Some facts on the London sewerage system

Alongside antibiotics, water closets and sewerage systems must sit as being the two biggest contributors to lowering deaths due to epidemics. This post briefly covers the 19th century sewer systems constructed in London and New York.

Fascinating lecture by Stephen Halliday on how the London's sewerage system was built within a decade from 1859 to 1868 (its major parts) under the leadership of Chief Engineer to the Metropolitan Board of Works (which was London's first metropolitan government), Sir Joseph Bazalgette. It cost £4.2 million to build and was triggered by the Great Stink of 1858, arising from the accumulated sewer on Thames, which drove members of Parliament out of the chambers of House of Commons. 

For a times ravaged by frequent eruptions of Cholera epidemics, which used to kill thousands, the sewer system was transformational. The Times wrote on March 16, 1891, on Bazalgette's obituary,

Of the great sewer that runs beneath Londoners know, as a rule, nothing, though the Registrar-General could tell them that its existence has already added twenty years to their chance of life.

London had no cholera since 1866, even as the disease continued to claim lives in other cities without such sewer.  

Carliss Lentz has this review of three books about the New York sewer system by Joanne Abel Goldman (and also Halliday's book on London) and the Channel Tunnel. 

Bazalgette was given taxing authority by the Parliament and given powers to borrow £3 million to complete his sewer system. He also adopted very strict quality audits of the new Portland cement and concrete used for the works. The New York system, again driven by the fear of epidemics, was modelled on London.

The Channel Tunnel consists of three 50 km long tunnels, one for each direction and a small service tunnel, and started in 1987 and carried its first trains by 1994. It was built by a consortium of five each of French and British firms. It was completely private financed. 

Some thoughts on a faecal sludge management program

As governments realise the impossibility of being able to construct underground sewerage systems for smaller towns, the importance of faecal sludge management (FSM) has assumed salience. It's a welcome development, though its operationalisation poses several challenges. 

Given the dominant narrative on the role of private sector and Public Private Partnerships (PPPs), it is likely that governments and aid agencies will end up designing PPP-based FSM models. This is likely to be a bad idea. 

Let's consider the risks. There are three major challenges that need to be addressed.

1. The sludge treatment facility. The PPP mindset will be to call tenders and bid out the construction and maintenance of treatment facility to private providers. 

This is unlikely to work. The sludge treatment facility faces at least two uncertainties. The first is about reliable supply, and the second is about the fee it can charge. Both are dependent on factors beyond the control of any private operator, which also run into political economy and state capacity constraints. 

In the circumstances, it will be necessary for the government to assume the upfront risk and costs and construct and operate the treatment facility for some period till it is able to stabilise supply and demonstrate a model for commercial viability. As a starting point thumb rule, the treatment fee can be priced to ensure full cost recovery on all operating expenses. The government will have to subsidise the capital expenditure. 

2. The sludge removal provider. The PPP mindset will be to let this service be provided by the market as a pure commercial service. But this too is unlikely to materialise. The provider faces the uncertainty of being able to get assured demand from households, and also commercially viable enough removal fee from the household and disposal price at the treatment facility. 

Therefore, the provider will have to be de-risked with some combination of concessional loan (to buy the sludge removal vehicles), viable enough treatment fee, and assurance on household supply (active enforcement by public health staff). 

It may be tempting to try out structures like advance market commitment to incentivise the suppliers. But I don't think it is likely to work without addressing the problems at the household level, especially in the early stages of the market development. 

3. The households. Currently they dispose off their sludge informally into rivers or swamps at a very low cost. A full cost-recovery pricing by the sludge removal providers is most certain to limit the market development. 

A simple public subsidy on removal, perhaps restricted to categories of households based on property tax or water charges, and transferred directly to the service provider may be an appropriate strategy. 

In this arrangement, the government will have to bear the upfront cost of building treatment facilities, concessional loans to providers, a recurring subsidy to some categories of households. The first two will certainly have to come from state or central governments and the third can perhaps be shared with the local government. 

Overtime, as successful models are demonstrated and markets mature, all these subsidies can and will need to be be pruned down. The commercial market supply of treatment facility and sludge removal as services are likely to materialise in due course. But removing the subsidy on households will be politically fraught. 

In addition, governments will have to play an active role in overcoming the co-ordination failures involving assured supply for the treatment facility and the sludge removal provider and compliance by households with this formalised sludge removal system. There is role for an aggregator, offered either as a private service or preferably as a standardised public platform, to help bridge these co-ordination failures. 

A typical town may have 3-5 sludge providers with 2-3 machines each. An aggregator platform can integrate the work-flows involving provider matching, vehicle dispatch, household sludge removal scheduling and payment, treatment facility fee payment etc. 

Any attempt to gloss over these challenges and search for free lunches by shifting risks and costs to private businesses or households is certain to backfire and deter the development of markets in FSM. 

But realistically, the evolution of this market will be a messy and iterative process, with its share of failed models, failed businesses, and wasteful subsidies which become difficult to phase out. The best that can be done is to keep the aforementioned points in mind and design prudent (as against ideologically influenced) models.

The public policy objective should be to demonstrate private participation based models in some small cities and towns and thereby de-risk and mainstream them. 

Weekend reading links

1. Bloomberg has this on the ratio of out-bound to in-bound foreign capital in developing countries,

On China and Thailand, this is important,

When political institutions fail to act as pressure valves, capital wants to escape before it gets trapped.

2. Bloomberg has a very good article on how Narayana Hrudalaya is trying to drive down surgery costs, and Modicare may be a contributing factor. Sample this on cost-cutting without compromising anything on safety,

Shetty’s philosophy of thrift is everywhere. The surgical gowns are procured from a local company for about a third of the cost of international suppliers. The tubes that carry blood to heart-and-lung machines are sterilized and reused after each surgery; in the West, they’re thrown away. The machines themselves, along with devices such as CT and MRI scanners, are used well past their warranties, kept running by a team of in-house mechanics. The operating rooms, pieces of real estate so expensive that many hospitals bill for their use by the minute, are also part of the assembly line. Whereas preparing a U.S. surgical theater for the next patient can take 30 minutes or more, Narayana has gotten the process down to less than 15, in part by keeping turnaround teams with fresh instruments, drapes, and other supplies on immediate standby, ready to roll the moment a room is available. Even patients’ families are part of the upskilling model. Narayana trains them to bathe patients and change bandages in the hospital, as they’ll do when they get home. This allows paid staff to focus on more challenging work. Through all these methods and more, Narayana has been able to get the retail cost of a heart bypass, its most common operation, down to $2,000, about 98 percent less than the U.S. average.

3. A third Bloomberg article points to the declining current account surplus of China, and the prospect of the country competing with other emerging economies for cross-border capital inflows.

Sample this,

Contrary to President Donald Trump’s perception, China is no longer a frugal nation that sells a lot abroad and buys little in return. The country’s middle class is now traveling and swiping plastic overseas. Last year, more than 160 million Chinese visited foreign countries, spending $237 billion on everything from rice cookers in Japan to Gucci loafers in Italy. As a result, China’s current account surplus has collapsed. Edging dangerously close to twin deficits – both fiscal and current account – Beijing is now keen to attract foreign portfolio inflows to balance its external accounts. That’s why, all of a sudden, China is opening its financial-services industry, allowing global investment banks to take majority control of their local brokerage joint ventures.

4. Nice article in Indian Express on how Indore managed to become India's cleanest city for three years in a row. The investments in personnel, bins, equipments, vehicles, infrastructure etc to cover the entire city is impressive in itself. A testament to the government's commitment to the issue, and attendant willingness to commit resources, and the Corporation's ability to execute these initiatives in finite time. But the bigger achievement is with the behaviour change, essential for sustainability. Or is the story over-stating what has been achieved?

5. The Economist points to the breakdown of traditional safeguards involving regulation, litigation, and competition, which may have been responsible for rise in corporate scandals in the US,

Take regulation first. The system is a strange blend: there are pockets of laissez-faire attitudes here, thickets of rules there and lobbying everywhere. It is variously prone to laxity, capture and incompetence... Second, litigation may no longer be quite the deterrent it once was. Criminal cases leading to jail terms for top executives are as rare as socialists at Goldman Sachs. And civil law has lost its bite. America has long used class-action suits to punish firms and compensate consumers. Tort costs born by firms are equivalent to about 2% of gdp a year, higher than in other countries. Nonetheless, life has got easier for firms. Arbitration clauses, in which customers and staff forfeit the right to pursue class actions, have become more common. Firms are more likely to extend cases to appeal, which can take up to a decade... The final constraint is competition. It can drive firms to cut corners but in the long run should act to discipline careless or badly behaved firms, because customers shun them... But across the economy incumbent firms have got more powerful over the past 20 years, making it harder for customers to switch.

6. Revisiting this illustration of inequality,

Mr Piketty, Emmanuel Saez and Gabriel Zucman found that between 1980 and 2014 the bottom 50% of post-tax incomes in America increased by just 21%, compared with 113% for the top 10%. But the top 1% rose even more—by 194%—while the top 0.001% rose by 617%.

7. Bloomberg article on Chinese engagement in Djibouti. This tiny, but strategically important, country looks a Chinese colony in all but name.

8. Finally, this story about Blue Apron, the ingredient-and-recipe meal kit service, is another cautionary note on the modern start-up ambition and valuations, important as the flow of start-up IPOs planned for 2019 have begun with Lyft. The company's shares are trading 90% below its June 2017 IPO price. In fact the share price halved within just two months of the IPO. Sample this,

The company’s founders and their Wall Street bankers convinced stock investors, a group well represented in coastal cities, that the business was worth $3.2 billion in part based on the idea that they were going to expand operations all across the country. The goal, according to the IPO prospectus, was to eventually be able to sell meals to 99 percent of Americans. “Blue Apron’s mission is to make incredible home cooking accessible to everyone,” it said in the prospectus. But with a two-person meal that requires about 30 minutes of preparation in the kitchen costing about $23 with shipping, it’s not clear how realistic that ever was. As it turns out, the company is even struggling to maintain its current roster of clients on the two coasts... Blue Apron hasn’t posted a single profitable quarter. Neither has Lyft or Uber, which could be valued at as much as $120 billion.

Last mile gaps - financial inclusion and toilet usage

Last mile gaps are pervasive with many social policy issues. Two flagship programs of the government are most certain to be only the latest to realize that supply-side strategies are unlikely to address this challenge to any degree of satisfaction.

1. Jan Dhan Yojana aims to increase financial inclusion, thereby enabling access for the vast majority of unbanked Indians to formal financial institutions.

2. Total Sanitation Campaign aims to address India's shameful open-defecation problem by provision of heavily subsidized toilets to those without toilet facilities.

In both cases, formidable last mile gaps come in the way of access to bank accounts translating into actual usage and new toilet owners using their toilets. Such gaps can be overcome only through massive social mobilization involving painstaking and long-drawn campaigns that resist the temptation for targets-driven quick wins and band-aid solutions. Does the Indian state have the capability to successfully manage such efforts?

Lessons from India's "missing toilets" scam

The controversy surrounding the "missing toilets", claimed to have been constructed as part of the Government of India's Total Sanitation Campaign (TSC), should not have come as a surprise. It has all the features of bad policy design and equally bad implementation strategy. However, amidst the all the noise surrounding the corruption scandal, its substantive learnings have been glossed over.

The details first. The TSC was initiated in 1999 with the objective of providing low cost toilets for poor people. Successive governments have revised the targets, with the latest being the objective of completing 125 million toilets across the country by 2017 and thereby make India open defecation free. The Rural Development Ministry claims to have built 87.1 million toilets so far, whereas the census figures indicate that there are only 51.6 million toilets among the target households. Since many of the houses included in the census figures would certainly have had toilets before, the real magnitude of the "missing toilets" may be much higher than the 35.5 million estimated. So far Rs 196 bn has been spent on the program across 607 districts. Predictably, the violations appear to be most egregious in Uttar Pradesh, where the TSC reports indicate only 17.8% households without toilet to the census figure of 78%. 

There are multiple deficiencies with the TSC program. 

1. The most glaring failure with the program is the financing pattern. The initial estimated unit cost of Rs 2500 was low, even for rural areas. Though, the unit cost has been raised in stages from Rs 2200 to Rs 4500, it is extremely low and cannot finance any reasonably functional toilet. Even assuming this is a simple civil construction program, in the absence of the adequate unit cost funding, the best implementation strategy will fail to yield results. 

The low unit cost is a feature of programs and budgetary allocation across sectors. When forced to make the trade off between trying to cover as many beneficiaries as possible with scarce resources and providing adequate unit cost, governments invariably skimp on the latter. In this case, the actual cost of construction is rationalized downwards by promoting low cost materials and encouraging households to contribute labour costs. However, such arm-chair rationalizations, end up creating poor quality toilets, which fall into disrepair very quickly. 

2. The implementation strategy involves mobilizing beneficiaries to take up construction themselves. This is driven both by the ill-considered righteous opposition among opinion shapers and policy makers to the involvement of contractors and the need to dovetail beneficiary contribution into the construction. In most states local officials are given village level construction targets. Each of them have large numbers of widely spread out villages/habitations and given their other responsibilities, it becomes virtually impossible to supervise construction in any meaningful manner. Almost always, supervision is confined to taking figures from the village officials, and disbursing money. At best, the more motivated officials squeeze out some time to make a couple of inspections, mostly to the readily accessible and nearby areas. 

3. The inadequate funding acts as a disincentive to the beneficiaries. Given the actual cost of construction of a quality toilet being 3-5 times the allocation, and the resultant need to mobilize the major share of funding themselves, they find it not worthwhile to take up the construction. In fact, the unit cost may be enough to incentivize only those who had mobilized enough money and were anyways going to construct or repair their toilet or those people in very remote areas, where the construction costs may be lower and the marginal utility of the subsidy large enough. 

4. As indicated, given the widely scattered nature of the implementation, effective supervision is very difficult, especially for badly over-burdened and ineffective bureaucracies. It aligns incentives of all parties - officials, local political representatives, and beneficiaries - to fabricate document and share the spoils. This fraud is commonplace with rural households who already have toilets. 

5. In urban slums, there is the problem of finding space for constructing a toilet. Most houses have no space for toilets, and even when they do have, they find other uses with much higher immediate utility. In any case, the unit cost is too inadequate to provide any incentive. Community toilets should be the preferred strategy in such areas. Here too, the financing problems come to the fore. 

In most cities, the resource strapped local governments prefer to silence local criticism by providing token funds to construct a few community toilets each year. Here too, again in the desire to spread the butter thin and cover more locations, the unit cost is kept low and the quality of construction suffers. Further, there is also the problem of finding enough land space in congested slums to locate the toilet. Amidst all this, the arm-chair opinion makers worry about marginal issues like the failure to encourage private participation to run toilets.    

6. Finally, even if all the aforementioned problems are overcome and the toilet constructed, its usage poses another set of challenges. Most fundamentally, where is the water to run the closets? In villages, where even drinking water is scarce, free flowing water is mostly an exception. Maintenance costs too come in the way of households keeping such toilets functional. More than any of the first five problems, this has no readily available answers.   

The failures in the TSC has a counterpart in the program to construct toilets in schools. The Supreme Court and several High Courts have repeatedly issued deadlines to ensure that there are no schools without toilets. Several districts have even declared to have achieved this objective. However, despite this having featured as an important item in the agenda of the Sarva Siksha Abhiyan (SSA), the flagship national program to improve primary school infrastructure, the progress has been largely cosmetic. 

Three things stand out, all of which revolve around finances. One, despite recent increases, the Rs 35000 currently being sanctioned, is inadequate in many parts of the country. Second, though most schools have toilets, they are invariably inadequate and badly maintained. Even when toilets are sanctioned, they are spread out to cover as many schools as possible, while adequacy considerations take a backseat. Finally, the most frustrating deficiency is the failure to provide for adequate operation and maintenance. The total maintenance allocation for schools under the SSA, including cleanliness, consumables, and small repairs is a pitifully small amount of Rs 5000 each year. 

Raising finances at such fiscally strained times is not easy. However, we need to be aware of these issues before we pass judgements on programs and pour more money down the drain by scaling them up with even more ambitious targets.