Financial sustainability in municipal solid waste management – Costs and revenues in Bahir Dar, Ethiopia

Providing good solid waste management (SWM) services while also ensuring financial sustainability of the system continues to be a major challenge in cities of developing countries. Bahir Dar in northwestern Ethiopia outsourced municipal waste services to a private waste company in 2008. While this institutional change has led to substantial improvement in the cleanliness of the city, its financial sustainability remains unclear. Is the private company able to generate sufficient revenues from their activities to offset the costs and generate some profit? This paper presents a cost-revenue analysis, based on data from July 2009 to June 2011. The analysis reveals that overall costs in Bahir Dar's SWM system increased significantly during this period, mainly due to rising costs related to waste transportation. On the other hand, there is only one major revenue stream in place: the waste collection fee from households, commercial enterprises and institutions. As the efficiency of fee collection from households is only around 50%, the total amount of revenues are not sufficient to cover the running costs. This results in a substantial yearly deficit. The results of the research therefore show that a more detailed cost structure and cost-revenue analysis of this waste management service is important with appropriate measures, either by the privates sector itself or with the support of the local authorities, in order to enhance cost efficiency and balance the cost-revenues towards cost recovery. Delays in mitigating the evident financial deficit could else endanger the public-private partnership (PPP) and lead to failure of this setup in the medium to long term, thus also endangering the now existing improved and currently reliable service. We present four options on how financial sustainability of the SWM system in Bahir Dar might be enhanced: (i) improved fee collection efficiency by linking the fees of solid waste collection to water supply; (ii) increasing the value chain by sales of organic waste recycling products; (iii) diversifying revenue streams and financing mechanisms (polluter-pays-, cross-subsidy- and business-principles); and (iv) cost reduction and improved cost-effectiveness. We argue that in a PPP setup such as in Bahir Dar, a strong alliance between the municipality and private enterprise is important so that appropriate solutions for improved financial sustainability of a SWM system can be sought and implemented.