Cost–Benefit Analysis of Sewered and Non-Sewered Sanitation Interventions in Mahalaxmi Municipality, Nepal

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Introduction
Networks of pipes connected to households that collect and transport generated domestic wastewater to a point where it is treated are usually called sewered sanitation (SS) systems and are the most commonly sought-after solution for wastewater management. While such arrangements generally provide safe sanitation (Sustainable Development Goal [SDG] 6.2), SS systems are not yet feasible in many low-and middle-income

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation Interventions in Mahalaxmi Municipality, Nepal
countries. While lack of technical capacity plays some role, the most significant impeding factor is the financial cost. The cost of installing and expanding sewer networks is higher than for the non-sewered sanitation (NSS) components. A study conducted in Dakar shows that the combined capital and operating costs for sewered-based sanitation is about five times higher than the costs for non-sewered-based sanitation (Dodane et al. 2012).
As the timeline for the SDGs draws closer, annual progress toward achieving SDG-6 targets is just 1%, while at least 3% progress is required to ensure that as a minimum basic sanitation for all is achieved by the end of 2030 (UN-Water 2020). Given this situation, sanitation provision has become an even more pressing issue in low-and middle-income countries (LMICs). Cities in LMICs typically do not have safe, accessible, and sustainable sanitation. These cities could choose to improve their sanitation situation by implementing sewer-based sanitation systems, but these will only serve a certain percentage of the population that can afford these services. The rest of the population, who live in vulnerable areas and have few economic opportunities, are still left behind from having access to safe and sustainable sanitation.
While decision makers face difficulties in planning sanitation interventions, the sanitation profile of these cities in LMICs also presents challenges. In these cities, non-sewer or sewer-based sanitation is limited to the city center with non-sewered sanitation (NSS) using different on-site sanitation systems (OSSs) such as pits and septic tanks in most of the urban and peri-urban areas. Until the waste generated by these OSSs is safely contained and treated on-site or transported and treated off-site, it is not considered safe sanitation. Given the interconnected service chain for NSS, this can also take on several forms of management profiles, posing challenges for overall planning and implementation effectiveness.
So what is the right sanitation solution for a city? How much do these measures really cost the citizens, the government, or the private sector? Would financial figures alone be enough to provide planning guidance and justify the selection of sanitation interventions for a city? These are some of the questions that decision makers often face and for which they need some evidencebased results to inform their decision-making. To help the city government make an informed decision on sanitation interventions, an economic analysis of different sanitation scenarios was conducted for one of the cities in Nepal.
Financial figures alone may not be sufficient to justify the need for sanitation interventions, as the financial burden of citywide sanitation projects such as the installation of infrastructure required for fecal sludge management and, in particular, the installation or expansion of the sewer network, is usually higher. They also have a running cost and sometimes their only sources of revenue are tariffs. Although there is a potential revenue source from the reuse of treated wastewater and treated end product from fecal sludge management, the market is still underdeveloped and unexplored. However, the financial analysis only looks at the monetary value, but does not capture the benefits of improved wastewater sanitation in place. These benefits can stretch across several sectors, and spillover benefits are difficult to define in monetary value in financial analysis. Therefore, to understand the impact of implementing sanitation projects in the true sense, a costbenefit analysis (CBA) was conducted for three sanitation scenarios: 100% SS, 100% NSS, and hybrid-a combination of both SS (30%) and NSS (70%).

Objective
The overall objective of this study is to understand the economic viability of sanitation interventions through a CBA of different sanitation scenarios in the Mahalaxmi municipality. 1 This study was conducted from the perspective of three different stakeholders: the residents, the private sector, and the government.

Limitations of this Study
Due to the lack of sufficient and detailed data, other likely benefits from the implementation of sanitation interventions such as impact on economic activity and time savings were not considered in this study. Reductions in the incidence of diarrheal diseases and deaths among the under-5 population and the resulting health benefits for the entire municipal population are the only benefits considered in this study.

Study Area
Mahalaxmi municipality, in the Lalitpur district of Nepal was selected as the study area. This municipality was also a project site for ISO 24521 2 and generated a variety of up-to-date city and demographic data to provide a more realistic analysis of sanitation scenarios. The availability of credible data was the reason Mahalaxmi was selected for this study. This municipality has a total population of 144,820 (2019) living in an area of 26.5 square kilometers (km 2 ) and has a sewerage network that serves about 32% of the population, while the rest of the population depends on the NSS system. Currently, the municipality does not have a wastewater treatment plant and is in the process of installing a fecal sludge treatment plant for the management of fecal sludge generated in the municipality.

Methodology
The economic analysis using CBA for Mahalaxmi was performed based on available secondary data. The overall process began with setting assumptions for key CBA parameters, setting sanitation scenarios, identifying key stakeholders, estimating life cycle costs and benefits, and finally conducting the economic analysis, as shown in Figure 1.
CBA is an analytical framework for converting the costs and benefits of a project into comparable monetary units so that they can be systematically compared and incorporated into a measure of project worth (ADB 2013). CBA compares the costs and benefits using a basic net present The assumptions for the key CBA parameters in this study are as follows:

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation
(i) Baseline mortality (BL_mort) and baseline morbidity (BL_morb) cases are only considered for the population under 5 years of age in Mahalaxmi municipality. (ii) Individual beneficiary population (ind_ben) considers all household members with a 5-year-old child. Although the baseline morbidity for the under-5 population is only 5,125, it is assumed that the risk of contagion is still prevalent for all under 5-year-olds in Mahalaxmi, i.e., 14,643 individuals. Considering a family size of five persons in Mahalaxmi, the total number of beneficiaries is assumed to be at most 73,215. (iii) Change in disease incidence rate (DI) after the implementation of these sanitation interventions is assumed to be 25% for Mahalaxmi. In the absence of actual data on improved water quality and reduction in the incidence of diarrheal diseases for Mahalaxmi, this value is based on a literature review (Wolf et al. 2018). (iv) In the absence of local data, value of statistical life (VSL) for Nepal was estimated using the benefits transfer formula, which takes into account the VSL value for the United States provided by the Environmental Protection Agency, the ratio of GDP Nep and GDP US , and the income of elasticity for VSL (Tan-Soo 2021). (v) In the absence of local data, standard value for parameters such as income elasticity for VSL I and cost of incidence (COI) for diarrheal diseases were selected.

Scenario Setting
Considering the existing scenario of Mahalaxmi, where 32% of the population is already served by sewered sanitation systems and the rest by NSS, three different sanitation scenarios were designed. The first two sanitation scenarios assume an expansion of sanitation interventions that is either 100% SS or NSS, while the third is a hybrid scenario that reflects the expansion of sanitation interventions according to the existing sanitation situation of the municipality, shown in Figure 2.

Estimation of Life Cycle Costs
For each of these sanitation interventions and their components along the value chain, reference was made to an earlier study in Mahalaxmi (Citywide Inclusive Sanitation Technical Assistance Hub 2020). Life cycle costs were estimated using a 20-year design period. A description of the scenarios and assumptions required for system design is presented in Table 1. Life cycle cost is an approach that assesses the total cost of an asset over its life cycle, including initial capital costs, maintenance costs, operating costs, and the asset's residual value at the end of its life (Sesana and Salvalai 2013).

Identification of Key Stakeholders
For the economic analysis, this project considered three specific stakeholders: the residents, who receive sanitation services but also pay for them; the private sector which usually bears some risk as a service provider and fills the gaps of the public service provider; and finally, the government which is the main responsible stakeholder for the provision of sanitation services and is more concerned with social welfare than with financial benefits and returns. The estimated life cycle costs for the sanitation value chain were also determined according to the responsible stakeholders. Each of their roles in the sanitation scenarios was set and is shown in Table 2. The sewer network will safely collect and transfer wastewater to the designated wastewater treatment plants (WWTPs).
Wastewater is treated and disposed of safely.
This scenario considers that Mahalaxmi is served only by NSS, i.e., all existing and upcoming households will have their toilets connected to a standard septic tank by 2040.
The fecal sludge accumulated in the septic tanks will be mechanically emptied with a desludger and transported to the fecal sludge treatment plant (FSTP).
The treated product is disposed of safely.
This scenario considers the existing situation, i.e., 32% connected to SS and 68% to NSS, also for future projections.
WWTPs and FSTPs both exist in this scenario.

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation Interventions in Mahalaxmi Municipality, Nepal
7 Responsible only for the construction and maintenance of an inspection chamber for connection to the sewer network.
Pays the wastewater tariffs along with the water bill.
Plays a minimal role: assists in the construction of the inspection chamber.
Responsible for CAPEX and OPEX of the sewer networks and treatment plants.
Pays 10% of CAPEX of inspection chambers and containment systems for LICs.
Non-sewered sanitation (NSS) Solely responsible for construction and maintenance of the on-site sanitation system (OSS).
Responsible for desludging the OSS and paying monthly sanitation fees to the government.
Service provider for desludging and transportation services.
Responsible for required CAPEX and OPEX.
Responsible for CAPEX and OPEX of fecal sludge treatment plants.
Pays 10% of CAPEX of containment systems for LICs.
Government engages the private sector to provide desludging services.

Hybrid
Population served by SS is responsible for the construction and maintenance of an inspection chamber.
Population served by NSS is responsible for the construction and maintenance of the OSS.
Responsible for desludging the containment systems.
Responsible for payment of fees to the government along with the water bill and monthly sanitation fees.
For areas served by an SS system, responsible for construction support of the inspection chamber.
For areas served by an NSS system, service provider for desludging and transportation services.
Responsible for required CAPEX and OPEX.
Responsible for CAPEX and OPEX of wastewater treatment plants and fecal sludge treatment plants.
Pays 10% of CAPEX of inspection chambers and containment systems for LICs.
Government engages the private sector to provide desludging services. CAPEX = capital expenditure, OPEX = operating expenditure, LICs = low-income community. Source: Citywide Inclusive Sanitation Technical Assistance Hub (2020).

Identification of Benefits
Improvements on health through reduced mortality and morbidity cases due to a decrease in diarrheal disease were considered benefits of these sanitation interventions. Based on these assumptions for CBA, the actual benefits from reduced mortality and morbidity in Mahalaxmi were estimated for the entire design period. A list of parameters and estimated values for the baseline year can be found in Table 3, while the detailed calculation for the entire design period can be found in the Appendix. The present value benefits from reduced mortality and morbidity for Mahalaxmi were estimated to be $16,432,366 for the entire design period.

Life Cycle Cost
Total project costs were divided into four specific categories: revenue, direct expenses, capital expenditure (CAPEX), and operating expenditure (OPEX), which would be borne by the various stakeholders under different sanitation scenarios. The rates presented in this study are discounted to net present value at 6.7%.

Revenue
Households are responsible to pay for both sewered and non-sewered services tariffs. A total of $17,431,997 was collected for the SS scenario, $11,111,853 for the NSS scenario, and $14,313,222 for the hybrid scenario, throughout the project period. The tariffs for the sewered scenario are

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation Interventions in Mahalaxmi Municipality, Nepal
9 higher compared to the other two scenarios, mainly because a differential tariff system based on household types was implemented, with part of the monthly water bill allocated to sanitation. However, in the NSS scenario, a uniform tariff of $1.43 per month (Rs4,000/desludging/2 years) was collected from all households as sanitation fees.

Direct Expense
This expense is incurred for project development and is included in CAPEX. These costs were incurred by the public sector in all three scenarios. A total of $11,848,720 was observed for the SS scenario; $551,584 for NSS; and $8,731,143 for the hybrid scenario. This shows that the project development costs for sewered sanitation are more than 20 times the costs for the NSS scenario, mainly due to the intensive design and planning required to lay the sewer network. For the hybrid scenario, these costs are about 1.3 times lower than for the SS scenario, since majority of the municipal area (70%) will be served by the NSS.

Capital Expenditure and Operating Expenditure
As mentioned earlier, different stakeholders are responsible for covering the CAPEX and OPEX of the sanitation components depending on the scenario, as shown in Table 4 and Table 5, respectively. Most of the costs in the sewered situation, i.e., the construction of the sewage treatment plant and the laying of the sewer network, are borne by the public sector, while in the NSS the construction of containment systems is the responsibility of residents. The role of the private sector is observed only in the NSS scenario and the NSS component in the hybrid scenario, but is completely absent in the SS scenario. One of the main reasons for this is the separate components of the sanitation value chain in the NSS, which entail the possibility of private sector engagement and the distribution of total project costs. In this study, following the current in practice in Nepal, treatment plants are constructed by the public sector as part of its mandate to provide sanitation services to the public. This is another reason why the public sector takes the majority of the investment in all scenarios.
As shown in Table 4, CAPEX for the SS scenario is 1.8 times higher than for NSS and 1.01 times higher than for hybrid sanitation scenario. In terms of OPEX, as shown in Table 5, it can be observed that households in the NSS scenario and households served by NSS in the hybrid scenario are solely responsible for managing their containment systems. This cost is about two times the cost of all other components of the value chain in all three scenarios combined. There is no OPEX for households in the SS scenario and households served by SS in the hybrid scenario because the toilets are directly connected to the sewer network through an inspection chamber, whose OPEX was minimal or close to zero and was not considered in the study. The other components of the value chain, such as conveyance and sewage treatment plants in sewered areas in the SS and hybrid scenarios, fall under the public sector. In both scenarios, the cost is covered by the tariffs paid by households as monthly bills.

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation
In the NSS scenario and the hybrid scenario with non-sewered areas, the emptying fees are part of the household costs paid as monthly bills. The public sector procures the private sector to provide emptying and transport services, with truck operation and maintenance being the sole responsibility of the private sector. The tariffs are paid directly to the public sector, which then passes on the associated costs to the private sector. This is the reason why these cost items are still marked as public sector investments in Table 5. Fecal sludge treatment plants are considered a public sector cost in both the NSS and in hybrid scenarios, as are sewage treatment plants in the SS scenario, since they are also a public sector service.

Cost-Benefit Analysis
As mentioned earlier, the improvement in health through the reduction in mortality and morbidity cases due to the decrease in diarrheal diseases was considered the only benefit of these sanitation interventions. The total health benefit from the reduction in mortality and morbidity was estimated to be nearly $16.5 million if a sanitation intervention is in place. However, the individual CBA analysis for the three scenarios differs depending on the individual costs incurred for putting these interventions in place. Benefits are also discounted to net present value at 6.7%. The CBA values for each scenario are shown in Figure 3, and detailed estimates can be found in Table 6. Values with positive NPV are considered a favorable project.

Cost-Benefit Analysis of Sewered and Non-Sewered Sanitation Interventions in Mahalaxmi Municipality, Nepal
12 The CBA analysis presented in Figure 3 shows that only the NSS scenario seems feasible with a positive NPV of $5,127,803, while both the sewered and the hybrid scenarios are negative with $151,801,230 and $98,904,772, respectively. This study identified three reasons for this result: (i) Cost of implementing sewered sanitation. In both scenarios, the cost of implementing sewered sanitation is higher than the estimated health benefits, especially for scenario I which is 100% sewered and scenario III which has only 32% sewered. (ii) Selection of benefits. Due to the lack of sufficient data, this study considered only the reduction of diarrheal disease as one of the major benefits and estimated a value for it. However, if other benefits were considered (such as the impact on economic activity due to the presence of having these sanitation facilities situations in place), there could have been some positive or less negative NPVs, contributed to a higher benefit value. This in turn could have potentially affected the CBA results. (iii) Number of beneficiary population. Considerations were made for the total and individual beneficiary population, which is under 5 years old in the municipality and represents only 10% of the total population. Thus, the factored benefit is small.

Conclusions and Recommendation
A key conclusion from this CBA is that the NSS intervention is more favorable than the other two interventions, even when considering only the health benefits for a limited group of the population. However, a single solution will not be sufficient to meet the sanitation demand of the town. In this case, the municipality can aim for a hybrid scenario, but with the benefits considered in this study, the hybrid scenario still has a negative CBA. Therefore, it would be advisable to conduct further research on other benefits of sanitation services and interventions.
Other conclusions that can be drawn from this study include the following: (i) The direct cost of the SS scenario is about 20 times higher than the NSS scenario, and the hybrid scenario is about 1.3 times lower than the SS scenario. (ii) The CAPEX of the SS scenario is 1.8 times the cost of the NSS scenario and 1.01 times the cost of the hybrid scenario. (iii) Although the public sector was the key stakeholder responsible for covering OPEX, in all three sanitation scenarios, with the private sector covering part of the OPEX, it was the households that were solely responsible for the OPEX of containment, which is about two times higher than all other components of the sanitation value chain combined. This shows that despite the higher CAPEX for the SS scenario, the NSS scenario turns out to be more expensive for the households. (iv) Households are responsible for paying for services, and currently there are different tariffs imposed in the SS scenario. However, in the NSS, a flat tariff is imposed to all. However, to ensure equitable and accessible sanitation services for all socioeconomic groups, differentiated tariffs should be introduced. (v) Private sector participation, as shown in the results above, is zero in the SS scenario and much of the cost is borne by the public sector, while in the NSS scenario, households bear most of the CAPEX and OPEX and the private sector has limited cost sharing with the public sector. In both SS and NSS scenarios, opportunities for increased private sector involvement should be explored so that costs can be shared.