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4.10 Fiscal Mechanisms for Waste Management

Submitted by admin on Thu, 2009-10-01 13:12

The efficacy and sustainability of delivery of solid waste services is constrained by severe fiscal challenges. Capital and operating expenditures are much lower than the required levels, and operating deficits continue to balloon. The structure of capital financing for waste services is not optimal, with reliance on grant financing, subsidy leakage to non-poor consumers, and user charge revenues that are too low. The sector appears to be heading towards a fiscal crunch, with operating deficits ballooning to the point at which the sustainability of service delivery will be threatened.
 
In this context, the need to expand delivery solid waste services sector will require greater efficiency of fiscal mechanisms and a clear strategy to improve operating efficiencies, secure financial sustainability of waste services delivery, and boost municipal revenues.  
 
Careful subsidy management to reduce subsidy leakage to non-poor households needs to be part of this strategy, and will involve: 
  • Developing guidelines for intra-sector cross-subsidies and/or external subsidies to assist municipalities in determine appropriate subsidy levels;
  • Distinguishing between consumer types to guide equitable share allocations from external subsidies;
  • Ring-fencing guidelines for budgeting and accounting practices to facilitate a greater degree of transparency in subsidy levels relative to the cost of service delivery, and assist regulators in exercising greater oversight in this area.
To secure financial sustainability and improve operational efficiency, an incremental approach to tariff restructuring is recommended that includes:
  • In the short term, tariff levels and subsidy costs need to be reviewed in the context of the development of policies on the provision of free basic services. Clear guidelines and support to assist municipalities in evaluating their current tariff structures are required.
  • In the medium term, devising and introducing tariff structures that encourage waste minimisation and implementing full cost accounting
  • In the long term, above-inflation increases in user charge rates will be required, both within national and local government, and with consumers
In order to encourage waste minimisation, the impacts and implications of the introduction of volumetric tariffs in the City of Tshwane need to be evaluated.
 
To support the requirement for increased capital investment in the waste sector it is recommended that a solid waste project development fund be developed, with two windows:
  • Universal service: this window would be used to assist municipalities to make greater use of MIG for financing solid waste infrastructure to support labour intensive projects that expand services to poor households. The efficacy of the window can be measured by the proportion of total MIG funding allocated to solid waste infrastructure. The rules of the MIG programme need to be amended to allow financing of all solid waste assets funded on the capital budgets of municipalities, including trucks.
  • Private financing: this window would support municipalities to develop projects that would be financed through development contributions, carbon credits, private equity or borrowing.
The objective of the fund would be to ensure that capital expenditures in the sector increase, that a robust pipeline of municipal projects is created, and that an appropriate capital financing mix is developed. There is potential for this fund to be financed by the private sector (perhaps with seed funding from government), and for it to be managed through an autonomous public / private entity, subject to regular performance evaluation.
 
Municipal revenues can be boosted by:
  • Levying development charges on property developers during intensification of land use.
  • Generating revenue sales and carbon credits from energy generation from waste incineration and incentivising waste to energy schemes by municipalities.

The above mechanisms form part of an overarching fiscal framework for implementation of the NWMS and the waste hierarchy. It is important that DEA, in conjunction with National Treasury and COGTA, develops the necessary policy and regulatory tools to give effect to the fiscal framework for the NWMS.