8

Estimating the costs of small-scale

water-supply interventions
Paul Jagals and Luuk Rietveld

This chapter explains a basic approach to estimating the financial costs of

installing, maintaining and operating a small-scale drinking-water supply. The
outcome of such estimates for various interventions can then be used, along
with estimates of the total benefits expected from water improvements, to select
the best intervention for a given target group by comparing rates of return. The
choice of the best intervention for a specific community will be made in the
context of the livelihood patterns of that particular community, and after
assigning shadow prices to certain costs.
Costing is but one step in the economic assessment of a water supply project,
and an economic assessment is one element in the set of information likely to be
used by decision-makers to select the type of system to implement. The full set
of information likely to be needed by decision-makers would include economic,
environmental, health, social and technical assessments, and feasibility studies.

© 2011 World Health Organization (WHO). Valuing Water, Valuing Livelihoods. Edited by John
Cameron, Paul Hunter, Paul Jagals and Katherine Pond. Published by IWA Publishing, London, UK.
150 Valuing Water, Valuing Livelihoods

The costing method proposed here is intended to provide a financial input into
a cost–effectiveness or social cost–benefit analysis of small-scale water
supply improvements. In a broader sense, costing is an essential element of
any economic analysis that involves modifying financial costs through the
assignment of shadow prices to reflect true economic value.
The objective here is to identify the financial costs of a small-scale water supply
intervention. The costing method described in this chapter aims at providing
an incremental price in present-day monetary terms (year zero) of water
supply technology to provide water to a community, against which the derived
benefits could be measured. On the basis of estimates of costs and benefits,
informed decisions can be made. For information on full economic costing, see
Carlevaro & Gonzalez (2011).
The method of social cost–benefit analysis described in this book is for use at a
national level, by non-specialists and specialists alike. The method is, however,
sensitive to local livelihood patterns. To simplify the presentation, the costing of
items that are needed for activities at national level, or that are indirect outcomes
at national or local level, are ignored. These include external environmental
costs, which arise out of local environmental damage or protection, and
opportunity costs, which value the forgone benefits of diverting raw water from
productive activities such as agriculture to non-productive activities, for example
basic domestic uses (with significant livelihood implications). They also include
depletion premiums, which value the loss of water supplies from sources that
are difficult to replenish, and the share of overhead costs that are needed to run
national regulatory and laboratory facilities.
The approach followed here is to estimate the use costs of a water supply
intervention, such as costs for construction, operation, maintenance, direct
administration and overheads. This chapter provides an insight into the simple
and effective costing method that a specialist would use and a non-specialist at
national or local level would need to understand. In practice, costing preferably
should be done at the level of the service provider, for example a regional water
management body or a district authority. Depending on local capabilities, the
costing could be done by the end-user target group or a local nongovernmental
organization.
Costing a system locally implies that a water service provider (usually a district
authority) or a local user group has decided to invest in improved infrastructure
(storage and treatment facilities, and a distribution network). After constructing
and activating the system, the service provider will then continue to spend
money on the system for operation, maintenance, future rehabilitation and
administration. Expenditures will also cover training, promotion and education
(for example, on the use of energy and chemicals). The service provider will
 Estimating the costs of small-scale water-supply interventions 151

have to make sure that these expenses are covered by some form of income
(standing charges, consumption rates or subsidy). The main objective of the
service provider might not be to make a profit, but to provide an economically
efficient water service that would also benefit the target group by improving
livelihoods. The purpose of a cost estimate in this situation is therefore to assist
the decision-makers responsible for the provision of services by giving them a
reliable estimate of the financial value of providing an improved drinking-
water supply.
A useful characteristic of small systems is that they allow for incremental
improvement as the target group’s needs change over time. Such changes might
result from population growth or from a move from standpipe to in-house
provision. This may lead to a decision to initially choose the most affordable
system (the least-cost system), with the intention to incrementally adapt the
system’s capacity to fit the needs or financial capabilities of a growing population.
A practical costing approach must allow for this incremental costing as well.
The following discussion of the methods and procedures for costing a
small-scale water system has been structured into three sections. First, we
address the challenges of costing a small-scale water intervention, whether in the
form of putting in a system where there was none before, or upgrading an
existing system. Second, we outline the various elements of financial costs that
will be encountered in the process of costing a small-scale water system. Third,
we present a simplified costing approach to reliably estimate a pattern of water
system costs. This will allow for costing across time should a system be
incrementally adapted.

CHALLENGES OF COSTING A SMALL-SCALE WATER

SYSTEM INTERVENTION
Local costing may be done for a new water-supply system or for upgrading an
existing system. Costing a new system for an area where there is currently no
water-supply system is likely to be complicated, because the costing will take
place in the early planning stages, before the actual construction begins to take
shape. In particular, the costing of the initial stage of a project to install a water
system will potentially be subject to large inaccuracies. One reason for this is
that relatively little is known during the initial stage about the configuration of
the treatment scheme, construction requirements, and specific local conditions.
Another reason is that many things will change during the design process.
As a basis for costing the intervention, three critical and interrelated aspects
need to be understood: the type of intervention (the system likely to be installed,
152 Valuing Water, Valuing Livelihoods

see Chapter 7); the layout of the system (the relative positions and elevations of
source, storage and pipe network); and the size of the elements in the system.
Only then can the costing of the envisaged system commence. While costing
can be done in detail to cover these uncertainties, it will require a high level of
collaboration between service providers and engineering planners. It is therefore
preferable for costing to be done by such specialists. For detailed information,
including comprehensive checklists, see Carlevaro & Gonzalez (2011).
Costing the upgrading of an existing system can more feasibly be attempted by
non-specialists because there will be less uncertainty.
Estimating the approximate cost of a water supply system usually starts
with estimating the investment or capital cost. The service provider should,
however, look at the complete picture. Costing should therefore be extended to
include recurrent (operation and maintenance) costs. This second component
is absolutely vital to predicting what the sustainable operation of the system is
going to cost the service provider once the system is built. If the recurrent costs
are neglected, the intervention will be short-lived and the benefits often negated
before they were accrued. This is discussed in more detail later.
Cost estimation necessarily requires a large number of inputs. In order to
simplify the data collection and preparation steps, a three-tier data structure is
proposed. The first data category captures the engineering parameters. These
would typically include technical specifications, such as pump and motor
efficiencies, as well as pipe friction coefficients, which are not likely to vary
significantly anywhere in the world. Data for these parameters should be
measured by people with an engineering background and with the capacity to
provide a sound technical judgement based on experience. The second data
category captures the monetary parameters. These would typically include the
cost of pumps, pipes, holding tanks, fuel and electricity, as well as the ratio
between the costs of labour and materials in constructing the system. These
parameters will be fairly constant for any particular economic zone. Once these
parameters have been calibrated for a particular region, they can be left
unchanged while different water supply systems within the region are analysed.
The third data category captures the system parameters. These will typically
include the types, diameters and lengths of pipes, the volume of storage tanks,
and the number of standpipes. These parameters are unique to each water supply
system, and have to be determined on site or from engineering drawings.

ELEMENTS OF COSTING
Costs, by definition, consist of all resources required to put in place and maintain
the intervention. These include capital costs (investment in planning, preparing the
 Estimating the costs of small-scale water-supply interventions 153

project site, construction, and purchase of hardware) and recurrent costs (operation,
maintenance, and monitoring) (De Moel, Verberk & van Dijk, 2006). The cost of a
small water-supply system usually includes capital as well as recurrent costs in
each of the usual components of water supply: source, treatment, pumping,
storage and distribution. The costing method must be robust and it will need to
provide reliable estimates by aggregating sets of physical parts of a water supply
activity into a single unit of cost. An example is the estimation of the initial cost
of water treatment for a new or improved system. To get started, cost-functions
can be used that are based on previously completed projects. Cost-functions
typically reflect the design capacity as a variable, for example as cost per cubic
metre of treated water. This will give the planner a simple and robust estimate of
the cost of water treatment for a village of X number of people consuming
Y litres of water per person per day.

Capital costs
The term capital goods is formally defined as meaning the stock of goods which
are man-made and used in production (as opposed to consumption). Fixed
capital goods (durable goods such as buildings and machinery) are usually
distinguished from circulating capital goods (stocks of raw materials and
semi-finished goods which are rapidly used up). In accounting conventions,
capital goods are usually taken as those with a life of more than one year, such
as land, buildings and equipment.
In the context of developing and installing a small-scale water system, the
capital costs represent the total costs that are not expected to recur for significant
periods of time. These are costs for the preparation and construction of the
system up to the moment that the system becomes operational (De Moel,
Verberk & van Dijk, 2006). From that moment on, the system must be operated
and maintained so that it maximizes the anticipated benefits. The costs of
equipment needed for operation and maintenance are also considered to be
capital costs. Capital costs can also occur during the operational lifetime of the
system. Examples include expansion of the system and replacement of major
(high-cost) parts.
Capital costs usually include the costs related to the construction and equipment
of the new system. These costs flow from the preliminary studies conducted during
the pre-investment (planning) stage. The preliminary studies are concerned with
the technical, economic, social, environmental and health aspects of the
construction project.
A drinking-water system consists of a variety of fixed (constructed)
installations, such as filter units, clear water reservoirs, and pipes. Depending on
154 Valuing Water, Valuing Livelihoods

the size of the system, construction might include office and sanitary facilities for
the staff of the new treatment facility, a workshop and maybe a small laboratory
with facilities for the maintenance personnel. Besides these costs, the furnishing
of staff facilities, workshop and laboratory constitutes part of the capital costs.
The project requires equipment, which will be a capital cost, for example items
such as pumps and power systems. Materials are needed to complete the
construction, including materials bought or acquired by the community or the
municipality in the local markets of the country, as well as imported materials.
The workforce for the construction may include specialists, such as engineers,
constructors, technical staff, and social scientists. It will also include unqualified
workers who will carry out the excavation work, cleaning, and so on. Lastly,
artisans will generally be required, depending on the type of work needed.
Other capital costs will be related to the management of the project, and
will include administration, coordination, logistics, transport, communications,
office costs, private sub-contractors and quality control, as well as any other
unassigned costs of the project. Contingency costs are a fixed amount or a
percentage of total capital costs included in a project budget to allow for adverse
conditions that will add to the basic costs.
A cost which will often be encountered, and which should be seen as part of
capital costs, will be the cost of acquisition of land that might be required for
components of the system, for example the site of the treatment facility, or land
that will be covered by water when a surface source, such as a stream or river,
is impounded.
Provision must also be made for overheads and supervision. Once all the capital
investment costs have been estimated, their sum will reflect the net construction
cost. A contractor might add a surcharge to allow for site establishment, site
clearing, supervision, profit, and so on. Such costs can all be allowed for by
adding a percentage to the net construction cost. For example, a typical
surcharge for contracts in rural South Africa is 25%.
The costs are then added up to determine the total contract cost. For a new
water-supply system, the client also has to bear the costs of planning, surveying,
soil investigation, possibly exploratory drilling, contract management, quality
control, and so on. These design and supervision costs, paid to consulting
engineers or borne by the client’s own design staff, amount to an additional
surcharge (about 25% over and above the total contract value), which must be
added to the other costs to finally determine the total project cost.

Recurrent costs
Recurrent costs comprise all expenditures (staff, parts and materials) that are
required to keep a system operational and in good condition (maintenance) after
 Estimating the costs of small-scale water-supply interventions 155

its installation has been completed. Depending on the accounting policy of the
provider, certain fixed costs, may need to be covered recurrently on an annual
basis (De Moel, Verberk & van Dijk, 2006). An example of this would be the
creation of a replacement fund, through annual depreciation levies. Monitoring
of the system can be seen as an operational function or as a regulatory function
to ensure the quality of the water supply to the community. Monitoring has a
cost that can be seen as a separate item in the recurrent costs, or as part of
operation and maintenance costs, depending on the needs and extent of the system.
An important point in the context of costing the management of small-scale
systems is that maintenance costs are often budgeted for annually at the service
provider level, which is usually a tier above the local community level.
Operational costs are usually budgeted for at the local level.
The maintenance costs cover all costs for the repair and replacement of parts of
installations (for example, pumps or wells) within the predicted lifetime of the
water-supply system, in so far as these are not included in the operational costs.
Effective maintenance is the key to sustainability of a system but it is often
neglected, rendering many small-scale systems ineffective not long after
their inception.
In general, operational costs are considered to be mostly costs for acquiring and
administering consumables, such as energy, process water and chemicals, as well
as disposing of waste. Consumables do not include general maintenance materials
(such as paint, lubricating oil and tools) because these should be included under
maintenance costs.
Fixed costs are costs arising from obligations to finance and operate the system.
They include interest, depreciation and replacement, rents, insurance and taxes.
Depreciation is a particularly important aspect of fixed costs, because it allows
for the build-up of funds to replace a large piece of equipment or parts of the
system such as pipes. Depreciation is the way to earn back, from annual income,
costs incurred during construction of the system. Depreciation periods for a
water system are relatively long. On one hand, the technical facilities (buildings
and pipes) should last a long time. On the other hand, there should be income
from water sales and subsidies during the entire depreciation period. While the
depreciation period should preferably equal the expected lifetime of the water
supply system as a whole, depreciation periods are not necessarily the same for
all the components of the system. Buildings, machines, distribution network and
inventories all have different lifetimes. Therefore, the costs of funding the
replacement reserves have to be determined separately for each component. For
capital costs that recur within the project period, best practice is to include
capital costs in the year when they are incurred. To determine the capital costs
an economic depreciation period is assumed. After this period the component
might still have a residual value. In that case the net usage of capital must be
156 Valuing Water, Valuing Livelihoods

considered (capital cost minus residual value). In general, however, while the
installation might still be technically adequate, redundancy of the installation or
high maintenance costs might minimize this residual value.
Lastly, policy development as well as activities relating to national, regional
and local monitoring, surveillance and training incur often substantial costs and
should also be regarded as and provided for as fixed recurrent costs. These
activities are required to continuously assess and maintain the quality of the
service, including protection of the source water, as well as during and after
treatment and distribution. They require skilled human resources, laboratory
facilities and training facilities, vehicles and sampling equipment. Some of these
activities might require an initial capital investment, such as on-site monitoring
systems or the cost of a meeting of stakeholders to consider and prioritise new
and extended systems. A significant cost component of all these activities can be
travel costs. Travel might be required to and from monitoring points, remote
training sessions and facilities. These costs might exceptionally include the costs
of monitoring and assessing the process of livelihood changes attributable to the
intervention – social behavioural change – along with the more common costs
of education and promotion. Another cost component that might occur is the
cost of water corruption. This reflects an activity where people illegally gain
access to the distribution of the water supply (for example by means of illegal
connections without a meter). Inequity in distribution is another form of
water corruption.

ESTIMATING COSTS FOR A SMALL-SCALE

WATER SYSTEM
Three reasons for costing exist for small-scale water supply interventions. A
service provider might want to: (a) conduct direct costing; (b) estimate the costs
as part of a cost–effectiveness analysis; or (c) estimate the costs as part of a
social cost–benefit analysis. We now discuss the third option – estimating the
costs as part of a social cost–benefit analysis. For detailed guidance on direct
costing, see Carlevaro & Gonzalez (2011). The approach described by Clasen
et al. (2007) can be followed to estimate intervention costs for a cost–
effectiveness analysis.
Estimates for cost–benefit analyses need not be as detailed as the estimates
for a cost analysis or a cost–effectiveness analysis. They can be simple unit
costs, as shown in Table 8.1. The unit cost approach provides flexibility when a
service provider wishes to estimate whether investments to install a new system
are more cost-beneficial than investments to upgrade an existing system.
 Estimating the costs of small-scale water-supply interventions 157

Table 8.1 Typical unit costs for rural water supply systems

Capital Recurrent System Water demand

investment (% annual lifetime (litres per
(US$ per cost) (years) person per
person) day)
House connection 92–144 20–40 30–50 80–120
Standpost 31–64 0–10 10–30 50–80
Handpump on 17–55 0–10 10–30 20–30
drilled well
Dug well 21–48 0–10 10–30 20–30
Rainwater 34–49 5–15 10–30 20–30
Source: WHO/UNICEF (2000)

Unit costs are robust cost estimations of a system. They include capital costs as
well as recurrent costs. Data can be obtained from local sources, in particular from
country-specific cost summaries of previously installed schemes.
In the next section, we first discuss the costs incurred by preliminary
requirements to developing and installing a system. We then consider each of
the activity costs usually included in a small-scale system. Lastly, we provide a
summary (Table 8.1) of unit costs and briefly discuss the calculation of unit costs.

Preliminary requirements
This section aims to describe the full costing process that eventually allows for a
unit cost (cost per volume unit) to be estimated.
Costing can begin only after the details of the physical system are known. For
planned systems, an inventory has to be developed to the point where the specific
components of the system have been clearly identified, for example pipe lengths
and diameter, position and sizes of storage tanks, and so on. For existing
systems, the convenient option would be to find the original technical drawings
and specifications to which the system had been built. This option, however, is
often not available. The drawings might be deposited in some remote archive,
and it may be difficult, if not impossible, to retrieve them. Even if the drawings
are retrieved, care must be taken to compare the details of the original plans
with those of the current system, to establish whether the plans have not already
been changed since the original construction work.
It is highly recommended that costing should be preceded by thorough
fieldwork, in close collaboration with the local community. In the absence of
engineering drawings, the most feasible way is to locate and map the system
158 Valuing Water, Valuing Livelihoods

components (which is becoming increasingly easy with Global Positioning System

technology), to locate the pipe routes and water connections, and also to assess the
quality of the system in terms of maintenance and reliability.

Activity cost estimation

Developing the source
Small-scale water systems are often supplied from groundwater or from perennial
protected springs. Because of its inherent characteristics, groundwater in rural
areas is often considered safe enough to be provided directly, without treatment,
using a handpump. Costs are lower than for other forms of supply, which makes
this a popular choice with service providers.
Where there is no other option than to use surface water, construction of
impoundments in rivers and streams is usually required to provide, throughout
the year, a continuous supply of raw water for treatment and distribution (see
Chapter 4). The costs of creating an impoundment to serve a small-scale
water-supply system can be a considerable proportion of the whole cost of
the system.
The capital costs of groundwater sourcing are twofold: the direct cost of gaining
access to an aquifer, either by drilling a borehole or digging a well; and the cost of
lining the borehole or well, where it has to penetrate soft material in the earth. A
good estimate of drilled-well costs can be made, for example, by using unit rates
for linear metres of hole drilled and lined, respectively. The unit cost here is
usually the capital cost per metre drilled, including the final finishing of the
well, such as the casing and concrete surface collar – depending on the extent of
the service rendered by the drilling company. The final capital cost will
therefore depend on the depth of the drilled well.
The maintenance cost will be a percentage of the civil structure, as discussed
below. The operation costs for the well itself will be minimal if the well was
properly installed. Operational costs related to pumping are discussed below.
Costs of surface-water sourcing will mostly be incurred by the creation of an
impoundment, as well as by securing the land that the impounded water might
cover, the land required for the sourcing activity such as a pumping station, and
often the treatment facility. Capital costs can be estimated as the cost per cubic
metre of concrete in the dam wall, per running metre of the dam wall or per
cubic metre of water stored. The latter would usually be used if the activity
required the purchasing of land. A maintenance cost will be required for
ensuring the integrity of the impoundment wall, as well as for whatever sluices
or valves or other mechanical water outlets there might be. The maintenance
 Estimating the costs of small-scale water-supply interventions 159

cost will be a percentage of the civil structure costs. The operation costs will be
incurred by running the system and will often comprise only personnel costs.

Storage
After sourcing, water usually needs to be stored, either for direct distribution or
pre- and post-treatment distribution. These activities require a storage
tank, which is usually a capital cost item. Three common storage tank types are
in use for small-scale water supply systems. The smallest systems generally use
prefabricated glass-fibre tanks if and when these are available. Glass-fibre tanks
are sized in multiples of about 2500 or 5000 litres up to a maximum size of
about 20 000 litres. For storage of volumes larger than about 20 cubic metres,
tanks of reinforced concrete might be used. Tanks assembled from prefabricated
panels of galvanized steel are also popular because of their ease of construction,
and they are available in sizes similar to those of plastic tanks.

Treatment
When water is obtained from a surface-water (and sometimes a groundwater)
source, treatment is required. Depending on the quality of the source, simple
chlorination may be sufficient. When water is polluted with suspended solids
and pathogenic microorganisms, more advanced treatment is necessary,
including coagulation and flocculation, as well as filtration. Most treatment
items are capital costs incurred in installing the treatment system. These costs
depend on the degree of pollution of the source, the number and type of
treatment steps, and the scale of the treatment. The larger the scale of the
treatment is, the lower the costs per cubic metre of building area. Unit costs for
different treatment steps can be obtained from projects that have previously been
implemented in similar settings. Part of the capital cost at the treatment site is
the installation of a small laboratory for the analysis of water quality. Other
capital costs are related to building a secure place for the storage of chemicals,
as well as pumping stations and reservoirs. Although the capital costs of
treatment are normally not high compared to the capital costs of transport and
distribution, treatment requires considerable operation and maintenance. The
operation and maintenance costs consist mainly of salaries for operators and
laboratory personnel, and the costs of chemicals (such as aluminium sulphate
and chlorine) to be dosed during treatment. Water will be lost during the
cleaning and backwashing of filters, and the disposal of the resultant sludge
must be organized. The loss of water (which can amount to up to 5−10% of the
water produced) represents an economic value; and the sludge must be treated
160 Valuing Water, Valuing Livelihoods

before disposal, which also represents an economic and environmental value.

These costs must therefore be included in the operation and maintenance costs.

Distribution
Water can be distributed through a pipeline; mobile units such as tanker trucks or
animal-drawn carts; and, containers that people in communities use to move water
from the supply point and store at home. Costing a distribution system is discussed
here in the context of costing these three systems.
Pipelines are usually capital cost items. The cost components of a pipeline
consist of the costs of pipes, couplings and shut-off valves. There are also the
earthworks needed to excavate pipe trenches, bedding for laying the pipes on,
backfilling the pipeline trench after laying the pipe, and labour. For the smaller
diameters of pipes used in small systems, the capital costs are about constant
and mostly independent of the pipe diameter. Maintenance costs are normally
incurred to maintain valves. Operational costs will be incurred to fix major
breaks and minor leaks in pipelines.
Mobile distribution might also require considerable capital investment,
depending on the type of system. For example, it may require investment in the
truck or cart and the animals. The maintenance costs will be incurred in keeping
the vehicles and tanks in good mechanical order. Animals have to be kept
healthy, which will incur a cost. Vehicle fuel and animal feed are operational costs.
A container-based distribution system requires the purchasing of the containers
(a capital cost), and keeping the containers free from dirt and biofilm (a recurrent
cost item). These costs can be considerable for a low–income household and
should be considered when attempting a cost–benefit analysis. The idea is that
an intervention must be optimally effective at a minimum cost.
Costs that are often overlooked when assessing a small system will be those
related to the inevitable water losses, especially through distribution. The
characteristics of system losses need to be established, and can be seen as
operational or other costs.

Pumping
Pumping is an integral part of many small systems across the globe. Whether water
is pumped from the source to the treatment works or to the distribution system,
pumps have certain characteristics that will enable the costing of the pumping
component to be correctly attributed. These characteristics are best determined
with the help of a technician or engineer with specific knowledge in this field.
Pump suppliers can provide an estimation of the capital as well as the recurrent
costs if they can be provided with information on the net power delivered by the
 Estimating the costs of small-scale water-supply interventions 161

pump. The net power is derived from the static head, an estimate of the friction
head, as well as the pumping rate if it is known. The pumping rate can be
estimated from the pipe diameter and assuming a pipe flow velocity (typically
between 0.6 and 1.0 metres per second for small diameter pipelines). From this,
the size of the motor to drive the pump can be derived. Such a motor can be
electric, but in rural areas would usually be a fuel-powered motor, which has
implications for the recurrent costs.

Public source points

In a small-scale system, the community will often source its drinking-water supply
from the taps at the end of standpipes. The standpipes are connected to the
distribution pipeline. The capital investment involves the taps, pipework and
connecting fittings, which have a nominal size of 15 mm, 20 mm (the most
common) or 25 mm, the latter being the most sturdy. To facilitate the filling and
lifting of containers, most taps are installed as part of a small concrete platform,
with the vertical pipe encased in some form of concrete pedestal. The
maintenance of the taps has proven to be a substantial recurrent cost, in that the
tap is often not designed for heavy use.

General remarks on estimating maintenance cost

If the project has a long lifetime, more parts of the installation are likely to be
replaced within this period, resulting in higher maintenance costs. The planning
(and concurrent costing) of maintenance should identify all the activities
involved, and the activity levels for implementation such as hours of work by
activity, replacement parts and repairs procedures. The activities and activity
levels that typically would be encountered during maintenance may evolve over
time, making it possible to estimate an annual cost for maintenance as an annual
constant cost equivalent to the present value of the changing maintenance costs
over the lifetime of the equipment. A more straightforward, generic method is to
estimate the maintenance costs per year as a percentage of the construction
costs. The civil, mechanical and electrical parts require maintenance to different
extents, requiring different percentages. These specific percentages have to be
estimated as accurately as possible, together with the appropriate depreciation
periods.
One important element that may make it difficult for a service provider to use
the straightforward approaches described above is the growth of the population
served by a new system – especially in developing countries. The system would
require constant upgrading, even though a major extension might not be
162 Valuing Water, Valuing Livelihoods

undertaken. To keep an eye on effective and sustainable maintenance, the service

provider would use a monitoring measurement such as water demand.
The total demand to be met by a water system is a critical parameter which, in a
way, drives the entire cost estimate, but is especially important in planning and
costing maintenance. In an existing system total demand can be directly
measured from a bulk flow meter, and this value should take precedence. When
this is not possible (a bulk flow meter is seldom present or working), it may be
possible to determine the pumping rate (by volumetric measurement of how
rapidly the storage tank is filled, or simply by reading the information plate on
the pump) and determining for how many hours a day the supply pump would
typically work. Failing this, the water production has to be estimated from the
consumer end by multiplying the per capita water demand by the population
size. The per capita demand can be estimated by counting the containers filled at
a typical standpipe, and the population size either from census data (where
available) or by counting the households and estimating the average occupancy
per household on some demographic basis.
To the estimated water demand must be added the water lost through leaks in the
pipes and at the connections. This is measurable by checking the night flow, but
this measurement is less than reliable when standpipes are left open during the
night for irrigation or other purposes. A preliminary estimate can be made by
assuming the values for leakage given by Farley & Trow (2003). However small
the water loss may seem at first sight, it is important to allow for some leakage.
For spread out rural systems with low demand, leakage may be significant.

General remarks on estimating operational costs

In general, operational costs are constants over time if the price of inputs and
activity levels or the volume of drinking-water delivered remain constant. In this
case, operational costs can be estimated as a constant annuity over the life of the
equipment. If this is achievable, an annual constant equivalent cost could be
estimated, in the same way as for maintenance costs. Operational costs normally
include consumables such as electricity, treatment chemicals and liquid fuel for
pumping stations. The projected consumption of these items, as well as their
prices, are readily estimated.
The estimation of personnel costs is much more difficult, as staff are often only
employed part-time in a small-scale water supply system. Small systems may only
require one hour of operation per day (to stop and start a pump). Often a specific
person will be given the task along with other community duties such as waste
collection. In other instances, one person will be responsible for the operation of
more than one small system, to which must be added the extra cost and time of
 Estimating the costs of small-scale water-supply interventions 163

moving between these systems. It is clear that no single algorithm could capture all
these permutations. There is no option but to estimate the personnel costs from
first principles.
The same arguments hold for the cost of equipment required for monitoring
and maintenance. A certain minimum of laboratory equipment, for example, is
required for monitoring, whether hundreds of samples or only a few samples
have to be analysed per week. Often, the monitoring will be performed by a
better equipped regional laboratory to obtain some economy of scale, but at the
expense of having to transport samples.

Estimating unit costs

Unit costs will vary between countries and will depend on the initial investment
(capital) costs, the recurrent costs, the lifetime of the system and the water
demand (the water requirements per person per calculation period). Table 8.1
contains typical figures for these cost components, derived from WHO/UNICEF
(2000) and Haller, Hutton & Bartram (2007). Here the capital investments are
given in US$ per person. Other indicators could also be used for determining
capital investment. For instance, a house connection is usually associated with a
fixed cost per household irrespective of how many people are in that household;
for a well, the cost is often estimated at a fixed rate in US$ per metre of well dug.
We take house connections as an example to demonstrate the method for
deriving unit costs. We assume a capital cost of US$ 120, linear depreciation
at 2.5%, and a system lifetime of 40 years. Assuming an interest rate of 7.5%,
the fixed costs for a house connection in a small rural water system will be
(2.5 + 7.5) = 10% of US$ 120, which is US$ 12 per person per year. The
recurrent costs will be approximately 30% of US$ 12, which is US$ 3.6 per
person per year, amounting to an annual cost of US$ 15.6 per person. Assuming
a demand of 100 litres per person per day, the total annual demand is 36 500
litres which is 36.5 m3. The unit cost will then be US$ 0.43 per m3.

POLICY, EDUCATION AND COMMUNITY TRAINING FOR

COST ESTIMATION AND RECOVERY
In the previous paragraphs a comprehensive explanation of the different costs of all
water supply components is given. Ultimately, these costs have to be recovered in
the form of physical payment. Generally in developed countries the consumer pays
directly for these costs. The water price per cubic metre is often equal to the total
costs per cubic metre (including fixed costs, maintenance and operation costs, as
well as profits to be paid out). In developing countries the water price often
164 Valuing Water, Valuing Livelihoods

appears to be much lower than the real cost of water supply, and sometimes the
water is even supplied free of charge. This does not mean, however, that it is
meaningless to calculate the costs for construction, maintenance and operation.
On one hand, cost estimation is important for comparison of different options
for interventions. On the other hand, national, provincial and local government
must determine, in coordination with the service provider, the need for subsidies
to keep the system running and to invest in future systems.
The practice in many developing countries is not to cover the needs for
operation, maintenance and new interventions from the recovered costs (by
payment and subsidies). As a result the condition of the system deteriorates,
leading finally to increased water losses, interruptions in water supply and
increase of consumables. Leakage can also lead to deterioration of the water
quality. In addition, in time the water demand will grow (as a result of
population growth). With an increase in interruptions in the supply, consumer
satisfaction will go down, leading to less willingness to pay. Once this situation
is reached, it will be hard for the service provider to move matters without
substantial investment. Good costs estimates and realistic water pricing and
subsidies are thus of the utmost importance.
To be able to make good cost estimates, it is recommended that not only the
service provider, but also national, provincial and local government keep record
of former investments. From this database, the characteristic costs for elements
of a water supply system can be derived. It will then be possible to determine
costs for new interventions more accurately, taking account of specific
local conditions.
Good cost estimates will also enable service providers to set realistic budgets for
operation, maintenance and new investments on an annual basis. In regard to the
procurement of spare parts for the water supply system (taps, valves, pipes,
spare pumps), it is important to consider not only the price of the parts, but also
their lifetime, the need for maintenance and the service provided by the
suppliers. For example, imported taps may be cheap to, but it might be
preferable to obtain good taps on the local market.
Cost estimation and cost recovery at the level of the service provider, as well as
at local, provincial and national level are essential. Therefore, special courses and
workshops should be organized to create awareness among policy- and decision–
makers, and consumers. Such awareness creation will also help service providers
to streamline activities and provide good maintenance and operation.
Cost estimation and cost recovery are fundamental elements in keeping a water
supply system running and allowing maximum access to potable water for
consumers. However, they are clearly not the only elements. There should also
be sufficient technical capacity to construct, maintain and operate the systems.
 Estimating the costs of small-scale water-supply interventions 165

In addition, logistics are of major importance. For example, if it takes one week to
repair a pump, the community will not be supplied by the system during that week.
Consumers may be forced to use unimproved sources, leading to increased health
risks. This would negate all efforts to ensure accurate cost estimation and recovery.

REFERENCES
Carlevaro F, Gonzalez C (2011). Costing improved water supply systems for low-income
communities: a practical manual. CDROM. Geneva, World Health Organization.
Clasen T et al. (2007). Cost−effectiveness of water quality interventions for preventing
diarrhoeal disease in developing countries. London, IWA Publishing: 599–608.
De Moel PJ, Verberk JQJC, Van Dijk JC (2006). Drinking water: principles and practices.
London, World Scientific Publishing.
Farley M, Trow S (2003). Loss in water distribution networks. London, IWA Publishing.
Haller L, Hutton G, Bartram J (2007). Estimating the costs and health benefits of water and
sanitation improvements at global level. Journal of Water and Health, 5: 467–480.
WHO/UNICEF (2000). Global water supply and sanitation assessment 2000 report.
Geneva, World Health Organization and United Nations Children’s Fund.