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The Challenges of Results-Based Financing for Sanitation: Shared Lessons Learned from Haiti
SOIL Haiti
Haiti, sanitation, Sanitation Financing
SOIL is proud to offer the most cost-effective, safe sanitation intervention in Haiti, costing less than pit latrines, septic tanks, and sewers per household basis per year. Our years of work building out a service in Haiti proves that even the world's most vulnerable populations are willing to pay for safely managed sanitation and value the public health benefits of having this service. Yet, we also recognize that vulnerable households are unable- and further, should not have to – take on the national burden of financing this public good and basic human right.
Over the past few years, SOIL has been working alongside the Haitian sanitation authority (DINEPA) to develop a framework to pilot a results-based financing contract that would subsidize household sanitation. This initiative would help achieve the government's directive of ending open defecation and increase access to safely managed sanitation to meet the vastly unmet need of safe, affordable, in-home sanitation in Haiti. Through the development of a results-based financing (RBF) contract for increasing sanitation services, the Haitian government stakeholders would provide direct payments (subsidies) per household served to sanitation providers. The objectives of these contracts are to incentivize expansion of service, as well as to reduce the cost per household through economies of scale. The RBF framework could serve as a critical model for how to build public sector financing for essential sanitation services in fragile states.
SOIL's RBF project
In fragile states, like Haiti, the government is often unable to provide core services to its population, and therefore, international development banks play a significant role in providing funding for many essential services. For this particular RBF pilot, DINEPA was interested in partnering with SOIL, as the service provider, and an international development bank as an outcome funder. All three stakeholders have been in discussions and working towards this contract for over three years, however progress has come to an impasse.
Timeline of progress
In other contexts, inconsistent government stakeholder engagement and interest has been identified as a principal cause of failure in launching RBF-style contracts. However, in this case, the government stakeholder, DINEPA, has been instrumental in engaging all stakeholders and defining the financing and implementation model for the contract SOIL has found that designing an achievable and measurable outcome payment metric is a crucial component of RBF contracts – and represents the primary obstacle in advancing the RBF pilot for sanitation in Haiti. Both DINEPA, as the government stakeholder, and SOIL, as the service provider, reached consensus regarding the structure of the outcome payment metric. However, the donor outcome funder was not in agreement, and objected to the scope of the Haitian government's TOR. The outcome funder was focused on the following objectives.
A target financial cost recovery of 50-80% by end of the pilot contract period (even though the financial modelling work suggested a more realistic achievement of 30% cost recovery);
An abandonment of the composting site in preference of an unspecified and cheaper treatment technology alternative; and
A broader engagement in the provision of fecal sludge management services (e.g., pit latrine waste emptying, transport, and treatment) in the city of Cap-Haitien, Haiti.
In this particular case, one of the primary causes of failure is a lack of an achievable compromise between the outcome funder, SOIL, and DINEPA with regards to the scale of improved cost recovery. This cause of failure is largely tied to a lack of shared understanding about the subsidy required to finance sanitation for low-income households in fragile states. SOIL felt pressure to improve our service's cost recovery to decrease the per capita subsidy required to operate this service. However, this felt like an unacceptable risk given the challenges we face scaling-up an innovative service in an unpredictable context. Additionally, the pressure represents a lack of understanding on the outcome funder's part regarding 1) how much the provision of safely managed sanitation costs and 2) how to allocate the burden of financing costs of the sanitation service between the public sector and the vulnerable households we service.
Results-based financing contracts are widely-recognized to be complex and expensive to set-up, and the recommendation for first-time contracts is to "learn by doing," through open dialogue to determine what is working, and what is not. As a result of the challenges and lessons learned from this ongoing experience, SOIL has been grateful to be a part of the ongoing work and research that is being done globally to shift the conversation away from a heavy emphasis on achieving an arbitrary cost recovery target, to a better understanding of the context and the current financing need to immediately provide safely managed sanitation services.
DINEPA's leadership is evident, exciting, and represents the centering of government in ownership of the RBF contract as a potential tool to achieving their overarching sanitation directive. Ultimately, SOIL is committed in its partnership with DINEPA and we are prepared to seek out a like-minded funder. We are grateful for DINEPA's determination and their commitment to improving sanitation access in Haiti.
As a result of these ongoing discussions, SOIL is seeking to better understand the household target market's willingness to pay for sanitation services. The current analysis is interested in evaluating 1) the price at which low-income households are willing and able to pay for the CBS service; 2) the gap between household fees for the service and costs of service provision (i.e., the required subsidy); 3) the price that the Haitian government is willing to pay in the future for safe sanitation on a per capita basis; and 4) the price outcome funders are willing to pay for safe sanitation on a per capita basis in the near term. We also know that it takes cost efficiency measures and revenue diversification strategies like carbon credits, sale of alternative waste reuse products like black soldier fly larvae, and cross-subsidization of the household service by commercial customers in order to provide sustainable services in fragile states.
SOIL is driven to seek innovative approaches to providing a service that meets the needs of the most vulnerable populations. We are excited to continue on this journey with inspiring governmental stakeholders and remain hopeful for what an RBF contract will be able to do for expanding access to basic services.
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