Life-Cycle Cost Analysis of Infrastructure Projects - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 107

This in the end ensures reduction in system breakdowns, minimizes costs, improves
system ef financial sustainability and service sustainability. That is getting

value for the money invested. It is observed,

ciency,

given the restricted budget available
for renewal and replacement of assets, there is a need for much greater scrutiny of
existing assets in relation to community worth. LCCA can be applied in this
decision making process to judge, given the value of an asset to the community, if
renewal or replacement is appropriate and when is the optimal time for such an
event

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(AAMCoG 2008 , p. 13). This also minimizes the risk transfers in the case of
public-private partnership contracts. 3
As mentioned earlier, allocations are highly skewed in favour of capital
expenditure, (i.e., asset or infrastructure creation with least concern for service
flows from these investments). While the infrastructure focus is helpful in
enhancing access and productivity in the short run, they have become dead
investments with poor and inequitable service delivery in the long run (Reddy
2009 ; Kurian and Ardakanian 2013 ). The role of cost components like capital
maintenance and resource protection is critical for asset management and sustain-
able service delivery. These cost components are often given least priority, espe-
cially in the public sector provision of goods and services (Reddy et al. 2012 ). The
impact of the imbalance between capital and other recurrent expenditure becomes
increasingly critical when coverage rates start climbing. The result is that water
supply systems continue to fall out of service as fast as new ones are constructed.
Although the approach has gained dominance as a service delivery model in pro-
gressively enhancing coverage, recent evidence suggests that

”

there are critical

second-generation sustainability concerns.
It is observed in the case of water, sanitation and hygiene services (WASH)
services in four countries (Burkina Faso, Ghana, India and Mozambique) that
allocations towards capital (asset) management are totally absent and this is one of
the main reasons for the failure of WASH systems (Franceys and Pezon 2010 ).
Even in the absence of allocations, public WASH utilities in India end up spending
5 6 % of the total cost on asset management. As there are no planned allocations

these funds are often drawn from the regular O&M allocations. This in the end
affects the up keep of the systems and service levels adversely (Reddy et al. 2012 ).
In the absence of regular capital maintenance or delays in capital maintenance, there
will be long periods of service breakdowns or very poor services (Fig. 1 ). And these
break downs would often result in high rehabilitation and replacement costs
pushing the unit costs higher. Thus, adoption of LCCA may in fact reduce long run
unit costs (allocations) though the initial costs tend to be higher (Reddy et al. 2012 )
(Fig. 2 ).

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3 In the case of private-public partnership projects, if the private parties do not include the capital
maintenance costs, their total costs would be lower. But when these poorly maintained projects are
handed over to the public or the community, the risk of failure becomes high as the adverse
impacts of poor or no capital maintenance are realized after a time lag. In this way, the risk of
service failure is transferred to the public sector or to the communities, while the private party
saves on capital maintenance.