.00
80,000.00
160,000.00
5.00
Equipment’s & tools
1.00
45,000.00
45,000.00
6.00
Shredder
2.00
120,000.00
240,000.00
7.00
Jute sacks
8.00
Printing & labeling
9.00
Sewing machine for the sacks
40,000.00 40,000.00 4.00
TOTAL
1.70
68,000.00
1.00
40,000.00
1,500.00
6,000.00 637,000.00
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