Photo: Peter Kapuscinski / World Bank

Incentives for Cleaner Cities in Nepal
 
Cities across Nepal— and in the developing world— produce more waste than ever before, due to a spike in population and a surge in new economic activity and urbanization. Properly disposing and managing solid waste has thus become urgent for city municipalities.
Although collecting, storing and recycling solid waste can represent up to 50 percent of a municipality’s annual budget, many local governments don’t collect enough revenue from waste management services to cover these costs.

As a result, landscapes and public spaces in Nepal’s urban centers are deteriorating. Less than half of the 700,000 tons of waste generated in Nepal’s cities each year is collected. Most waste is dumped without any regulation or oversight and several municipalities do not have a designated disposal site, leading to haphazard disposal of waste -- often next to a river-- further aggravating the problem.
 
With rising urbanization, the costs of inaction are piling up and compromising people’s health and the environment. In most cases, the poor suffer the most from the resulting negative economic, environmental, and human health impacts.
 
New financing approaches help clean up Nepal’s cities 
 
Thanks to an innovative approach to fund solid waste management (SWM), five cities across Nepal are transforming the way they manage solid waste while generating income from it. 

Dhankuta’s streets was once littered with trash; now, due to trash cans placed at intervals, a landfill site and application of vermicomposting techniques, it was named the cleanest city in Nepal.  
In Pokhara, opening up waste management to private sector participation led to benefits for almost 50,000 households, approximately 16 percent of the population.
In Ghorahi and Tansen, household level recycling and composting is keeping the cities remarkably clean.
And in Lalitpur, the sub-metropolitan city in Kathmandu, the collection of solid waste fees by the city increased by 400 percent.

Incentives for better waste management
 
For the past four years, the World Bank has helped these five cities achieve these remarkable results through a US$4.3 million results-based grant scheme developed by the Global Partnership on Output-based Aid (GPOBA). The scheme was structured around a five-year incentive-based subsidy approach, providing effective incentives for service providers to reach underserved low-income communities and ultimately linking funding to actual results achieved.
 
In Nepal, GPOBA’s incentive-based approach tackled two problems related to waste management: the ineffective collection of solid waste management fees and the missed opportunity for managing solid waste sustainably. 
 
The scheme solved this by bridging the gap between the cost of delivering improved SWM services, such as capital costs and operations and maintenance costs, and the revenues that municipalities can collect for these services.

The amount of the subsidy is designed to decrease over time, as services improve and fee collection increases to contribute toward final cost recovery. Implicit in this design is the assumption that residents’ willingness-to-pay increases as they witness visible improvements in service coverage and delivery.
 
The opportunity for Results-based Financing in Solid Waste Management
 
Results-based financing (RBF) has now been applied globally across the SWM value chain. Our recent GPOBA study shows that results-based schemes can be applied to:

• Improve solid waste and fee collection service delivery
• Promote environmental-friendly practices, particularly source separation and recycling
• Strengthen waste collection and transport in under-served communities

The complementarity between the GPOBA results-based approaches and the World Bank’s “Program for Results” instrument provide an additional opportunity for collaboration that could bring pilot approaches to scale, in areas such as the establishment of meaningful disbursement linked indicators and verification systems. 
 
Mobilizing private capital and expanding impact investing 
 
As they do with infrastructure development, results-based capital grants or concessional loans could reduce the risk to investors and provide incentives to public or private service providers, utilities, or city authorities to extend solid water management services to poor households or communities by subsidizing the cost of the service received, thus encouraging operators to enter markets they would otherwise not find profitable.
 
Cleaner cities draw investment and tourists, which creates jobs and new business opportunities. But most of all, when done right, solid waste management makes a real difference in the lives of poor familes and can help countries achieve their development goals. 
 
GPOBA’s success in Nepal—as well as a similar success in the West Bank—raises the exciting prospect that scaling up RBF approaches in other countries dealing with solid waste management challenges could deliver similar benefits to cities worldwide.
 
Related:

• Brief: Solid Waste Management
• Feature story: Dhankuta Dazzles with Its Cleanliness Drive
• Feature story: Cleaning Up Their Act
• Subscribe to the Sustainable Communities newsletter
• Follow us on Twitter: @WorldBankSAsia @WBG_Cities

Katmandu, October 4, 2007- The Global Partnership on Output Based Aid (GPOBA) today signed a grant agreement with the Government of Nepal for US$5,000,000 that will co-finance the installation of 37,000 biogas plants under the fourth phase of the Biogas Support Program (BSP-IV). The Project will be implemented by the Alternate Energy Promotion Center (AEPC). The Biogas Support Program was started in 1992 by the Netherlands Development Organization SNV together with the Government of Nepal to promote environmentally friendly and affordable energy to remote rural areas. The project has also received substantial funding from KfW. Since 2006, the BSP-IV is benefiting from funding form the World Bank’s Community Development Carbon Fund in exchange for reductions of emissions of greenhouse gases. Since 1992 the Biogas Support Program has helped to install 150,000 biogas plants in rural Nepal. The local non-governmental organization Biogas Sector Partnership – Nepal (BSP-N) is serving as project implementing agency.

The grant signed today with the Government of Nepal is funded by the United Kingdom’s Department for International Development (DFID). The Project complements user contributions by the target group with an output-based subsidy in order to foster local ownership and to increase the reach of donor funding.

The Project aims to replace traditional energy sources used by the rural population, such as fire wood and kerosene, with modern biogas plants. Biogas plants use anaerobic decomposition of organic material (mostly animal manure) to produce a flammable gas called biogas, which can be used for cooking and light. GPOBA’s grant will sponsor new biogas plants ranging in capacity from 4 m3 to 10m3. Even the smallest plants with a 4m3 capacity produces enough gas to run a cooking stove for nearly 2.5 hours daily.

Switching to biogas reduces carbon emissions as well as deforestation and decreases the frequency of respiratory infections that result from burning sooty fuels in poorly ventilated households. The Community Development Carbon Fund estimates that families will also save approximately three hours of labor per day from the conveniences of gas in addition to financial savings from not purchasing other fuels and fertilizers. Women and girls, who are traditionally responsible for colleting firewood and cooking, will be among this project’s primary beneficiaries. Furthermore, access to biogas will enable families to use gas lanterns after sunset to provide light for children’s studies or other household activities.

The Project encourages private sector participation and the creation of local small and medium companies. Currently beneficiaries choose among 60 local biogas companies to have biogas plants installed. Biogas companies therefore must compete with one another for work. Participating companies receive training by BSP-N to produce high quality, cost-effective plants. GPOBA funds will be disbursed to the biogas companies only after the plants have been verified to be installed and working, so that companies are motivated to comply with quality standards.

The Global Partnership on Output-Based Aid (GPOBA) is a multi-donor trust fund established in 2003 to develop output based aid (OBA) approaches across a variety of sectors including infrastructure, health and education. OBA subsidies are performance based and are designed to create incentives for efficiency and the long term success of development projects. GPOBA’s current donors are DFID, IFC, the Directorate-General for International Cooperation of the Dutch Ministry of Foreign Affairs (DGIS) and AusAid of Australia.

GPOBA’s grant in Nepal will incorporate an output-based disbursement scheme that sets a fixed level of subsidies per biogas plant and will only allow for payment once project implementers achieve measurable results. Under this arrangement, local biogas firms will not receive compensation until they fully complete new plant installations and meet quality standards. Independent verifiers will monitor progress on this project and determine output achievement.

News Release No. 2009/5

In Washington:
Cathy Russell, tel. (+1) 202 458 8124 crussell@worldbank.org

In Kathmandu:
Rajib Upadhya, tel (+977 1) 4439571 Rupadhya@worldbank.org

Kathmandu, Nepal – July 30, 2009 – The World Bank implemented Global Partnership on Output Based Aid (GPOBA) project in Nepal has made the first payment of $592,200 to the Alternative Energy Promotion Centre (AEPC) for successful 2008 delivery of verified new biogas plant installations in Nepal. This project provides increased access to clean and affordable energy for rural Nepalese households, and successfully installed 4,772 new biogas plants eligible for payments under the GPOBA grant.

The World Bank-administered GPOBA program signed a grant agreement with the Government of Nepal in October 2007 providing a total of US$5 million in support, which will provide payment for the verified installation of up to 37,000 new biogas plants in 48 remote districts of Nepal. The program is being managed by the Alternative Energy Promotion Center (AEPC) with implementation support provided by the Biogas Sector Partnership Program-Nepal (BSP-N). It uses an innovative “output-based aid” approach in which subsidy payments are made based on verified results.

NEWS RELEASE No. 2013/2

Contacts:

In Washington: Saúl E. González
tel. (+1) 202 473 2378
sgonzalez1@worldbank.org

In Kathmandu: Rajib Upadhya
tel. (+9771) 4226792/3
rupadhya@worldbank.org

Kathmandu; March 27, 2013 -  The World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), has approved a grant of US$4.3 million to improve access to high quality and financially sustainable solid waste management (SWM) services in participating municipalities in Nepal. The grant will finance service delivery subsidies for each participating municipality, over a four year period, to cover the gap between the costs of delivering solid SWM services and the beneficiary revenues collected through SWM fees, provided that the said services meet verified minimum performance criteria.  Subsidies will be paid to municipalities based on agreed multiples of verified beneficiary revenue collected upon the services’ meeting pre-agreed minimum performance criteria.

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GPOBA recognized the Nepal Village Micro Hydro Project with its fourth "Inn-OBA-tion Award" as the best example of  innovative use of results-based financing. The award was announced at a January 25, 2017 luncheon and presented to the project team led by Tomoyuki Yamashita and Yevgen Yesyrkenov. This is the first World Bank Group micro-hydro project to use Results-Based Financing (RBF) as an instrument linked to greenhouse gas mitigation in the battle against climate change, and focuses on sustainability.

The Nepal Village Micro Hydro Project allowed remote mountain communities to use clean, reliable electricity generated from micro-hydro plants for lighting and agro-processing, instead of traditional (and more costly) fuels such as kerosene, diesel fuel, wood or batteries – thereby reducing green-house gas (GHG) emissions and generating community co-benefits. Now, 433 micro run-of-river hydropower plants, located in remote mountain communities of Nepal, are earning results-based carbon revenue that is being reinvested to finance new micro hydro plants and rehabilitate existing ones.

The World Bank’s Community Development Carbon Fund (CDCF) provided technical assistance and funding to get the project registered as a Clean Development Mechanism (CDM) project under the United Nations Framework Convention on Climate Change (UNFCCC). The CDCF is a public-private partnership of 15 private sector companies and 9 governments, administered by the World Bank that acts as Trustee. It aims to contribute to a more equitable regional distribution of carbon finance resources by focusing mostly on the poorest countries of the world.

Under the RBF Mechanism, the GHG emission reductions are monitored by the project entity as per the CDM GHG accounting methodology and monitoring plan; verified by a third party auditor; accredited and certified by the UNFCCC. This certified emission reduction (i.e. ton CO2 equivalent) is then sold to the CDCF generating a results-based revenue stream for the project entity. As per the Emission Reduction Purchase Agreement between the CDCF and the PE, the emission reduction payment is done upon certification of emission reductions as well as the implementation of the community benefit plan (CBP).

The project then uses the results-based financial revenues generated for reinvestment to scale up micro-hydro plants and to maintain and rehabilitate existing ones to ensure the sustainability of operations. As a result of this project 665,000 people have access to reliable, clean off-grid electricity in remote communities in Nepal. 

The following two projects were also recognized at this year’s Inn-OBA-tion awards.

Djibouti Health Sector Improvement Project
This project brings together two successful RBF health interventions in Djibouti, both considered flagship projects in the country, to tackle supply and demand-side challenges to the health sector, and encourages partnerships and collaboration at all levels to more effectively address national health issues.

Uganda Reproductive Health Voucher Program
The success of the Uganda Reproductive Health Voucher Program, the first of its kind in Uganda, has contributed to a number of other RBF health projects in the country.  The OBA voucher project has been scaled up by the Ministry of Health to expand the program to rural communities and other districts of Uganda. The scale up is funded by a $13.3 million GPOBA grant with an additional $3 million from the Government of Uganda and $1 million from United Nations Population Fund (UNFPA).