Understanding Affordability of SWM Service Fees

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Exploring the multifaceted aspects of affordability in solid waste management service fees, this presentation delves into the economic, financial, social, and political dimensions. It discusses the distinction between the ability and willingness to pay, emphasizes the importance of considering households' income and expenditure levels, and highlights the significance of setting municipal waste charges based on households' affordability to ensure the financial sustainability of waste management services.

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Affordability of Service Fees Subtitle Name Date Slide 1

Affordability of SWM Service Fees There is no consensus on the definition of affordability. The notion of affordability has economic, financial, social and political aspects. An attempt to define SWM Services Affordability: SWM services are considered to be economically affordable if households can pay SWM bill without a significant reduction of expenses of other essential goods and services. Slide 2

Affordability of SWM Service Fees For households, we need to distinguish between: Ability to pay : an objective indicator based on statistical data and estimates assessing whether or not household income is sufficient to pay the increased price of services without serious threat for its ability to pay for other essential goods and services Willingness to pay : a subjective statement of households determining the maximum amount a household would be willing to pay for a given number of units of the service of a given quality For the purpose of analysis, affordability of SWM services will be considered at household level, representing the household s ability to pay SWM bills without a significant reduction of expenses for other essential goods and services. Slide 3

Affordability of SWM Service Fees Municipal waste charges should be determined by considering affordability of the households. Municipal waste charges comprise the main revenue item of the SWM services provided by the municipalities. To be able to ensure the financial sustainability of the SWM services: Municipal waste charges collected is crucially important (not the municipal waste charges billed ) Municipal waste charges collected must cover the full cost by capturing household s ability-to-pay as much as possible without channeling consumers to unsafe alternatives detrimental to public health. Slide 4

Affordability of SWM Service Fees Affordability is defined as follows: Household SWM Bill Per Month / Average Household Income (or Expenditure) Per Month (%) Household income is often an unreliable indicator for measuring households living standards and ability-to- pay, especially if small business income, agricultural activities and informal activities play a major role in generating disposable income. Thus, it is often more accurate to estimate household s ability-to-pay based on their expenditures. The most socially vulnerable groups (e.g. pensioners, victims of war, refugees) require the highest attention. Slide 5

Affordability of SWM Service Fees To be able to assess whether a service is affordable or not, an affordability criterion (or threshold limit ) needs to be determined. Affordability criterion determines the maximum income or expenditure share that households, more specifically poor households, are able to spend on SWM services without jeopardizing their consumption of other essential goods and services. Internationally-accepted affordability criterion in SWM service charges (share of SWM cost in disposable household income) (World Bank) is between 0.7% - 2.5%. Slide 6

Affordability of SWM Service Fees Average monthly nominal earnings of employees by Regions (GEL/month) (GeoStat) (2019) Regions 2015 2016 2017 2018 2019 (Est. - Inflation 6.9%) Imereti (Kutaisi) 590.2 617.6 667.1 690.8 738.5 Racha- Lechkhumi and Kvemo Svaneti 435.1 453.9 483.8 495.0 529.2 Tbilisi 1,077.5 1,135.1 1,209.4 1,286.4 1,375.1 Georgia (Average) 900.4 940.0 999.1 1,068.3 1,142.0 Slide 7

Affordability of SWM Service Fees Average monthly income in Regions and SWM Charges (2019 - Estimate) (Inflation: 6.9%) REGIONS Average Household Income (Gel/HH/ mn) Average Household Size (Capita/HH) SWM Charge (0.5% of HH Income) (Gel/HH/month) SWM Charge (0.5% of HH Income) (Gel/Capita/ month) Imereti (Kutaisi) 738.5 3.36 3.69 1.10 Racha- Lechkhumi and Kvemo Svaneti 529.2 3.50 2.65 0.76 Slide 8

Affordability of SWM Service Fees Average monthly income in Regions and SWM Charges (2019 - Estimate) (Inflation: 6.9%) REGIONS Average Household Income (Gel/HH/ mn) Average Household Size (Capita/HH) SWM Charge (1.0% of HH Income) (Gel/HH/month) SWM Charge (1.0% of HH Income) (Gel/Capita/ month) Imereti (Kutaisi) 738.5 3.36 7.38 2.20 Racha- Lechkhumi and Kvemo Svaneti 529.2 3.50 5.29 1.51 Slide 9

Affordability of SWM Service Fees Average monthly income in Regions and SWM Charges (2019 - Estimate) (Inflation: 6.9%) REGIONS Average Household Income (Gel/HH/ mn) Average Household Size (Capita/HH) SWM Charge (1.5% of HH Income) (Gel/HH/ month) SWM Charge (1.5% of HH Income) (Gel/Capita/ month) Imereti (Kutaisi) 738.5 3.36 11.08 3.30 Racha- Lechkhumi and Kvemo Svaneti 529.2 3.50 7.94 2.27 Slide 10

Affordability of SWM Service Fees Average monthly income in Regions and SWM Charges (2019 - Estimate) (Inflation: 6.9%) REGIONS Average Household Income (Gel/HH/ mn) Average Household Size (Capita/HH) SWM Charge (2.0% of HH Income) (Gel/HH/ month) SWM Charge (2.0% of HH Income) (Gel/Capita/ month) Imereti (Kutaisi) 738.5 3.36 14.77 4.40 Racha-Lechkhumi and Kvemo Svaneti 529.2 3.50 10.58 3.02 Slide 11

Affordability of SWM Service Fees Current SWM Charges for Households (2019) KUTAISI UNIT HOUSEHOLD SWM CHARGE Kutaisi Gel/capita/month 0.50 Zestaphoni Gel/capita/month 0.70 Chiatura, Kharagauli, Tkibuli, Sachkhere, Vani, Amrolauri Gel/capita/month 0.50 Tsageri, Lentekhi, Tkibuli (IDP) Gel/capita/month 0.25 Samtredia Gel/capita/month No Charge Slide 12

Affordability of SWM Service Fees Current Share of SWM Charge in Household Income Kutaisi (2019 - Estimate) KUTAISI UNIT AMOUNT SWM Charge Per Capita GEL/capita/month 0.50 SWM Bill Per Household (3.36 Persons/Household) GEL/Household/month 1.68 Current Share of SWM Bill in Household Income (738.5 GEL/HH/month) % 0.23 Slide 13

Affordability of SWM Service Fees Current Share of SWM Charge in Household Income Other Municipalities (2019 - Estimate) OTHER MUNICIPALITIES UNIT AMOUNT SWM Charge Per Capita GEL/capita/month 0.50 SWM Bill Per Household (3.50 Persons/Household) GEL/Household/month 1.75 Current Share of SWM Bill in Household Income (529.2 GEL/HH/month) % 0.33 Slide 14

Affordability of SWM Service Fees Summary of SWM Charges At Different Affordability Levels (2019 - Estimate) REGIONS Current (GEL/ca/ month) Afford. Level: 0.5% (GEL/ca/ month) Afford. Level: 1.0% (GEL/ca/ month) Afford. Level: 1.5% (GEL/ca/ month) Afford. Level: 2.0% (GEL/ca/ month) Kutaisi 0.50 1.10 2.20 3.30 4.40 Other Municipalities 0.50 0.76 1.51 2.27 3.02 Slide 15

Affordability of SWM Service Fees Current Affordability Levels (Share of SWM Bill in Household Income) Kutaisi = 0.23% Other Municipalities = 0.33% Current affordability levels are considerably lower than the internationally-accepted affordability criterion in SWM service charges (The World Bank) of between 0.7% and 2.5% Slide 16

Affordability of SWM Service Fees Estimated Solid Waste Generation By Households (Imereti / Racha-Lechkhumi and Kvemo Svaneti Regions) REGIONS Avg. HH Size Kg/ca/ day Kg/HH/ day Kg/HH/ month Ton/HH/ year Kutaisi 3.36 0.85 2.86 86.87 1.042 Other Municipalities 3.50 0.60 2.10 63.88 0.767 Slide 17

Affordability of SWM Service Fees Household SWM charges at Affordability Levels (GEL/Ton) (2019) REGIONS Current (GEL/Ton) Afford. Level: 0.5% (GEL/Ton) Afford. Level: 1.0% (GEL/Ton) Afford. Level: 1.5% (GEL/Ton) Afford. Level: 2.0% (GEL/Ton) Kutaisi 19.34 42.50 85.01 127.51 170.01 Other Municipalities 27.40 41.42 82.84 124.57 165.69 Slide 18

Affordability of SWM Service Fees Indicative Solid Waste Management Costs in Georgia Solid Waste Collection / Transportation and Street Sweeping Costs in Telavi and Zugdidi Urban Municipalities: 150 GEL/Ton (46 EUR/Ton) Solid Waste Collection / Transportation and Street Sweeping Costs in Kutaisi Municipality (Feasibility Study): 100 GEL/Ton (30.8 EUR/Ton) Kutaisi Transport / MRF / Disposal (Feasibility Study) : 125 GEL/Ton (38.5 EUR/Ton) Slide 19

Affordability of SWM Service Fees Thus, the highest SWM cost (collection + sweeping + recycling + disposal) is estimated in the range of 200 GEL/Ton (60 EUR/Ton) and corresponds to around 2.3% of the disposable household income in Kutaisi (Imereti) Region which is within the internationally-accepted affordability range of 0.7% - 2.5%. Slide 20

Affordability of SWM Service Fees Total SWM tariff (collection + sweeping + recycling + disposal) that must be charged by the municipalities in the Project Region per capita per month to be able the cover the indicative total SWM cost of 200 GEL/Ton (60 EUR/Ton) are the following: Kutaisi: 5.1 GEL/capita/month Other Municipalities: 3.6 GEL/capita/month Slide 21

Current legal requirements in tariff setting Legal requirements for SWM tariff setting by the municipalities: Producer or holder of waste shall cover the costs of waste management ( Polluter Pays principle) (Waste Management Code of Georgia, 2015) SWM service charges should not exceed the cost of SWM services provided (Law of Georgia on Local Fees, 1998). SWM charges should not exceed 3 GEL/capita/month (0.92 EUR/capita/month) and 25 GEL/m3 (7.64 EUR/m3) for legal entities, organizations and institutions (Law of Georgia on Local Fees, 1998). Slide 22

Current legal requirements in tariff setting Legal requirements for SWM tariff setting by the municipalities: Maximum number of household members should not exceed 4 persons regardless of the actual household size (Law of Georgia on Local Fees, 1998). Slide 23

Current legal requirements in tariff setting Analysis of SWM Charge Setting Limitation by the Municipalities Max. SWM Charge (GEL) (set in 1998 by Law) SWM Charge (US$) (set in 1998 by Law; 1 US$ = 1.3843 GEL) SWM Charge(GEL) (to be adjusted in 2019; 1 US$ = 2.95 GEL) Residential (per capita per month) 3 2.17 6.40 Institutional (per m3) 25 18.06 53.28 Slide 24

Current legal requirements in tariff setting Threshold limit on SWM charge is needed to be adjusted due to macro-economic developments between 1998 and 2019: The value of GEL has been devalued by 113.10% between 1998 (1 US$=1.3843 GEL) and 2019 (1 US$=2.95 GEL) and to maintain the real value SWM charges must be increased by 113.10% just to take the impact of devaluation of GEL against US$ into account (Adjusted Charges in 2019: Residential = 6.40 GEL/capita/month; Institutional = 53.28 GEL/m3). Cumulative consumer price inflation between 1998 and 2019 in Georgia is 207.72%. Inflationary Adjusted SWM charge threshold limit in 2019 must be: Residential = 9.23 GEL/capita/month; Institutional = 76.93 GEL/m3. Slide 25

Necessary legal amendments Legal requirements for SWM charge setting imposed on the municipalities need to be amended as follows: Limitation on household size (currently max. 4 persons per household) must be lifted and actual household size must be used for SWM charging to be able to apply the Polluter Pays principle. Limitations on SWM charge levels (currently 3 GEL/capita/month and 25 GEL/m3) must be lifted to be able to apply the Polluter Pays principle. Slide 26